Stimulus for Development

Ildus SarvarovInterview with Ildus Sarvarov, Director General of Moscow Oil Refinery OJSC
Moscow, May 31, 2010. Gazprom Magazine

- Ildus Irekovich, what is significant about this year for your company?

- For Moscow OR, this was not an easy year, but not a bad one. The plant processed over 10 million tons of crude oil, which was delivered by three suppliers.

Cosmetic Measures

- No global projects were implemented in the plant, but a series of measures that were carried out increased operating efficiency and improved production performance. In particular, technologies have been implemented at the plant for the production of jet fuel and fuel oil with low H2S and mercaptan content; a rail car discharge rack was transformed into a discharge and loading rack with a loading sealing system and a vapor recovery unit; the structure of liquid fuel used for in-house needs was changed. Certain operations aimed at improving operating equipment were carried out during repair of the primary crude oil processing units (ELOU-2 and AVT-3), as well as the reforming units (L-35-11/300) and the hydrotreatment units) L-24/5). Process optimization also played an important role.

Finally, the oil refining depth increased to over 70% and recovery of light oil products exceeded 58%. By the way, the second figure was the best in the last five years. All this is despite declining quality of supplied raw material in which the share of light fractions is gradually decreasing. It should also be noted that production of high-octane gasoline in the past year increased by 19.5%, and production of diesel fuel with low sulfur content (less than 0.035%) increased by 11%.

Advantages and Disadvantages

- From the point of view of processes, Moscow OR is quite well balanced and today the units are fairly well equipped. The plant has a very successful layout. For example, the facilities of Omsk OR occupy quite an extensive area extending to more than one kilometer. This is why transportation of products via the in-plant pipeline system to the tank farm or pumping from unit to unit with additional heating all require certain expenses. The facilities of Moscow OR are arranged very compactly, and therefore, operating costs here should be lower by definition. It’s quite another matter that the existing facilities have become both morally and physically worn out.

In the last 15 years, the plant has actually been functioning in the mode of maintaining equipment operability, that is to say, investments in the company have not exceeded the level of amortization charges for many years. The situation changed only last year with an increase in Gazprom Neft's share in the shareholders’ capital. The Moscow plant finally has a powerful stimulus for development. A program of reconstruction and modernization of the company to 2015 was approved; implementation of the first stage began last year. As a result, capital investments in projects to replace morally outdated equipment totaled 942 million rubles and financing of the development program activities exceeded 345 million rubles. And this is only the beginning.

- What do the reconstruction and modernization plans of the Moscow OR include?

- The program is divided into three stages. The first stage is calculated to 2012; its chief purpose is to provide output of motor fuel complying with Euro-4 standards. The second stage is to 2015; during implementation, we will have the ability to produce Euro-5 class oil products. The third stage will focus mainly on enhancing the refining depth - this stage is expected to be finished in 2020.

Start of Modernization

- At present, all companies of the national oil refining industry are working on improving motor fuel quality. Moscow OR is no exception. On the contrary, proximity to one of the broadest and most prospective oil product sales markets means that we need to solve the problem in the shortest possible time. And of course all of this also calls for optimizing operating costs. This will enable us to retain our dominant position in the market. This is why we started to implement the company’s development program immediately.

At the first stage, we are planning to carry out reconstruction of the operating LCh-24/2000 diesel fuel hydrotreatment units (while increasing raw material capacity to 2 million tons per year and improving of quality of output products), coal tar and sulfur production units. Along with this, new light naphtha isomerization and catalytic cracking gasoline hydroforming units will be built, as well as enclosed mechanical treatment facilities. All of these projects are now underway. Licensors have been selected for the isomerization and hydroforming processes – UOP (USA) and AXENS (France), respectively. The chief designer has been selected – VNIPINeft Institute. A number of other national organizations have also been involved in these projects. Basic design is underway, and equipment supply tenders are starting.

A contract has been prepared with the French company Air Liquide for the supply of two nitrogen generators for LCh-24/2000. A contract has been signed with the Petrochemical Processing Institute of the Republic of Bashkortostan for development of design and working documentation for reconstruction of this unit. Selection of a packaged supply of a pressure-tight loading system is underway. According to the results of the tender, a contact was signed with OJSC Giprogazoochistka for preparation of the required documents for reconstruction of the units that produce and load liquid sulfur into rail tank cars. At present, work is underway within the framework of this project to place an order for equipment supply. The American company Petreco has been selected as the supplier of technology and equipment for construction of new treatment facilities.

Among our partners in implementation of the investment program are many domestic and foreign companies such as VNIPINeft, Bashgiproneftekhim, Air Liquide, UOP and many other contractors, as well as a number of engineering and metallurgical companies.

