Lithuanian petroleum refining company Orlen Lietuva will resume negotiations with Russia's Transneft (RTS: TRNF) on oil supplies to the Mazeikiai Oil Refinery.

"On May 7 of this year, the Lithuanian Embassy in Moscow received a note from the Lithuanian Foreign Ministry with information about the enterprise Orlen Lietuva's (city of Mazeikiai) intentions to resume negotiations with OJSC Transneft relative to oil supplies through the Druzhba pipeline," a Russian Foreign Ministry representative told Interfax.

"A copy of this document was sent to the aforementioned Russian company for review of this issue," the representative said.

Transneft's Press Officer Igor Dyomin told Interfax that the pipeline stretching towards Mazeikiai needs to be completely replaced. "The pipe was stopped in 2006 due to a pipeline failure. Our examination with the help of in-line inspection revealed 7,853 defects. After that, the oil pipeline was unused for six years, and the number of defects did not decrease - most likely, it increased," he said.

According to Transneft's information, this pipe has been operating for 48 years, whereas its life is only supposed to be 30 years. "The resource can be extended to 40 years under the necessary maintenance and control," Dyomin said.

"All of this speaks to the fact that this pipe is subject to full replacement," he added.

The rough cost of replacing the pipe is $240 million, but the fact that it passes through Belarus and the Baltics complicates the process. "These countries are unlikely to have the necessary resources for investment," Dyomin said. "Besides that, during that time we built the Baltic Pipeline System-2 (BPS-2), which replaced this northern branch reaching the Baltic port," he said.

In 2006, the concern PKN Orlen bought the Mazeikiai oil complex from the defunct Russian oil company Yukos and the Lithuanian government for $2.34 billion. The deal was a way to lessen energy dependence on Russia, and was supported by the government of Lithuania and Poland. Lukoil (RTS: LKOH) and TNK-BP (RTS: TNBP), as well as KazMunayGas, also vied for the facility.

In July 2006, Russia stopped delivering oil to the Lithuanian refinery via the Druzhba pipeline, citing trouble with the pipeline. Orlen Lietuva has to get oil by sea via the Butinge terminal, and in turn the refinery exports through the Klaipeda seaport, shipping its product there by railroad.

Eb

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(Originally published May 24, 2012, in Russia & CIS Energy Newswire.)