Same Old Story for Russian Refining. 20 Years Pass and Things Still Need Sorting

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   Russia’s current refining capacity has dived to just over 270 million tons (2010 – 271 million tons). In 1990–2000s, large refineries – Omsk Refinery, Angarsk Refinery, Bashkir group facilities, etc. – were cutting their processing capacity, in parallel dotting the map of oil fields with small refining units tailored either for local needs or (if located near the trunk oil pipelines) for fractional distillation, export of heavy fractions and the resulting profit on the difference in duties. Over the past three decades only one relatively large refinery with modern processing lines has been built – Nizhnekamsk Refinery (Tatarstan). Out of projects in installation stage, only TANECO refinery, also in Tatarstan, is worth mentioning.

A Word on Primary Processing

   By the early 1990s, Russia’s primary distillation stood at some 300 million tons per year. A record slump in distillation occurred in 1990s as a result of lower oil production and lower demand for oil products with parallel growth of export volumes. In 1998, primary distillation capacity hit the bottom, sinking to 164 million tons, the lowest for the past 20 years. In the first decade of the millennium Russia started to regain its distillation capacity, gradually reaching 250 million tons, a touch over 80 percent of 1990 levels and (Table 1, Fig. 2) and about 50 percent of current production.

   In the 1990s Russia’s primary distillation capacity was falling much faster than overall refining capacity; this resulted in refineries’ load diving from 85 percent to 59-61 percent. Starting 2000, refineries’ load started to edge up against the background of growing oil processing volumes and further reduction of refining capacity, reaching 92 percent in 2010.

   The balance between export duties on oil, dark and light oil products does not stimulate Russian refineries to restructure their production quota: it is still more profitable to export crude oil, fuel oil or diesel fuel (as half-products) for processing in the recipient countries; the price and quality of Russian gasoline cannot compete on European markets. The bulk of Russian motor gasoline is supplied to the domestic market, while about half of the diesel fuel and more than 70 percent of fuel oil goes for export.

The Sinking Refining Depth

   Most of the major Russian refineries were built in the 1940s  – 1970s. Their technical level is significantly lower than accepted in industrialized countries. Over the past 20 years refining depth has not changed much, initially falling from 67 percent to 63 percent and then growing to 71-72 percent. Pays to note that over the past four years the depth of oil refining in Russia edges down, having reached 71.2 percent in 2010 (the world average is about 90 percent).
Low levels of refining depth in Russia and the poor quality of petroleum products reflect the technical complexity of the company (Nelson index): for Russia it is 4.4, whereas the European average – 6.5, US – 9.5, Asian – 4.9. Significantly, TANECO Refinery, currently under construction in Tatarstan, will have Nelson index of 15. As a rule, the capacity of the secondary processes in modern refineries of industrialized countries greatly exceeds the primary distillation capacity.

Russia’s Seven Sisters

   In Russia there are 27 large and 211 small refineries. In addition, a number of gas processing plants are also involved in processing of liquids. The industry has high concentration of production – in 2010, 86.4 percent (216.2 million tons) of liquid fractions was refined at the facilities owned by seven vertically integrated oil companies (Fig. 3). Several Russian companies – LUKOIL, TNK-BP, Gazprom Neft, Rosneft – either own refineries or are planning to acquire or install refineries abroad – in Ukraine, Romania, Bulgaria, Serbia, China, etc.
The largest Russian refinery – 21.2 million tons Kirishi Refinery – is a part of Surgutneftegaz, other large units are also controlled by vertically integrated oil companies: Omsk Refinery (20 million tons) – by Gazprom Neft, Kstov Refinery (17 million tons) and Perm Refinery (13 million tons) – by LUKOIL, Yaroslavl Refinery (15 million tons) – by TNK-BP and Gazprom Neft, Ryazan Refinery (16 million tons) – by TNK-BP.

   Bashneft is the Russian leader by refining depth with 86.2 percent, LUKOIL comes in second (76.7 percent); refining depth at Russia’s largest refiner is only 64.5 percent, which is below the country’s average. Surgutneftegaz with its 43.2 percent (Fig. 4) has the lowest refining depth out of vertically integrated oil companies. The company favors exports of fuel oil and bunker fuel produced at fully loaded Kirishi refinery in the Leningrad region.

Overloaded

   In the 2000s, rising domestic oil production and growing domestic demand for motor fuels resulted in higher refinery runs and more oil products, which led to 100 percent load of some refineries of Lukoil, Surgutneftegaz, TAIF-NK, and TNK-BP (Russia’s average load is 92 percent) in 2010–2011. In 2011, the very lack of reserve capacities for further increase of refinery runs led to market tensions and shortages of motor fuels in the Russian market.

   To improve Russia’s oil-refining industry while ensuring technological and regional balance of the oil industry in general, the following steps should be taken: to continue the modernization of existing refineries in almost all regions of the country (the European part, Siberia, Far East), to expand refining capacity whenever technically possible; to build new high-tech refineries in the European Russia (TANECO, Kirishi-2); to form a system of local and field refineries and gas processing plants in eastern Siberia (Lensk, Sayansk, Nizhnyaa Poima), as well as new refineries and petrochemical plants, regional and export-oriented alike, in the Far East (Yelizarov Bay).

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