OIL-PROCESSINGS INDUSTRYecsocman.hse.ru/data/088/202/1217/Oil_processing.pdf · refining more efficient, and, as a consequence, the need in investments are so great. Volumes of oil

OIL-PROCESSINGS INDUSTRY

Industry survey JANUARY 2003

CONTENTS

GENERAL CHARACTERISTICS OF THE INDUSTRY.............................................................2

OIL PROCESSING AND OIL PRODUCT PRODUCTION.........................................................5

TECHNOLOGIES OF OIL PROCESSING ...................................................................................5

INDUSTRY DEVELOPMENT TRENDS......................................................................................22

SOURCES AND LINKS..................................................................................................................27

January 2003

General characteristics of the industry

The basis of welfare and prosperity of Russia, its position in the world and geopolitical opportunities are mainly determined by its natural resources, their production and primary processing. The most important of these resources is oil. The Russian oil-processing industry is a part of the oil industry of the country.

After the collapse of the USSR, Russia inherited rather outdated facilities. Out of 48 refineries with over 500 million tons per year in total production capacity, which had operated in the country, the most modern ones found themselves beyond Russia, in Lithuania, Ukraine, Kazakhstan, and Uzbekistan. They are 20 refineries with almost 180 million tons in total production capacity. The rest of the refineries were being streamlined, this process having slowed down during the collapse.

Based on the peculiarities of the fuel and energy balance, the technological structure of the facilities was formed without sufficient development of secondary processes. The volume of processes, which raised the refining rate, was only 19 percent of the amount of primary processing. This share of primary processing meant that the refineries had been working more to meet Europe’s demand, than Russia’s.

At many refineries in Russia and other CIS countries major equipment was ageing morally and technically by the beginning of 1990s. The wear level reached 80 percent or more. In this period, Europe, as well as the entire world, was transferring to new types of products. An ecologic safety system appeared; production of environmentally safe engine fuels began. These factors determined the development of new technologies by almost all Russian oil companies.

As of today, over 70 percent of Russian oil-processing facilities are controlled by vertically integrated oil companies, 3 percent of them are owned by Gazprom; another 27 percent belong to independent processing companies (Bashneftekhim, Alliance, KrasnodarEkoNeft, etc.).

In Russia 24 large refineries operate currently. Additionally, there are small companies on the Russian market, which specialize in the production of motor oils, lubricants and additives. They are the Mendeleyev refinery (Yaroslavl), the Novokuibyshevsk refinery, and the Moscow Experimental Processing Plant (MOPZ) Nefteprodukt. There are also the so-called mini-plants, which are located near oil fields owned by

Oil-processing industry Page 2 of 32

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both large vertically integrated companies, and independent oil companies, and oil processing companies.

Along with oil refineries, the statistics of primary oil processing in Russia includes oil-producing companies, e.g. Kogalymneftegaz, Uralneftegaz, Saratovneftegaz, Megionneftegaz, Purneftegaz, Tatneft, and Nizhnevartovsk NGPO (Oil and Gas Processing Company).

At the same time, Gazprom’s affiliates are involved in oil processing, Astrakhangazprom, Surgutgazdobycha and Urengoygazprom among them. The gas giant can process about 8.2 million tons of oil per year. However, Gazprom’s annual oil production does not overcome 1 million tons; this is why gas condensate is used as raw material at Gazprom’s oil-processing facilities. The company produces 9 million tons of gas condensate per year.

In 2001 the total capacity of primary processing facilities, including oil-processing facilities at production companies and Gazprom’s divisions, reached 281.8 million tons per year in Russia. During primary processing, oil is desalted and dehydrated; it also undergoes atmospheric and vacuum distillation. Due to this, oil is divided into fractions. For getting oil products with higher quality, the major part of primary processing products should undergo secondary processing.

In 2001 the use of these capacities amounted to 63.3 percent on average throughout the industry. At the same time, the capacity of secondary processing facilities was a bit more than 65 percent of primary processing; the share of major processes of refining with a high efficiency rate was as low as 6.6 percent. As a result the average refining rate reached only 60.2 percent in the industry. In Russia this level is the total output of all “useful” oil products. It is this figure that characterizes the efficiency of using raw materials. In developed countries, the refinery rate is calculated as the total output of light oil products; they are mainly engine fuels.

As for the structure of oil product output, Russia differs considerably from developed countries. While Russian black oil production exceeds gasoline production by 1.8 times, Japan produces 1.2 times more gasoline than black oil. Great Britain produces twice as much gasoline as black oil; German gasoline production overcomes black oil production by 2.2 times, in Canada gasoline production is 6.2 times more than black oil production.

Since the beginning of 1990s, the capacity of Russian primary processing has been continuously falling, while the potential volume of


January 2003

secondary processing has actually remained unchanged. This is why the share of the latter in the total volume of oil processing has been going up. Additionally, the major part of equipment was put in operation in 1950s-1970s. The latest significant investments were made in the 1980s. As of today the industry requires huge investments. However, the oil-processing industry receives only the assets remaining after profit distribution; 70 percent of resources, invested in refineries, are allocated for maintenance and repairing for a trivial support of equipment functioning at oil-processing plants. The shortage of investments was the reason for the critical level of depreciation of fixed assets. In 2001 this level reached 71 percent; this was just due to partial repair at a number of companies (in 1998 this figure was 81 percent).

