Oil companies have loaded at least a quarter of the contaminated Russian Urals crude that has plagued the Northwest European oil market for the past month for processing in Asia, according to IHS Markit’s Market Intelligence Network (MINT), shipping fixtures and industry sources.

High levels of organic chloride, a toxic chemical known to cause severe corrosion in crude towers, were found in the oil transported via the Druzhba pipeline to the Baltic port of Ust Luga and directly to refineries in several European countries including Germany.

Industry estimates of the amount of crude affected by the contamination varies between 20-30 million barrels, or 10-15 very large crude carrier (VLCC) cargoes. Due to the corrosive nature of the contaminant, this crude has to be drip fed to refineries over the next six-to-nine months, with experts saying that only about 10% can be blended into the crude pool at any given time.

Consequently, companies have chartered tankers to take some of the contaminated crude for blending within the Asian refining system. The crude will have to be sold at deep discounts because of the risks and costs involved in blending it into the bigger pool over such a long time, market sources said. Media reports say discounts of up to $20/bbl were heard to draw out buying interest.

Two VLCCs are in the process of filling up with the Urals crude while a Suezmax had departed the Baltics for China also laden with the contaminated oil, according to IHS Markit MINT data.

The VLCC New Comfort had undertaken a ship-to-ship (STS) cargo transfer at Skaw off the Danish coast with two Aframax tankers, the Gemini Sun and Eagle Bintulu on May 14-15, the data showed. The Gemini Sun had picked up its cargo from Ust Luga while the Eagle Bintulu had loaded up at Primorsk in early May. The Gemini Sun had subsequently loaded another cargo from Ust Luga on May 18-19 and is signaling Skaw as its next destination, where the VLCC New Comfort is still anchored, MINT data showed.

The New Comfort was chartered by Unipec to load from the North Sea for the Chinese port of Ningbo at a cost of $4.5 million, according to shipping fixtures. Unipec officials could not be reached for comment.

The VLCC Amyntas, anchored in Southwold, off the U.K. coast, has also seen its share of STS activity. The Aframaxes Tenacity Venture and Front Sirius have discharged crude onto the Amyntas, MINT data showed. Both the tankers had picked up cargoes from Ust Luga on April 25-26, according to the data.

The Amyntas was chartered by Glencore’s shipping arm ST Shipping for South Korea at a cost of $4.3 million, shipping fixtures show. The tanker is still anchored at Southwold STS, suggesting it is also waiting to pick up a third cargo. Glencore officials were not immediately available for comment.

The first tanker to set sail for China laden with the contaminated Urals crude was the Suezmax Sonangol Rangel, which carried out STS operations in Skaw on May 13-15 as two tankers, the Montego and Nordtulip discharged their cargoes, MINT data showed. Both tankers had picked up crude from Ust Luga late last month.

The tanker, which left Skaw on May 16, is expected to arrive in Yingkou, China, on June 26, according to MINT data.

About 250,000 barrels per day (b/d) of European refining capacity, or just under 2% of the region’s product demand, will be affected in the second quarter of the year by the Druzhba disruption, according to the International Energy Agency.

“The issue will be resolved in due course, eased by commercial and government stock draws by Russia’s customers,” the IEA said in its latest monthly report. “One consequence could be a loss of confidence in the quality of the crude flows and thus a search, where feasible, for alternative supplies that could intensify price pressures for heavy/medium sour crude oil.”

Total suspended operations at some units of the 230,000 barrel-per-day Leuna refinery in Germany last week for technical checks due to the contamination as it awaits alternative supplies of feedstock from the Polish port of Gdansk, the company said in a statement to Reuters.

At least one more VLCC is booked to load crude in early June from the Baltics/UK Continent for Asia. It is unclear if the tanker, the Dalma, would also load contaminated Urals crude or ply a more traditional arbitrage trade and pick up North Sea grades such as Forties for the Asian market.

-- Raj Rajendran, rajendran.ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service