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In five years we’ll rebuild 70 % of the refinery

Arkady Egizaryan

Interview with CEO of the Moscow Oil Refinery, Arkady Egizaryan

October 27. INTERFAX.RU

Arkady Egizaryan, CEO of the Moscow Oil Refinery, tells us whether the major repairs being undertaken by the enterprise will have an effect on the fuel market in the capital region.

Moscow Oil Refinery, which this year came under the full control of Gazprom Neft, will undergo major repairs this November.

Arkady Egizaryan, CEO of the Moscow Oil Refinery, tells the Petroleum Information Agency about the potential effects of the major facility repairs on the Moscow region’s fuel market, the current status of the refinery and its large-scale modernization.

- Major overhauls at the Moscow Oil Refinery normally creates a turmoil around fuel prices in Moscow and the Moscow region. How does the refinery intend to avoid this in the coming November?

- From the very beginning I want to emphasize that the fuel price-related hype in Moscow and the Moscow region on the eve of the refinery’s maintenance is entirely based on speculation. These repairs happen every year, the refinery is always thoroughly prepared for them and a real shortage has never yet occurred.

If the refinery was to close for three months, then we would have to decrease the supply to the market. However, in this case I can say with all confidence that the renovations to the Moscow Refinery will cause no disruption to fuel supply. On the contrary, we will aim to support those who may suddenly have shortage of fuel.

In November, despite the repairs, we will release over 182 thousand tonnes of petrol into the Moscow region market. This number is only half a percent less compared with November last year when there were no repairs. Besides, Gazprom Neft will be supplying an additional 8,500 tonnes of fuel from YANOS, therefore the total supply from Gazprom Neft to Moscow and the Moscow region will be even higher than last November.

Taking into account the problems with petroleum products supply we have seen in Russia throughout this year, the refinery has chosen especially careful approach to repairs this autumn.

- What do you mean by especially careful approach? What petroleum reserves have been made?

- This year we were more effective in planning our work. The materials and technical base to be used for the repairs are ready. All necessary parts and units have been ordered and delivered to the refinery, and are now waiting to be used. We do not tolerate any interruption from suppliers, and are not willing to lose a single hour waiting for deliveries; the maintenance plan has been drawn up in such a way as not to waste a single minute.

The refinery’s reservoirs have been filled with petroleum products for future use. Most importantly, the refinery is currently producing more than the existing volume of orders, which allows us to generate necessary reserves.

Comparing month to month, this November we will process 877 thousand tonnes of oil, whereas last November we processed 865 thousand tonnes. We will see the overall annual increase of production volumes in the Moscow Oil Refinery with processing capacity reaching 10.9 million tonnes in 2011, compared with 10.3 million in 2010.

- Tell us about the planned repairs at the Moscow Oil Refinery this November.

- We expect only scheduled maintenance, nothing out of the ordinary. Refineries are traditionally repaired during the warmer months, and the Moscow Oil Refinery was planning on carrying out these repairs in October. However, due to the fact that this October there was still an above average demand for fuel, we came to an agreement with the Ministry of Energy to push back the repairs for a month, and to hold them on 1-27 November.

We plan to carry out repairs on the “small processing ring”. This is one reason why you needn’t fear a fuel shortage: the “small ring”, after all, has a much smaller production volume than the “large”.

Repairs will take place on 7 units. The small catalytic reformer and AT-VB (visbreaking with a feedstock pretreatment unit) will be running at full capacity as early as November 24. Repair of the diesel fuel hydrotreatment unit L24/5 will end on November 25. By November 27 normal service will be resumed at the primary oil refining unit ABT-S, the secondary naphtha refining unit A-22/4 and the oil desalting plant CDU 2. With that the repairs to the “small ring” of technological installations at the refinery will be completed.

And we have made every effort to ensure that products will be released onto the market regardless of the repairs.

- What is the current time between overhauls of the refinery and how are you planning to increase it?

