Lithuanian refinery looks to diversify supply and cut costs

  • 2006-09-20
  • Staff and Wire Reports

Low Flow: Repairs on the Druzhba pipeline in Belarus have severely limited supply of crude to Mazeikiu Nafta.

VILNIUS - In reaction to Russia cutting off its supply of crude via the Druzhba pipeline on June 29, the Lithuanian refinery Mazeikiai Nafta is now looking to Venezuela for other supply options. On Sept. 13, Mazeikiai Nafta received a 70,000 ton shipment of Venezuelan Mesa-30 crude oil that arrived via tanker through the Butinge oil terminal. "Mazeikiai Nafta is considering various alternative sources of crude supplies and has chosen the most effective route," Giedrius Karsokas, Mazeikiai Nafta's communication director, told the Baltic News Service.

Economy Minister Vytas Navickas did not disclose how many tankers would unload at Butinge in September, but hinted that there would be quite a few. He also added that October's schedule for new shipments of crude via the Butinge terminal, Lithuania's only source of crude, was being filled.

Meanwhile, refinery management is undertaking a number of measures to cut costs, which have increased 12-20 percent as a result of the supply disruption in the Druzhba pipeline. The costs of importing crude by tanker is approximately $8 per ton of crude more expensive than procuring it from the pipeline.
Representatives of Mazeikiai Nafta and Klaipedos Nafta last month again discussed plans to construct a second product pipeline, adjacent to the pipeline from Mazeikiai to Butinge, with a 25 kilometer spur to be built between Butinge and Klaipeda.
Shipping finished product via pipline could considerably offset the extra costs incurred due to the Russian supply disruption. Currently finished product is shipped from Mazeikiu to Klaipeda by rail. The Klaipeda regional daily reported that a pipeline would cut transit costs almost twofold.

The CEO of Klaipeda Nafta, Jurgis Ausra, told the Lithuanian daily Lietuvos Rytas on Sept. 14 that the company would back such a project.
The pipeline was closed in July for repairs in Belarus. Suspicions have been raised in Lithuania that Moscow, unhappy with the Polish firm PK Orlen's successful bid for Mazeikiai Oil, has cut off the supply of crude for political reasons.
The Lithuanian economy minister denied such speculation.

During an interview with Lithuanian Public Radio on Sept. 13, Navickas said that, "If there was political will, there would be an instruction for a state-owned company not to sell oil to Mazeikiu Nafta and thus block the supply. But it isn't so."
He reminded that Mazeikiu Nafta currently received crude "sold by Russian state-owned oil companies, for example, Rosneft."
Prime Minister Gediminas Kirkilas pledged support for Mazeikiai Nafta. "We will discuss oil supply issues. If they need assistance from the government, maybe we will be able to provide such assistance. We are working on this with our partners in Poland (PKN Orlen)," the PM said in an interview with Lithuanian Radio on Sept. 12.

In August, the terminal at Butinge handled eight tankers, which delivered a total of 807,000 tons of crude. The Mazeikiai Oil refinery has a maximum capacity of 27,000 tons per day.
Mazeikiu Nafta has a scheduled production of 8.6 million tons of petrolium products this year with 41 percent to be exported to Western Europe and 19 percent exported to the United States.