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Russian refining: part six

Hydrocarbon Engineering,

Read part five of this article here.


Russia's oil industry is critical to the Russian economy, and it has grown and modernised rapidly in recent years. The massive level of investment, however, was predicated on a continuing regime of high oil prices, a common issue in many oil producing countries, but complicated at present by recent extraordinary expenses such as the hosting of the Sochi Olympic Games and what many political analysts call ‘Russian adventurism’ in the Crimean Peninsula and the Ukraine. Russia's relationships with other countries are at a low point, and the sanctions are taking a toll. Oil revenue is essential.

According to the Bank of Russia, in the year 2000, the value of Russia's crude oil exports was US$25 272 million, while the value of refined product exports was US$10 919 million. Crude export values were 2.31 times as much as product export values. In 2014, the value of Russian crude exports was US$153 888 million, and the value of refined product exports was US$115 875 million. Crude export values have fallen to 1.33 times as much as product exports. Indeed, with the drop in oil prices, Russia needs to sell larger volumes just to keep revenue stable. When producers feel that they have market power, there is incentive to control production and keep prices strong. This was the OPEC cartel model of the past. In today's market, however, OPEC has stepped back from attempting to rein in production. Russia and the US are two of the reasons why. In the US, demand has fallen while production is climbing, creating a tremendous reversal in import dependency. In Russia, demand is declining slightly, production is being boosted where possible, and exports of both crude and product are being given fresh impetus. With its vast resources and strategic location, Russia could even flood the crude market, if there was advantage to be gained and sufficient capital to invest in new production and delivery infrastructure.

Russia is also increasingly able to overwhelm refined product markets. Driven largely by public policy and the demands of the international market, Russia has been actively modernising its refining industry. Euro standard fuels are now produced for the domestic market as well as export markets, not only in Europe but also in Asia, where quality standards are keeping pace with Europe. During the coming year, exports of high value refined products are likely to grow because of the new capacity and the reduction in export duty. If Russia was a member of OPEC, perhaps there would be some incentive to moderate exports, but it is not, and Russia manages its oil industry according to its own requirements. With the resources in place and the investments already made, Russia is motivated to keep wells pumping and refineries running. Therefore, in both crude and crude product markets, already influential Russia is ready to become even more influential.

Written by Nancy Yamaguchi, Contributing Editor. This is an abridged article taken from the August 2015 issue of Hydrocarbon Engineering.

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