In 2001 investments in the Russian oil-processing industry amounted to a little more than $1 billion, or 11.9 percent of the total volume of investments in the oil sector, while in the West the share of investments in oil processing fluctuates between 25 and 50 percent of the total investments in this industry.

The largest amounts of oil products are supplies to the Russian Agriculture Ministry, the Russian Railroads Ministry, RAO UES of Russia, to the regions of Extreme North of Russia and other regions recognized as equal to them.


Oil processing and oil product production

Technologies of oil processing

Oil processing is a multi-stage process of physical and chemical treatment of crude oil, with an output of a wide range of oil products. Russia produces over 500 kinds of gaseous, liquid and solid products from oil processing. They are classified into six basic groups regarding their purpose:

• First of all, they are engine fuels, including carburetor (aircraft and automobile gasoline), jet engine and diesel fuels.

• Power-generating fuels are used at gas turbine power plants and boiler houses.

• Petroleum oils are divided into lubricants and those used as power oils, for example, in brake systems and power converters.

• Among hydrocarbon and binding substances are petroleum coke, bitumen and petroleum pitches, which are used for producing electrodes and in road construction (asphalt, electrically insulating and waterproofing materials).

• Raw materials for the petrochemical industry are divided into aromatic hydrocarbons (benzene, toluene, xylenes, and naphthalene), raw materials for pyrolysis, paraffin hydrocarbons and ceresins. These processed products are used for producing colorants, pharmaceuticals, dissolvers, protein and vitamin concentrates, synthetic fatty acids, etc.

• There is also a group of special purpose oil products, which includes thermo gas oil (a raw material for producing carbon black), lubrication greases, lamp kerosene, fuel and motor oil additives, etc.

The choice of a specific line for oil processing depends on the quality of crude oil to a great extent; its composition is determined by the mode of occurrence and the production mechanism. The major characteristics of oil quality are its density, sulphur content, fractional composition, viscosity, water content, chloride salt content and contamination content (solids, clay grains, etc.).

During its production and procession, oil mixes with water twice: first, when oil is extracted from an oil well, and second, during the first stage of its processing when oil is “washed” with fresh water to remove chloride salts. Water together with chloride salts seriously complicate oil

January 2003

processing; water content in gasoline or diesel fuel triggers engine knocking and reduces the thermal conductivity of fuel; water content in motor oils accelerates corrosion of metal parts.

One of the most harmful impurity elements is sulphur. Sulphur compounds in oil are toxic; they contribute to tar ledge. Together with water they accelerate corrosion of metal parts of equipment.

Various oil sorts differ regarding the components of fraction content. During primary processing oil in divided into simpler blends or separate components. The fractions, which boil out while heating oil to 350 Centigrade, are light distillates. Those, which boil out at a higher temperature, are dark distillates. As a rule, light oil contains more gasoline, naphtha and kerosene; dark oil comprises gas oil and black oil. The most widespread oil has a gasoline content of 20 to 30 percent.

The content of hydrocarbons, which compose oil, their structure and proportion determine another important feature, which is oil viscosity. The lower viscosity is, the easier oil processing is; the lower oil density is, the easier oil processing is and the higher oil product quality is.

Light sorts of oil with a low content of sulphur, water, salt and other impurity elements and with low viscosity are of the best quality and the most valuable.

A major problem for the Russian oil-processing industry is the mixing of high and low quality oil in the Transneft oil pipeline system.

The technology of oil processing in divided into two main stages, which are primary and secondary.

Primary oil processing is performed with the use of dehydrating and desalting facilities, atmospheric and vacuum distillation. Major raw materials for this are oil and gas condensate. At this stage of processing, one produces hydrocarbon gas, which mostly consists of propane and butane, straight-run gasoline, kerosene and diesel fractions, black oil, asphalt oil and a broad vacuum (motor oil) fraction. At Russian refineries, the extraction of light fractions during primary processing is about 92 percent of the potential, while in developed countries this figure is over 97 percent. Today, a considerable part of Russian primary oil processing plants are worn out and require streamlining.

Secondary processing is divided into thermodestructive and catalytic, which in turn splits into the improvement of the quality of light oil products and processing with a high refining rate (the further extraction of light fractions from dark).


January 2003

The most widespread of thermal processes are viscosity breaking, thermal cracking, cocking and pyrolysis.

Viscosity breaking (light thermal cracking) is used for processing black oil or asphalt oil into boiler fuel. In this process, basic products of processing are boiling fuel (88 percent), gasoline (6.7 percent) and hydrocarbon gas (2.3 percent). The implementation of this process requires high expenditures and is characterized by the low quality of the gasoline produced.

The Russian oil-processing industry is at twice as low a level as Europe and at three times as low level as the USA. As for the development of the most important processes, such as catalytic cracking, hydrocracking, isomeric change and reforming, it is even farther behind these countries. Considering the so-called Nelson index, which characterizes the complexity of processing, as of now it is 3.5 to 5.3 on average at Russian refineries, while the average European level is 8.5 and the average US level is 17. This is why the need in creating new processes, which make refining more efficient, and, as a consequence, the need in investments are so great.

Volumes of oil processing and production of oil products, exports of oil products from Russia

The volumes of primary oil processing had a rising tendency in Russia in general over the previous three years, although this rise was insignificant. For example, Russian oil processing facilities processed 2.3 percent more oil in 2001 against 2000 and 3.2 percent more in 2002 against 2001. The production of such oil products as diesel fuel, motor oils, furnace fuel oil and automobile gasoline have a tendency for slight growth as well.


