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Transcript of Examining the latest developments in Russian refining … · Examining the latest developments in...
Examining the latest developments in Russian refining
and possible implications for Europe and other regions
Platts Middle Distillates 2015
January 2015
2
Important Notice
The information contained herein has been prepared by the Company. The opinions presented herein are based on general
information gathered at the time of writing and are subject to change without notice. The Company relies on information obtained
from sources believed to be reliable but does not guarantee its accuracy or completeness.
These materials contain statements about future events and expectations that are forward-looking statements. Any statement in
these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks,
uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. We assume no
obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or
changes in factors affecting these statements.
This presentation does not constitute an offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase any
securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. No reliance may be
placed for any purposes whatsoever on the information contained in this presentation or on its completeness, accuracy or
fairness. The information in this presentation is subject to verification, completion and change. The contents of this presentation
have not been verified by the Company. Accordingly, no representation or warranty, express or implied, is made or given by or on
behalf of the Company or any of its shareholders, directors, officers or employees or any other person as to the accuracy,
completeness or fairness of the information or opinions contained in this presentation. None of the Company nor any of its
shareholders, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever
arising from any use of this presentation or its contents or otherwise arising in connection therewith.
3
Russian Government has proclaimed 3 key goals for Russian refining industry
upgrade campaign by 2020 and uses 4 levers to achieve them
Increase lights yield (conversion) 1
• Key focus is on meeting demand for
gasoline
Lights yield, %
Higher fuel standards in Russia Replace refineries old units and
increase HSE standards
2 3
Euro <5
Euro 5
2020
0%
100%
2012
70%
30%
Diesel and gasoline production,
MTPA
• Increased motor fuel production and
Euro-5 compliance remains in focus in
nearest years
• It is estimated that 70% of Russian
refining units have already exceed
their expected lifetime
• Key replacement goals:
−High health, safety and
environmental standards
−Operational integrity
−Maximization of refinery utilization
−Increase in labor productivity due to
automation & technology
4 party agreement between Government (FAS, Rosstandart, Rostehnadzor) and oil companies
Each oil company is obliged to upgrade refineries to agreed configuration and to produce a certain amount of motor fuels meeting technical
Regulation specifications
Differentiation of excise taxes
Russia excise tax for higher specification
fuel is smaller, incentivizing quality
improvement
Introduction of technical regulation
Motor fuels non-compliant to norms are
prohibited from sale on domestic market
•Minimum Euro 4 in 2015
•Minimum Euro 5 from 2016
2020
66%
2012
55%
Source: Minenergo, Skolkovo business school, Rosneft
Differentiation of export duties
Significant export duty advantage for light
products compared to dark products
B
A
C
D
4
Over the past decade growth in primary refining capacity outpaced that of
secondary conversion units
Russia’s refinery runs and products output*, MTPA
15
1930
60
72
14
19
32
36
39
77
203
249
273
2013
252
2010
227
2005
183
9 9
58
9
77
11
77
Naphtha
Diesel
Other
Fuel Oil
Mogas
Crude and Gas
