Four weeks after the contamination of Russian oil disrupted the flow of 1.3 million b/d of crude to Belarus and via the Druzhba pipeline to Europe, it appears Russia is fully restoring those pipeline deliveries. To compensate for the loss of as much as 1 million b/d of overland crude deliveries, Russia managed only a small net increase in seaborne exports. This disruption to production, exports and revenues may have strengthened Russian resistance to an extension of the OPEC+ deal.
Seaborne Exports Small Compensation for Lost Pipeline Volumes
Almost four weeks ago, news emerged of contaminated oil in the Druzhba pipeline system and in oil delivered to Ust-Luga and Belarus. The contamination affected crude flowing from Samara in three export directions highlighted in red on the map on the following page: via Mozyr in Belarus to the Druzhba pipeline; via Unecha to Ust-Luga in the Baltic (Unecha-Ust-Luga, or the Baltic Pipeline System 2); and Novorossiysk on the Black Sea. Oil from Surgut that bypasses Samara is uncontaminated.
As of mid-to-late May, Belarusian crude demand, typically 375,000 b/d has been restored to roughly 300,000 b/d. The Mozyr refinery resumed normal operations, but Novopolotsk is operating at a reduced rate. Restoring flows via Druzhba, however, proved more complicated. According to Energy Minister Alexander Novak, Russian exports of 740,000 b/d to Germany and Poland via the northern leg of Druzhba are to be renewed by May 21st, 26 days after they were halted. Almost simultaneously, exports via the
southern leg are also being resumed. Exports of 200,000 b/d via the southern leg to Czech Republic, Hungary and Slovakia, were briefly renewed on May 11th only to be halted again one week later. Russia typically exports 1 million b/d via Druzhba, but the volume fell to an average 750,000 b/d in April. It appears the average May volume will be less than 500,000 b/d, but the volume will return to normal in June.
As ESAI Energy predicted (see Contaminated Oil Upends Russian Crude Flows), Russia compensated for the disruption to pipeline flows by maximizing exports from Novorossiysk and Primorsk. However, as we speculated at the time, the net increase was nowhere near big enough to compensate for the disruption to overland flows.
Of the 1.4 million b/d of crude typically exported from the Baltic Sea ports of Primorsk and Ust-Luga, less than half leaves Ust-Luga. According to ESAI Energy ship-tracking analysis, between lower outflows from Ust-Luga and greater outflows from Primorsk, there has been a net decrease in exports this month.
On the other hand, Russia did manage to put more crude on the water in the Black Sea. In recent months, Russia exported 560,000 b/d of crude from Novorossiysk. While some contaminated oil reached Novorossiysk, we believe Russia was able to avoid shipping contaminated oil from that port. According to our ship-tracking analysis, outflows jumped to 800,000 b/d or more to provide an outlet for more Russian crude. These gains were mostly offset by the decreased outflow from Baltic Sea ports. Consequently, the growth in seaborne exports will not come close to offsetting the decrease in Druzhba exports.
Russian Exports & Production Ahead of OPEC+ Meeting
Our analysis of exports confirms our earlier conclusions about the broader impact of the contamination on production and exports. We estimate disruptions and adjustments to export flows have taken 500,000 b/d of Russian exports off the market in May. Assuming only some un-exported oil goes into storage, we believe the disruption to exports caused Russian production to fall from April to May.
One consequence of the disruption is Russia’s compliance with its OPEC+ commitment. Russia pledged to cut production by 230,000 b/d to 10.14 million b/d. In April, Russian production was still above this level. Due to the disruption, Russia almost certainly over-complied in May when production may have been ~200,000 b/d less than the pledged level. Nor is production likely to fully recover in June.
At the June OPEC+ meeting, Russia can make the case that they are in compliance with their pledge. That said, over-compliance in May and June should not be interpreted as Russian willingness to make further cuts. Russian producers are eager to restore production to the pledged level of 10.14 million b/d, and, led by Rosneft, will argue in favor of boosting output after June. This disruption to production, exports and revenues is likely to strengthen Russia’s resistance to an extension of the OPEC+ deal.