January 2003

THE DYNAM CS OF PRIMARY OIL PROCESSING AND PRODUCTION OF BASIC TYPES OF OIL PRODUCTS IN I

RUSSIA, IN MILLIONS OF TONS

174 178 183,8

27,2 27,5 28,649,1 50,2 52,1

2,6 2,8 2,7

50,249,2 53,1

020406080

100120140160180200

2000 2001 2002

primary oil processing automobile gasoline diesel fuel

furnace fuel oil motor oils

Source: data from the Russian State Statistics Committee

THE DYNAM CS OF PRIMARY OIL PROCESSING AND PRODUCTION OF BASIC TYPES OF OIL PRODUCTS IN I

RUSSIA IN 1988 TO 2002, IN MILLIONS OF TONS

Year Primary oil processing

Automobile gasoline Diesel fuel Furnace fuel oil

1988 310.5 52.6 77.8 108.8

1990 297.8 40.9 76.2 100.2 1991 286.3 38.8 722 97.1 1992 256.0 35.1 65.0 88.0 1993 223.0 30.0 55.1 78.3 1994 187.0 26.8 46.7 69.5 1995 183.0 28.2 47.4 65.1 1996 176.2 26.6 46.6 63.5 1997 178.0 27.2 47.7 62.5 1998 164.0 25.9 45.2 55.3 1999 168.6 26.5 46.8 52.2 2000 174.0 27.2 49.1 49.2 2001 178.0 27.5 50.2 50.2 2002 183.8 28.6 52.1 53.1

Source: data from the Russian State Statistics Committee


January 2003

Analyzing the dynamics of oil processing in Russia over the past ten years, we have to state a reduction in volumes of primary oil processing and in the production of oil products compared to the beginning of the 90s. Production results reached its low in 1998, when the volume of primary oil processing totaled 164m tons due to the August 1998 economic crisis. However, oil companies and plants managed to return to initial volumes and then started to increase production of oil products every year, which was caused by a rise in demand, including export demand, and a rise in prices for oil.

Exports of oil products

In 2002, exports of oil products reached 11.3 percent in the total volume of Russia’s exports, rising by 1.2 percent against 2001. The rate of increase reached 18.3 percent in terms of volume and 15.3 percent in terms of cost compared to 2001. It is important to note that 97 percent of oil products were exported to foreign countries outside the CIS and only 3 percent of exports accounted for the CIS states.


January 2003

EXPORTS OF OIL PRODUCTS FROM RUSSIA

2001 2002

Name of theproduct

In thousands of tons

In million

s of USD

The share in the total export volume

In thousands of tons

In million

s of USD

The share in the total export volume

The rate ofincrease in

% in terms of

cost

The rate of

increase in% in

terms of volume

Oil products, total

58,383.3 8,765.7 10.1 69,059.2

10,111.1 11.3 115.3 118.3

Foreign countries outside the CIS

56,411.3 8,332.5 10.6 67,113.2 9,802.3 12.2 117.6 119.0

The CIS states 1,972.0 433.2 5.2 1,946,1 308.8 3.5 71.3 98.7

Automobile gasoline 2,947.0 603.7 0.7 3,064.3 543.5 0.6 90.0 104.0

Foreign countries outside the CIS 2,536.9 523.6 0.7 2,637.2 481.3 0.6 91.9 104.0The CIS states 410.1 80.1 1.0 427.1 62.2 0.7 77.6 104.1

Jet fuel 766.4 171.8 0.2 613.6 124.8 0.1 72.7 80.1Foreign countries outside the CIS 705.9 155.0 0.2 568.0 115.9 0.1 74.8 80.5The CIS states 60.4 16.8 0.2 45.6 8.9 0.1 53.3 75.4

Diesel fuel 22,505.

1 4,510.1 5.2 25,961.6 4,689.6 5.2 104.0 115.4Foreign countries outside the CIS

21,601.5 4,314.6 5.5 25,300.6 4,590.9 5.7 106.4 117.1

The CIS states 903.6 195.5 2.3 661.0 98.7 1.1 50.5 73.1

Black oil 28,325 2,715.7 3.1 34,382.8 3,834.3 4.3 141.2 121.4Foreign countries outside the CIS

28,248.7 2,709.5 3.4 34,308.5 3,831 4.8 141.4 121.5

The CIS states 76.3 6.3 0.1 74.4 3.3 0.0 52.2 97.5

Source: data from the Russian State Customs Committee


January 2003

THE STRUCTURE OF EXPORTS OF OIL PRODUCTS FROM RUSSIA, IN %

Diesel fuel38%

Black oil50%

Automobile gasoline

4%Others

8%


January 2003

The role and place of oil companies in the Russian oil processing industry

More than 70 percent of Russian oil refining facilities are controlled by vertically integrated oil companies, 3 percent are owned by Gazprom and another 27 percent are under control of independent oil processing companies.

In 2001, the oil company LUKoil remained the leader in the volume of oil refinery, with the volume of primary oil refinery at its factories (including factories abroad) reaching 38m tons, or 21.3 percent of the total volume of oil refining by Russian oil companies, which was 18 percent more than in 2000. If calculated without taking into consideration foreign factories, the share of LUKoil in oil refining was 16 percent. In total, in 2001, the company supplied 45.23m tons of oil to domestic refineries, i.e. 29.7m tons to its own refining facilities and 15.6m tons to other refineries. According to the results of the first ten months of 2002, LUKoil preserved its leading position with 27.9m tons refined at its major and mini- refineries and the share in total oil refining reaching 23 percent.

