November 2, 2012
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Home / Issue Archive / 2012 / October #10 / Refineries Transfer to Euro-5. Though Many of Them Ask to Postpone Modernization Terms

№ 10 (October 2012)

Refineries Transfer to Euro-5. Though Many of Them Ask to Postpone Modernization Terms

   Nowhere in Russia does the air pollution feel as acutely as in large cities, where the concentration of exhaust fumes increases in direct proportion to rapid growth of the amount of vehicles on the roads.

By Elena Zhuk

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   Popularity of cars has resulted in the need, after the European countries, for transition to manufacturing and usage of Euro-4 and Euro-5 classes’ fuels with a lower concentration of sulfur and aromatics.

   The “Window to Europe” is an incentive for large-scale modernization of Russian refineries, which averagely shows good results, while in particular, is characterized by irregularity of efficiency for different companies in the industry.

Give Us the Euro-5!

    The terms of transition to production of higher environmental standards motor fuel in Russia were postponed several times. In the year 2007, the first official transition to Euro-3 standard was performed, accompanied by review of requirements to quality of domestic production internal combustion engines. For example, manufacturing of the subcompact “Oka” has been stopped, as its engine was not compatible with the new gasoline generation. Attempting nationwide transition to the Euro-5 in 2013 was somewhat overdone, and the crisis has prevented us from it. There were also reasons that the companies simply did not plan to invest heavily in modernization, and that actual legislation did not stimulate production of environmentally clean fuels.

   According to the Technical Regulations TP TC 013/2011, which establishes requirements for automotive fuels and is going to come into force at the end of December 2012, sales of Euro-2 standard gasoline and diesel must cease from January 1, 2013; Euro-3 will be allowed up to December 31; 2014, Euro-4 standard will be allowed up to December 31, 2015.

   Meanwhile, we can’t say that the state is not taking steps to promote the transition to new fuel standards. “Since July 1, 2012 excise taxes were increased for Euro-2 and Euro-3 gasolines, while excise taxes for Euro-4 gasolines remained unchanged, and the excise taxes for Euro-5 gasolines were decreased. Both of these factors suggest that producing Euro-4 and Euro-5 fuels has become more profitable for companies”, – said Gregory Birg, co-director of the “Investcafe” analytical department.

   Thus, the companies which hurried to modernize themselves, are now in the win. For example, in July, Lukoil announced transition to production of AI-92 and AI-95 gasolines corresponding only to class 5 standards, and ceasing production of class 4 gasolines. Having released the first batch of class 5 A-98 gasoline on its refinery “Nizhegorodnefteorgsintez” in May 2011, the company has managed to take the lead and now is even ahead of complying the requirements of the Regulations.

   “The Perm refinery, the Volgograd refinery, Nizhegorodnefteorgsintez – these are the three pillars of the Lukoil company, which carried out the development of new and modernization of existing technologies”, – said Vsevolod Havkin, the deputy general director of the All-Russia Scientific-Research Petroleum Products Institute. Although Lukoil gas stations still sell Euro-4 gasoline, as soon as its remains will have been exhausted, the users will be offered Euro-5 exclusively.
“Bashneft” is also in the lead – it has begun to sell Euro-5 gasoline and diesel fuels only in its network of pumping stations already on this mid-summer. In 2011, “Bashneft” has allocated to upgrading the Ufimian refineries around 8 billion – that’s a great amount, but after the revision of excise taxes, the company has proved itself being “a zealous economist”.

   The “Yaroslavnefteorgsintez” (YaNOS) refinery owned jointly by “Gazprom Neft” and “TNK-BP” has also since this July completely switched to Euro 5. Last year, the plant has completed construction of an isomerization plant for light gasoline fractions and has launched a catalytic cracking gasoline hydrotreatment plant with a capacity of 800 thousand tons per year. Capacity increase of the diesel fuel hydrotreatment plant at the Saratov Petroleum Refinery (SPR) allowed TNK-BP in July to establish the production of Euro-5 motor fuels there as well. In addition, as reported by the company, in 2013 SPR plans to start operation of an isomerization unit, which will increase production of high-octane car gasolines.
Euro-5 petrol fuel is also produced on the Omsk Refinery owned by “Gazprom Neft” since summer 2011. Its gasoline catalytic cracking hydrotreatment plant was recognized this August as one of the most significant social industrial facilities of the Omsk region, commissioned in 2011-2012.

