If one looks at production volumes, the Russian refining sector has sailed safely through the global financial and economic crisis. Most Russian refineries have been working close to capacity throughout the crisis. However, the financial side of the refining business looks much worse. Due to falling prices the turnover of the refining industry, measured in current Russian rubles, declined by 25% in 2009 to bring it back to the level of 2007. The biggest problem, though, is the sector’s heavy debt.
Structure of the refining sector
Most of Russia’s refining capacity belongs to six major vertically integrated oil companies. They control approximately 85% of Russia’s refining capacity and account for more than three quarters of Russia’s total output of oil products. There are 25 major refineries in Russia, of which 12 have capacity of more than 10 million tpy. Of these, 13 refineries have catalytic cracking or hydrocracking facilities, and a further six refineries are in the process of building them.
Rosneft, the major state owned oil company that initially controlled only the Tuapse and Komsomolsk refineries, was catapulted to the top refining position in Russia through the takeover of all the former Yukos refineries in Spring 2007.
Lukoil, one of the world’s major private oil companies, owns considerable refining capacities in Russia, namely the Perm, Volgograd, Nizhny Novgorod (Kstovo) and Ukhta refineries. But in recent years the company’s major downstream investments have been abroad.
GazpromNeft, which is controlled by the state owned gas corporation Gazprom, owns the Omsk refinery, Russia’s leading petrol supplier. Moreover, through its stake in Slavneft the company is involved in the Yaroslavl refinery (YANOS). In addition, GazpromNeft is a coowner of the Moscow refinery alongside the independent Sibir oil company.
TNK-BP is the private Russian British oil company. It ranks fourth in terms of refining capacity in Russia, owns two major refineries (Ryazan and Saratov) and the smaller Nizhnevartovsk refinery. In addition, it is involved in the Yaroslavl refinery through its stake in Slavneft.
Surgutneftegas, another of Russia’s major private oil companies, owns only one major refinery. Tatneft, the oil company controlled by the government of Russia’s Tatarstan region, is at present pursuing the only major ongoing refinery construction project in the Europe and former Soviet Union (FSU) region.
The change to Euro 5 standards in 2015 may become a watershed for Russian refineries. As many lack the financial means for the necessary modernisation, it has been estimated that up to half of Russia’s refineries will not be able to switch to the new standard in time and will see their customer base restricted to agriculture and the military. This would lead to an oversupply of low quality fuels and might trigger the closure of outdated refineries.
There are two possible scenarios for the development of the Russian refining industry. In the first scenario, the government will not change its policy and the introduction of higher standards will force outdated refineries out of the market. In the second scenario, the Russian government delays the introduction of the higher standards in order to avoid company closures.
Modernisation efforts at Russia’s refineries are still modest as most owners do not seem to feel an urgent need for big investment programmes. Many of the big plans developed before the global economic crisis have silently been downscaled or delayed. As a result, it may well be that several refineries will find themselves ill prepared for the conversion to higher quality fuels and will disappear. Such a consolidation might promote modernisation of the sector. But at present Russia’s refineries are catching up with global standards in slow motion.
The full article from Dr. Heiko Pleines can be found in the January 2011 issue of Hydrocarbon Engineering.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/07012011/russia_regional_processing_report/