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Outlook for Russia’s downstream industry, infrastructure
development and evolving export strategy
Maxim Nesmelov
Deputy Director of crude and oil products
trading Department, Head of products trading
E-mail: m_nesmelov@rosneft.ru
Antwerp, January 2014
1
Context
1. Russian oil products market overview
Refining throughput
Key events
2. Downstream modernization plan
Key goals
Schedule
Oil product balances
3. Rosneft refining position
Projects of new construction
Tuapse refinery portfolio
2
Introduction
“Russia’s crude refining throughput increased over recent
years… at the moment refinery industry is covering domestic demand in
full… In the period up to 2020 we expect huge flow of investments and a
number of new units are to be built along with modernization of existing
capacities.
Increase of technological effectiveness will allow reducing
refinery throughput up to 235mn t/year by 2030, but in the same time
ensuring stable growth of product output.”
Alexander Novak
Russia’s Energy Minister
Refining, mln. tn
Increase of conversion is the
key focus of Russian refining
industry upgrades not
throughput increase
150 156 168
-6%
2020
254
86
2017
260
104
2013
272
122
Light Heavy
10%
3
Refining throughput increases, effectiveness still low
0,0
5,0
10,0
15,0
20,0
25,0
Jan-1
1
Feb
-11
Ma
r-1
1
Apr-
11
Ma
y-1
1
Jun-1
1
Jul-1
1
Aug-1
1
Sep-1
1
Oct-
11
No
v-1
1
De
c-1
1
Jan-1
2
Feb
-12
Ma
r-1
2
Apr-
12
Ma
y-1
2
Jun-1
2
Jul-1
2
Aug-1
2
Sep-1
2
Oct-
12
No
v-1
2
De
c-1
2
Jan-1
3
Feb
-13
Ma
r-1
3
Apr-
13
Ma
y-1
3
Jun-1
3
Jul-1
3
Aug-1
3
Sep-1
3
Oct-
13
No
v-1
3
De
c-1
3
Motor gasoline
Jet
Diesel
Fuel oil
+6.4%
36,6
38,2
38,7
35,5
36,0
36,5
37,0
37,5
38,0
38,5
39,0
2011 2012 2013
Mogas
70,6
69,6
72,0
68,0
68,5
69,0
69,5
70,0
70,5
71,0
71,5
72,0
72,5
2011 2012 2013
Diesel
73,1
74,2
76,5
71,0
72,0
73,0
74,0
75,0
76,0
77,0
2011 2012 2013
Fuel oil
+5.7% +2.0% +4.6%
o Refining margins are high,
stimulating crude runs
o Pace of modernization was low
o Lack of sufficient investments
o Government’s taxation policy
bears fruits, but not enough time
4
But significant steps done over last 3 years aim changes
o Introduction of “Technical regalement”: motor fuels non-compliant to set
norms are prohibited for sale on domestic market
o Signed 4-sided agreement: each oil company is obliged to produce certain
amount of motor fuels meeting Technical Regalement specifications
o Differentiation of excise taxes:
Euro-2 Euro 3 Euro 4 Euro 5
Gasoline prohibited until end of 2014 until end of 2015 starting from 2016
Diesel prohibited until end of 2014 until end of 2015 starting from 2016
360
210
345
210 305
175 185 155
0
50
100
150
200
250
300
350
400
Gasoline Diesel
Excise tax rates ($/tn) from 1 Jan 2014
Below Euro 3 Euro 3 Euro 4 Euro 5
domestic excise taxes are different
depending on Euro quality, gap
increases, pushing for quality
improvement
5
Government has proclaimed 3 key goals for Russian
refining industry upgrade campaign by 2020
• Increased motor fuel production
and Euro-5 compliance will remain
in focus in nearest years
Euro <5
Euro 5
2020
0%
100%
2012
70%
30%
• Minimal increase in crude units
capacities balanced by a closure
of simple refineries
• Key focus is on meeting demand
for gasoline and jet fuel
2020
66%
2012
55%
Source: Minenergo, Skolkovo business school
• Some experts estimate that 70% of Russian refining units have already exceed
