Russian refineries get export-duty reprieve

The Russian government earlier this month gave refineries a temporary reprieve from an export-duty increase aimed at discouraging output of heavy fuel oil in favor of middle distillates.

Energy Security Analysis Inc., Wakefield, Mass., reports the government relaxed but didn’t reverse its effort to transfer refining profits from the bottom to the middle of the product barrel.

To encourage investment in upgrading capacity, the government had planned to raise the export duty on fuel oil from 66% of the duty applicable to crude oil in 2013 to 75% this year and to parity in 2015 while lowering the export duty on diesel.

Instead, the government left the fuel-oil export duty at 66% this year in a move ESAI describes as “a temporary lifeline [that] enables small, simple refineries that account for a small share of Russian fuel oil output to keep producing and exporting straight-run fuel oil.”

Although the government still envisions an increase of the fuel-oil export duty to 100% of the crude oil level next year, ESAI says this month’s move “raises the prospect of Russia postponing the 2015 change to the fuel-oil export duty, further extending the lifeline to these simple refineries.”

The government reaffirmed its goal of encouraging investment in upgrading capacity and left in place related changes in export duties of crude and other products. The changes include a decline in the export duty on diesel from 66% of the level applicable to crude oil in 2013 to 65% this year, 63% in 2015, and 61% in 2016.

ESAI says it expects many Russian refineries to continue “racing to add hydrocrackers and other units that will help them cut production of fuel oil in favor of middle distillate and other clean products.”

This month’s “lifeline,” the firm says, will boost cash flow and help some refineries make those investments.

Through 2016, export duties on gasoline and naphtha will remain at 90% of the crude-oil level and on nondiesel distillate at 66%. Export duties on bitumen and other petroleum coke are to stay at 66% this year and rise to 100% in 2015.

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