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Capacity, throughput, utilisation

Refining capacity

Russian primary refining capacity assessments are complicated by the fact that data provided by oil companies tend to change almost on a yearly basis, as well as possibly differing from official sources operating under the auspices of the Ministry of Energy (such as InfoTEK). Furthermore, accounting for the capacity of Russian mini-refineries has been, to say the least, challenging, given that mini-refineries often operate without proper registration/reporting and sometimes even without licences. For the purposes of this review, we combined data provided in different sources to get a broad sector picture with some level of granularity, taking into account the limitations mentioned above.

The pattern of the Russian refining investments over 2012-2018 is mainly determined by the agreement between 12 Russian oil companies and the Federal Antimonopoly Service (FAS), Rostechnadzor and Rosstandard over the improvement of refining quality signed in 2011. Since then, primary distillation capacity increased by 16%, in comparison with remaining flat over the previous five-year period. In 2018, Russia’s total refining capacity was unchanged YoY at 323mn tpa (6.451mnb/d), according to Infotek, while the government sources estimate this amount at 313mn tpa (6.258mnb/d) and CDU-Tek at 310mn tpa (6.2mnb/d). The OGJ’s 2019 Worldwide Refining Survey (published in December 2018) gives a much lower estimate – 265mn tpa (5.303mnb/d). However, the report seems to exclude a number of refineries, including Ust-Luga, some of the independent refineries, and also does not account for the recent expansion programmes undertaken by LUKOIL and Rosneft.

According to BP, in terms of total refining capacity, Russia retains number three position in the world after the US (938.1mn tpa and 18.8mnb/d) and China (782.8mn tpa and 15.7mnb/d). Russia’s primary distillation capacity covered 57.7% of domestic oil output (563.3mn tpa or 11.44mnb/d) and accounts for 6.6% of the world’s primary refining capacity in 2017.

Figure 53: Top-15 countries in terms of primary refining capacity, 2018

1,000

900

800

700

600

500

400

300

200

100

-

US

China

Russia

India

South Korea

Japan

Saudi Arabia

Brazil

Germany

Canada

Italy

Spain

Mexico

Singapore

Venezuela

Netherlands

Source: BP

Russia’s refinery utilisation rate peaked at 96% in 2012, driven by growing domestic petroleum demand and favourable export taxation rules. The 2018 utilisation rate stood at 89%, following the 2014-2017 tax manoeuvre (discussed on pages 151-152), which has lowered the attractiveness of refined products exports. However, the utilisation rates were 2.2 ppts and 4.3 ppts higher than in 2016 and 2017, respectively, which we see as a consequence of the improved petroleum products slates as a results of the modernisation programme.

Renaissance Capital

20 June 2019

Russian oil & gas

Russia’s refining capacity has both expanded and modernised

With 330mn tpa (6.6mnb/d), Russia accounts for 6.6% of the world’s primary refining capacity

Capacity utilisation rates improved in 2018 on the back of better product slates

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Russian oil & gas

In 2018, Russian primary refining capacity remained unchanged at 323mn tpa. Over the sixyear period 2012-2018, Russian refining capacity grew by a significant 44mn tpa or 16.0% on our estimate. The most sizeable additions were the Ust-Luga complex (+7.0mn tpa) commissioned in 2H13, the Yaisky refinery (+3.3mn tpa) commissioned in June 2013 and upgrades of the Ilsk (+1.8mn tpa), Slavyansk (+2.0mn tpa), Afipsk (+2.3mn tpa), Novoshakhtinsk (+2.5mn tpa), Tuapse (+4mn tpa), the Volgograd (+4.4mn tpa) and the Antipinskiy (+5.5mn tpa) refineries, with the balance mostly reflecting our reassessment of pre-2012 existing capacity.

The Russian refining segment is currently represented by 37 large-scale oil refineries. In addition, there are reportedly over 200 mini-refineries (below 1mn tpa or 20kb/d in capacity), which account for approximately 1% of the country’s total. Furthermore, some of Gazprom’s and NOVATEK’s gas processing and condensate stabilisation plants have crude distillation units.

Most of Russia’s refining capacity (37%) is concentrated in the Volga-Urals region (14 refineries). Seven plants – Omsk, Angarsk, Achinsk, Nizhnevartovsk, Antipinskiy and Yaisky – and the Surgut gas stabilisation plant, with about 18% of Russia’s total capacity, operate in Siberia. Three refineries (Ryazan, Yaroslavl and Moscow) located in central Russia account for about 14% of total capacity. Eight refineries – Volgograd, Tuapse, Krasnodar, Afipsk, Novoshakhtinsk, Ilsk, Astrakhangazprom and Slavyansk – are located in the south of Russia and control 16% of total capacity. Three refineries (Kirishi, Ukhta and Ust-Luga) operate in the north-western region and account for 10% of the total. Finally, two refineries (Komsomolsk and Khabarovsk) that control about 4% of the total distillation capacity are located in Russia’s Far East. The rest (about 1%) is represented by minirefineries and distillation units at Gazprom’s and NOVATEK’s gas and condensate processing plants.

