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Financial Times: Russia cuts oil supplies to German refineries

By Hugh Williamson in Berlin and Isabel Gorst in Moscow
Published: August 25 2007 03:00 | Last updated: August 25 2007 03:00

Russia has made significant cuts to oil supplies sent to German refineries recently, rekindling concerns in Germany over the reliability of Russian energy supplies.

Lukoil, Russia’s second largest oil producer, yesterday acknowledged that supplies to Germany had been reduced by about one-third in July and August but refused to explain why the reduction had occurred.

Analysts said Lukoil’s decision not to provide previously contracted quantities of oil could be aimed at extracting higher prices from German refineries or be part of Lukoil’s efforts to acquire stakes in German and European refineries.

Germany’s economics ministry said the country’s energy supplies were not in danger, as refineries could turn to other oil suppliers to make up shortfalls.

The Schwedt refinery north-east of Berlin said supplies via the Druzhba, or “Friendship”, pipeline from Russia had been reduced but “talks were under way” with Russian oil companies.

“The situation is not dramatic,” a spokesman said, adding that the refinery – owned by Total, Shell, Ruhr Oel and Agip – had increased supplies from the North Sea in recent weeks.

Germany’s MWV oil industry association said Russian supplies had fallen in June and July but stressed that refinery production had not been hit. Germany receives about a fifth of its oil supply via the Druzhba pipeline.

Russia in January briefly suspended crude oil supplies through the Druzhba pipeline following a pricing dispute with Belarus.

Transneft, the Russian state oil pipeline monopoly, said it was fulfilling its contracts to refineries served by the Druzhba pipeline. Sergei Grigoriyev, the vice-president of Transneft, said: “Transneft has not reduced any deliveries. We are working to a normal regime.”

Lukoil said the company would next week explain the cutbacks but noted there was still time to make up the shortfall for the month.

Oil traders said a dispute between Lukoil and Sunimex, Germany’s biggest oil importer, might account for the supply cut, but the aggressive Russian strategy to acquire European refining assets could also play a role.

Russian supplies to Mazeikiu refinery in Lithuania have been reduced several times since PKN Orlen, the Polish oil company, beat off Russian competition to buy the plant from the bankrupt Yukos oil corporation last year. Lukoil bought Soviet-era refineries in Bulgaria, Romania and Ukraine in the 1990s. It is hunting for more European plants as part of its strategy to process oil closer to end markets. It expressed interest this year in a refinery in Wilhelms-haven, northern Germany.

Ivan Mazalov, a portfolio manager at Prosperity Capital Management, said, “It is difficult to tell the cause of this supply reduction. One explanation could be that Russian export taxes are higher on crude oil than products so it is more profitable for companies to sell oil products abroad.”

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