Russia’s Transneft reaches first deal on dirty oil compensation

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MOSCOW and ALMATY (Bloomberg) –Russia’s crude-pipeline operator has agreed to pay its Kazakh counterpart a fixed per-bbl compensation rate of about $15 for oil that was contaminated by chemicals, according to two people with knowledge of the matter.

The accord between Transneft and KazTransOil is the first of its kind related to Russia’s dirty-oil crisis, which became the worst disruption to the country’s crude exports in decades after organic chlorides were found in supplies to European refineries through the Druzhba pipeline and cargoes shipped from the Baltic port of Ust-Luga.

Transneft didn’t respond immediately to a request for comment on Thursday. The company has previously said it will compensate all parties affected by the contamination, taking a unified approach to payouts, with no plans for exclusive offers.

The Russian pipeline operator offered a mechanism that simplifies calculations and compensation for losses that Kazakh producers suffered when their crude was mixed with contaminated oil on its way to Ust-Luga, KazTransOil said in the statement on Tuesday, without providing any details of the mechanism. In May, Kazakhstan estimated that about 600,000 tons of its crude was tainted, Interfax reported. That’s about 4.4 MMbbl, according to Bloomberg calculations.

The total volume of oil contaminated in the Druzhba incident is 3.03 MM tons, including 1.33 MM tons of piped oil and 1.7 MM tons shipped by tankers from Ust-Luga, Transneft said, citing documents that confirmed delivery of oil. The company expects all parties involved in the Druzhba incident to finalize their estimates for compensation by the end of summer.

Earlier Patrick Pouyanne, CEO for Total, whose Leuna refinery was running at half capacity due to the tainted supplies, said the costs of oil contamination faced by his company would be about $15/bbl.


Kabir Ismail is a blogger, website developer/administrator and a comrade.

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