The uneven geographic distribution of refining capacity is an issue that often leads to regional quasi-monopoly situations, particularly in Siberia and the Far East, as well as large inter-regional product shipments during refinery maintenance/seasonal demand peaks.

Russia’s refined product pipeline system is far less developed than its oil pipeline network, which translates into higher shipment costs, given that the bulk of refined product volumes are transported by rail.

Over the six-year period 2012-2018, Russian refining capacity grew by a significant 44mn tpa or 16.0%, according to Interfax

Capacity unevenly spread across Russia

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Russian oil & gas

Figure 54: Primary distillation capacity

(mnt)	2014	2015	2016	2017	2018	YoY
Rosneft	89.100	89.100	89.100	87.571	87.570	0.0%
LUKOIL	45.360	49.750	49.750	49.750	49.750	0.0%
Gazprom Neft	33.720	31.890	34.200	34.989	34.989	0.0%
Bashneft	24.100	23.200	23.500	23.500	23.500	0.0%
SurgutNG	20.100	20.100	20.100	20.100	20.100	0.0%
Gazprom	17.397	17.397	17.397	17.310	17.310	0.0%
Slavneft	15.000	15.000	15.000	15.000	15.000	0.0%
Antipinsk	7.740	9.000	9.000	9.040	9.040	0.0%
TAIF	8.350	8.350	8.350	8.350	8.350	0.0%
NOVATEK	6.000	6.000	7.000	7.000	7.000	0.0%
Tatneft	8.700	8.700	8.700	8.700	8.700	0.0%
Orsk	6.600	6.600	6.600	6.600	6.600	0.0%
Afipsk	6.000	6.000	6.000	6.000	6.000	0.0%
NNK	5.000	5.000	5.000	5.000	5.000	0.0%
Novoshakhtinsk	2.500	5.000	5.000	5.000	5.000	0.0%
Krasnodar	3.000	3.000	3.000	3.000	3.000	0.0%
Yaisk	3.000	3.000	3.000	3.300	3.300	0.0%
Slavyansk	1.500	1.500	1.800	3.500	3.500	0.0%
Ilsk	2.770	2.770	2.770	2.854	2.854	0.0%
Mariisk	1.250	1.250	1.600	1.600	1.600	0.0%
Mini-refineries	13.164	13.044	13.185	4.390	4.399	0.2%
Russia	320.350	325.650	330.052	322.553	322.561	0.0%
(kb/d)	2014	2015	2016	2017	2018	YoY
Rosneft	1,782	1,782	1,777	1,751	1,751	0.0%
LUKOIL	907	995	992	995	995	0.0%
Gazprom Neft	674	638	682	700	700	0.0%
Bashneft	482	464	469	470	470	0.0%
SurgutNG	402	402	401	402	402	0.0%
Gazprom	348	348	347	346	346	0.0%
Slavneft	300	300	299	300	300	0.0%
Antipinsk	155	180	180	181	181	0.0%
TAIF	167	167	167	167	167	0.0%
NOVATEK	120	120	140	140	140	0.0%
Tatneft	174	174	174	174	174	0.0%
Orsk	132	132	132	132	132	0.0%
Afipsk	120	120	120	120	120	0.0%
NNK	100	100	100	100	100	0.0%
Novoshakhtinsk	50	100	100	100	100	0.0%
Krasnodar	60	60	60	60	60	0.0%
Yaisk	60	60	60	66	66	0.0%
Slavyansk	30	30	36	70	70	0.0%
Ilsk	55	55	55	57	57	0.0%
Mariisk	25	25	32	32	32	0.0%
Mini-refineries	263	261	263	88	88	0.2%
Russia	6,407	6,513	6,583	6,451	6,451	0.0%

Notes: Conversion from mnt to kb/d assumes 7.3bl per tonne.

Capacity data do not include non-Russian refineries.

Slavneft is parity controlled by Rosneft and Gazprom Neft.

Bashneft is shown separately and not included in Rosneft figures as it is still a separately listed company.

Source: InfoTEK, Company data, Renaissance Capital

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Russian oil & gas

Figure 55: Primary nameplate capacity by refinery, mn tpa
-	5		10		15	20		25
Omsk (Gazprom Neft)
								22.2
Kirishi (SurgutNG)								20.1
Ryazan' (Rosneft)						17.1
Norsi (LUKOIL)						17.0
Volgograd (LUKOIL)						15.7
Yaroslavl' (Slavneft)						15.0
Perm (LUKOIL)					13.1
Moscow (Gazprom Neft)					12.8
Tuapse (Rosneft)					12.0
Angarsk (Rosneft)				10.2
Salavat (Gazprom)				10.0
Ufaneftekhim (Bashneft)				9.5
Antipinsk (SOCAR)				9.0
Taneco (Tatneft)			8.7
Syzran' (Rosneft)			8.5
Nizhnekamsk (TAIF)			8.3
Komsomolsk (Rosneft)			8.3
Novokuibyshevsk (Rosneft)			8.0
Achinsk (Rosneft)			7.5
Novoil (Novo-Ufa) (Bashneft)			7.4
Saratov (Rosneft)			7.0
Ust-Luga (NOVATEK)			7.0
Kuibyshev (Rosneft)			7.0
Ufa (Bashneft)			6.6
Orsk (Forteinvest)			6.6
Afipsk (Oil Technologies)		6.0
Novoshakhtinsk (Ug-Rusi)		5.0
Khabarovsk (NNK)		5.0
Ukhta (LUKOIL)		4.0
Surgut CSP (Gazprom)		4.0
Slavyansk (Slavyansk-ECO)	3.5
Astrakhan' (Gazprom)	3.3
Yaisk (NefteKhimServis)	3.3
Krasnodar (Krasnodarekoneft)	3.0
Ilsk (KNGK-NPZ)	2.9
Nizhnevartovsk (Rosneft)	2.0
Mariysk (New Stream)	1.6