their expected lifetime
• Key replacement goals:
−High health, security and environment standards
−Operations continuity
−Maximization of refinery utilization
−Decrease in labor due to automation & technology
Lights yield
(conversion)
Fuel
Standards
Replacement
of old units
1
2
3
126
89
Lights yield, %
Diesel fuel and gasoline production,
Mt
6
Key focus of refining upgrades is to meet motor fuels and jet fuel
demand
Source: Rosneft forecast, Petromarket
Gasoline
Diesel
Jet fuel
Fuel oil
Demand, mln. tn Supply, mln. tn
404033
+2%
2017 2012 2020
504536
+4%
2020 2012 2017
13129
+5%
2017 2012 2020
141416
2020 2012 2017
-1%
454535
2017 2012 2020
+3%
817354
+5%
2017 2020 2012
161510
2020
+6%
2017 2012
4054
76-8%
2020 2017 2012
• Mostly balanced with some
regional deficits
• Demand will be met through
secondary processes upgrades
• Always surplus export product
in Russia
• Overall demand growth will be
slightly above gasoline due to
increasing share of diesel
trucks
• The highest growing product
• Sufficient supply growth, since
most conversion upgrades are
middle distillates oriented
• New significant cracking
capacities
• Large export drop
• Growth in number of
passenger cars
• Growth in passenger
traffic
• Increase in fuel
efficiency of new
aircrafts
• Growth in number of
trucks
• Increase in fuel
efficiency
• Increase in fuel
efficiency
• Power generation
switching to natural gas
• Growth in bunker fuel
Demand level
7
2013 2014 2015 2016 2017
Key focus of refineries’ upgrade in mid-term is Euro-5 compliance
Company Quality projects
Gasoline: Isomerization, Reforming,
Alkylation, Hydrotreating (15 projects)
Diesel: Hydrotreating (6 projects)
Year when all production is fully complied with Euro-51 Current quality
Gasoline: Isomerization, Reforming,
Alkylation, Hydrotreating (4 projects)
Diesel: Hydrotreating (3 projects)
Gasoline: Isomerization, Reforming,
Alkylation, Hydrotreating (5 projects)
Diesel: Hydrotreating (3 project)
Gasoline: Isomerization, Reforming (2
projects)
Diesel: Hydrotreating (1 project)
Gasoline: Alkylation, Hydrotreating (2
projects)
Diesel: nothing
1 Some companies will continue to produce non Euro-5 compliant product for export. In this case, the tick shows a year of completion of latest quality project
13% 38% 28% 21%
Euro-3 Euro-4 Euro-5 lower than Euro-3
53% 21%
13% 13%
50% 50%
32%
2%
18% 48%
15% 78% 7%
47% 21% 22%
83% 17%
85% 13%
2%
4% 96%
79% 19%
11% Source: Petromarket
8
Implementation of modernization projects will lead to significant growth of
gasoil and gasoline supply (12 mln t gasoline and 20 mln t gasoil)
Company 2014 2015 2016 2017 2018 2019 2020
Rosneft Tuapse: AVT +1,6
Kuibyshev:
Isomerization +0,1;
Novokuibishevsk:
Isomerization +0,2;
Achinsk: CU +0,1;
Komsomolsk: HC VGO +0,7;
Syzran: FCC and MTBE +0,5;
Kuibyshev: FCC, alkylation, MTBE +0,9;
Angarsk: FCC, alkylation, MTBE +0,2; +0,2;
Ryazan: Isomerization -0,8; +0,4
Syzran: alkylation +0,1;
Novokuibishevsk: HC
VGO, рек. УЗК +0,1; +0,4;
Achinsk: HC VGO +1,6
Tuapse: HC VGO,
Isomerization,
Reformer +2,5; +2,6;
Ryazan: HT
gasoline FCC +1,0
Ryazan: HC
VGO, FCC:
+0,3;+0,9
BashneftUfa: FCC, AVT
+0,3; +0,6
Gasprom Neft
Moscow:
Isomerization, HT
gasoline: +0,3
Slavneft Yaroslavl: TAME +0,2
Surgutneftegas Kirishi: HC VGO +0,6
Kirishi:
Isomerization,
Riforming +0,9
Taif-NKVeba combi
cracking +0,3; +2,0
TatneftNizhnekamsk: HC
