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To the progressive wing

Alexander MelingInterview with Alexander Meling, Director General of Gazprom Neft – Omsk Oil Refinery, Moscow, June15, 2010. Gazprom Magazine

- Alexander Alexandrovich, what are the last year’s results for Omsk Oil Refinery?

- Of course, the year was a difficult one, but we did well. The target figures in terms of refining were slightly exceeded. As a matter of fact, the plant refined around 18.4 million tons, which exceeds the 2008 figures by 0.3%.

Investment Breakthrough

- We have also succeeded in fulfilling the tasks set for output of the entire product range. In particular, we did quite well in production of high-octane gasoline - a total of over 3 million tons was produced which exceeds the previous year’s figure by 6.8%. Aromatics output increased by almost 5% up to 393 000 tons. With respect to oil refining depth, the refinery increased this figure by over 4%.

Last year was a breakthrough for Omsk OR in terms of financing the investment program – over 8 billion rubles. Out of this amount, 7.5 billion has been used. For comparison, investments in plant development in 2008 reached a level of 4 billion rubles, although this year, for objective reasons, turned out to be far from the worst in terms of investments. It’s enough take a look at the projects that have recently been implemented in the plant. I remind you that in 2005 it was reconstruction of the L-35/11-1000 gasoline reformation unit, in 2007 it was modernization of hydrotreatment of diesel fuel (DF) (L-24/7) and construction of a light oil product timing load system; in 2008 it was modernization of the catalytic cracking unit (43-103) and doubling the power of hydrotreatment of diesel fuel (L-24/6).

- What were the investment target projects in 2009?

- The bulk of investments went to reconstruction of the L-24/9 diesel fuel hydrotreatment unit, continuing modernization of the L-24/6 and 43-103, reconstruction of the primary crude oil processing unit (AVT-10) and the oil residue deeper conversion system (KT-1/1), as well as preparation and construction of the light naphtha isomerization unit. A control room was set up to provide integrated control of several major processing facilities simultaneously. This project is also of great importance for us; 300 million rubles was spent for it.

Development Strategy

- A number of activities and programs scheduled for implementation in terms of strategy of development of our plant are being carried out in parallel.

- Could you give us some more details about the development strategy? What does it look like? What does it envisage?

- The Omsk OR development strategy was approved by Gazprom Neft management in June, 2009. This was preceded by over two years of work done by experts of the plant, our parent company and foreign experts. The key element of the strategy is the Omsk OR technological development program elaborated jointly with CJSC Honeywell, the Russian division of the American Honeywell International. Furthermore, the approved strategy includes other programs as well, such as reduction of operating expenses, environmental safety, optimization and increasing operational availability. Each one of them is important for the company. For example, implementation of the latter program will enable us to considerably increase the plant’s operation efficiency. Increasing operational availability, that is, the absence of any downtimes, allows us to make the most efficient use of the equipment operating at the company’s facilities, process incoming raw material and ship the manufactured products.

The program projects are interconnected and are arranged in strict succession. The strategy makes allowance for such elements as quality prospects of the oil going to the Omsk OR, because raw material has a major impact on basic performance factors. We have thoroughly studied this issue as well, and we have a full idea of what kind of oil will be refined in the next 15 years. To make up for the negative consequences of impaired quality of raw material, measures have been worked out to optimize production costs, improve the structure of product output , decrease irrecoverable losses, inhibit growth of operational expenses, etc.

It is suggested that the programs be updated annually and that adjustment of the projects be reflected in business plans approved by Gazprom Neft for each succeeding three years. Due to implementation of the approved strategy, Omsk OR will not only retain its dominant position in this country, it will reach the level of advanced companies of the global oil refining industry.

- How will the key figures of the plant operation change by 2020?

- Output of light oil products should increase to at least 76.5%; oil refining depth, to 93.8%; the Nelson index will almost double – up to 15.1; and operational availability, to 96.3%. It is expected that the level of irrecoverable losses will not exceed 0.65%. Starting in 2015, we will produce Euro-5 quality motor fuels.

- Will primary processing power increase?

- This issue has not been discussed yet. The Omsk OR installed oil refining capacity is 19.5 million tons per year, and we are focusing our efforts on enhancing efficiency – not production volumes.