Source: Company data, Renaissance Capital

Figure 56: Vertical integration in Russian oil sector, 2018

250.0

Crude production, Russia

Refining throughput

Long (short) crude

200.0

150.0

100.0

50.0

-

(incl. Bashneft)

Rosneft

LUKOIL

SurgutNG

Gazprom Neft

Tatneft

Slavneft

Bashneft

Gazprom

NOVATEK

NNK

Rosneft

Note: Includes domestic production only and excludes mini-refineries.

Source: CDU-TEK, Company data, Renaissance Capital

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Russian oil & gas

Around 76% of Russia’s total distillation capacity is controlled by oil VICs, 6% by Gazprom, 2% by NOVATEK and 16% by independent refiners (including TAIF). The top-four Russian oil VICs (Rosneft, LUKOIL, Surgutneftegas and Gazprom Neft) controlled 72% of Russia’s total refining capacity at the end of 2018 (including Slavneft, which is 50/50-controlled by Rosneft and Gazprom Neft). High-capacity concentration is the result of sector consolidation that has occurred over the past 20 years, although the VICs’ total market share declined slightly over the past years from (84% in 2012) on the back of a number of newly built independently owned refineries.

Around 76% of Russia’s total distillation capacity is controlled by five VICs

Figure 56 illustrates the degree of vertical integration in the Russian oil sector. Most of the companies are long crude, which allows them to export a significant proportion of total crude output and supply the rest to refineries. Of all the vertically integrated oil companies, only Slavneft and NNK (the owner of the Khabarovsk refinery) are short crude.

Most Russian oil companies are long crude

Rosneft remains the largest custodian of primary distillation capacity in Russia with a share of 37% (including Bashneft, 50% stake in Slavneft and its mini-refineries). The company’s downstream expansion started in May 2007 following the acquisition of five major Yukos refineries (Novokuibyshevsk, Kuibyshev, Syzran, Angarsk and Achinsk). In March 2013, Rosneft closed the deal acquiring 100% of TNK-BP, and effectively taking control of all of the company’s refining assets (Saratov, Ryazan, 50% of Slavneft’s YaNOS refinery, as well as a small refinery in Nizhnevartovsk [2.0mnt or 40kb/d in capacity] and a mini-refinery in Krasnoleninsk). It further acquired a controlling stake in Bashneft in October 2016 and received control over the Novo-Ufa, Ufaneftekhim and Ufa refineries. With a combined refining capacity of 120mnt or 2.4mnb/d (based on company’s and InfoTEK data, including 50% of YaNOS and mini-refineries), we estimate Rosneft now accounts for 37% of Russia’s total refining capacity.

Following the 4mn tpa increase in Tuapse distillation capacity in 2016, Rosneft has not announced plans to grow its distillation capacity further. Rosneft said it is contemplating plans to build an integrated complex with 12mn tpa refining and 3.4mn tpa petrochemical capacities in the Russian Far East. However, during its 1Q19 conference call, the company said the project is currently suspended due to the adverse regulatory condition of the downstream segment.

In May 2011, Rosneft completed the acquisition of a 50% stake in Ruhr Oil from PDVSA for $1.7bn. Ruhr Oil is a German refining company that had controlling equity stakes in the Gelsenkirchen (100%), MiRO (24%), Bayernoil (25%) and Schwedt (37.5%) refining complexes. BP controlled the other 50%. In 2015, the company acquired Total’s stake in the Schwedt refinery (16.67%) for $300mn. In 2016, BP and Rosneft decided to reorganise the JV, effectively dissolving it. As a result, Rosneft became a direct shareholder in the Bayernoil (25%), MiRO (24%) and Schwedt (54.17%) refineries, paying $1.5bn to BP, while BP consolidated 100% in the Gelsenkirchen and DHC Solvent Chemie compexes. The assets’ refining capacity stands at 12.5mn tpa (12.4% of total refining capacity in Germany).

In 2013, Rosneft acquired a 20.99% stake in Saras S.p.A., an Italian refining company with refining throughput capacity of 15mn tpa (300kb/d) for EUR273.5mn. However, Rosneft sold 8.99% in 2015 for EUR162.4mn ($186mn) and divested the remaining 12% stake in January 2017 for EUR174mn ($186mn), due to worsening macro conditions and portfolio optimisation.

