Russia resumes oil supply to southern Europe

The southern leg of the Druzhba pipeline, which passes through Ukraine and supplies oil to Hungary, Slovakia and the Czech Republic was closed on August 4 due to transit fee issues

A production centre owned by Transneft in Moscow, above. The southern leg of the Druzhba pipeline was closed on August 4 as western sanctions halted a payment from Transneft to its Ukrainian counterpart. Reuters
Beta V.1.0 - Powered by automated translation

Russian pipeline operator Transneft has resumed the supply of oil through the southern Druzhba pipeline, Russian state-owned news agency RIA has reported.

The southern leg of the pipeline passes through Ukraine and supplies oil to Hungary, Slovakia and the Czech Republic. It was closed on August 4 as western sanctions halted a payment from Transneft to its Ukrainian counterpart Ukrtransnafta JSC.

Ukraine confirmed it had received payment for Russian oil transit through its territory to Hungary and Slovakia, Ria reported on Wednesday.

“The Ukrainian side reacted positively to the proposal of Slovnaft [a Slovak refinery] and MOL Nyrt [a Hungarian refiner] to pay transit costs for oil supplies via the southern branch of the Druzhba pipeline," the report said.

"The Slovnaft refinery has already transferred funds to the Ukrainian side and expects that based on this, oil supplies will resume in the coming days."

On Tuesday, Moscow-based Transneft said the payment for the August oil transit was made to Ukraine's pipeline operator Ukrtransnafta on July 22 but the money was returned on July 28.

The receiver station of the Druzhba oil pipeline between Hungary and Russia at the Hungarian Mol Group's Danube Refinery in Szazhalombatta. Reuters

The news supported a drop in oil prices on Wednesday.

Brent, the global benchmark for two thirds of the world's oil, was trading 1.6 per cent lower at $94.75 per barrel at 4.15pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was down 1.6 per cent at $89 a barrel.

Russia supplies nearly 250,000 barrels a day through the southern leg of the Druzhba pipeline, according to Reuters.

Lukoil, Rosneft and Tatneft are the main suppliers of oil through the Druzhba route.

The Druzhba pipeline starts in Russia’s Samara region and divides into southern and northern legs. Transneft said there was no issue on the northern part of the pipeline, which runs through Belarus to Poland and Germany.

In 2019, the pipeline pumped nearly 42.3 million tonnes of oil supplying 3.8 million tonnes to the Czech Republic, 5 million to Slovakia and 4.1 million tonnes to Hungary, according to RIA.

Last year, it reduced this to 35.9 million tonnes and is predicted to reach 45.5 million tonnes in 2022.

Russia, the world's second-biggest exporter of crude, is a major energy supplier to Europe. Its natural gas supply accounts for about 40 per cent of European imports and has been a lifeline for the continent.

European governments are attempting to fill up gas reserves before the winter, amid fears that Russia could cut its supply pipelines.

Last month, Russia, whose economy has been hit by western sanctions, said it will not supply oil to countries that opt to impose a price cap on its crude.

The price cap has been proposed by western countries to make it difficult for Russia to fund its war in Ukraine.

Updated: August 10, 2022, 3:00 PM