Russia reroutes Belarus oil, escalating dispute

By Jessica Bachman and Gleb Gorodyankin

MOSCOW/MINSK, Jan 21 (Reuters) - A pricing dispute that has halted Russian crude flows to Belarus escalated on Friday when Russian oil pipeline monopoly Transneft (TRNF_p.MM: Quote) said it had redirected oil earmarked for Belarus to alternative buyers.

Belarus stopped receiving Russian Urals crude deliveries for its refineries on Jan. 1 amid disagreements over oil tariffs and pricing, leaving stocks to build up in Russian facilities.

But in a sign that Moscow does not see a quick resolution to the dispute, Transneft said it had re-routed oil earmarked for landlocked Belarus to sea ports for delivery to alternative customers.

"We have redirected our flows to Gdansk, Primorsk and Novorossiisk in January," Transneft spokesman Igor Dyomin told Reuters, saying the flows were around 1.5 million tonnes per month."

Crude held in domestic storage as a result of the oil standoff is now being released, he said. "Since they (Belarus and Russia) haven't agreed, we are going to send that oil on," said Dyomin.

Russian refineries also are processing more crude oil as a result of the spat, he said.

The pricing dispute follows Russia's decision to drop its export duty for Belarus-bound oil after Belarus, Russia and Kazakhstan agreed to create a free-trade zone.

Russian firms say they want Belarus to pay $45 per tonne more for oil, particularly since Belarus has said it will charge them 12.5 percent more in transit fees for shipping oil through the country to Europe from Feb. 1. Crude oil prices on world markets have hit two-year highs, raising the stakes in the dispute.


The spat is complicated by a disagreement over the price Russia charges Belarus for gas. Minsk wants the Kremlin to lower 2011 prices, but Russian Prime Minister Vladimir Putin said on Thursday that Russia would stick to the current contract, which foresees a price rise.

The dispute has not affected Belarus's role as a key transit route for Russian oil deliveries to Europe.

Russian oil has continued flowing at a rate of some 40 million tonnes (about 800,000 barrels per day) through the Soviet Union-built Druzhba (Friendship) pipeline that passes through Belarus.

A meeting between Putin and his Belarusian counterpart on Thursday failed to secure a breakthrough. [ID:nLDE70J0AJ]

A spokesman for Russia's largest oil producer, Rosneft (ROSN.MM: Quote), said talks would continue: "There will be further discussions on the expert level after the yesterday's meeting," he said.

The dispute comes after several months of diplomatic tensions between the ex-Soviet neighbours. An increasingly isolated Belarus has also seen a severe deterioration in relations with western industrialised nations.

Belarus' re-elected president, Alexander Lukashenko, was sworn in on Friday, in a ceremony boycotted by western envoys after opposition and international monitors said last month's election was rigged. [ID:nLDE70J1Q9]

Belarusian refineries, which usually operate at a daily capacity of 360,000 barrels, have slashed their output, according to market sources, though officials are denying this.


Belarus' two refineries, Mozyr and Polotsk, are a key source of export revenues for the ex-Communist republic's fragile economy. Earlier this week traders told Reuters that Belarus has suspended diesel export to Europe due to the row. [ID:nLDE70G27E]

Belarus exports about 2.4 million tonnes of diesel per year, mainly to northern Europe. The volumes amount to less than 1 percent of Europe's overall diesel consumption, but for Germany alone it represents about 8 percent.

A market source also said the refineries had cut their daily output on the back of oil supply shortages.

"There is information that Mozyr is even close to start recycling oil," the source said. Due technological peculiarity, refineries will be slow to restart once it stopped, that's why it's preferable to keep it on reprocessing the products it already had produced.

"We haven't cut output. We are working as we did before," Sergei Altukhov, director deputy at Polotsk refinery told Reuters.

A Belarusian source said supplies to refineries could resume next week, but flows along the Druzhba pipeline could be cut nevertheless as Poland plans to halve imports because of a maintenance outage at its top refinery. [ID:nLDE70J1Z0]

According to market sources, Belarus had to import in January some 160,000 tonnes (38,000 barrels per day) of Venezuela's Santa Barbara grade, which is not enough though to maintain its refineries' full output capacity.

The country's own oil output stands at around 1.7 million tonnes a year. Russia had been scheduled to deliver 1.5 million tonnes of oil to Belarus in January.

(Writing by Vladimir Soldatkin; additional reporting by Gleb Gorodyankin and Andrei Makhovsky in Minsk; editing by Jane Baird)


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