- The Moscow Oil Refinery is repaired every year. Last year the “large ring” underwent renovation, and this year it is the turn of the “small ring”. That means a turnaround of 2 years per ring, but processing at the refinery never stops. Repairs to units take approximately one month, (26-29 days), whereas in the past they took 45 days.

In order to increase the turnaround time it is necessary to ensure the reliability and safety of the production chains. Not just by revising the manual, but by changing all the hardware and reaching an agreement with the authorities. This is a huge responsibility, particularly for our refinery located in the capital. We cannot allow a single miscalculation or emergency situation.

It would be desirable, of course, to quickly switch to a longer time between overhauls. All major companies are working on it. Assessing the situation objectively, I think such a transition at the Moscow Oil Refinery would take no less than 4 – 4.5 years.

- How do you assess the current technical condition of the refinery? What steps need to be taken for the Moscow Oil Refinery to become the leading refinery in Russia?

- The Moscow Oil Refinery is currently No 7 in Russia in terms of processing volumes and is in the top 10 in terms of technical equipment, processing depth and yield of light petroleum products. During our five-year modernization programme which started last year, 70% of the refinery will be rebuilt. This will enable the refinery to enter the top five in the country.

However, I do not consider leadership our principal goal. It is more important not to waste time and opportunities. Our refinery has a huge advantage as it’s located at the heart of the best market, the Moscow region.

At the same time, the Moscow Oil Refinery has much stricter requirements in terms of environmental and industrial safety than of any other refinery in Russia. We are always under scrutiny from the public, regulators and government officials. There is an immediate response to any slight deviation from the norm. Therefore, in industrial safety and environmental issues we must always strive to be first.

- What is included in the refinery’s modernization programme?

- In the first phase, in 2012-13, we will continue to work on improving the quality of fuels to bring it into compliance with technical regulations. Right now all the works are on schedule and in some areas even exceed the technical regulations.

As of 2011 the refinery has already produced Euro-4 standard diesel fuel and petrol in the amount of 2.4 million tonnes. We are preparing for the production of Euro-5, and potentially looking at Euro-6. The release of such petroleum products in Russia is currently economically unjustified, however sooner or later we will come to learn to consider the value of public health, just as is done in the rest of the developed world. The Moscow Oil Refinery will be moving over to Euro-5 in 2013, when all diesel and petrol will be produced to that standard.

By the end of 2012, everything will be different at the Moscow Oil Refinery. I will be hard to find in the office, as I will be spending most of my time on construction sites. We are planning serious modernization of a number of existing facilities: diesel fuel hydrotreatment, bitumen plant, sulphur recovery plant with tail gas treatment unit. We will also begin construction of new facilities: gasoline hydrotreatment and light naphtha isomerisation plants.

Most importantly, the environmental aspects will significantly change for the better.

- Will Kapotnya immediately notice fresher air?

- Environmental issues and industrial safety will be our priority throughout all three phases of modernization. At each stage we will significantly improve the environmental standards reducing our impact in some areas by dozens of times.

After the first phase of modernization there will be no odours or emissions from the refinery in Kapotnya at all. In 18 months the Moscow Oil Refinery will no longer be perceived as a strong contaminating factor. Local residents will be more likely to feel the exhaust gases from the many cars on the Moscow Ring Road.

The refinery’s wastewater treatment facility is currently open aired which leads to evaporation and smells. In April next year we will introduce a new closed mechanical wastewater treatment facility, where purification will take place within tanks. The new facility will have double the sewage treatment capacity of the current one, and will in fact exceed the current requirements of the refinery. But we are looking to the future, because the refinery will grow.

In addition, in April we will complete the reconstruction of our large bitumen unit, which will not only produce a better product, but also reduce the facility’s energy consumption, and the sealed pouring will completely remove the smell of bitumen.

Another ecologically significant facility is the sulphur recovery plant. We hope to finish it during the second phase of modernization in 2014-15, although the majority of the reconstruction should be completed in 2012.

- This large-scale modernization programme was drawn up when the government of Moscow were still shareholders of the refinery. How have these plans changed since Gazprom Neft became sole owner of the refinery?