- How much money do you plan to invest in implementing the first stage of the program?

- The total planned investment is over 11 billion rubles, and the approved investment for the current year is around 5 billion rubles. The bulk of the investments, which are over 1 billion rubles, will be allotted to design and survey work. This concerns both facilities that have already been mentioned and prospective projects. Around 1.2 billion rubles is expected to be allotted for replacement of morally outdated equipment.

Prospective Projects

- We are now facing the task of implementing a large-scale program of measures aimed at enabling the plant to increase its time between repairs. Today, it’s two years; the figure for the short term outlook is four years and later on it will reach six to eight years. The program includes a number of basic plant operating parameters: personnel, quality and expenses. We plan to reach the maximum performance level in the next five to seven years.

However, it’s not so much a matter of increasing the time between repairs, but rather process losses, work performance, process automation and a number of other aspects. We need to enhance production performance, as well as optimize expenses for each ton of processed raw material. These are priority tasks. By the end of the program implementation, we expect to provide (besides motor fuel quality at the Euro-5 level) a depth of raw material refining of at least 90% and yield of light oil products around 76%. The best performance figures for European oil refineries in Europe in terms of irrecoverable losses are 0.5 and 0.6. Here in Moscow the figure is 0.82. Thus, the short-term task is to reach a figure of 0.73. To do it without organizational and, most importantly, without technical measures is impossible.

- What projects are planned for implementation at the second and third stages?

- Construction of new diesel fuel hydroforming, alkylation and catalytic reforming installations, as well as construction of a tar hydrocracking complex are planned. Reconstruction of the operating catalytic cracking installation (G-43-107) is also scheduled.

- Is the feasibility of increasing the power of Moscow OR being considered within the framework of the modernization program?

- We are faced with the task of updating the master development plan of the plant and increasing its design capacity to 12.5 million tons of oil per year.

- How much could all the scheduled projects cost?

- According to existing estimates, investments in reconstruction and modernization of the plant to2020 could reach 66.3 billion rubles. These are approximate data as of today. However, it should be noted that this is just an expert estimate. Expensive processes such as hydrocracking and catalytic cracking are currently evaluated within the limits of 400 – 600 million dollars. But even within a year, the situation may change considerably. A lot will also depend on technical merit, in particular, on performance of the selected unit.

What is being done at the plant to improve efficiency and reduce expenses?

- It’s probably no secret that Gazprom Neft is the initiator of the changes in this area too.

Cost Cutting

- The company has come up with the idea of developing a long-term program here. The program will become integrated and be the basis for our business plan for 2011. It will include measures for heat and energy saving, reducing raw material and auxiliary material consumption and outsourcing auxiliary departments. Individual projects of this line are already underway. We expect total annual effect from carrying out these technical and process measures this year will be around 100 million rubles.

- What exactly are you planning to do?

- For example, we propose to use natural gas as fuel in the hydrogen production unit, to restore heat insulation in external routes, replace the power transformers and incandescent lamps with energy saving ones, switch to the use of domestic analogues of foreign additives, install more efficient oil product blending systems, etc. Owing to the planned measures, we expect considerable reduction of energy intensity, power and heat consumption.

It is also noteworthy that Gazprom Neft has determined our strategic partner for implementing measures aimed at improving efficiency and reducing expenses – McKinsey. The pilot project and start of the corresponding program will begin with the Omsk OR. We have set up a working group that will participate in introducing new technologies at the Omsk site.

- Will Moscow OR experts be prepared for it?

- They undoubtedly will. Personnel training is one of the most important issues for the plant.

Personnel

- Today this issue has reached a new level; solution of this issue is our priority task. We need highly qualified professionals: unit operators, engineering technicians, capital construction service. Sizable funds much be allocated for training them. Gazprom Neft is well aware of this and all the shareholders of the Moscow OR support these initiatives. We have prepared the relevant program and we hope that it will be developed in the future. The company is working closely with specialized domestic institutes that train specialists for the oil refining industry, for example, Gubkin Russian State University of Oil and Gas, the Ufa State Technical Oil University and the Tyumen Oil and Gas Institute. Management of these higher educational institutions understands our problems and is prepared to increase the number of applicants majoring in our subject. However, this is only one of the components of training our personnel. The second in order of importance is upgrading the skills of current employees of the Moscow OR.

We are careful about training of our partners’ personnel. These are design institutes and installation companies with which we cooperate under service contracts. In my opinion, when selecting a partner, we should carefully watch out for their skill level. We should make strategic contracts with the best of them. Because (this is my personal opinion) a one-time approach (this time one partner, next time another) does not give confidence in the future.

The interviewer was Denis Kirillov