VGO +1,1
Nizhnekamsk:
Riforming,
Isomerization +1,0
GaspromSalavat: AVT +0,3;
+0,6
Salavat:
Isomerization. +0,4
Salavat: FCC +0,3 +0,1; Surgut: Isomerization
+0,5
Alliance Oil
Company
Khabarovsk: HC
VGO и HT diesel +1,4
Total +0,6; +5,3 +1,2; +0,9 +3,2; +2,9 +0,2; +3,8 +6,0; +2,6 +0,8; +3,7
Volgograd: FCC;
alkylate and MTBE
+0,6
LukoilVolgograd: AVT
+0,3; +0,1
Volgograd: AVT +0,2; +0,2; Perm: coking
+0,1; +1,2;
Nizhny Novgorod: Isomerization, FCC,
alkylation +1,1; +0,1
Volgograd: HC +1,8
Nizhny
Novgorod: HC
+0,5; +1,7
9
Due to ongoing conversion capacity increase projects Russia will remain
excessive in gasoline in next 10 years
Even if gasoline consumption continues to increase at CAGR 1,9% per year and key players implement announced
conversion capacity increase projects, Russia will remain excessive in gasoline up to 2022-2023.
Possible seasonal deficit in 2013-15 is covered with purchases from Belorussia
Gasoline balance in Russian Federation, mln tonnes
(scenario: only currently ongoing projects included in 4-side agreement)
-
10
20
30
40
50
60
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
* Announced but low probability projects are not taken into account
Rosneft
TNK-BP
Lukoil
Bashneft
Gazpromneft
Slavneft Surgutneftegaz Gazprom Other companies
Consumption
10
Diesel will remain export oriented commodity
Diesel production grows faster than its consumption
Diesel consumption growth is faster than gasoline - CAGR 3,5% versus 1,9%
Despite this, implementation of new conversion capacities for more diesel output will keep exported volumes
at 50% in next 10 years
-
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diesel balance in Russian Federation, mln tonnes
(scenario: only currently ongoing projects included in 4-side agreement)
Rosneft
TNK-BP
Lukoil
Bashneft
Gazpromneft
Slavneft Surgutneftegaz Gazprom Other companies
Consumption
* Announced but low probability projects are not taken into account
11
Fuel oil production will decrease by 36% to 2022, but ¾ of production will
still be exported
0
10
20
30
40
50
60
70
80
90
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Fuel oil balance in Russian Federation, mln tonnes
(scenario: only currently ongoing projects included in 4-side agreement)
* Announced but low probability projects are not taken into account
Ongoing projects for conversion capacity increase are mostly directed at VGO production decrease, but overall
production will also go down substantially (by 36% compared to current production)
Since domestic consumption of fuel oil is also going down (CAGR -1,9%), up to ¾ of total production will be
exported
Rosneft
TNK-BP
Lukoil
Bashneft
Gazpromneft
Slavneft
Surgutneftegaz
Gazprom
Other companies
Consumption
12
Jet fuel market will remain in surplus until 2022
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Jet fuel balance in Russian Federation, mln tonnes
(scenario: only currently ongoing projects included in 4-side agreement)
* Announced but low probability projects are not taken into account
Despite fast growth of jet fuel consumption (CAGR 4,9%), implementation of new conversion capacities for more
diesel output also leads to increased jet fuel production. This will keep surplus of jet fuel in Russia in next 10 years
Rosneft
TNK-BP
Lukoil
Bashneft
Gazpromneft
Slavneft Surgutneftegaz Gazprom Other companies
Consumption
13
