Russian refiners eye Euro-spec diesel market
Date: 26-Mar-02
Country: UK
Author: Sujata Rao
Russia exported about 26 million tonnes (530,000 barrels per day) of gas oil last year, mostly with 0.2 percent sulphur.
This is then desulphurised by western buyers to produce 350 parts per million (ppm) diesel to meet European Union specifications or the ultra low sulphur 50 ppm fuel that many EU countries have introduced.
Russian firms now are increasingly investing in plants to manufacture cleaner specification diesel though they are still some way away from supplying the ultra-clean fuels Europe needs.
Russian exports of ultra-low sulphur diesel, or ULSD as it is commonly known, are rising slowly since kicking off in October when key diesel consumer Germany switched to 50 ppm motor fuel, traders say. Exports are yet a miniscule 100,000 tonnes a month but this compares with zero before October 2001.
"Now that we have published ULSD quotes, the swaps market is more or less established and there is steady demand, the Russians are trying to export more ULSD," one trader said.
At present only Slavneft's Mozyr refinery in Belarus ships ULSD to Europe via the Baltic port of Klaipeda but oil companies plan large investments into their refineries and players say exports may kick off once logistical hurdles are overcome.
Slavneft officials declined to comment on ULSD volumes exported from Mozyr but said the company's Yaroslavl refinery was also being upgraded to produce ULSD.
Several firms have started producing 350 or 500 ppm diesel from the old 2000 ppm, and some are eyeing 50 ppm production.
"We are watching the European market very closely. At present we don't see enough demand to justify ULSD production and exports but if demand arises we can start output," said Vladimir Kapustin, refined products head at Tyumen Oil Company.
Oil executives said several refineries already possess ULSD capacity but large scale commercial production is yet to start.
"We have upgraded the hydrocracker at our Ryazan refinery to produce ULSD and at present we have the capacity to produce 20,000 tonnes a month there," Kapustin told Reuters from Moscow.
YUKOS Vice-President Mikhail Brudno said his firm was now capable of producing 35,000 tonnes of ULSD a month at its Novokuibyshevsk, Kuibyshev and Syzran refineries while 2000 ppm diesel would slowly be phased out.
"By 2005 all diesel fuel produced will have a sulphur content of less than 0.05 percent," Brudno told Reuters.
Largest producer LUKOIL has upgraded its Perm, Volgograd and Nizhny Novgorod refineries to produce 0.05 percent diesel. A spokesman said the Ukhta plant would soon also produce cleaner diesel though the company does not yet produce 50 ppm fuel.
LARGE SCALE EXPORTS SOME WAY OFF
But most players say it is unlikely Russian oil companies will make huge investments to produce ULSD as the domestic market rather than exports, accounts for most diesel sales.
Analysts say the domestic market is increasingly attractive as consumption grows and prices creep towards European levels.
"Most refineries will continue to produce for the local market," a trader with a Russian firm said. "It's not profitable to produce ULSD as Russia will remain our main market."
Brudno said ULSD exports were also being held back by transport and logistical problems. The danger of contamination to clean fuel shipments from higher sulphur material usually necessitates separate storages and tankers.
"To export 50 ppm diesel, you would need a storage terminal to dedicate some tanks for it and keep them clean," one trader said. "With the current high export volumes I don't think the terminals will do this as they are busy with existing grades."
