LITHUANIA: The only oil refinery in the Baltic States, Mazeikiu Nafta, says it can continue to operate despite pipeline leak, but reduced capacity.

Record ID: 572852

  • Title: LITHUANIA: The only oil refinery in the Baltic States, Mazeikiu Nafta, says it can continue to operate despite pipeline leak, but reduced capacity.
  • Date: 7th August 2006
  • Summary: (CEEF) VILNIUS, LITHUANIA (AUGUST 4, 2006 ) (REUTERS) EXTERIOR OF LITHUANIAN FREE MARKET INSTITUTE LITHUANIAN FREE MARKET INSTITUTE SIGN ECONOMIC ANALYST AND PRESIDENT OF LITHUANIAN FREE MARKET INSTITUTE, DOCTOR REMIGIJUS SIMASIUS, WALKING THROUGH CORRIDOR (SOUNDBITE) (English) ECONOMIC ANALYST AND PRESIDENT OF LITHUANIAN FREE MARKET INSTITUTE DOCTOR REMIGIJUS SIMASIUS, SAYING: "Current problems concerning supply of crude oil through pipeline to Mazeikiu Nafta are not new, because similar problems happen when Mazeikiu Nafta was sold to American company "Williams". Of course it opens discussion concerning whether it's not some kind of economic revenge from Russian side for not selling Mazeikiu Nafta to Russian companies. But looking from Russian side, of course it is not long time strategy, because both, economically and politically, Russian companies are interested in refining oil in Mazeikiu Nafta."
  • Embargoed: 22nd August 2006 13:00
  • Keywords:
  • Location: Lithuania
  • Country: Lithuania
  • Topics: Energy
  • Reuters ID: LVAD26454P1LU2QG00WZ15TQK4UE
  • Story Text: Russia is keeping Belarus well supplied with crude oil even though it shares a pipeline with Lithuania, which Moscow has cut off blaming a leak, officials in Belarus said on Thursday (August 4).
    Their comments may add to speculation that Russian pipeline monopoly Transneft used the minor leak at the weekend as a pretext to cut flows to Lithuania in punishment for choosing a Polish buyer for its Mazeikiu refinery over Russian bidders.
    Oil officials in Belarus said the Naftan refinery was receiving full volumes of Russian oil through a spur of the Druzhba pipeline that continues to Lithuania.
    Lithuanian oil officials said Moscow had given no clear indication when their supplies would resume. The Baltic state is looking at increasing imports by sea to compensate.
    Naftan and Lithuania's Mazeikiu refinery and Butinge oil terminal sit on the same pipeline that leaked at the weekend on Russian territory, long before reaching Belarus or Lithuania.
    Paul Nelson English, CEO at Mazeikiu Nafta, which controls the Mazeikiu refinery and the export terminal at Butinge, said on oil was still not flowing and he did not know when supplies might resume, but he's not overly concerned.
    "We've demonstrated to the Minister and to the government that Mazeikiu Nafta has a strategy and plan, which is currently in place, being implemented, and we will continue to operate the refinery. Maybe at slightly reduced rates for some periods of time, but the refinery will operate continuously and at good rates and that there won't be a question, or shouldn't be a question or concern about fuel supplies in Lithuania for sure, and in the Baltics in general," he told the media, after talks with Lithuanian authorities on Wednesday (August 3).
    "We do not know when the pipeline will resume operation. That hasn't been shared with us at this stage. And we're preparing as though it may not return to operation for an extended period. And we will just continue to do business while we wait," he added.
    "And our strategy is built around importing crude to the (Butinge) terminal. And we can import all the crude that we need to run the refinery through the terminal. It has sufficient capacity, especially as we've expanded the capacity, to supply the crude that we need to run the refinery at full rates," English said.
    The Lithuanian prime minister, Gediminas Kirkilas, said contingency plans are in place.
    "Mazeikiu Nafta still has enough oil, and will have in the future, as well. We also have several drafts as to what else can be done after the current meeting and talks with the Mazeikiu Nafta authorities. I am feeling very optimistic about this complicated situation," he said on Wednesday.
    Mazeikiu was bought in May by Poland's PKN Orlen.
    Market players have said the Kremlin may want to punish Lithuania by cutting supplies as it had hoped the plant would be bought by state firms Rosneft or Gazprom.
    The Kremlin used similar tactics several years ago when it completely stopped crude supplies to the Latvian port of Ventspils after saying Riga mistreated its Russian-speaking minority. Supplies to Ventspils have never resumed.
    "Of course it opens discussion concerning whether it's not some kind of economic revenge from Russian side for not selling Mazeikiu Nafta to Russian companies," said economic analyst Remigijus Simasius.
    "But looking from Russian side, of course it is not long time strategy, because both, economically and politically, Russian companies are interested in refining oil in Mazeikiu Nafta," he added.
    One of the two mid-sized spurs of Russia's giant Druzhba oil pipeline to Europe leaked at the weekend, causing a jump in oil prices amid confusion whether the damage affected only the spur or the entire network. Transneft said exports were not affected.
    Russia's Natural Resources Ministry said it had ordered Transneft to lower pressure in the pipeline. It said it may take up to a year to repair it or build a new one. Vitaly Zharynsky, spokesman for OAO Druzhba, said on Thursday it would take up to 10 days for a government commission to investigate the incident and decide whether to increase pressure or keep it low.
    Oil traders said Transneft had told them to divert volumes from Lithuania to the Black Sea in August. On Thursday, they said state oil firm Rosneft and oil major LUKOIL had received preliminary allocations of three and one 80,000 tonnes cargoes respectively from Ukraine's Black Sea port of Yuzhny in August to compensate for the lost Lithuanian volumes.
    Mazeikiu and Butinge were supposed to receive around 1.0 million tonnes, or 250,000 bpd in August, while Naftan is due to get around 750,000 tonnes, mainly from Rosneft, LUKOIL, Surgut and Tatneft.
    In July, the Mazeikiu refinery started importing crude by sea via Butinge, which can work in both directions, buying one 100,000 tonne cargo of Urals crude from TNK-BP.
    Mazeikiu has said it will buy three more cargoes in August, while in September it will put Butinge in maintenance for around 12-15 days.
    The shares of Mazeikiu and PKN Orlen extended their losses for a third consecutive day, declining by 6.4 percent and 4.5 percent respectively by 1300 GMT.
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