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Russia in the limelight: Part one

Hydrocarbon Engineering,

This article explores the importance of oil in Russia and in its foreign trade, with a particular focus on the achievements made in expanding and modernising the Russian refining industry.

The key role of oil

The growth of the oil export surplus

During the early years of adjustment, Russian energy demand collapsed. Between 1990 and 2000, an incredible 4.8 million bpd of oil demand vanished. However, the decline in natural gas use was much smaller than the decline in oil and coal use, and by the late 1990s, natural gas use had begun to grow once again. Oil and coal use remained relatively flat, with a resumption of growth in oil use not seen until the mid 2000s, and with a continued slight decline in coal use.

Using natural gas in the domestic sector freed up oil for export. In 1994, FSU oil demand was 4.9 million bpd and supply was 7.2 million bpd, suggesting an exportable surplus of roughly 2.3 million bpd. Oil demand continued to sag, but the drop in oil production was brought under control by the late 1990s, and production thereafter showed strong growth. The International Energy Agency (IEA) anticipates supply of 13. 8 million bpd in 2014, versus demand of 4.7 million bpd. The exportable surplus has therefore grown to approximately 9.1 million bpd, making the FSU the second largest oil exporting region in the world, second only to the Middle East.

Oil’s growing role in trade

In 1995, the FSU exported 2.9 million bpd of oil, 79% of which was destined for Europe. In 2013, FSU oil exports had more than tripled to over 9 million bpd, but the share that went to Europe had fallen to 66%. The growth has been in exports to Asia and the Pacific. Russia has worked to diversify its export markets and to build transport infrastructure that will allow it to access the Asia markets, where demand growth has remained strong. Thus, part of the shift in Russia’s oil export focus has been a change in geographical destination.

Early plans to link Russian oil to Asia included a plan to build a pipeline from the Angarsk refinery to Daqing in northern China. The Russian government consolidated various pipeline proposals and assigned oversight of the project to Transneft. This evolved into the Eastern Siberia Pacific Ocean (ESPO) pipeline, an impressive 4070 km line costing US$ 25 billion. The end terminal at Kozmino, which is located on the Sea of Japan proximal to China, Korea and Japan, was inaugurated in December 2009. The second stage was inaugurated in December 2012. A spur to Daqing, China, was completed in 2011. Russian crude exports via Kozmino rose from 15.19 million t in 2011 to 16.23 million t in 2012, to 21.3 million t in 2013 (approximately 304 000 bpd in 2011, 325 000 bpd in 2012, and 426 000 bpd in 2013). The Kozmino terminal also handles crude delivered by railcar.

Russian crude exports grew from 144.4 million t in 2000 to 260.3 million t in 2004. However, crude exports have stagnated and declined since then, sliding gently to 236.6 million t in 2013. The value of Russian crude exports has risen sharply, however. The value of crude exports was US$ 25 272 million in 2000, and the 2008 price spike caused this to surge to US$ 161 147 million in 2008. The crude export value fell sharply to US$ 100 593 million the following year, as oil prices subsided, and the US and much of Europe fell into recession. International oil prices recovered quickly, however, and they have remained strong since then. The value of Russia’s crude exports hit a record high US$ 181 812 million in 2011 before subsiding to US$ 173 670 million in 2013.

In the year 2000, Russia exported 62.6 million t of refined products. Product exports more than doubled to 151.6 million t in 2013. Even more striking, however, was the increase in the value of product exports, which grew tenfold from US$ 10 919 million in 2000 to US$ 109 335 million in 2013. During the same period of time, the value of Russian crude exports grew by a factor of approximately 6.9, indicating that the composition of refined products exported is shifting to a higher value pattern.

In 2000, crude export values were 2.3 times as much as refined product values (US$ 25 272 million for crude exports versus US$ 10 919 million for product exports). In 2013, crude export values were only 1.59 times higher than product export values (US$ 173 670, million for crude exports versus US$ 109 335 million for product exports). Moreover, as the figure demonstrates, the value of crude exports declined between 2011 and 2013, while the value of refined product exports continued to rise.

Edited for the web by Emma McAleavey.

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