Through a 50% stake in Slavneft, Rosneft also has an effective 21.3% in the Mozyr refinery in Belarus, with capacity of 14mn tpa. The company’s share is therefore 3.0mn tpa (60kb/d). In FSU Rosneft has previously controlled the Ukrainian Lysychansk refinery, with capacity of 8mn tpa. Inherited from TNK-BP, the refinery halted production in 2012 due to unprofitability. In 2014, Rosneft decided to conserve the refinery due to the continuing instability in Ukraine. A recent plan to restart propylene production in 2016 has been postponed indefinitely.

Rosneft controls 37% of Russian refining capacity…

… and has significant extra capacity abroad

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Rosneft significantly increased its international refining capacity after the acquisition of a 49% stake in Nayara Energy (previously – Essar Oil) for c. $3.5bn in August 2017. Another 49% was acquired by a consortium of Trafigura and UCP (the entire deal was valued at $13bn including Essar Oil’s debt of $4.7bn). Nayara Energy owns India’s Vadinar refinery, with capacity of 20mn tpa and a Nelson Complexity Index (NCI) of 11.8, as well as c. 5.0k operational outlets.

Rosneft also has several early-stage projects in the refining segment. Rosneft and CNPC own 49% and 51%, respectively, of Vostok Petrochemicals, which was created for the purpose of constructing a new 16mnt (321kb/d) refinery in Tianjin, China. In 2016 the parties have finalised the preparation of the feasibility study and approved the technological configuration of the refinery and a complex for the production of aromatic hydrocarbons. Another early-stage project in Asia is the construction of a 16mnt (321kb/d) refining and

1mnt ethylene and 1.3mnt aromatics petrochemical complex in Tuban in Indonesia, through a JV with PT Pertamina (55%). In 2018, the project undertook procedures for selecting engineering processes licensors, Basic Engineering Design and FEED contractors and a Project Management Consultant. Both Tianjin and Tuban are in the planning phase and thus more details are yet to be disclosed.

Apart from Rosneft, LUKOIL and Gazprom Neft also have access to refining capacities abroad.

LUKOIL is Russia’s second-largest company in terms of distillation capacity. It operates four refineries (Perm, Volgograd, Ukhta and NORSI) and two mini-refineries (Kogalym and Urai). According to InfoTEK, the company’s refining capacity within Russia amounts to 50.2mnt (1.0mnb/d), which represents 16% of the country’s total. LUKOIL also controls

100% of the Bulgarian Burgas refinery (refining capacity of 9.8mn tpa and NCI of 13.0) and the Romanian Ploiesti refinery (refining capacity of 2.7mn tpa and NCI of 10.0) since 1999. In September 2013, LUKOIL also increased its equity stake in the Italian ISAB (refining capacity of 16mn tpa and NCI of 9.3) refinery complex to 100%. The company also holds 45% in the Zeeland (adjusted for working interest, the capacity is 3.6mn tpa and the NCI is 8.4) refining complex. LUKOIL’s total foreign distillation capacity amounted to 27.1mn tpa or

0.542mnb/d in 2018. LUKOIL also controlled the Odessa refinery in Ukraine; however, this has not been operational since 2011, and was sold to Vetek in 2013. In 2017 the refinery was nationalised by the Ukrainian government.

LUKOIL was the first Russian VIC to complete its modernisation programme, which, among other changes, included a 5mn tpa expansion of its Volgograd refinery to 15.7mn tpa in

2016. The company’s remaining upgrades focus on increasing the complexity of the refining process, with no changes envisaged to its primary distillation capacity.

Gazprom Neft is the third-largest refiner in Russia in terms of nameplate capacity. The combined capacity of the Omsk and Moscow refineries, controlled by Gazprom Neft, is 35.0mn tpa (0.7mnb/d). This represents 11% of the Russian total. In addition, it controls

50% of the Yaroslavl refinery’s capacity via its equity interest in Slavneft (parity controlled by Rosneft/Gazprom Neft). Including its interest in Slavneft, the company has a distillation capacity of 42.5mn tpa (0.85mnb/d) in Russia (13% of Russia’s total). In addition, through

NIS, Gazprom Neft controls Pancevo and Novi Sad oil refineries, with a primary capacity of approximately 7.1mn tpa (0.14mnb/d) in Serbia. We note that the NIS effective capacity in 2016-2018 was reduced due to the Novi Sad refinery undergoing reconstruction. While Gazprom Neft plans the extensive renovation of the primary distillation units, it does not have plans to increase its primary distillation capacity within Russia.

Although Surgutneftegas controls the second-largest refinery in Russia (Kirishi, near St Petersburg), it ranks number four in terms of its primary distillation capacity. According to InfoTEK, the nameplate capacity of the Kirishi refinery is 20.1mn tpa (0.40mnb/d). This

LUKOIL controls 16% of total capacity within Russia; it was the first to complete its modernisation programme

Including its share in Slavneft, Gazprom Neft accounts for 13% of Russia’s total refining capacity

Surgutneftegas owns Russia’s second-largest refinery

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Russian oil & gas

represents 6% of the country’s total refining capacity. In 2013, Surgutneftegas launched the hydrocracker at the Kirishi refinery, which allowed it to bring the lagging Kirishi NCI to the Russian average level. In December 2017, Surgutneftegas completed the construction of the high-octane gasoline complex, including hydrotreating, isomerisation and reforming units. Other than ongoing maintenance and reconstruction of the hydrotreatment unit, Surgutneftegas made no upgrades to secondary units.