There Has Been Some Lag in Modernization

   In general, the prospects for the companies to perform modernization in due terms are not rosy at all. Although recently, nearly all of the companies reported the about being ready for modernization, this summer many of them had to ask for reviewing the Quadripartite Agreement on modernization of refineries, which was signed among the 12 companies, Federal Antimonopoly Service, Rostechnadzor and Rosstandart last year.

   According to “Interfax” referring to the Deputy Head of Russian FAS Anatoly Golomolzin, this late August “Surgutneftegaz” and “Rosneft” have addressed to the Government asking to review the agreement. Delay for “Surgutneftegaz” was connected with postponing the terms of commissioning for the hydrocracking plant at “Kirishinefteorgsintez”. Rosneft has had difficulty with reconstruction of the hydrocracking plant at the Kuibyshev refinery. Last year, however, the company has fully complied with the plan, having reconstructed five plants for petroleum recycling: one plant for hydrocracking, one for hydrotreatment of diesel fuel at the Kuibyshev refinery, and 3 catalytic reforming plants at Syzran, Kuibyshev and Komsomolsk refineries.

   Delay for Lukoil was associated primarily with construction of new facilities – such as an additional catalytic cracking plant at the Nizhny Novgorod refinery. Also, reconstruction of the diesel hydrotreating plant at the Perm refinery may have resulted in delays of timing.

  According to the Ministry of Energy, in 2012, commissioning of ten new petroleum recycling plants has been scheduled: two isomerization plants, one alkylation plant, three gasoline hydrotreating catalytic cracking plants, one hydrocracking plant, three plants for diesel fuel hydrotreatment. This year, it is planned to complete the reconstruction of ten petroleum recycling plants, including three catalytic reforming plants, one hydrocracking plant, five plants for diesel fuel hydrotreatment, and a catalytic cracking plant.

   However, according to RBC Daily, citing a report by the Central Control Administration of the Fuel and Energy Complex as of July 1, works have been completed on eight sites; on seven sites, works are being performed in accordance with the schedule; six sites, they are performed with some lags. Modernization plan for the current year is now only executed in due terms by “Slavneft” and by the owner of the Orsk refinery – “Fortinvest”.

   “According to CORTEZ, the problems with transition in 2013 to production of Euro-3+ gasolines may be left only in sole Rosneft’s refineries”, – says the head of analysis and market research department of the “CORTEZ” information and analysis center Irina Bograd, – “Of course, full transition to the Euro-4 and Euro-5 will not be completely free from problems, but they will not be as catastrophic as in previous years. The absence of reference of the octane number to the Euro class made life easier for refiners,” – she added.

   On the other hand, decrease in the level of aromatic hydrocarbons lowers the gasoline octane number. “Indeed, for gasolines, content of aromatic hydrocarbons must be at the level of no more than 35%; for diesel fuels, content of polycyclic aromatic hydrocarbons must be at the level of no more than 11%”, – Havkin commented. In such a situation, it is necessary, he said, to substitute in gasolines aromatics for high-octane components, such as isoparaffins or ethers. “We need to develop processes for producing isoparaffins, such as the process of isomerization and alkylation of isobutane with butenes. And, accordingly, to expand production of high-octane ethers: methyl tert-butyl ether (MTBE), ethyl tert-butyl ether (ETBE), ethanol and methyl tert-amyl ether (TAME)” –  adds Havkin. – The octane number of these components is above 112, and these products must be added to trade gasolines in order provide necessary octane numbers not for the expense of aromatic hydrocarbons, which are quite toxic, but for the expense of more environmentally friendly structures”. With transition to the new environmental standards of motor fuels, development and production of high-octane ethers are going to become a new cost-effective direction of work, among other things, for the Petroleum Processing Scientific Research Institute.

