Russian oil producers want base oil export duties cut

February 7, 2014

Russian oil companies Lukoil, Gazprom Neft and Tatneft have asked the government for a reduction of export duties on base oils to 20% of the oil duty in a letter to Prime Minister Dmitry Medvedev, Itar-Tass reported on February 6.

The letter says the reduction should help recover investments in new oil refining projects and establish high-tech production of group 2 and group 3 oils in Russia.

The companies believe October 2011 equalization of export duties on dirty and clean petroleum products to 66% of the oil duty is the main obstacle for base oil production development. Base oils are now levied at the same rate as dirty petroleum products. The rate in February is $254.9 per ton, or 66% of the oil duty ($386.3 per ton). From 2015 duty on dirty petroleum products is to rise to 100% of the crude oil export duty.

The decision was aimed at speeding up the modernization of Russian oil refineries in order to increase production of high-quality low value-added petroleum products (fuel oil and vacuum gas oil). This, however, classified oils and lubricants as dirty petroleum products which output is to be decreased, though their production complexity is comparable to that of motor fuel, says the letter.

“Increased export duties on oils negatively affect the efficiency of production and investments. For instance, production of group 1 base oils is already at the break-even point,” the companies say. Meanwhile, investments in group 2 and group 3 base oil production facilities yield no return at all, so all new projects in this field are now frozen or cancelled. With the current customs policy Russia will fail to overcome dependence on group 2-3 imports, the companies believe.

Copyright: Itar-Tass, 2014