Processing Russian products export capacity to grow

Outlook For Russian Refined Products Export Capacity [23727 bytes]

Russia will continue to be a major exporter of refined products well into the next century.

However, modernization efforts scheduled or under way will lighten that export products slate, with significant increases on tap for Russian exports of gasoline and diesel.

Those trends will have a depressing effect on global refined products markets with a continuing squeeze on refiners' margins in key refining centers of North America, Europe, and Asia.

Those are among the chief findings of a study by analysts ESAI, Washington, D.C., and Incotec, Moscow.

Background

ESAI and Incotec analyzed prospects for change in Russia's refining sector, especially for modernizing refineries.

That in turn spawned an analysis of Russia's future refined products productive capacity and hence surplus capacity translating to potential export capacity.

In 1995, Russia had about 2.7 million b/d of spare distillation capacity.

"There is no other region, let alone country, that has spare refining capacity of this magnitude," ESAI-Incotec said. "As the Russian economy recovers and as the oil sector gradually rebuilds itself, it is inevitable that Russia's refining capacity will be modernized, if not enlarged."

Moscow in 1992 developed a blueprint for modernizing the refining sector that is expected to be updated this year. However, that revision is unlikely to be dramatically different from the original plan, the analysts said.

In addition to renovating refining units and hiking utilization rates of those units, the plan calls for these changes by 2006:

Increasing distillation capacity by at least 1 million b/d, as well as refurbishing distillation units.
Boosting catalytic cracking capacity by as much as 280,000 b/d.
Hiking hydrocracking capacity by as much as 440,000 b/d.
Increasing hydrotreating capacity by as much as 450,000 b/d.
Raising reforming capacity by as much as 125,000 b/d.
Cutting thermal cracking capacity by as much as 200,000 b/d.

Product exports

ESAI-Incotec assessed Russian refining modernization/expansion plans coupled with their forecasts of Russian oil demand, extending the study time frame another 5 years.

They concluded Russia not only will remain a significant products exporter during 1996-2001, its capacity to export refined products will grow, especially after 2000.

"Russia's export slate, however, will lighten with significant increases in gasoline export availability after 2000 and in diesel well before that," the analysts said.

"Even with a slow recovery in refining, Russia will continue to have the capability to be a major-indeed, growing-supplier of petroleum products to the rest of the world."

ESAI-Incotec noted that if the utilization of distillation capacity increases or capacity additions come on line faster, Russia's ability to place refined products on the market will be even greater.

"Even though some of Russia's product exports are unlikely to meet the quality standards such as sulfur content and octane set in most OECD countries, some will.

"Meanwhile, the lower quality product will find its way into the increasingly well supplied non-OECD market. Of course, any significant increase in Russia's petroleum product exports will require expansion of existing export terminal capacity."

Refining profits squeeze

All of this translates into continued downward pressure on refining margins.

ESAI and Incotec point out that the potential expansion of refining capacity in Russia is not as great as that seen in Asia in the 1990s. It nevertheless remains significant in a world market where refining capacity is ample and growing.

"The more important difference between Asia and Russia is that Asia's refining capacity increases are reducing the region's import dependence, whereas Russia's increases would increase its export capabilities."

In theory, the study authors said, Russia's refined products export capacity can grow only if the export markets are there.

"Arguably, in the next 5 years or so, the export markets may not be there, given existing refining capacity in the Atlantic basin and growing capacity in the Pacific basin.

"We are not convinced, however, that Russia's refineries-many ultimately allied with international oil companies-will not make a bid for a greater share of the world's product markets. If not deliberate, an increase in Russia's export capabilities may be the unintended outcome of slow internal demand growth."

ESAI and Incotec contend that in the longer term, Russia's exports might more easily find markets if oil demand growth begins to outstrip the refining capacity increases that will have come on line by 2000.

"Even so, it is hard to imagine developments in the Russian refining sector over the next 15 years improving refining profitability in the main refining centers of North America, Europe, and Asia. Internal oil demand would have to register phenomenal growth, and/or the refinery modernization plan would have to be completely derailed to prevent Russia from becoming an even larger exporter of petroleum products."