UPDATE 2-Russia to hold talks on fixing tainted oil supplies to Europe

Russia holds talks on Friday with Poland, Belarus and Ukraine about how to solve a problem of polluted Russian oil being pumped through a major pipeline serving Europe and which supplies refineries as far west as Germany.

Poland, Germany, Ukraine and Slovakia have suspended imports of Russian oil via the Druzhba pipeline over quality concerns, triggering a rare crisis oversupply from the world's second-largest crude exporter. The problem arose last week when an unknown Russian producer contaminated oil with high levels of organic chloride that is used to boost oil output but which must be separated before shipment as it can destroy refining equipment.

Russia's Energy Ministry said on Friday that pipeline monopoly Transneft and other Russian companies had a plan to mitigate the effects of the contaminated oil, without giving details. It said representatives from Russia, Poland, Ukraine and Belarus would meet to discuss the issue in the Belarus capital Minsk on Friday.

Russian officials have said contaminated oil has already been pumped into storage in Russia and Friday's talks would focus on how to partially withdraw the tainted crude from the Druzhba pipeline running via other countries. Russia has said it planned to start supplying clean oil via a pipeline to the border with Belarus on April 29.

The suspension cuts off a major supply route for Polish refineries owned by Poland's PKN Orlen and Grupa Lotos, as well as plants in Germany owned by Total, Shell, Eni and Rosneft. Some refiners have outlined plans to use alternative supplies, but analysts say other routes cannot completely fill the shortfall.

Ukraine's Ukrtransnafta suspended the transit of oil through the pipeline late on Thursday, closing supplies via Druzhba's southern route to Slovakia, as well as the Czech Republic and Hungary.

LIFTING PRICES

The pipeline issue helped lift global crude prices, while Russian Urals crude differentials reached an all-time high on Thursday. Russia is set to boost Urals crude exports in May before the expiry of a deal on production cuts reached with the Organization of the Petroleum Exporting Countries and its allies, Reuters calculations and Energy Ministry data showed.

The provisional loading plan for Russia's Baltic Sea ports and Novorossiisk in May showed exports rising to 10.7 million tonnes, the highest level in half a decade. Transneft is shipping oil to ports also via pipelines. An official at Russia's Ust-Luga port on the Baltic Sea and traders said loadings from the port had resumed after traders had said on Thursday that some buyers had been refusing to take cargoes due to quality worries.

Minsk estimated its loss from lower oil product exports due to contaminated Russian oil at around $100 million, Russia's Interfax news agency reported on Thursday, citing Belarusian state oil company Belneftekhim. Russian Deputy Prime Minister Dmitry Kozak, in charge of government energy policy, said this week that those found guilty of contaminating oil in the Druzhba pipeline could be fined. He did not provide names.