Tatneft regained its status as a VIC at the end of 2011 with the launch of the $5bn TANECO refinery in Nizhnekamsk, with refining capacity of 7mn tpa (0.14mnb/d), representing 2.5% of Russia’s total. Operations from Phase 1A were launched in 2011, and in 2012 the refinery operated at full capacity. Following an upgrade on the primary distillation unit, TANECO’s refining capacity reached 115% of the nameplate and currently stands at 8.7mn tpa (0.17mnb/d). Tatneft finished the construction of the hydrocracking unit in 2014, delayed coker unit in 2016 and isomerisation and naphtha, diesel and kerosene hydrotreating units in 2018. The company plans to construct a second distillation unit, which will allow it to almost double nameplate refining capacity to 14mn tpa and then to 15mn tpa, as well as a large number of secondary units, with the modernisation programme to be finished in 2026. Tatneft also operates a Yelkhov (Kichuisk) mini-refinery of 0.3mn tpa (6kb/d) also located in Tatarstan.

Tatneft is on target to double its primary refining capacity to 15mn tpa

NNK controls the Khabarovsk refinery, one of two refineries in Russia’s Far East along with the Rosneft’s Komsomolsk refinery. In 2018, the primary distillation capacity of the company was 5mn tpa, which accounted for 1% of Russian capacity. The company had plans to increase refining capacity by 1mn tpa by 2017, but this was postponed due to unfavourable market conditions. The secondary processes were nevertheless upgraded, through the introduction of visbreaking, hydrocracker and gasoil hydrotreater as well as reconstruction of the catalytic reformer and isomerisation unit, which allowed the company to increase the light products yield to 62% (vs 30% in 2012) and refining depth to 66% (vs 49% in 2012).

NNK has postponed expansion plans for Khabarovsk

NOVATEK is the most recent addition to the pool of VICs. It launched its Ust-Luga complex in 2013, with initial capacity of 3mn tpa. This was increased to 6mn tpa the same year. The plant provides refining capacity for NOVATEK’s stable gas condensate produced at its Purovsky plant, although it also allows for the processing of crude. In 2016, NOVATEK increased effective refining capacity of Ust Luga to 7mn tpa. This facility is almost exclusively focused on export markets and aims to take advantage of the existing preferred taxation of oil products exports, when compared with the export of crude oil or gas condensate. We expect that the production of fuel oil will disappear with the launch of a new 1mnt pa hydrocracker unit scheduled for 2020.

Figure 57 illustrates the primary refining capacity additions announced in the next few years. As seen, the country’s primary distillation capacity has the potential to increase by

28mn tpa (563kb/d) in the next three-to-five years, an increase of 8.8%. However, we note that only 24% of the capacities to be added is attribute to VICs, while the rest is targeted by independent refineries, which makes these plans less certain due to the changing macro and legislation environment. In particular, we believe the final phase of the tax manoeuvre and the introduction of new marine bunker fuel regulations in 2020 (IMO 2020) could have an adverse effect on the expansion programmes of the independent refineries with low complexity.

NOVATEK’s Ust-Luga complex targets export markets

We estimate Russia’s refining capacity can grow by 28mn tpa (563kb/d) in the next few years

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Russian oil & gas

	Figure 57: Planned primary capacity additions (net), mn tpa
	355
							5	351
	350
							6
	345
							3
	340
					4	3
	335
			6	1
	330
		323
	325
	320
	315
	310
	305
		2018	TANECO	Yaisk	Ilsky	Afipsk	Slavyansk Mariysk Khabarovsk 2022+
			(phase-II)

Source: Company data, Renaissance Capital estimates

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Capacity utilisation

The capacity utilisation of Russian refineries increased from 86.8% in 2017 to 89.0% in 2018, according to data provided by CDU-TEK. This followed a decline in utilisation rates between 2013-2016, which we attribute to several factors:

▪The 2014-2017 tax manoeuvre led to a rebalancing of the tax burden from upstream to downstream, with the resulting effect of a lower refining margin.

▪Modernisation programmes in the refining sector led to an expansion of capacities, negatively affecting utilisation rates.

▪Weaker consumer demand for refined products due to the slowdown in the Russian economy.

▪Lower utilisation rates at the independent refineries.

Capacity utilisation started to decline from 2013…

…driven by capacity expansion and weaker economics…

Through 2017-2018, the negative trend has reversed which we associate with the increasing share of light products in the production basket of the refineries, as well a rebound in consumer demand growth in Russia.