condensate runs
Jet
• Russia’s refining volumes
increased in the last 10 years
due to new primary distillation
capacity, but the production of
motor fuels was always behind
that increase
• Major driver of motor fuels
production growth was
introduction of new secondary
refining units in the period from
2004 to 2013
– Izomerisation: 15 units with
total capacity 5,4 MTPA
– Catalytic cracker: 2 units with
total capacity 3 MTPA
– Hydrocracker: 6 units with
total capacity 12,7 MTPA
– Coker: 2 units with total
capacity 2,6 MTPA
– Visbreaker: 8 units with total
capacity 12,8 MTPA
Source: CDU TEK * including mini-refineries
22%
2005-2013 growth, %
28%
100%
33%
26%
35%
5
Existing refinery modernization projects will lead to substantial
increase of gasoline and diesel supply
Additional production of motor fuels after modernization*, MTPA
0,4 0,5
3,0
0,5
1,7
3,6
Gasoline: +10 MTPA by 2021
2020
2,7 3,0
2015 2016 2019
3,1
2017
8,3
6,7
2014
1,1
2018
3,3
Diesel:
+30 MPTA by 2021
Source: Rosneft * Upon completion of on-going projects
Slavneft TAIF
Antipinsky
Gazprom
Surgutneftegaz TANEKO GazpromNeft
Bashneft
Lukoil
Rosneft Aliance
Gazprom:
Hydrotreatment ,
izomerization
(Astrakhan);
Gazpromneft:
hydrotreatment,
izomerization
(Мoscow);
Surgutneftegaz.:
hydrocracker (Kirishi);
Аntipinsky.: AT
Aliance:
hydrotreatment and
hydrocracker
Gazprom:
izomerization
(Salavat);
Lukoil : AVT
(Volgograd);
TANEKO:
hydrocracker;
Antipinsky:
hydrotreatment
Gazprom: izomerization
(Surgut);
Gazpromneft: АТ (Omsk);
Lukoil: izomerization,
hydrocracker (Volgograd),
Coker (Perm), izomerization,
catcracker (NNovgorod);
Rosneft: Hydrocracker
(Komsomolsk.), catcracker
(Samara), Coker (Аchinsk);
Аntipinsky: Coker
Аntipinsky:
izomerization, reformer;
Gazprom: catcracker
(Salavat);
Rosneft.: Hydrocracker,
izomerization, reformer
(Tuapse), hydrocracker,
coker (Samara),
hydrocracker (Achinsk);
Bashneft: hydrocracker
Gazprom: alkylation
(Salavat);
Rosneft.: flexicoking
(Тuapse),
hydrotreatment
(Ryazan);
Gazpromneft: coker
(Omsk)
Bashneft: coker,
Gazpromneft: hydrocracker (Omsk);
Antipinsky: Hydrocracker
Lukoil: hydrocracker
(NNovgorod);
Rosneft: hydrocracker
(Ryazan);
Slavneft:
hydrocracker
6
Tax maneuver will level the duties for crude and dark products, while increasing
the tax advantage for light products
46
72
98
182
2014 2015 2016
155
275
147
-34%
205
179 182
154 154
2017
-70%
0%
Crude Dark products Light products
• Significant tax gap
between crude and
products
• Equal tax for dark
and light products
• Equal tax for crude
and dark products
• Significant tax gap
between dark and
light products
Crude
2015
36%
2016
42%
2017
30% 30%
2019 2018
30%
2014
59%
Export duties after tax maneuver, USD/t @ 85 USD/bbl Brent New tax maneuver export duties, %
Dark products
2014 2016
82% 100% 100%
2018
100%
2019 2017 2015
76% 66%
Light products
30%
2019
30%
2017
30%
2016
40%
61%
2015
48%
78%
2018 2014
65%
90% Gasoline Diesel
Source: Rosneft
7
Tax maneuver impact on refining: worse margins for simple refineries and
stable margins for complex refineries
59
30 24
6052
23
2015
2
2017 2016
-27
2014
104
-15 -3
-12
• Profitability of sophisticated
refineries remains stable
• Simple refineries in Russia
become uneconomical at
Brent 50$ /bbl and marginal
at 85 $ /bbl
• Potential shut-down of
unprofitable simple refineries
will not impact domestic fuels
market, but may release
additional 20-30 MTPA of
crude for exports
50 $/b 100 $/b 85 $/b
Simple refinery margin*, $/t
9176 82 86
17
2016
127
18
135
2017 2015
16
119
143
2014
19
85 $/b 100 $/b 50 $/b
Complex refinery margin*, $/t
Source: Rosneft * Simple - refinery has a visbreaker without VGO conversion. Complex – refinery with VGO conversion units. Location – Central Russia
8
There is no risk of gasoline deficit on domestic market in short term.
Surplus expected in the long term.
