Total curbs German refinery output

Total said it had curbed output at its German refinery at Leuna due to continuing problems with contaminated Russian crude oil supply, while Germany's oil industry's lobby said national supply security was not at risk.

Russia's oil export flows have been disrupted since April when high levels of organic chloride were found in crude pumped via the Druzhba pipeline to the Baltic port of Ust- Luga and elsewhere in Europe via Poland.

Total said that "due to the prolonged exceptional situation on the Russian crude contaminated with high levels of organic chloride, Total Raffinerie Mitteldeutschland GmbH (Leuna) had to take some units of the refinery out of operation last week in order to make appropriate technical checks."

Operations at the refinery started to resume at the beginning of the week, using uncontaminated crude that was stored in Germany, it added.

But continuing problems with the Druzhba pipeline meant the refinery's capacity will remain limited for now.

Leuna and Schwedt, another big refinery in north eastern Germany and thus also receiving Russian oil via Druzhba, are receiving some alternative shipments of uncontaminated oil via the ports of Gdansk and Rostock on the Baltic Sea.

A spokesman for the German mineral oil industry group MWV in Berlin said the Druzhba pipeline was still shut for the time being, but supply security was not in danger.

"Domestic supply with mineral oil products is still ensured," he said.

MWV represents 14 member companies, 17 refinery sites with 103 million tonnes of processing capacity, and 10 oil pipelines.

Meanwhile, Total and Eni have stopped payments for the contaminated oil sold to them by Russian firms and said they will only pay when compensation is agreed, trading sources said, upping the stakes in what the sources say is Russia's worst oil supply disruption.

The French and Italian oil majors told their suppliers, including Russia's Rosneft and Surgut, that they would be ready to make payments when the extent of damages is clear and would pay for clean oil when supplies resume, the sources said.

Total and Eni are big buyers of Russian oil and are still purchasing it via multiple routes besides Druzhba, which is a major pipeline from Russia to Central Europe and Germany.

Sources have said payments for clean oil are continuing as usual and that oil that had been shipped in early April before Druzhba was contaminated had also been paid in full.

Payment for millions of barrels of contaminated oil, that have now been stuck for weeks in pipelines, was due on May 15.

"Why would anyone want to pay for this oil? Strictly speaking it is not oil and no one in Russia is able to explain clearly who will compensate whom and when," one trading source familiar with the development said.

In theory, Western buyers are entitled to refuse to pay for oil they had bought without knowing it was contaminated because every contract for oil sales is accompanied with a quality passport that will show oil is not up to standard.

However, sales along the Druzhba pipeline are governed by Russian law, which states that the payment must be made and if the quality is not good enough this must be accompanied by a claim for damages, which can then take months or years to process.

"Our position is clear. Western companies must pay and then submit claim damages that we can address later," said a trading source with a major Russian producer. Russian producers have already paid taxes such as export duties and mineral extraction levies to the Russian state for the oil they sold in April, putting them under pressure to recoup money they had expected to receive from the buyers.

Total, Eni, Rosneft and Surgutneftegaz did not respond to requests for comment. Belarus has estimated the volumes of contaminated oil at around 9 million barrels, which in normal circumstances would be worth more than $500 million at current prices.

"This is probably the biggest Russian oil supply disruption ever. Oil along Druzhba continued to flow during the 1969 Prague Spring uprising, and in 1991 when the Soviet Union was collapsing," a second trading source said.

Russia's only previous significant disruption of exports via Druzhba was at the end of the last decade when Moscow suspended shipments for three days over a pricing dispute with Belarus.