The closest competitor of LUKoil, YUKOS, refined 29m tons of oil in 2001, which accounted for 16.3 percent of the total volume of oil refining in Russia and was 8.6 percent more than in 2000. An increase in the share of oil production is the company’s strategic task, as this direction in business activities brings additional profits to the company, thus compensating for an increase in expenditures for crude oil production. YUKOS refined 25.9m tons of oil in the first ten months of 2002, which was 21 percent of the total Russian oil refining volume. An increase in this parameter compared to 2001 was due to an rise in the volume of refining at YUKOS after the company acquired the Angarsk petrochemical company, a leader in the volume of oil refining among other YUKOS-owned plants.


The third position is occupied by the petrochemical company OAO Bashneftekhim with a 13-percent share in the total volume of oil refining in Russia. Slavneft occupied the fourth position in the volume of oil refining among Russian vertically integrated oil companies in 2001, leaving Surgutneftegas behind, in fifth place. The latter reduced the volume of refining by 0.6 percent in 2001. Nevertheless, judging from the results of the first ten months of 2002, Surgutneftegas was in seventh place in the total volume of oil refining in Russia and a share of only 10 percent. Surgutneftegas-owned Kirishinefteorgsintez refined 12.313,9m

January 2003

tons of oil in the first ten months of 2002, the largest refinery among other refining facilities of Surgutneftegas.

In 2002, Surgutneftegas increased investments in upgrading refineries by three times, purchased equipment for hydrocracking, which required huge expenses together with the reconstruction of a gas refining factory. The latter is going to be used as a basis for the establishment of the Surgutpolimer gas and petrochemical facility. Moreover, the company will face the acquisition of new assets. In 2000, the company launched the project of full conversion in hydrocracking, at a cost of about $800m, for raising the efficiency of refining, and the whole facility is expected to be brought into operation in 2004. The yield of light oil products is expected to increase from 46 to 62 percent. The next stage of the upgrading project will be the introduction of catalytic cracking. This project is estimated at about $400m to $500m. Petrochemical facilities will be brought into operation at the next stage of the project, costing about $300m. The total cost of the multi-stage project for upgrading Kirishinefteorgsintez will reach $1.4bn and it is planned to be completed by 2015.

All these plans will result in expanding the oil-product terminal in the Batareinaya Bay for increasing exports of oil products to European markets, reorienting its supplies on light oil products. Surgutneftegas plans to purchase assets in oil refineries and petrochemical companies in the CIS states.


January 2003

THE DYNAMICS OF PRIMARY OIL REFINING IN THE LARGEST RUSSIAN VERTICALLY INTEGRATED

COMPANIES, IN MILLIONS OF TONS

Company

Total oil refining capacity, in

millions of tons a year 2000 2001

2001 against 2000, in

%

The first ten

months of 2002

LUKoil

33.8 (including refineries in foreign countries, i.e. 18.1)

plus capacity of NORSI – 4.2

32.2 38.047 118.0 27.9

YUKOS 31.2 26.7 29.0 108.6 25.9

Slavneft 26,5 (including

refineries in foreign countries, i.e. 12)

16.8 17.2 102.3 9.8

OAO Bashneftekhim

No data available

No data available

No data available 15.8

Surgutneftegas 17.3 16.3 16.2 99.4 12.4

TNK 43,6 (including

refineries in foreign countries, i.e. 16)

11.6 14.6 125.8 12.9

Sibneft 19,5 12.6 13.3 105.6 11.1 Rosneft 9,8 7.1 7.7 108.5 7.0

Source: data from companies and the RIATEC information agency

TNK significantly increased the volume of oil processing, rising from fifth place in 2001 to fourth place according to the results in the first ten months of 2002. This rise became possible mostly due to including the results of Orsknefteorgsintez in its report. The latter company came under control of TNK in 2001. Its share in the total volume of primary oil refining reached 12 percent.


January 2003

THE STRUCTURE OF PRIMARY OIL PROCESSING IN VERTICALLY INTEGRATED OIL COMPANIES IN THE

FIRST TEM MONTHS OF 2002, IN %

LUKOIL23%

Slavneft8%

Surgetneftegas10%

TNK10%

Sibneft9%

Rosneft6%

YUKOS21%

Bashneftekhim13%

PRIMARY OIL PROCESSING IN THE FIRST TEN MONTHS OF 2002 BY REFINERY, IN THOUSANDS OF TONS

Primary processing

Company

The first ten months of 2002

A rise or fall

against the first ten months of

2001, in % Large refineries Rosneft Komsomolsk refinery 3,656.8 106.5 Tuapse refinery 3,299 112.4 ZAO KrasnodarEcoNeft 905.9 76.4 OAO Moscow refinery (MNK) 7,571.6 92.8 OAO Salavatnefteorgsintez 5,029.3 103.9 OAO Nizhnekamskneftekhim 4,021.4 88 OAO Bashneftekhim Novoufimsky refinery 4,445.5 85.6 Ufaneftekhim 5,308.7 99.1 Ufimsky refinery 6,074.3 93.4 OAO LUKoil Volgogradneftepererabotka 6,948.7 100.5 Permnefteorgsintez 9,076.9 101.7 Ukhtaneftepererabotka 3,015.9 102.1 Nizhegorodnefteorgsintez 8,718.4 154 OAO Surgutneftegas Kirishinefteorgsintez 12,313.9 93.1


