.

1. Relevance

2. Main stats and drawbacks

3. Refining margin

4. How to build an efficient strategy

5. Example

6. Conclusion

7. List of references

Petroleum refining supports

domestic demand and

makes it able to export

high value added products

Global economy trends

and economic conditions

are making petroleum

refining and petrochemistry

one of the most profitable

business

Exporting crude oil, virgin

naphtha, base gasoline,

heating oil and other

feedstock is inefficient

anymore

• Oil refinery capacity increasing

rapidly year by year

• Russia takes the third place at

primary refining

• High heavy products yield is a

huge drawback

• Russian refineries are not equipped with

secondary refining processes enough

• Average NCI in Russia is around 5, while

European and US is 8 and 9,5

respectively

EEI = 𝑟𝑒𝑓𝑖𝑛𝑒𝑟𝑦 𝑒𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛

𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑒𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛х 100

• The lower the index – the better

energy efficiency

• Russian EII is around 120 which

corresponds to 4th quartile, while

European and US refineries are

located in first with EII around 90

Aged over 10 years

Cars – 48,5%

Trucks – 61,8%

Buses – 45%

Cars in Russia are not ready

for EURO 5 fuels

Tax law changes do not

correlate with the refineries

upgrade

Inefficient strategy makes

projects stuck

• There were no differences for light and

heavy products before

• Export duties change are making most

part of the refineries non profitable

• As a result of non efficient strategy and

sophisticated economical situation

modernization projects stuck now

• Projects are going to be done with 3 or

4 years delay

• Comparing to Europe, Russian

population density is sufficiently

lower

• Pollution problem is relevant only for

megacities

• There is no necessity of further movement from

EURO 3 to EURO 5 in the regions because of

inessential sulfur oxide emissions decrease and

doubled CAPEXs

• GRM = Value of produced

products – Value of the crude oil

• GRM in Russia previously was

formed not by the price of

petroleum products but by the

difference of export duties on

crude oil and heating oil

• Because of differences in export

duties Russian refining margin

decreases

0

2

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013 2014 2015 2016

$/B

arr

Year

Russian refining margin European refining margin

Strong decrease after the

tax maneuver

Positive trend after the oil price drop

Divide all the

refineries into the

three groups

depending on their

NCI, light product

yield, location and

company

Make market

analysis, figure out

the demand

structure, analyze the

competition

Figure out

competitive

advantages

(innovations,

pipeline, EEI)

Make the decision

about the refinery

upgrade,

petrochemistry

integration or

lubricants production

• First group includes the refineries with

high NCI and light product yield and

located with profitable logistics

• Second group includes the refineries

with high NCI and light product yield

but with non profitable logistics

• Third group includes the refineries with

low NCI and low light products yield

and with non profitable logistics

• Profitable logistics means the possibility

of petroleum products export

Group Refineries Total amount of

refining

Group 1Ufimsky Oil refinery,Ryazan oil refinery, Tuapse Oil refinery

101

Group 2Angarsk Oil refinery,Achinsk oil refinery,

Taif NK113

Group 3

Antipinsk oil refiney,Komsomolsk oil

refiney, Lukoil – Uchtaoil refinery

61

• Current margin indicates export duties

of 60% and current refinery

configuration

• Margin after 2017 includes export duties

of 100% and upgraded configuration

*Heating oil export duties increase after 2017 till 100% of a crude oil price

• This kind of analysis is a great tool for building

forecasts

• The oil price and export duties are the main factors

0

2

4

6

8

10

12

Group 1 Group 2 Group 3

Refining margin by groups

Current margin Margin after 2017

Indicator Value

Amount of

refining

11,3 mln. t./year

NCI 6,1

Light product

yield 61%

Refining depth

*77,1 %

Main indicators

Location

Located near prospective

South region with growing

demand Recap

Refinery has strong

main indicators

Refinery located in a

region with growing

demand and

profitable logistics

Refinery refers to the

first group according

to the classification

Classify the refinery

Refinery is a part of

the Lukoil oil

company

Refinery refers to the

first group according

to the classification

«The south» pipeline project by the

Transneft company The refinery is connected to the crude

oil pipeline system

Volgograd oil refinery has it’s own

innovational lubricants production

center

New pipeline will make it possible to

export light petroleum products

straight to European markets

No connection to the petroleum

products pipeline (railroad and truck

tanks are used)

Low energy efficiency

Competition

Diesel fuel dominates in the demand

structure of the south region 32%

55%

13%

Gasoline

Diesel

Heating oil

The main competitor is the Tuapse

refinery

The best decision is to increase the

diesel fuel production

High export opportunities

Pipeline only for the

crude oil

New export petroleum

products pipeline will be

built soon

Low energy efficiency

Own innovational center

Strong demand on

the diesel fuels

New pipeline – new sales

markets

Tuapse refinery will be a

strong competitor

The Volgograd refinery

refers to the first and the

most sustainable group

The refinery located in the

region with the growing

demand

• Continue the upgrade

according to the

demand structure

• Petrochemistry

integration can also

be possible

1. Russia now is facing serious economic conditions of the low oil price Oil price

won’t be higher because the compromise wasn’t found in Doha yesterday

2. We need to change the priorities and export the HVA products

3. Corrections are needed to finish the modernization program

4. The model might be a useful tool for a new modernization strategy

1. Kozenyashev Kirill. (2016) Development strategy of vertically integrated oil companies in the

conditions of a new world energy order (PhD Thesis), Moscow: Gubkin Russian State University

of oil and gas

2. Kalinenko E.A. (2011) WAYS OF ENHANCING ENERGY EFFICIENCY IN OIL REFINING. Paper

presented at the 67 annual youth scientific conference «Oil and gas 2011», Moscow 20-22 April

2011.

3. Mikhail Levinbuk, Vasily Kotov. (2015) The outlook for operating and modernizing technological

oil and gas equipment in Russia amid sectoral sanctions and changes in the US energy balance. Oil

and gas journal, vol. 91, no 3, pp 32-41.

.