- What volume of investment may be required to implement the approved strategy?

- According to existing estimates, the required volume is 45 billion rubles. Of course, the figure is given in effective prices.

- What major projects are planned for implementation?

- At present, construction of the Izomalk-2 light naphtha isomerization complex is underway; the annual capacity is 800 000 tons in terms of raw material.

Key Projects

- Implementation of the project is planned for the current year. Construction has started on diesel fuel hydrotreatment and gasoline catalytic cracking units with output capacities of 3 and 1.2 million tons, respectively; construction is expected to be completed in 2012. These are major projects approved and included in our business plan for the period o2010 – 2012. Then in the Technological Development Program, a great many activities are scheduled on which no investment decisions have been made yet.

In particular, construction of a vacuum gas oil hydrogen cracking complex with a capacity of 2.3 – 3 million tons with a group 2 and group 3 base oil production integrated unit is being studied, which will require reconstruction of the operating catalytic cracking units (43 – 103) and deep fuel oil conversion units (KT-1/1). An increase in coking process performance to 3 million tons is planned due to reconstruction of existing equipment and construction of new facilities. The possibility is being considered of replacing the morally and physically outdated primary crude oil processing complex (AVT-6, 7, 8, ELOU-7, 8 and FSB) with one unit with a capacity of 8 million tons; reconstruction of AT-9 is also planned, with an increase in capacity up to 4.5 million tons, integrating it into the ELOU diagram and gasoline fractionation. Besides this, reconstruction of the L-24/7 unit is planned for the catalytic paraffin removal process in order produce winter diesel fuel with a maximum sulfur content of 10 ppm.

- What volume of investments is planned within the framework of the development strategy for 2010?

- A record volume of 10.7 billion rubles is scheduled, which exceeds the 2009 level by 42%. Besides the above-mentioned projects, these investments will be used to implement a number of activities within the framework of various programs. For example, 1.49 billion rubles is expected to be allotted for replacement of morally and physically outdated equipment.

Increased Efficiency

- Substantial investments will be made in project to increase efficiency. However, by implementing these projects, we plan to achieve considerable economy both this year and in future.

- What do these projects propose?

- There is a set of measures there. The measures include increasing equipment performance factor, improving fiscal measurement units, modernizing commodity parks, implementing the newest production automation systems and off-site facility reconstructions. In general, we are working on increasing efficiency in three main directions. These are optimizing power consumption (fuel, heat and electricity), decreasing processing losses and ensuring reliability of power equipment operation. Last year we managed to save 21 million kW and 75 00 Gcal. Due to this and a reduction in irrecoverable losses and fuel consumption, the company saved 93.13 million rubles.

According to the business plan for 2010 – 2012, the expected effect of the scheduled activities this year will amount to: due to increased operational availability – 855 million rubles; due to process fuel consumption – 15 million rubles; due to restraining irrecoverable losses – 60 million rubles. According to our calculations, economy will increase over the next two years.

Beating the Target

- In the meantime, jointly with McKinsey & Company experts, we are developing new approaches to the capital project management and operational improvement system.

- What production results are you planning to achieve this year according to the business plan?

- The business plan envisages an increase in volumes of oil to be refined to 18.742 million tons. In addition, we should considerably increase production of diesel fuel with low sulfur content. Compared with the figures of 2008, the increase is triple. The fact is that last year we had the unit in question for modernization and now it has been commissioned. Production of high-octane gasoline with octane numbers 95 and 98 will increase and the gasoline 92 production volume will be reduced, according to the task that has been set for us. By the way, according to the outcome of the first quarter of the current year, we are already beating the target. Thus, output of diesel fuel with low sulfur content has increased by 7.8%; output of high-octane gasoline, by 5%; and output of 98, by over 7%.

If we return to the prospect for the whole year, output of light oil products is expected to be at least at the level of 67%. Of course, this is far from the best result for Omsk OR, but there are objective reasons for it. Very serious changes are being observed in the quality of oil supplied to the plant, which, as has already been said, has a considerable impact on our basic figures. Correspondingly, the processing depth is determined within the range of at least 82%. However, according to the first quarter figures, we are still managing to maintain these figures at a certain level and even beat the target.