January 2003

OAO YUKOS Syzran refinery 3,846.7 97.3 Novokuibyshevsk refinery 5,809.6 106.4 Kuibyshevsk refinery 4,888.2 113.4 Achinsk refinery 4,228.1 103.7 Angarsk petrochemical company 6,916.3 114.5 OAO Sibneft Omsk refinery 11,127.8 100.5 OAO SIDANCO Saratov refinery 3,945.8 125.8 OAO Alliance Group Khabarovsk refinery 2,239.4 102.2 OAO Slavneft Yaroslavnefteorgsintez 9,606.2 102.5

The Mendeleyev refinery (Yaroslavl) 164.3 82.2 OAO Tyumen Oil Company Ryazan refinery 8,454.8 95.8 Orsknefteorgsintez 3,250.5 96.2 OAO Gazprom 4,411.1 98.2

Итого на НПЗ и предпр. "Газпрома": 149275,1 102 Mini-refineries OAO Rosneft Purneftegaz 45.4 8 OAO Tatneft Kichuysky refinery 190 -11.2 Shugurovsky refinery 20.7 -7 Nurlatskaya refinery 13.2 -16.1 OAO Tatnefteprom Karabashskaya refining facility 24.7 -9.8 OAO LUKoil Oil Company Kogalymneftegaz 132.2 -6.1 Uralneftegaz 35.2 3.8 OAO Surgutneftegas 88.4 -9.1 OAO YUKOS Oil Company Strezhevoy refinery 171.6 -0.4 OAO Slavneft oil and gas company Megionneftegas 7.6 -7.9 OAO Varyeganneft 9.3 -4.5 Novospasskaya MUPG refinery 27.9 -8 OAO TNK Nizhnevartovsk refinery 1,045.9 87 Krasnoleninsky refinery 117.9 9.8 OOO Mariysky refinery 297.3 -12.5 Petrosakh-sakhalin 23.7 -23.2 Stavropolneftegaz 37.8 1.3 Yakutgazprom 55.2 1.4 Norilskgazprom 6.3 -1.4 ZAO UMT 4.1 0.7 ZAO Kaspiy 1 10.3 10.3 ZAO Transbunker 163.3 163.3


January 2003

OOO Nafta Oil Company 0 0 Kubangazprom 20.5 0.5 OOO Profit 4 56.3 21 OAO Neftebitum 18 18 Total, mini-refineries 2,622.7 208

ИТОГО по России 151897,8 102,1 Source: data the RIATEC information agency

TNK was the leader in the volume of primary oil refining at mini-refineries among other oil companies, its share reaching 44 percent.

DYNAMICS OF PRODUCTION OF BASIC TYPES OF OIL PRODUCTS OF VERTICALLY INTEGRATED OIL

COMPANIES, IN THOUSANDS OF TONS

Vertically integrated oil company Year Total Gasoline Diesel fuel Black oil

2000 22,057 3,327 6,357 5,028 2001 32,581 4,406 8,660 6,950

LUKoil 1 The first nine

months of 2002 No data available 3,260 6,571.8 6,388.6

2000 23680 No data available

No data available

No data available

2001 28000 No data available

No data available

No data available

YUKOS The first nine

months of 2002 21400 3,685.8 6,861.3 6,861.8

OAO Bashneftekhim The first nine

months of 2002 No data available 3,386.4 5,085.5 3,576.3

2000 No data available 3,512 4,278 1,764

2001 No data available 3,236.6 4,525.3 1,962.3

Sibneft The first nine


2000 15600 1,700 3,600 8,300 2001 15500 1,700 3,600 8,200

Surgutneftegas The first nine


2001 No data available 1,362.8 2,403.6 3,181

Rosneft The first nine

months of 2002 No data available 234.9 1,583.3 2,599.4

Source: data from companies and the RIATEC information agency (for the first nine months of 2002)

LUKoil was the leader in production of oil products until recently, and the share of its gasoline production was about 12 percent in 2000 and 2001

1 Данные по российским НПЗ Компании


January 2003

with the share of diesel fuel production increasing to 17 percent in 2001 against 12 percent in 2000, and the share of black oil production went up from 10 percent to 13 percent.

The LUKoil structure contains seven large oil refineries, including four in Russia, i.e. the Perm refinery, the Volgograd refinery, the Ukhta refinery and NORSI in Nizhni Novgorod. Other LUKoil refineries are located in Eastern Europe: in Ukraine (OAO LUKoil–Odessa refinery), in Romania (AO Petrotel-LUKoil) and Bulgaria (LUKoil-Neftochim Burgas). The company also uses other refineries in Russia for oil refining under contracts. This provides LUKoil with additional refining facilities, when necessary. These refineries include the Moscow refinery and Salavatnefteorgsintez in Bashkortostan.

One of the main strategic tasks of LUKoil is an increase in production of deep-processed oil products that correspond to European and international standards of quality.

LUKoil plans to complete the large-scale upgrading of its processing facilities, both in Russia and abroad, before 2010. As a result, the efficiency rate of oil refining will increase from the current 85-57 percent to 95 percent at LUKoil-owned refineries.