0
10
20
30
40
50
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Rosneft TNK-BP Lukoil
GazpromNeft Gazprom Bashneft
Slavneft Surgutneftegaz Other
Risk group Loss-making Consumption (low case)
Consumption (base case)
• Historically gasoline balance
in Russia has been tight, with
seasonal deficit covered by
imports from Belarus
• Implementation of refineries
conversion projects in Russia
will lead to gasoline surplus
starting from 2017
• Slower demand growth in
2015-2016 minimizes risks of
deficit before launch of most
refinery conversion units
• Possible closure of
unprofitable refineries is
unlikely to generate deficit on
domestic market even in
2015
Russia gasoline supply/demand balance, MTPA
Source: demand forecast – Wood Mackenzie, actual data - Petromarket, production forecast – Rosneft assumptions, actual data – CDU TEK
9
Russia will become a net exporter of gasoline, primarily in European direction
-2,3-1,7-2,5-1,9
-0,9-1,4-1,3-1,0
-0,7-0,1-2,3-2,4
4,6
12,2 12,6 12,0 -1,3-1,2-1,2-1,5
2,02,32,42,4
-1,7-1,6-1,5-1,4
1,6
North-West
Center
South
Volga
Ural region
Siberia
Far East *
Far East region deficit is
covered by Siberia
supplies «on route» to
export ports
6,94,8
-2,4
8,2
25 20 16 2012
Kirishi
2,3 MTPA
Tuapse
2,4
MTPA
0,80,91,0 0,41,6
2012 20 25 16
Total «East» *
Regional gasoline supply/ demand balances in Russia, MTPA (base case)
• Volga region refineries will close
the gasoline deficit in nearby
regions
• Surplus gasoline production
from Siberia region will cover
the deficit in Far East
• Main export refineries will be the
ones located in or near
exporting ports:
− Kirishi in North-West region
exporting to North West
Europe hub (production 2,3
MTPA after 2016)
− Tuapse on the Black sea
shore exporting to the
Mediterranean (production 2,1
MTPA after 2016)
Tuapse will be an export oriented refinery –
South region deficit will be covered by Volga
region supplies «on route» to export ports
FEPCO
FEPCO
Total «West»
Source: Rosneft * inc. FEPCO 1,6 MTPA
10
Diesel export volumes will increase as production growth outpaces
demand growth
• Russia has the potential for a
higher dieselization:
– Diesel quality compliant
with modern engine
requirements
– Sufficient capacities for
winter diesel production
• Production of diesel
increases faster than
demand, exports to remain
above 50% of production in
the coming 10 years
• Possible closure of
unprofitable refineries and
refineries in risk group is
unlikely to have major
influence on balances
Russia diesel supply/demand balance, MTPA*
Source: demand forecast – Wood Mackenzie, actual data - Petromarket, production forecast – Rosneft assumptions, actual data – CDU TEK
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Rosneft TNK-BP Lukoil
GazpromNeft Gazprom Bashneft
Slavneft Surgutneftegaz Other
Risk group Loss-making Consumption (low case)
Consumption (base case)
11
Growth in diesel exports is supported by respective infrastructure development
Diesel exports to the east by sea
6,06,0 6,0 6,0 6,0
0
5
10
15
20
25
30
35
40
45
50
6,5 4,9
16 17
4,3
18,0
6,5 6,5
13
10,7
14
13,1
15
13,1
10,7
18,0
6,5
20
6,5
6,5
18,0
6,5
6,5
19
23,0
6,5
25
18,0
18
6,5
Tuapse own terminal Export Euro 5 diesel
Transneft "South"
Off-spec export
Euro 3/4 export
Primorsk
Ventspils
Diesel exports to the West and Euro 5
capacities of pipelines / sea terminals East West
• Capacities of Far East terminals will not be enough to export
diesel from all Siberian and Far East refineries by 2020
(capacity deficit 1 MTPA)
• There are options to convert current dark product export
terminals into diesel terminals (3-9 MTPA)
• By march 2015 Ventspils diesel export pipeline will switch to
Euro 5
• Samara refineries will continue export of Euro 3 till 2017
• Future planned capacities of diesel export pipelines are
sufficient, but implementing the plans in time by 2017 is key:
– Expansion of “North” pipeline (Primorsk) as production in
the Volga region grows
– Launching of “South” export pipeline by Transneft
Source: Rosneft
5,8 5,8 5,8
5,35,3
0
5
10
15
20
25
30
35
40
15 13
5,8
11,8 11,8
17
11,6
25
17,6 17,6
20
Export Euro 5 diesel
Terminals conversion from
dark products to light product
Terminals capacities
Export inc. FEPCO
12
Jet production capacities to exceed demand significantly, leading to growing
export of jet or diesel depending on logistics solutions
Jet supply / demand balance
Jet supply / demand balance East
West
▪ Russia historically had a tight balance for jet
fuel, but will have a surplus starting from 2015.