Figure 58: Primary distillation capacity and utilisation, 2001-2018

Refining capacity, mnt pa	Utilization, %
350	120%
300	100%
250	80%
200
	60%
150
100	40%
50	20%
0	0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: CDU-TEK, BP, Renaissance Capital

…followed by a reversal in 2017-2018 driven by the aftermath of the modernisation programme

According to our estimates, 2018 utilisation rates across the Russian refining sector ranged from 47.0% for the Ukhta refinery (LUKOIL) to 107.3% for the Novoshakhtinsk refinery (Yug-Rossii). We note that utilisation rates displayed in Figure 60 may differ from those provided in company reports, owing to differences in refining capacity assessments, although these differences are not significant.

The average utilisation rate for the Russian refineries was 89% in 2018, a substantial reduction in comparison with the peak of 96% seen in 2012. Four of 37 refineries had utilisation rates of more than 100% last year. In total, 18 refineries, representing 56% of

Russia’s total capacity, exceeded the country’s average utilisation rate in 2018.

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Figure 59: YoY growth in primary capacity and refining throughput, 2001-2018

14%					Refining capacity					Refining throughput
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018

Source: InfoTEK, BP, Renaissance Capital

Figure 60: Primary capacity utilisation by refinery, 2018

Novoshakhtinsk (Ug-Rusi)

Yaroslavl' (Slavneft)

Surgut CSP (Gazprom)

Ilsk (KNGK-NPZ)

Ust-Luga (NOVATEK)

Nizhnekamsk (TAIF)

TANECO (Tatneft)

Perm (LUKOIL)

Khabarovsk (NNK)

Saratov (Rosneft)

Omsk (Gazprom Neft)

Achinsk (Rosneft)

Volgograd (LUKOIL)

Novoil (Novo-Ufa) (Bashneft)

Ryazan' (Rosneft)

Kirishi (SurgutNG)

Tuapse (Rosneft)

Yaisk (NefteKhimServis)

Average Russia

Slavyansk (Slavyansk-ECO)

Angarsk (Rosneft)

Novokuibyshevsk (Rosneft)

Afipsk (Oil Technologies)

Krasnodar (Krasnodarekoneft)

Norsi (LUKOIL)

Mariysk (New Stream)

Moscow (Gazprom Neft)

Syzran' (Rosneft)

Kuibyshev (Rosneft)

Komsomolsk (Rosneft)

Nizhnevartovsk (Rosneft)

Ufaneftekhim (Bashneft)

Orsk (Forteinvest)

Antipinsk (SOCAR)

Ufa (Bashneft)

Salavat (Gazprom)

Astrakhan' (Gazprom)

Ukhta (LUKOIL)

0%

20%

40%

60%

80%

100%

120%

Source: Company data, Renaissance Capital

Renaissance Capital

20 June 2019

Russian oil & gas

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Russian oil & gas

Throughput

According to CDU-TEK, Russian refineries processed 287mnt (around 5.7mnb/d) of crude in 2018, up by 2.5% from 2017. This marked a reversal of the downward trend that started in 2015 and followed 14 years of steady growth (Figure 61).

Refining runs covered 51.6% of total Russian crude output in 2018, slightly above the 10-year average of 51.3%. Figure 61 illustrates that between 2005 and 2014 integrated Russian oil companies have opted to increase refining runs partly at the expense of crude exports, which we explain by more attractive domestic netbacks on motor fuel sales, as well as a visible improvement in the economics of heavy product exports (mainly HFO and vacuum gas oil [VGO]). The 2014-2017 tax manoeuvre has reduced the attractiveness of product exports and marked the beginning of a downward trend in refining throughput, until the completion of the modernization allowed to increase the production of the premium products and thus improve the downstream economics.

Figure 61: Russia – oil output and refining throughput, 2001-2018

600	Crude output (LHS)	Refining throughput (LHS)	Throughput/Oil output (RHS) 60.0%
500			50.0%
400			40.0%
300			30.0%
200			20.0%
100			10.0%
-			0.0%
	2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: InfoTEK, CDU TEK, Renaissance Capital

The dynamics of the refinery throughputs among Russian VICs was generally positive in 2018. Rosneft’s core refining throughput increased by 4.8% in 2018, driven by Ryazan

(+16.4%), Syzran (+16.4%), Saratov (+16.3%), Achinsk (+10.6%), and Kuibyshev (+9.6%) refineries. This was partially offset by declines in throughput at Novokuibyshev, Angarsk and Tuapse refineries by 13.7%, 6.1% and 2.5%, respectively. Combined with Bashneft’s and a 50% share in Slavneft’s refining volumes the increase was only 2.9%, as Bashneft throughput was down 3.6% YoY, driven by the 10.5% decline at Ufa refinery.

LUKOIL’s total 2018 throughput at its main refineries decreased slightly by 0.3% YoY. The 18.6% YoY and 1.6% lower throughputs at the Ukhta and NORSI refineries, respectively, was compensated by an increase in refining volumes at Volgograd (+2.2%) and Perm (+1.9%) refineries. Surgutneftegas maintained flat refining runs YoY. However, Kirishi refinery’s annual throughput remains down 14.2% since peaking at 21.2mnt in 2010.