Meanwhile, YUKOS, which was slightly behind LUKoil in 2000 and 2001, outstripped the latter by the results of the first nine months of 2002 and occupied the leading position in production of basic types of oil products in this country. The volume of its oil-product sale on the domestic market reached 13.7m tons in the first nine months of 2002, which was 9.4 percent more compared to the corresponding period of 2001. Exports of oil products in the same period of 2002 increased 8.5 percent against the first nine months of 2001 and reached 7.7m tons. The yield of light oil products at YUKOS oil refineries reached 57.83 percent in the first nine months of 2002 against 58.66 percent in the corresponding period of the previous year.

The company constantly pays attention to improving the quality and ecological characteristics of its oil products. It was back in 1996 when YUKOS became the first Russian company that completely stopped production of blended gasoline and none of types of gasoline produced by the company now contains lead. Diesel fuel produced at YUKOS refineries contains no more than 0.2 percent of sulphur, which is one of the best achievements for Russian refineries.

The greater part of gasoline produced by domestic companies is exported. In the first nine months of 2002, a reduction in production


January 2003

compared to the corresponding period of 2001 was posted by the following companies: Bashneftekhim, Slavneft, Surgutneftegas and Rosneft.

AUTOMOBILE GASOLINE PRODUCTION IN THE FIRST NINE MONTHS OF 2002, IN THOUSANDS OF TONS

Share of deliveries

Company Gasoline produced

The share of

the company in total

production volume

in %

A rise or fall

against the first

nine months of 2001,

in %

To the domestic market

For exports

OAO YUKOS Oil Company 3,685.80 17.5% 4.8 2.0% 98.0% OAO Bashneftekhim 3,386.40 16.0% -2.3 4.5% 95.5% OAO LUKoil Oil Company 3,260.60 15.4% 12.1 13.6% 86.4% OAO Sibneft 2,421.50 11.5% 6.7 14.8% 85.2% OAO Tyumen Oil Company 1,929.20 9.1% 1.9 3.6% 96.4% OAO MNK (Moscow refinery) 1,457.10 6.9% 4.9 6.3% 93.7%

OAO Slavneft oil and gas 1,233.90 5.8% -7.6 0.9% 99.1% OAO Surgutneftegas 1,178.60 5.6% -7.7 56.5% 43.5% OAO Gazprom 912.5 4.3% 4.2 0.3% 99.7% OAO Salavatnefteorgsintez 754.8 3.6% 4.0

49.7%

50.3%

OAO SIDANCO 441.8 2.1% 5.6 0.0% 100.0% OAO Rosneft 234.9 1.1% -3.0 0.0% 100.0% OAO Alliance Group 215.4 1.0% 0.0 0.0% 100.0%


January 2003

PRODUCTION OF DIESEL FUEL IN FIRST NINE MONTHS OF 2002, IN THOUSANDS OF TONS

Share of deliveries Company Diesel fuel produced

A rise or fall

against the first

nine

The share of the

company in total

productio



OAO YUKOS Oil Company 6,861.30 4.3% 18.1% 56.6% 43.4% OAO LUKoil Oil Company 6,571.80 16.4% 17.4% 46.8% 53.2% OAO Bashneftekhim 5,085.50 -5.9% 13.4% 58.9% 41.1% OAO Sibneft 3,514.30 4.4% 9.3% 57.5% 42.5% OAO Surgutneftegas 2,664.20 2.5% 7.0% 32.6% 67.4% OAO Tyumen Oil Company 2,566.30 -5.7% 6.8% 48.9% 51.1% OAO Slavneft oil and gas company

2,327.80 -0.3% 6.1% 40.6% 59.4%

OAO MNK (Moscow refinery) 1,926.10

-0.7% 5.1% 19.5% 80.5% OAO Rosneft 1,583.30 12.7% 4.2% 31.7% 68.3% OAO Salavatnefteorgsintez 1,427.70

3.4% 3.8% 36.3% 63.7% OAO Gazprom 1,141.60 -4.4% 3.0% 80.9% 19.1% OAO SIDANCO 871.8 4.5% 2.3% 52.8% 47.2% OAO Nizhnekamskneftekhim 744.9 -18.5% 2.0% 51.2% 48.8% OAO Alliance Group 350.2 6.3% 0.9% 81.6% 18.4% ZAO KrasnodarEcoNeft 215.5 -56.4% 0.6% 51.4% 48.6%

Unlike automobile gasoline, the share of diesel fuel supplies to the domestic market and for exports was almost equal in these companies, about 50/50, excluding data on Gazprom and Alliance Group that had an insignificant share in the total production volume. LUKoil enjoyed the largest growth rate in diesel fuel production (16.4 percent), which was close to production by YUKOS.


