March 12, 2018 / 11:23 AM / in 5 months

Russia ramps up fuel exports in fight for European market

    * Russian light oil products exports seen rising to 106 mln T in 2018
    * Diesel exports seen increasing by 3 million tonnes this year
    * Russia also increases gasoline production 

    By Vladimir Soldatkin and Maxim Nazarov
    UST-LUGA/PRIMORSK, Russia, March 12 (Reuters) - Russia plans to sharply
increase fuel exports and carve out a larger share of the European market
following an extensive $55 billion modernisation of its refineries, companies'
plans and analysts' reports show.
    Russia embarked on a modernisation of its biggest refineries in 2011
following a fuel shortage crisis. It also changed its tax system to favour
production of cleaner and higher-quality fuel.
    The modernisation, which has not been completed yet, led to a surge in
output of light products and exports, which has hurt European refineries'
margins.
    Russian think tank Vygon Consulting expects Russian primary oil refining
volumes to rise by 8 million tonnes this year, matching a record high of 289
million tonnes reached in 2014 thanks to the modernisation and rising oil
prices.
    The consultancy forecasts Russia's exports of light oil products, including
diesel, will increase this year to 106 million tonnes from around 95 million
tonnes in 2017 as domestic consumption sags.
    According to Russian oil pipeline monopoly Transneft, more than 38 percent
of oil products from the Baltic Sea port of Primorsk, Russia's key exporting
outlet, goes to the Netherlands' port of Rotterdam, followed by Germany (19
percent), the United Kingdom (15 percent) and France (11 percent). 
    According to the Primorsk data, it plans to ship 18.3 million tonnes of
diesel this year, rising sharply to 19.8 million tonnes in 2019 and 23.9 million
tonnes in 2020.
    In total, Transneft plans to increase exports of ultra-low
sulphur diesel (ULSD) - the cleanest type of diesel used by motorists in Europe
- by 3 million tonnes to 26 million tonnes this year.
     Andrew Reed, an analyst at U.S.-based ESAI Energy consultancy, said that
thanks to widespread hydrotreating investment more of Russia's surplus diesel
has become a clean product suitable for Europe.
    "Russia now exports more than 650,000 barrels per day of ULSD, enabling it
to place more than 500,000 bpd of the product into that market," he said.
    "Exporting more clean diesel will enable Russia to continue expanding market
share in Europe – to the detriment of competing exporters in the United States
and the Middle East."
    With around half of Europe's cars fuelled by diesel and its refineries
unable to meet domestic demand, the region imports around 850,000 barrels per
day of diesel. Nearly 20 percent of Europe's diesel imports arrive from the East
of Suez refineries, according to consultancy Energy Aspects.
    
    NEW REFINING UNITS 
    According to the industry sources and Reuters data, Russia plans to
introduce 15 new hydrocracking units allowing it to produce up 18.2 million
tonnes of ULSD by 2022 at their full capacity. 
    The total diesel output, including non-ULSD, could reach 22 million tonnes
if all 27 fuel oil residue conversion units are put into operation. 
    As well as increasing diesel production, Russia is also on track to produce
more gasoline. The same units will also be able to produce up to 10 million
tonnes of naphtha per year by 2022, which could be entirely processed to the
gasoline if needed, according to industry sources and Reuters data. 
    "We expect Russian gasoline supply to see strong growth this year. Growth in
yields started already over the second half of 2017 (+0.4 percentage points),
supported by new capacity," Eugene Lindell of Vienna-based JBC Energy said.
    "This year we see further gasoline-focused units coming online, of which
slightly over 70,000 bpd will be reforming capacity."
    Usage of diesel in Europe has been under scrutiny since Volkswagen
, Europe's biggest carmaker, admitted to cheating U.S. emissions
tests. German carmakers, including Daimler and BMW, faced a
backlash against diesel technology, in which they have invested billions. 
    The German government has sought to find ways to avoid bans on heavily
polluting diesel vehicles in major cities after a court ruling. 
    Yet, even though sales of new gasoline cars in Europe are rising, the shift
is not yet there to force diesel out of the market, JBC Energy said in a recent
report, posing little threat to Russia's plans to increase diesel exports to
Europe, at least for now.     
    
    Following is a table of planned new hydrocracking units launch at Russian
oil refineries, according to industry sources and Reuters data. The data below
represents the capacity, not the output, and does not include other advanced
conversion units:
 Refinery        Processing        Capacity,    Year of launch,
                                   mln T per    estimated
                                   year         
 TAIF            Tar hydro         2.7                      2018
                 conversion                     
 Taneko          Tar hydro         2.0                      2022
                 conversion                     
 TAIF            Hydrocracker      1.0                      2018
 Tuapse          Hydrocracker      4.0                      2019
 Orsk            Hydrocracker      1.6                      2018
 Ufaneftekhim    Hydrocracker      1.3                 2018-2019
 Komsomolsky     Hydrocracker      2.0                      2019
 Novokuibyshev   Hydrocracker      2.0                 2019-2020
 Achinsk         Hydrocracker      2.0                 2019-2020
 Ilsky           Hydrocracker      0.9                      2020
 Afipsky         Hydrocracker      2.5                      2020
 Omsk            Hydrocracker      2.0                      2020
 Antipinsky      Hydrocracker      2.7                      2022
 Taneko          Hydrocracker      1.8                      2022
 Ryazan          Hydrocracker      2.2                      2022
 Total                             30.7                         
 
 (Reporting by Vladimir Soldatkin and Maxim Nazarov
Editing by Katya Golubkova and Susan Fenton)
  
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