Gazprom Neft’s refining runs increased by 8.8% in 2018 (7.3% including Gazprom Neft’s share of Slavneft’s refining volumes), on the back of higher throughputs at the Omsk (up by 7.3%) and Moscow refineries (12.0%) as throughput rebounded following the completion of maintenance at the key units in 2017. Slavnet increased the Yaroslavl refinery throughput by 1.5% in 2018, while capacity utilisation remained above 100%, at 104.8%.

Russia refined around 5.7mnb/d in 2018, roughly one-half of its total crude output

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Tatneft increased its refining throughput 9.7% YoY to supply a higher level of marketable products output as a number of new treatment units came online in 2018.

Elsewhere, Gazprom and NOVATEK maintained flat YoY processing runs in 2018, while

NNK’s Khabarovsk refinery increased its throughput by 4.6% YoY.

Independent producers, including mini-refineries, saw their throughput grow by 1.2% in 2018, driven by the surge in the throughput of mini-refineries (+25% YoY or 32kb/d) including those owed by the VICs. The independent Krasnodar, Orks and Ilsk refineries slightly increased their throughput in the range of 0-1% YoY. Novoshakhtisk refinery increased its throughput by 11.2% and reached a utilisation rate of 107%, which we associate with the continued ramp-up at its second distillation unit, constructed in 20152016. The increase was partially offset by the declines at financially constrained Antipinsk (- 12%), Afipsk (-11%) and Mariysk (-10%) refineries.

Figure 62: Refining throughput

	(mnt)	2014	2015	2016	2017	2018	Chg	4M18	4M19	Chg	Chg
							2018/17			4M19/M18	4M19/18*
	Rosneft	78.46	76.61	74.61	73.23	76.73	4.8%	23.62	22.45	-5.0%	-11.0%
	LUKOIL	45.10	41.83	41.81	43.22	43.11	-0.3%	14.04	14.26	1.6%	0.6%
	Gazprom Neft	32.05	31.91	31.19	28.95	31.50	8.8%	9.77	9.87	1.0%	-4.7%
	SurgutNG	19.27	18.73	18.53	18.19	18.18	0.0%	6.15	6.15	-0.1%	2.8%
	Bashneft	21.66	19.25	18.31	18.92	18.24	-3.6%	5.64	6.43	14.0%	7.2%
	Slavneft	15.30	15.27	14.94	15.48	15.71	1.5%	4.96	5.04	1.6%	-2.4%
	Gazprom	13.75	11.73	11.43	12.61	12.63	0.1%	4.04	4.62	14.3%	11.2%
	Tatneft	8.52	8.66	8.71	7.85	8.61	9.7%	2.85	2.85	0.2%	0.9%
	TAIF	8.42	8.44	8.34	8.18	8.29	1.4%	2.86	2.86	-0.1%	5.1%
	Antipinsk	6.24	8.12	7.76	7.29	6.42	-11.9%	2.39	1.77	-25.9%	-16.3%
	NOVATEK	4.71	6.67	6.92	6.94	6.95	0.1%	2.36	2.35	-0.4%	2.9%
	Afipsk	5.86	5.78	6.00	5.72	5.11	-10.7%	1.90	1.44	-23.9%	-14.1%
	NNK	4.44	4.22	4.72	4.67	4.88	4.6%	1.52	1.48	-2.6%	-7.7%
	Orsk	5.94	5.53	4.55	4.74	4.75	0.1%	1.65	1.56	-5.7%	-0.3%
	Novoshakhtinsk	2.62	3.17	4.40	4.82	5.36	11.2%	1.73	1.69	-2.7%	-4.2%
	Yaisk	2.58	2.95	2.78	2.97	2.95	-0.9%	0.93	1.07	15.8%	10.7%
	Slavyansk	0.00	0.00	0.00	3.14	3.11	-0.9%	1.05	1.11	6.1%	8.3%
	Ilsk	2.72	2.87	2.72	2.89	2.91	0.4%	0.87	0.96	10.3%	0.7%
	Krasnodar	2.47	1.68	2.11	2.51	2.53	0.8%	0.84	0.80	-5.0%	-4.3%
	Mariisk	0.91	1.62	1.55	1.46	1.32	-10.1%	0.55	0.40	-28.7%	-8.7%
	Mini-refineries	7.93	7.40	8.01	6.18	7.76	25.5%	2.90	3.12	7.5%	22.3%
	Russia	288.95	282.43	279.37	279.98	287.05	2.5%	92.63	92.28	-0.4%	-2.2%
	(kb/d)	2014	2015	2016	2017	2018	Chg	4M18	4M19	Chg	Chg
							2018/17			4M19/18	4M19/18*
	Rosneft	1,569	1,532	1,488	1,465	1,535	4.8%	1,437	1,366	-5.0%	-11.0%
	LUKOIL	902	837	834	864	862	-0.3%	854	868	1.6%	0.6%
	Gazprom Neft	641	638	622	579	630	8.8%	595	601	1.0%	-4.7%
	SurgutNG	385	375	370	364	364	0.0%	374	374	-0.1%	2.8%
	Bashneft	433	385	365	378	365	-3.6%	343	391	14.0%	7.2%
	Slavneft	306	305	298	310	314	1.5%	302	307	1.6%	-2.4%
	Gazprom	275	235	228	252	253	0.1%	246	281	14.3%	11.2%
	Tatneft	170	173	174	157	172	9.7%	173	174	0.2%	0.9%
	TAIF	168	169	166	164	166	1.4%	174	174	-0.1%	5.1%
	Antipinsk	125	162	155	146	128	-11.9%	145	107	-25.9%	-16.3%
	NOVATEK	94	133	138	139	139	0.1%	144	143	-0.4%	2.9%
	Afipsk	117	116	120	114	102	-10.7%	115	88	-23.9%	-14.1%
	NNK	89	84	94	93	98	4.6%	93	90	-2.6%	-7.7%
	Orsk	119	111	91	95	95	0.1%	100	95	-5.7%	-0.3%
	Novoshakhtinsk	52	63	88	96	107	11.2%	106	103	-2.7%	-4.2%
	Yaisk	52	59	55	59	59	-0.9%	56	65	15.8%	10.7%
	Slavyansk	0	0	0	63	62	-0.9%	64	67	6.1%	8.3%
	Ilsk	54	57	54	58	58	0.4%	53	59	10.3%	0.7%
	Krasnodar	49	34	42	50	51	0.8%	51	49	-5.0%	-4.3%
	Mariisk	18	32	31	29	26	-10.1%	34	24	-28.7%	-8.7%
	Mini-refineries	159	148	160	124	155	25.5%	177	190	7.5%	22.3%
	Russia	5,779	5,649	5,572	5,600	5,741	2.5%	5,635	5,614	-0.4%	-2.2%

