Rotterdam, Europe's largest port, said on Thursday that plans to build an oil storage terminal for 1 billion euros ($1.1 billion) had been cancelled after its Russian partner raised concerns over the project's feasibility.

The project, intended to store Urals crude oil and oil products, was hailed as testimony to strong trade relations between the two countries when it was announced by Dutch Prime Minister Mark Rutte four years ago.

But relations between Russia and Europe have cooled dramatically since the outbreak of a separatist war involving Moscow-backed rebels in eastern Ukraine and the downing of a passenger airliner over rebel-held territory a year ago, with almost 200 Dutch citizens aboard.

The financial position of Russian energy companies has also become more precarious since the signing of the oil terminal deal in 2011, as the energy export-dependent economy has been hit hard by a precipitous decline in oil prices.

The cancellation also comes as the Netherlands and Europe rethink their energy security strategy to reduce dependence on imported Russian energy.

In a statement on its website, Rotterdam port said partner Shtandart TT, owned by Russian investment firm Summa Group, had wanted to reopen discussions on the schedule and quantities of oil products to be stored at the terminal.

"After some talks, it was clear that the best thing to do was end the deal," port spokesperson Sjaak Poppe told Reuters.

Summa said the decision to terminate the contract reflected the changed macroeconomic situation and oil market conditions. It said it remained in a "good relationship" with the port and continued to own a bunker business there.

Under the agreement with Rotterdam, Shtandart would have paid 170 million euros a year to lease the 3 million cubic metre storage terminal over the next 30 years and the terminal would have generated a further 22 million euros in harbour fees each year, Dutch media reported.

The loss of the project would not have a material impact on the port, said Hamza Khan, energy analyst at Dutch bank ING, who added that the project had been in doubt for some time.

"A Russian-only terminal is going to be less flexible," he said, adding that terminals that were open to different sources of oil were currently more attractive.

Source: www.reuters.com

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