Under State Control

   A company’s plans for commissioning of this or that facility must not be considered as a private prerogative: in fact, they are registered in the state “Comprehensive Petroleum Refining Development Program” (see table). “Within the framework of this program, a series of plants has been planned to be put into operation before 2020, both deepening refinery and improving the environmental performance of all kinds of fuel – said Havkin. – That is, the priority is given to the processes that improve environmental performance”. According to Havkin, today the depth of processing is 71%, and by 2020 it will have to reach 85%, and it’s quite a big stride forward.

   According to experts of “Investcafe” – co-director of the analytical department Gregory Birg and analyst Yulia Wojtowicz, – companies are forced to produce higher quality fuels due to a new scheme having come into effect from October 1, 2011, for calculating export duties on petroleum and petrochemicals – System 60-66-90. The scheme means raising taxes on dark petrochemicals and looks as follows: export duty for petroleum has been reduced to 60%, export duties on light and dark petrochemicals were leveled and made 66% of the duty for petroleum; duties for gasolines remained unchanged at 90%.

   “The export duty on gasoline has been left at the same level due to the fact that, at petroleum prices around $100, and in the absence of export duty barrage, supplies of simple refined petroleum products would remain attractive to companies; which threatened to destabilize the situation in the petroleum market, – note the representatives of “Investcafe” – The growth of duty on dark petroleum products means losses for the companies, where processing depth is too low (as for example at “Tatneft”), or for the companies where processing capacity exceeds the amount of crude oil production (as at “Bashneft”).”
In total, at Russian refineries now 114 plants of secondary processes are being upgraded. Russian petroleum companies in the 2011-2015 period will have to invest around 1 trillion rubles in the modernization of refineries. Meanwhile, as long as Russian refineries seek to catch-up Europe’s existing standards, there is the Euro-6 already being prepared to come into force in 2015, so the possibility to reduce the rate of modernization is too unlikely to emerge.

Vladimir Bulatnikov, Chief Technologist, All-Union Oil Refining R&D Institute  

Oil&Gas Eurasia: Vladimir Valentinovich, can you please explain the difficulties of transferring to the new regulations?
Vladimir Bulatnikov: Within the framework of the Customs Association of Russia, Belorussia and Kazakhstan, there was a decision to transfer to unified regulations which is going to come into force since the next year. Unfortunately, for the last twenty years we have considerably disbanded with the Belorussians and Kazakhs; that is why we were unable to set up unified terms of transfer from one class to another. But what are the different terms of transfer without a customs frontier? For example, the goods are freely transferred through the frontier from Kazakhstan to Russia and vice versa. Yet, you can’t put a trade stamp or a seal to a portion of gasoline.

OGE: But what are the differences in the development of petroleum refining?
Bulatnikov: In Kazakhstan, in particular, petroleum refining lags behind very strongly. At the Atyrau refinery, nearly 70% of gasoline is А76; at the Shymkent refinery, nearly a half of gasoline is the A76. That is, if you simply ride through the streets of Moscow, perhaps, you won’t find any filling stations with the A80 gasoline, though its production at us is still permitted. Why? There is no demand. The vehicle fleet which consumes such gasoline has been pensioned off. These are old cars GAZ-53, ZIL-130. They are not manufactured any more, and those that were manufactured have worked out their resource.

OGE: So, we can say that in Kazakhstan, the vehicle fleet is very old?
Bulatnikov: Yeah, that’s so. On the other hand, Belarus has progressed much further in quality. There are two plants, both of which are very well-renovated. But they have got other problems: the capacity of these plants far exceeds the needs of the country. Belarus can produce about 30 million tons of capacity, and they need maximum 6 million tons.

OGE: What do they do with the rest production?
Bulatnikov: Since last year, petroleum is sold to them at a discounted price of oil only for their needs, which makes 6.5 million tons. As for the rest, they pay to our oil companies an additional premium, and this award demolishes the entire margin which they could cash in on re-export.
Now, when the customs border has been removed, gasoline goes to Russia. Belarus also supplies petroleum products to Ukraine, where today, in fact, only one plant is working in Kremenchug and some small factories in the west. In summary, we now have quite diverse requirements in the framework of the Customs Union, and such situation will go on, I think, until 2016, when we are going to become more or less equal in our level.

Find the full text of interview with Vladimir Bulatnikov
on www.oilandgaseurasia.com

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