We will be the market leader in terms of refining efficiency by 2020

Kommersant
Anatoly Cherner

Interview with Gazprom Neft PJSC CEO for Logistics, Processing and Sales Anatoly Cherner

Kommersant

Gazprom Neft’s priorities in oil refining have, over the past few years, been focused on improving operational efficiency and modernising its refining assets. A question — of how the oil refining and distribution sector is currently developing — Kommersant recently discussed with Gazprom Neft PJSC CEO for Logistics, Processing and Sales Anatoly Cherner.

— Anatoly Moiseevich, what is Gazprom Neft’s strategy in terms of downstream development?

— Our strategy delineates target goals for the development of the downstream sector. Gazprom Neft is striving to put in place safe, ecologically clean, high-technology production. Our refineries were built in the last century, under what was still the Soviet Union and, obviously, they do not — in very large part — meet the demands made of refining plants today. Once modernisation is completed, our refineries should exceed all key standards — in terms of ecology, technology, energy efficiency, yield of light petroleum products, refining depth and more — evident throughout most refining facilities in Europe, meaning ours will be the most advanced — and efficient — refineries by 2020.

We have, already, completed the first phase of our plant modernisation programme, directed at improving the quality of our oil products. We have spent over 100 billion rubles over the past five years to that end: the result of which has been the complete transfer to production of Euro-5 gasoline and diesel fuels, two years ahead of regulatory deadlines. There is no question that this has also been a major factor in addressing various ecological issues, allowing us to further enhance production of high-quality, environmentally friendly fuels. Particularly in Moscow, where our plant supplies about 34 percent of the market for motor fuels.

The second phase, which we have already started, is directed at improving refining efficiency — a programme for improving refining depth and increasing volumes of light petroleum products. Our facilities are, already, among the top 10, and the Omsk Refinery the best, in Russia. Although there are still a range of opportunities for further improvement, and we plan to spend 290 billion rubles, to that end, across the Omsk and Moscow Refineries, as well as the YANOs plant (the Slavneft—Yaroslavnefteorgsintez facility, in which Gazprom Neft has a 50-percent holding — ed.). Total investment in environmental initiatives, in improving the reliability and energy efficiency of the plant, and in improving refining depth and the modernisation of existing capacity, will reach as much as 500 billion rubles by 2025. Implementing our plans will allow our Russian refineries, by that time, to achieve a refining depth of 95 percent, with light petroleum products constituting 80 percent of production.

It’s possible plans might change in respect of some projects, particularly in terms of deadlines. Triggered, mainly, by current market conditions: the oil price, macroeconomic changes, limited access to the debt markets.

— What steps is Gazprom Neft taking in terms of import substitution and in ensuring technological independence?

— Each company has to determine its own priorities here, in the face of industry-wide issues. You have sanctions, you don’t have sanctions — we started this work seven years ago, determining a number of priority areas in terms of import substitution. Foremost of which is the development of catalyst production at the Omsk Refinery. The quality of the catalytic cracking catalysts we are already producing now matches international standards and — in several respects — exceeds that of international equivalents. Gazprom Neft is proactive in financing research and development, investing in science in Russia, making use of the outcomes of scientific research and applicable developments. Our research function is centred around the Institute for Problems of Hydrocarbon Refining SB RAS, Omsk, and the Boreskov Institute of Catalysts SB RAS, Novosibirsk. The Institute for Problems of Hydrocarbon Refining specialises in research into catalysts for catalytic cracking, and the Institute of Catalysts in catalysts for hydro-processing. One outcome of this work is the Omsk Refinery commencing production of the “Avangard” catalyst.

In addition to this we have, together with Russian scientists, recently completed a feasibility study into construction of a new catalyst production facility within the Omsk Refinery, construction of which will require investment of more than 11 billion rubles.

A further focus concerns production of engine oils and lubricants. We started actively working on this issue as early as 2008, when we were developing strategy for the development of the oils and lubricants business. From an initial selection of 70 lubricants, we have built up a range of 500 branded products. In the course of developing such a wide product range we have been proactive in securing approvals for usage from both Russian and international automotive and industrial equipment manufacturers, which now include such giants as MAN, Mercedes, Volkswagen, KAMAZ, and many others. During the course of a very difficult year in 2015, sales of our high-performance G-Energy branded oils are up almost 60 percent. In addition to this, our Omsk and Yaroslavl plants saw the launch of two projects for the production of a new generation of base oils. This will allow us to obtain core components independently, without having to rely on imports, as well as offering the opportunity of exporting the high-technology base product necessary for lubricant production.

A further innovation concerns “needle” coke, a pilot batch of which has already been produced at the Omsk Refinery. This product is used in the production of large-scale and high-purity electrodes — as well as in metallurgy and the nuclear industry. This product has never hitherto been produced in either Russia or the USSR.

As regards bitumens, the collapse in the road construction market and, obviously, in bitumen usage, notwithstanding, we don’t envisage any reduction in sales. What is this down to? Firstly, quality — by delivering advanced bitumens consistent with GOST quality standards. Secondly, the location of our facilities — a major logistical advantage. We pay considerable attention to innovative bitumen products, including polymer-bitumen binders and bitumen cement, and are developing a project involving the production of polymer-modified bitumens under the G-Way Styrelf brand — cutting-edge bitumen materials doubling the useful life of road coverings.

— And how do you see the further development of the retail network and premium-brand fuels?

— The main focus now in retail and in developing the filling station sector is not so much on expanding the network as in increasing sales, and moving towards improving profitability. The main thing here being a focus on the client: this means both loyalty programmes, and improving service at our filling stations. We offer the very best in terms of the quality of our products, and are working on improving the attractiveness of our stations for motorists. How? Above all, through seamless quality control — from plant to pump. Then, on top of this, we’re adding better service and a focus on the customer: we’re developing additional sales and services, introducing new services at our filling stations.

Identifying premium sales channels within specific business segments was an extremely important and absolutely correct decision for us. Today, our core objective in terms of retailing oil products is to sell 100 percent of the products originating from our own refineries through our own high-margin channels, in order to maximise coverage throughout the entire value chain. Within the oil products sector Gazprom Neft is determined to expand the premium end of the business, including sales of aviation kerosene, oils, lubricants and engine fluids, bitumens, petrochemicals, and marine (bunkering) fuels.

— The aviation and bunkering businesses, currently, are probably the most vulnerable to external factors. How do you see development here, going forward?

— That has been the case, unfortunately. A number of factors have had a negative effect. But we’re looking at a long-term trajectory here, which we’re sticking to. That means not just in terms of financial plans, but also in terms of key competencies, and infrastructure development. For example, in aviation refuelling we are improving service quality and efficiency. We have the best results in the industry here. We’re implementing international standards. Ours are the only facilities in Russia — in Eastern Europe, even, at which international IATA training takes place. We have the most modern refuelling complexes.

As regards bunkering, we’ve revamped the entire fleet. We have 11 directly-owned refuelling vessels, which are now able to guarantee safe refuelling of all kinds of vessels. Another point — this relates to internal waterways, an area we first started focusing on four years ago, and which we have been actively developing. Which is to say, as well as having a presence at all sea ports, we’re also developing in terms of internal waterways. We’ve recently been paying attention to northern waterways, where we have to supply those vessels supporting the company’s Arctic projects. In addition to which, we’re also expanding our terminal base. LNG bunkering is an upcoming area, for which there will be considerable demand in the medium to long term. And we’re ahead of the curve here, because our fleet will be the first in Russia with a vessel ready to begin LNG-bunkering as early as 2018.