Streetwise Professor

May 15, 2019

Round Up the Usual Suspects, Druzhba Pipeline Contamination Edition

Filed under: Energy,Russia — cpirrong @ 1:36 pm

Russia roiled European oil markets by shipping millions of tons (perhaps upward of 5 million, or about 35 million barrels) of crude oil contaminated with organic chlorine over the Druzhba (“Friendship”) pipeline. The contaminants have the nasty habit of turning into hydrochloric acid in refineries–not good!

About 2 weeks after the first news of the contamination, the Russians claimed they had cracked the case. They arrested four executives of an obscure oil company in Samara, and sought two more, claiming that the company had pumped the oil to conceal a million ruble fraud. One million rubles, as in about $15 grand.

Now, I can see how some Fargo-esque Russian crooks could wreak such havoc to cover up a petty crime, but I’m also very skeptical of the official story.

To start with, amazing, ain’t it, that crack Russian investigators who let many major crimes go unsolved for, like forever can solve this one in mere days? The fact that some of the alleged perps have Chechen names also suggests that this was a “round up the usual suspects” bust that would make Claude Rains/Captain Renault proud.

Also, the quantities don’t make sense. The contamination is serious, and even 10 million rubles of oil would represent only a couple of thousand barrels: could that create the kind of contamination that has forced the shutdown of a pipeline that can carry 1.2-1.4 million barrels per day?

No, pinning this on some obscure suspects seems just too pat, and calculated to let major players (such as the pipeline monopoly Transneft, and major producers, such as Rosneft) off the hook.

Even if crooks in Samara succeeded in introducing into Druzhba contaminated oil in quantities sufficient to make millions of tons unusable, this just raises other questions. Like, who was monitoring what was going into the pipeline? How were the crooks able to get this much bad oil into Druzhba? How is Transneft’s failure to detect this not negligent–or perhaps itself criminal (e.g., involving bribing Transneft employees to overlook the introduction of the tainted oil into the pipeline).

However you look at it, this validates many stereotypes about Russia. Rife criminality, or corruption, or incompetence–or all of the above!

Update. Some back-of-the-envelope calculations. The contaminated oil had 150-330 ppm of the organic chlorides. The acceptable level is 10 ppm. Assume that prior to the contamination, the oil had the maximum allowable amount, 10 ppm. If the contaminated oil had 100 times the allowable amount (1000 ppm) over 14 percent of the oil in the pipe had to be contaminated to that level just to get it to 150 ppm. To get it to 330 ppm, almost a third would have to be contaminated. At 1mm bpd of throughput, that’s 140k-330k bpd. That’s a lot of oil, and certainly more than the piddly companies blamed for this contamination can produce. Even if you increase the contamination by an order of magnitude, you are still talking 1 to 3 percent of the oil in the pipeline.

But if you crank up the contamination rate to cut down the volumes, that just raises the question: WTF was Transneft doing to allow oil with 100 to 1000 times the allowable limit getting into the pipeline.

Pick your poison, Transneft.

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  1. …or it was intended to demonstrate how important the pipeline is to European energy supply?

    Comment by dcardno — May 15, 2019 @ 9:49 pm

  2. Well, from the size of it, it’s probably collateral damage from some bulldog fight under the Kremlin carpet. Or maybe a (un)plausibly deniable stress test to reveal and evaluate Europe’s capabilities to respond to price gouging/blackmail/etc.

    Comment by Ivan — May 15, 2019 @ 11:47 pm

  3. Do the customer companies test for these impurities before the oil is processed? Presumably at worst they’ll be left with a tank farm with some tanks contaminated, and a shortage of crude that’s fit to process.

    Comment by dearieme — May 16, 2019 @ 7:55 am

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