▪ Share of jet export can increase significantly
after 2015-16 and by 2020 can achieve
30-40% of production.
▪ Increase of jet prices due to tax maneuver can
lead to lower sales to international airlines on
domestic market which account for 15-25% of
the market.
▪ Logistical solutions need to be developed to
export surplus jet fuel (or conversion into
diesel at refineries)
12,912,111,9
10,410,28,97,67,4
9,28,17,87,67,4
7,35,9
2013
7,6 7,4
2012
7,2
2014
2015
2017
2016
2018 2025
Production*
Demand (low)
Demand (base)
4,14,13,82,92,82,82,8 0,81,81,91,9
2013
2012
1,8
2015
2016
2014
1,9 1,9
4,9
2018
2,0 2,2
4,1
2025
**
2017
Demand (low)
Demand (base)
Production*
FEPCO
* In case of jet oversupply it can be converted to diesel ** inc. FEPCO 0,8 MTPA
13
Fuel oil export in the Western direction will remain significant at 35 MTPA, while
in the East a 2 MTPA deficit may occur
2030
42,1
5,8
2025
42,2
6,5
2020
44,6
7,5
2013
64,3
11,8
2010
62,4
10,9
2005
50,3
14,5
Demand (excluding
transit bunkering)
Production
Fuel oil production Fuel oil production
2030
-2,5
2025
-2,1
2020
-2,1
2013
4,6
2010
7,7
2005
4,5
Fuel oil export
51,3
34,4
16,8
2005
35,7
24,3
11,4
2030
34,9
19,9
15,0
2025
34,0
19,3
14,8
2020
35,2
19,9
15,3
2013
52,4
24,5
27,9
2010
other Baltic Russia
Fuel oil export
East West
• Higher fuel oil prices due to tax maneuver leads to lower
transit bunkering volumes (40-50% market share).
• In case of higher transit bunkering volumes, fuel oil will be
shipped from western Russia, by rail or sea depending on
economics.
• Even after Russian refineries modernization, fuel oil export to
the west will remain significant – around 35 MTPA
• Tightening of emissions regulation limits the usage of fuel oil
in maritime bunkering in Europe
2013 2030
2,8 2,8 2,8
2025 2020
10,9
2010
12,3
2005
9,8
Demand (excluding transit bunkering)
Production
Some fuel oil deficit may occur
following decrease in fuel oil
production
14
Share of high quality products in Russia exports to Europe, Mediterranean and
Asia is and will continue to grow
52 35 34
1333
30
78
1077
12
2025
88
4
2020
93
4
2013
84
-2
5 5
Diesel Euro 5
Jet (base case)
Gasoline (base case)
Fuel oil
Diesel Euro3/4
Diesel off-spec
Export of refined products, MTPA West
725
5
7
-2
2020 2025
6
1 2 -2
2013
2
7
Fuel oil
Diesel Jet (base case)
Gasoline (base case)
East Export of refined products, MTPA
• Refined products export volumes to the West will be relatively
stable at 80-90 MTPA, but the structure of products exported
will change significantly:
– Volume of fuel oil will decrease
– Both volume and more important quality of diesel will
increase
– Exports of gasoline and jet fuel begin, adding to the
diversity
• Export to the East will remain low at 6-7 MTPA:
– Export of fuel oil will stop as production decreases.
Depending on demand a deficit is possible
– High quality diesel exports will increase following refinery
upgrades