Notes: Conversion from mnt to kb/d assumes 7.3 bl per tonne.

Throughput data do not include non-Russian refineries.

Slavneft is parity controlled by Rosneft and Gazprom Neft.

Bashneft is shown separately and not included in Rosneft figures as it is still a separately listed company.

Source: InfoTEK, Company data, Renaissance Capital

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In 4M19, total Russian refining throughput decreased 2.2% (measured in kb/d) compared with 2018 and was down 0.4% YoY. The different dynamics are in part due to an uneven refinery maintenance schedule and economic problems at the New Stream group refineries. Compared with 2018, Antipinsk decreased its refining throughputs the most (- 16.3%), followed by Afipsk (-14.1%) and Mariisk (-8.7%) refineries. It is notable that following its financial default, Antipinsk refinery saw a change in its ownership structure in June 2019 with a SOCAR/Sberbank JV, SOCAR Energoresurs, now controlling 80% of the refinery. Rosneft throughput was down 11.0% YoY in 4M19 driven by the 59.6% YoY lower throughput at Tuapse refinery due to maintenance works in February-March. Khabarovsk (- 7.7%), Gazprom Neft (-4.7%), Krasnodar (-4.3%) and Novoshakhtinsk (-4.2%) refineries also demonstrated lower throughput YoY. Slavneft marginally decreased its throughput by 2.4%, compared with the 2018 average. Other refineries showed growth in throughput, driven by Gazprom (+11.2%), Yaisk (+10.7%), Slavyansk (+8.3%), Bashneft (+7.2%) and TAIF (+5.1%).

Figure 63: Crude throughput by refinery, 2018, mnt

0		5		10	15		20	25
Omsk (Gazprom Neft)
								21.0
Kirishi (SurgutNG)							18.2
Yaroslavl' (Slavneft)						15.7
Ryazan' (Rosneft)						15.5
Volgograd (LUKOIL)						14.4
Norsi (LUKOIL)						14.0
Perm (LUKOIL)					12.8
Tuapse (Rosneft)					10.8
Moscow (Gazprom Neft)					10.5
Angarsk (Rosneft)				9.0
TANECO (Tatneft)				8.6
Nizhnekamsk (TAIF)				8.3
Ufaneftekhim (Bashneft)			7.0
Achinsk (Rosneft)			7.0
Ust-Luga (NOVATEK)			6.9
Novokuibyshevsk (Rosneft)			6.9
Syzran' (Rosneft)			6.9
Salavat (Gazprom)			6.7
Novoil (Novo-Ufa) (Bashneft)			6.7
Saratov (Rosneft)			6.7
Komsomolsk (Rosneft)			6.6
Antipinsk (SOCAR)			6.4
Kuibyshev (Rosneft)			5.7
Novoshakhtinsk (Ug-Rusi)			5.4
Afipsk (Oil Technologies)			5.1
Khabarovsk (NNK)			4.9
Orsk (Forteinvest)			4.8
Ufa (Bashneft)			4.5
Surgut CSP (Gazprom)			4.1
Slavyansk (Slavyansk-ECO)		3.1
Yaisk (NefteKhimServis)		2.9
Ilsk (KNGK-NPZ)		2.9
Krasnodar (Krasnodarekoneft)		2.5
Ukhta (LUKOIL)		1.9
Astrakhan' (Gazprom)		1.8
Nizhnevartovsk (Rosneft)		1.6
Mariysk (New Stream)		1.3

Source: CDU-TEK, Renaissance Capital

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