December 13, 2012 / 5:50 PM / in 5 years

French pipeline keeps oil for months after clients go to rival

* Oil majors seek to recoup $250 million worth of oil

* Pipeline firm says to return oil by mid-2013

* Rivalry between pipelines rises as refining shrinks

By Dmitry Zhdannikov and Muriel Boselli

LONDON/PARIS, Dec 13 (Reuters) - Oil majors including ExxonMobil and Rosneft are set by mid-2013, after almost a year of effort, to recover $250 million of oil retained by a French pipeline company that they stopped using in favour of cheaper routes.

The delay in releasing the oil comes as competition mounts between operators of European pipelines and terminals to serve a shrinking number of refineries while the continent’s demand for fuel falls.

Companies including Exxon, Rosneft, Royal Dutch/Shell and Phillips 66 have around 300,000 tonnes of oil remaining in the French SPSE pipeline, which runs from the Mediterranean port of Lavera to their German plants, the head of SPSE told Reuters.

The companies, which co-own SPSE, decided earlier this year to stop using it and to start supplying their refineries via an alternative pipeline, TAL, which runs from Italy to the same refineries but charges 30-35 percent less in shipping fees.

“We were surprised by the decision. There is around 300,000 tonnes of crude remaining in the pipeline,” Olivier de Tinguy, head of the SPSE, told Reuters.

After months of negotiation, he said SPSE’s management had decided to remove the oil but stressed the process would take a further half year as draining the pipeline is difficult and costly.

“We have decided to drain the pipeline because we could not leave the oil in there indefinitely but it will take six months,” he said. “Works will start in January.”

Explaining why the decision had taken months, he said that before delivering all the outstanding oil to the owners, SPSE had first to be sure the clients would not decide to resume use of the pipeline.

“As soon as our clients will be sure that they don’t want to resume supplies via our pipeline, we’ll proceed to empty it,” he said.

However sources at the oil companies said that whatever the reason for the wait, they wanted the oil as soon as possible.

“Dispute or no dispute - call it whatever you like - but I have been unable to get my oil back for a few months,” one source at a major said.

The source said the development was a problem not least from an accounting point of view as companies prepare their balance sheets by the end of the year. Oil stuck in the French pipelines will probably count as a loss, one trader said.

All four majors declined to comment on the details of discussions or individual amounts of oil in the pipeline.


Some companies said the issue highlighted of a much wider dilemma facing the continent’s refining sector.

“Shell has decided to supply its crude volumes to the MIRO JV refinery in Karlsruhe primarily via the TAL pipeline in the future. Historically, Shell’s supply has been split between the SPSE and TAL pipeline systems,” a Shell spokesman said.

“Our consideration is triggered by challenging refinery margins, changes in the European refinery footprint and the impact of high crude prices on our working capital costs,” he added.

Several refineries have closed in Europe over the past decade due to over-capacity and the trend will likely continue.

The International Energy Agency said this week European oil demand went through its steepest year-on-year contraction in the third quarter since the 2008-2009 financial crisis due to near-record product prices and a weak economy.

Refinery closures will prompt many pipelines and terminals to compete harder to serve the shrinking number of refineries.

Michel Peronnet, head of Fluxel, the operator of the Lavera oil terminal, which supplies SPSE, said the exodus of the majors to TAL had cut revenues by 10-15 percent but he said this was not critical: “We can live without the Germans”.

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