Rosneft in the years 2008-2013 successfully implemented more than
20 projects for new construction and revamping of units and facilities
2008 2009 2010 2011 2012 2013 Refinery
Achinsk
Angarsk
Komsomolsk
Novokuibishevsk
Syzran
TNK-BP Refineries
Kuibyshev
Tuapse
• Isomerization
• Sulfur
production
• Hydrogen
production
• Hydrogen
production
• Isomerization
• Isomerization
(revamping)
• Reforming
• Isomerization
• Reforming
(revamping)
• Visbreaker
(revamping)
• Reforming
(revamping)
• Reforming
(revamping)
• Gasoline
blending
• Delayed coking
• «Wet
catalysis»
(revamping)
• Reforming
(revamping)
• LPG gantry
• Gasoline blending
• Visbreaking
(revamping)
• Revamping of
furnaces to gas
• Water supply
system
• Saratov isomerization
• Saratov crude unit
(revamping)
Integration of TNK-BP
• Crude unit
Total • New: 2 • New: 2 • New: 2
• Revamped: 3
• New: 2
• Revamped: 3
• New: 4
• Revamped: 2
• New 2
• Reforming
• Saratov diesel
HT
• Ryazan diesel
HT (revamping)
14
Rosneft refineries’ actual status and development
Process Samara Tuapse Komsomolsk Angarsk Achinsk Ryazan Saratov
Additional for
the second
processing, mln
t/y
Crude unit 12,0
Hydrocracking 12,0
Catalytic cracking 2,9
Coking/Flexicoking 1,0
Modernization Development Launch in 2012 Launch in 2013
Indexes/ Countries Russia Ukraine Belorussia Germany Italy Total
Number of refineries 10* 1 1 4 1 17
Capacity, mln. t/y 81,5* 6,4 2,6 11,6 15,0 127,3
Yield of light products 51,4% — 56,6% 72,9% 83,4% —
Modernization program of the Russian refineries
*Except for mini refineries, where the share of 50% in Yaroslavl and Tuapse aren’t working at full capacity
Data do not include Rosneft’s FEPCo project (first 12mn t/year stage scheduled for 2020)
15
Tuapse refinery – from topping to a new leader in Russia
Key success factors for Tuapse refinery:
• Strategic location:
Immediate proximity to large Southern Russian markets with growing demand
Close to Tuapse oil products terminal
which enables to flexibly distribute sales between export and internal trade channels
• Complete re-equipment of refinery, including:
Increase throughput from 5 to 12 mln. t./year
Achieve 90% lights yield
Achieve Nelson index of 8
3rd construction
stage 2018
11,4
0,7 0,0
6,5
4,4
0,1 2,0
1,4
0,9
0,4
2,2
0,8
4,3
3,7
0,5
11,9
2nd construction
stage 2017
0,7
2,4
1,0
Current
production 2012
Tuapse refinery production structure, mln.t
Tuapse
Saratov
Export to MED: Naphta,
Jet, Diesel, Fuel oil, etc.
Grozny
Filling stations
South Russia
LINIK
BATO TZK
Tuapse refinery in Rosneft portfolio
Bunker
Gasoline
Naphtha
Other
Fuel oil
Diesel
Jet
16
Conclusion
Russia’s refinery industry to develop in the coming years with goal
to meet Euro-5 standards and to increase conversion. Peak of
modernization is scheduled for 2016-2018
Government's taxation policy provokes for faster upgrades,
refining margins to decrease in 2015, but still attract a lot of
investments
Projected increase of diesel and gasoline supply unlikely to
change balances for motor fuels:
- Gasoline to remain domestic-oriented product with insignificant
surplus being exported during winter period
- Diesel exports are forecasted to stay on the same level with
euro-quality grades replacing high-sulfur flow
- major hit on exports is projected for fuel oil and naphtha
Rosneft to lead the industry: share both on domestic market and
exports – about 30pc
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