January 2003

PRODUCTION OF BLACK OIL IN THE FIRST NINE MONTHS OF 2002, IN THOUSANDS OF TONS

Share of deliveries

Company Black oil produced

A rise or The share



OAO YUKOS Oil Company 6,861.80 11.6% 17.5% 52.2% 47.8% OAO LUKoil Oil Company 6,388.60 15.9% 16.3% 55.4% 44.6% OAO Tyumen Oil Company 3,624.10 -6.6% 9.2% 84.1% 15.9% OAO Bashneftekhim 3,576.30 -12.5% 9.1% 39.3% 60.7% OAO Slavneft oil and gas company

3,335.70 7.8% 8.5% 78.0% 22.0%

OAO Surgutneftegas 3,147.30 30.9% 8.0% 72.7% 27.3% OAO Rosneft 2,599.40 9.9% 6.6% 81.1% 18.9% OAO MNK (Moscow refinery) 2,149.70 -7.9%

5.5% 65.9% 34.1% OAO Nizhnekamskneftekhim 1,963.50 -14.8% 5.0% 49.4% 50.6% OAO Sibneft 1,486.80 -11.3% 3.8% 4.4% 95.6% OAO Salavatnefteorgsintez 1,437.20 -9.1%

3.7% 12.7% 87.3% OAO SIDANCO 1,342.10 26.1% 3.4% 65.9% 34.1% OAO Alliance Group 709.8 7.1% 1.8% 74.4% 25.6% ZAO KrasnodarEcoNeft 296.5 -39.7% 0.8% 92.2% 7.8% OAO Gazprom 267.3 -4.7% 0.7% 70.8% 29.2%

YUKOS leads in production of black oil just like in the production of gasoline and diesel fuel, with a 17.5-percent share of the black oil market. LUKoil is behind by only 473,000 tons of black oil, with a rise in production of this kind of oil product by almost 16 percent. The maximum rise in production of black oil (by 30 percent) was posted by Surgutneftegas. The structure of deliveries of black oil is uneven, i.e. TNK has a share of 84 percent in supplies to the domestic market compared to a 4.5-percent share of Sibneft.


January 2003

Industry development trends

In accordance with the estimate for fuel and energy resources of Russia for the period until 2020, the volume of oil refinery will rise by over 7 percent to 195m tons.

According to the main provisions of the Energy Strategy of Russia, whose latest version envisages raising the average degree of oil refining to 75 percent in Russia by 2010, and taking into account the forecasted growth in the volume of primary oil refining to 200m-225m tons, it is planned to increase the output of light oil products (gasoline, diesel fuel and kerosene) to 130m tons. The achievement of these goals will help our country to produce the main kinds of oil products in accordance with changing demand, to maintain the high volume of their export and to do without imports.

The main problems of the Russian oil refining industry are excessive capacity and a low degree of oil refining, compared to western oil refineries. Additionally, the location of the oil refineries is not always optimal.

Big oil companies, which own oil refineries and wholesale firms selling oil products, will be able to substantially increase their equity in 2003: a new article of the Tax Code that provides for payment of excise taxes by gasoline stations instead of oil refineries is to come into force on January 1.

The new trends on the oil products market make oil companies revise their attitude to the technical and technological condition of their oil refineries. Fuel oil consumption will be decreasing in the future, and therefore, almost all companies have already declared their intentions to increase the degree of refining. Owing to a growth in the demand for diesel fuel in Russia and in Europe, a rise in its production and the improvement of its quality to meet European standards should be expected. The situation with gasoline production will be somewhat worse, since Russian quality standards are still lower than western standards, and the demand for gasoline will be growing slower than that for diesel fuel. Therefore, taking into account the plans to close some oil refineries in Europe and the pragmatic policies of Russia's centralized oil companies, it should be expected that modernization of Russian oil refineries will first of all deal with the process of diesel fuel production for export.


January 2003

As for the refining of oil, Russia's main resource, Russia has chosen an unordinary way, which is not typical for the rest of the world. Foreign markets proved most important for Russia's oil products, as well as for Russian crude, instead of the domestic market, which would be logical. Rather insignificant efforts made by Russian oil companies to reconstruct the aging, worn-out facilities of their oil refineries are intended to increase the export capacity but not to fulfill the needs of the domestic market.

Development of the oil refining industry is beneficial for Russian oil companies for the following reasons:

• It increases the added value of a company and its profit margin and, to some extent, protects a company against a decline in world oil prices.

• Their potential for growth in demand for oil products is substantial, for in terms of the number of automobiles per 1,000 people, Russia is far behind developed counties, such as the USA, where this parameter exceeds the level of 500.

• The dynamics of oil prices is far less stable than the dynamics of prices of oil products. Oil products are consumed mainly in developed countries, where sharp fluctuations in prices are impossible. Growth in the Russian export of oil products is gaining momentum, and it has turned into an important source of profits for most oil companies.

• Development of the oil refining industry with the use of progressive technologies is necessary to achieve an international degree of oil refinement in Russia. The same applies to quality and production costs. No Russian oil company produces products whose quality would meet the standards of the international market.

• Development of the oil refining industry is an important step for joining the WTO, because it will allow Russia to keep its oil companies competitive. Unless oil companies intensify their efforts to develop oil refining, Russia will sooner or later lose its positions on the world market and will face the problem of needing to import fuel.

• The main aims of the modernization of oil refineries are to increase the production of light oil products and to improve their quality to meet international standards. Companies are interested in producing light oil products as long as Russian oil products are in demand. Modernization of facilities envisages the production of


January 2003

light oil products of better quality and a reduction in the production of, for example, fuel oil. Our materials are mainly used as half-finished products in the West now.

LUKoil, YUKOS and Sibneft have the most ambitious plans for the development of oil refining. The first two companies plan to extend their oil refining facilities and sales in Europe, and Sibneft has decided to boost the domestic market. A growth in production has formed a basis for the development of production and sales, and therefore, Sibneft plans to increase the volume of sales of oil products inside Russia and to substantially extend its presence in Siberia and Central Russia. In the opinion of the company's management, the selling of oil products on the domestic market is more profitable than exports.

