Russian refineries are operating under capacity and are unlikely to recover in the short term, which could lead to more acute diesel shortage in Europe, according to a research note from Rystad Energy.
“There are presently 44 active refineries in Russia with a total capacity of about 7 million b/d. However, about 900,000 b/d of refining capacity is currently not being used. This is due to a range of factors including demand impacts from the Russia-Ukraine conflict, transportation bottlenecks, planned maintenance and/or scheduled turnarounds,” said Rystad analysts Annette Smith and Janiv Shah.
Prior to Russia’s invasion of Ukraine, around 320,000 b/d was already offline due to maintenance or scheduled turnaround at five Russian refineries. Since then, another five have reduced runs, taking an additional 550,000 b/d of crude distillation unit (CDU) capacity offline. Russian crude refining runs are poised to drop by about 400,000 to 500,000 b/d from previous estimates as the impact of the Russia-Ukraine war impacts demand.
“The likelihood of refineries in maintenance mode returning to full utilization or even restarting operations is low. The loss of Russian refinery is going to make diesel shortages in Europe more acute,” the analysts said.
“The ICE gasoil-Brent crack in Europe is trading around unprecedented levels of $25/bbl, higher than even the memorable gasoil crack spike in 2008. Russia currently exports around 800,000 b/d of diesel/gasoil to Europe. As Europe imports 1.5-2 million b/d of diesel/gasoil, an effective ban on Russia’s oil product exports could increase the gasoil crack further. It is important to note that diesel imports from the rest of the world were on a declining trend before the Ukraine crisis was instigated, and thus makes a potential loss of Russian ultra-low-sulfur diesel (ULSD) even more acute,” they said.
The analysts also noted that refineries are already operating in diesel maximization mode vs. gasoline. The diesel strength could be a precursor for a stronger rally in gasoline ahead as the market is approaching summer months.
