Russian pipeline leak halts flows to Mazeikiu

Lithuania's AB Mazeikiu Nafta, the only oil refinery in the Baltic states, is operating at "minimum capacity" after Russia's pipeline monopoly halted supplies indefinitely when a trunk line to Europe ruptured. "We're not getting any crude by pipeline at the moment," Mazeikiu CEO Nelson English said. "We don't know that we won't get crude, but we're preparing in case we won't," English said in a phone interview yesterday from the company's headquarters in Juodeikiai. Russia's Druzhba oil link, which supplies an eighth of Europe's crude imports, sprung a leak near the Belarus border on July 29, spilling crude over at least 10 square kilometers (3.9 square miles) and sending oil prices higher before it was partially repaired two days ago. Mazeikiu shares fell 6.1% to 7.88 litai on the Vilnius Stock Exchange yesterday, their lowest close in 14 months. OAO Transneft, Russia's pipeline monopoly, posted a statement on its Web site yesterday saying exports won't be affected. Mazeikiu says it hasn't received an official delivery schedule for August, which normally would have arrived before the start of the month. The company couldn't say when the pumping would be resumed. Exports in our direction have changed, Nelson said.
The ruptured segment of the Soviet-era pipeline may take as long as a year to repair fully, Interfax reported yesterday, citing an official at the Natural Resources Ministry. A 70-kilometer section of the link must be replaced. The pipeline branches in several directions in neighboring Belarus, with one arm terminating at Mazeikiu near the Baltic Sea and two others carrying crude to eastern and central Europe. Mazeikiu is the main consumer of Russian at the northernmost section of Druzhba. English said Mazeikiu is scrambling to secure oil deliveries by tanker and hopes to increase output to 90% of capacity by the end of the month.
PKN Orlen SA, Poland' biggest oil refiner and fuel retailer, is buying Mazeikiu for $2.34 billion. Mazeikiu's previous owner, OAO Yukos Oil CO., was forced to sell the company after Russia filed $30 billion in back taxes against Yukos and jailed the Moscow-based company's CEO, Mikhail Khodorkovsky. Lithuanian Prime Minister Gediminas Kirkilas said in a press conference broadcast on the government's Web site. "We are told it's due to technical issues, and it seems those issues do exist in reality." OAO Lukoil, Russia's biggest oil producer, said in June Orlen may have difficulty buying crude because Russian companies may find it more profitable to sell to other refiners. Poland is calling on the European Union to draft a common energy policy toward Russia, which US Vice President Dick Cheney accused in May of using energy to "blackmail" its neighbors. (Bloomberg)