LUKoil plans to increase the volume of sales of oil products, first of all, on foreign markets, by 70 percent by 2005. The company is placing much hope on the purchase of the Hellenic Petroleum oil refinery in Greece, which will seriously improve the company's positions in Europe.

YUKOS plans to buy shares in the BayernOil refinery and a chain of gasoline stations in Germany, which will allow the company to control a substantial part of the German market, which many experts consider the largest market in Europe.

The intention to increase the volume of refining is due not only to the limitation of the volume of crude exports but also to purely economic advantages.

First of all, oil companies can develop consumption of their products in Russia: the reserves for production are still rather large, and the potential for growth is rather extensive.

The most advantageous sector, which is the largest in volume, is the petrochemical industry. Centralized oil companies that have developed oil refining have prerequisites for development of this sector. For example, Slavneft, Surgutneftegas, Rosneft have rather advanced facilities at some of their plants and are reconstructing other plants, using the latest technological achievements. They are also working out an extensive investment program of investments in non-core assets.

The petrochemical industry is the key method of domestic consumption of oil. Obviously, oil companies can support other methods of oil consumption. Support for general economic development and some warming of the economic climate are beneficial for companies. A rise in oil consumption due to GDP growth can make prices more stable.


January 2003

The existing capacity of the Russian oil refining industry exceeds the volume of domestic sales of oil products and their exports by 40 percent. However, projects of building new oil refineries were presented in several regions (the Orel, Magadan, Sverdlovsk and Novosibirsk regions).

The concept of building an Orel oil refinery was approved in May 2002 by the administration of the Orel region and the Severnaya Neft company. At the initial stage, the future oil refinery in the Zalegoshchinsky District is to refine 0.5m-0.6m tons of oil a year. Then it will gradually reach its full capacity of 3m-4m tons a year. The amount of initial investments in the project is estimated at $100m, and its full cost will reach $650m. The administrations of the Novosibirsk and Sverdlovsk regions, as well as Magadan, have declared their intentions to build oil refineries. The Tyumen Oil Company will be a partner of the Sverdlovsk region. It plans to start the construction of an oil refinery with a capacity of 1.8m tons a year soon.

The administration of the Magadan region made an agreement on constructing an oil refinery with a capacity of 1m tons a year with the British company Enothera Ltd. The Novosibirsk oil refinery with a capacity of 0.5m-0.8m tons a year will be refining oil from the Verkh-Tarskoye field, whose development has been started by SIDANCO.

Taking into account the growing domestic demand for light oil products and a tightening of the ecological standards for motor fuel, there is an obvious need for new refineries. Medium-size oil refineries with a high degree of refining can produce high-quality gasoline, are able to find their market niche and successfully compete with inefficient refineries of the centralized oil companies.

Oil refineries owned by big centralized oil companies have enough oil for refining and do not accept oil from independent oil producing companies on a give and take basis. The oases for such companies are four oil refineries in the Republic of Bashkortostan (the Ufa Oil Refinery, the Novoufimsky Oil Refinery, the Ufaneftekhim oil refinery and the Salavatnefteorgsintez oil refinery), as well as the Moscow Oil Refinery and Yaroslavlnefteorgsintez, which a relatively free market of oil products is concentrated on.

A high degree of monopolization of refining facilities blocks the formation of a competitive market of oil products. Its consequences are division of the regional markets between 2-3 main suppliers, excessive fuel prices, and a threat of a crisis in the event that a large company fails to reach an agreement with a region.


January 2003

Therefore, construction of small oil refineries will obviously decrease the dependence of regions on big oil companies and will increase competition on the fuel market.

As for extending the capacity for exporting oil products, specialists remark that China has been showing special interest recently. The machine-building industry is developing fast in that country now, requiring a large amount of fuel. The consumption of oil products is to grow substantially in China during the next several years, and the existing facilities are not sufficient.


Sources and links

The following materials were used during the preparation of the review:

• Materials from the site of the TEC Russian Information Agency

www.riatec.ru

• Articles and materials from the following periodicals: Vedomosti, Izvestia, Russkiy Fokus, Neft i Kapital, Neftegazovaya Vertikal, Finansovye Izvestia, Vremya Novostey.

• Sites of companies of the oil and gas industries:

www.yukos.ru

www.sibneft.ru

www.tnk.ru

www.lukoil.ru

• Sites of the oil and gas industries:

www.neftegaz.ru

www.3e.opec.ru

www.oilpress.ru

www.nefte.ru

• Materials from the site of the Ecotrans consulting and research company

www.marketsurveys.ru

• Statistical data from the sites o the State Statistics Committee and the State Customs Committee of Russia

www.gks.ru

www.gtk.ru

http://www.yukos.ru/

http://www.sibneft.ru/

http://www.tnk.ru/

http://www.neftegaz.ru/

http://www.3e.opec.ru/

http://www.oilpress.ru/

http://www.marketsurveys.ru/

http://www.gks.ru/

http://www.gtk.ru/

Documents

OIL-PROCESSINGS INDUSTRYecsocman.hse.ru/data/088/202/1217/Oil_processing.pdf · refining more efficient, and, as a consequence, the need in investments are so great. Volumes of oil