By the year 2010 Russia will encounter the necessity to import high-octane gasoline – the existing refinery plants in the country would not be able to satisfy the demand of the rapidly growing number of automobiles.
The deficit of gasoline will lead to European-level prices.
The majority of the domestic oil companies do not have enough time to revamp existing refineries and build new ones because this process takes about seven years.
Drying Up The Gas Tank
Backward Industry For last 10 years in Russia there was no new large oil refinery plant (ORP) built. Five of the existing large refineries were launched before 1940, six – before 1950, eight – before 1960, and six – after 1960. After 1966 the only newly built oil refinery was Achinsky ORP (part of YUKOS), which was launched in 1982. More than a half (14 out of 25 Russian ORPs) do not have the necessary equipment for secondary processing of oil. About 6 percent of the refinery equipment in the working ORPs is less than 10 years old and can be considered fairly new. For that reason, the domestic refinery plants are using pretty old technology that considered is almost obsolete in the rest of the world. The average depth of the refined oil on Russian plants is about 70 percent, and the production of the light oil byproducts (gasoline, diesel, kerosene and so on) in Russia, according to the experts, is about one and a half times lower than in developed countries.
The summary output of the primary refining in all 25 Russian ORPs is more than 260 million tons per year. The largest refinery plants are located in Privolzhsky, Central and Siberian Federal Districts. Bashkiria is the leader among the regions in the volume of the preliminary refinement. The most powerful refineries are Omsky ORP (part of the Gasprom) and Angarsk Oil-Chemical Company (YUKOS). Each of these plants refines more than 19 million tons of oil per year.
In 2004, according to the data of TSDU TEK, the Russian oil refinery plants received 224 million tons (85 percent of the capacity). The experts forecast that in 2005 the ORPs would exceed last year’s capacity due to the increased export oil tariffs and prices for the oil byproducts in the domestic market. While there is an obvious growth of the primary processing of the oil it does not mean an increase of gasoline production. According to LUKOIL, from 1999 to 2004 the volumes of refined oil went up by almost 30 million tons, and the gasoline production in Russia grew only by 5 million tons. The company forecasts that with the refineries working almost at full capacity the gasoline production would be still dragging behind. The other product of the refinery plants is an oil residue. The market is full with this specific product. If in the U.S. oil refineries the part of the oil residue is only 5 percent, in Russian plants it reaches 32 percent.
However, currently the structure of the oil products in Russia corresponds with internal demand – there is even some surplus of the gasoline (about 4 million tons per year.) It can be explained by the fact that the automobile operators are not mentally ready to switch to more quality oil byproducts because of their higher cost. Besides, the automobile manufacturers are trying to bring to Russia cars that correspond with available fuel. That is why there are not many cars with diesel engines offered to the market.
However, the structure of the automobile market will be changing rapidly. With new government regulations for automobile engines and more foreign car producing plants built on Russian territory, the demand for quality fuel will be growing. Also, there will be many more cars. According to the Federal Road Agency, the number of the cars by 2015 will grow from today’s 26 million to 42 million. Most likely, the threefold increase of the foreign cars would be the main growth factor.
By 2004, there were 440,000 of new foreign cars sold through the network of the dealership. In 2005 this number would reach 550,000. According to Gairat Salimov, analyst with Troika Dialog, the automobile market would be growing until 2010 with the average annual rate of 10 percent. By 2010 Russians will purchase already 3 million cars (combined with domestic cars and used foreign automobiles.) By that time, the average Russian would be ready to spend from $10,000 to $12,000 for a car.
The growth of the numbers of the automobiles will lead to the drastic increase of the use of high-octane gasoline. According to the expert forecast, the demand for gasoline will increase from the current 27 million ton per year to about 38 million ton per year in 2015. In the same time the gasoline production would remain in the same level.
The Cars on the Diet
The experts think that the deficit of the gasoline might already appear in 2010, when the demand and supplies for the fuel would be practically equal. In that time, Russia could expect a sharp hike of the prices due to the increased demand over supply and the necessity to import fuel or to ration the gasoline sale. All that might lead to the development of the gray market. According to LUKOIL’s forecast, one car would require 31 liters of the gasoline per week compared with the current 24. While keeping today’s volumes of production, by 2015 this number would fall to 19 liters per car per week (see interview with Vice President of LUKOIL Leonid Fedun).
In order to avoid the deficit, import, rationing, and, as a result, really high gasoline prices, it is necessary to start modernization of Russian oil refineries now. Various experts think that in order to produce fuel that would be equal to the Western standards, the depth of the refining of the oil has to be increased to 90 – 95 percent. In order to compete with Western countries, the production of light oil byproducts should receive anywhere from $15 to $30 billion of investment. (See interview with Executive Director of Russian Fuel Union Grigory Sergienko). In the mean time, the oil companies don’t have such huge plans. In the beginning of the year, Sergey Oganesyan, Director of Federal Energy Agency said with enthusiasm that the investment into the oil refinery process before the year 2010 would amount to 131 billion rubles ($4.5 billion).
It looks like this projected sum is not going to increase in the nearest time. LUKOIL is preoccupied with modernization of its own facilities. The second largest owner of oil refineries –YUKOS- does not have an opportunity to invest in this specific sector, because all the company profits are going to cover tax arrears. While the owner of these plants would not be changed (most likely, the new owner would be Rosneft), one could not expect the significant increase of the depth of refining and capacity. Gasprom, which together with Sibneft purchased Omsk Oil Refinery Plant, in the next few years would be busy with the integration of the oil assets into its business structure and doubtfully would pay a lot of attention to the problems with oil refining process.
Only Tatneft has today working plans to build new modern refineries. It is already starting to break the ground for ORP in Nizhenkamsk. The rest of the companies, which once claimed the intentions to built refineries in Leningrad and Moscow regions, did not start anything as of yet. Taking in consideration the fact that building and modernizing the ORPs is long and expensive business, the companies should start already to invest money in order to avoid the fuel crisis in 2010. However, majority of the oil market players are too busy fighting for the ownership of the oil producing assets and they still do not realize the seriousness of the issue.
Via: Kommersant
Blogalaxia Tags: Crisis,Troika,Yukos