- The plans for financing the modernization of the refinery in the amount of 66 billion roubles from 2010-2020 remain in force. During the second cycle of modernization, in 2015-16, we will address the issue of increasing the depth of processing. At this stage, there may be some changes to the programme as according to preliminary estimates the investments could exceed 80 billion roubles.

As for the third phase of modernization, it was designed to be finished by 2020, but we plan to complete all the facilities by 2018. We have had the idea of constructing a heavy residue hydrocracking unit which would make the refinery technically flawless enabling us to “scrape the bottom of the barrel” and recycle all processing residues.

This would be a very difficult task to implement, since the process of hydrocracking heavy residues is not at all financially viable, but we must strive for perfection.

If we want to go down the route of perfection, there is another difficult task ahead of us such as comprehensive automation of the Moscow Oil Refinery. This programme, designed to be implemented in 5-6 years, should move refining to fully automated mode managed by one or two operators.

- Has Gazprom Neft already begun rebranding the Moscow Oil Refinery?

- Rebranding is fully underway. We will shortly register a new legal entity, Gazprom Neft Moscow Oil Refinery. A new logo in the Gazprom Neft corporate style has already been designed.

In the meantime we are thinking about changes in production facilities design such as reservoir tanks, pipes, machinery etc. As a part of the November repairs, we will be repainting one of the units on the “small ring” in Gazprom Neft colours. All of these changes are part of the process of integrating the refinery into the company structure. The introduction of a corporate culture will, I hope, have a positive effect on morale at the refinery.

In the past year there have been some obvious changes made actively driven by the shareholder. All work standards from decision-making process to production has changed. We are moving towards an exclusively producing entity without additional functions we had here before such as deposit and loans handling, pension funds etc.

This requires a lot of effort as over the time of complicated relationship between the shareholders, the certain system of management has been formed. Now, as the refinery becomes a standardized enterprise within Gazprom Neft, we can focus on modernization and clear strategy for the next 10 years.

In addition, the whole business process at the refinery is changing. While working on improving efficiency, we outsourced non-core activities which has yielded economic results. There are now 1900 employees at the factory which used to employ 3200. Through the outsourcing of auxiliary production subdivisions we aimed to cut about 8% out of our budget, and we achieved that goal.

- Rostekhnadzor recently conducted unscheduled inspections of refineries. What were the results for the Moscow Oil Refinery?

- The inspection was initiated as a result of the latest shortage of petroleum products in the market. Rostekhnadzor regularly carries out supervision and that was probably the seventh inspection of the Moscow Oil Refinery since the beginning of the year. Going through the inspection and following its instructions is a normal routine for us.

There has been some changes in Rostekhnadzor’s work. The agency’s supervision is becoming stricter which is understandable as the government has for a long time been concerned about issues such as the quality of petroleum products, depth of processing, and the situation on the domestic petroleum market. However, we are seeing positive momentum in our undertakings with Rostekhnadzor whom we enjoy a constructive relationship with.

- The issue of the refinery being located within the administrative boundaries of the capital has a long history. Is moving the refinery outside of the Moscow boundaries realistic and topical, or one for the distant future?

- Personally, I don’t see the point of this. Firstly, we need to recognize that the petroleum industry is far from the “dirtiest”. The Moscow Oil Refinery is not located in the city centre, it is well located in terms of wind patterns and the impact on the environment is not as significant as it is portrayed.

What effect will a transfer have? None in terms of the environment, especially after the modernization, renovations and introducing new technologies. I’m serious about it. Right now, the emissions from the Moscow Ring Road are ten times higher than those from the refinery.

This move could potentially be beneficial to somebody, but not to the city or Muscovites. Let’s imagine the refinery is moved. This means a relocation of taxes and jobs, and we employ a lot of people whose services are connected to the refinery. Building something else on this site would not happen soon as it would take a long time to reclaim land and remediate the site to bring it into compliance with the standards of living environment.

I belive the question of moving the Moscow Oil Refinery is contrived. It can be demolished, that is possible. But building another refinery near Moscow? It’s highly unlikely.

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