Growth Opportunities for All in the Moscow Region Market

Aleksandr SannikovInterview with the head of Gazprom Neft's Refining Directorate, Aleksandr Sannikov

PRIME economic information agency Open a new window (RIA Novosti Group Open a new window )

Gazprom Neft, one of the top five Russian oil majors, has set out to increase the volumes and depths of refining. In an interview with Prime correspondent Natalya Ageeva, Aleksandr Sannikov, head of the company’s Refining Directorate discussed the growth prospects of its oil refining assets.

— What results has Gazprom Neft’s Refining Directorate achieved since the beginning of the year?

— All performance indicators have exceeded the business plan. Oil refining volumes are up, and the quality of production has improved substantially. Recent changes in legal requirements make it profitable to produce Euro-4 and Euro-5 standard gasolines. Over the last six months we have quadrupled production of Euro-4 and Euro-5 automobile gasolines versus the same period last year. Our Premium AI-98 gasoline is fully compliant with Euro-5, and more than 60% of the AI-95 gasoline and 30% of the AI-92 gasoline we produced meet Euro-5 standard. The quality of diesel has also improved substantially. Industry standard Class 4 and 5 diesel output grew by 10%. As of the end of the first six months, Gazprom Neft’s share in the Russian motor fuels market amounted to 23%. We placed first among oil companies in terms of products delivered to the domestic market.

— Do you expect this trend to continue?

— We’re currently putting together our three-year business plan for 2013-2015. It’s not our goal to be the biggest domestic supplier at any cost. Our company is primarily looking at the effectiveness of refining and sales.

— Gazprom Neft’s strategy contemplates refining 70 million tons of oil by 2020. How are you planning to achieve this?

— The projected 70 million tons is Gazprom Neft’s total output. That includes 40 million tons refined in Russia and 30 million tons outside of Russia. The company’s subdivisions are currently exploring various foreign assets. We might use our own refining capabilities or go into partnership with others.

— How much does Gazprom Neft intend to invest in the mid-term to develop its refining capabilities?

— The development strategy for refining capacity in the period up to 2020, adopted in 2009, includes projects to build new facilities in order to raise product quality and to comply with the law, and projects to increase the depth of refining. The strategy also includes performance improvement, cost cutting and a comprehensive automation programs. The document also focuses on the existing facilities’ renovation. Total investments needed to support the strategy is estimated at approximately 360 billion rubles. The document is going through a revision process now, and an updated version of the Refining Capabilities and Petrochemical Development Program by 2025 should go to the board of directors for review in November.

— Can you say how much investment has been committed to improve refining this year?

— In 2012, we are planning to spend more than 44 billion rubles to support refining projects at our Russian assets. If you add NIS refinery in Serbia, this figure grows to over 51 billion rubles.

— Are you sticking to your plan on bringing into operation the hydrocracking facility at the NIS plant in Pancevo this year? How much is it worth?

— As per the schedule and the contract with CB&I, the main construction and installation work on the hydrocracking facility is complete. Equipment is now being fired up and adjusted. The facility is scheduled to come on stream in November. It includes our own diesel hydrocracking and hydrotreatment unit, a hydrogen plant, a sulfur production unit, and other offsites. A sulfuric acid recovery unit has been brought online as part of our environmental program, and reconstruction of the catalytic cracking unit is now complete.

Under the intergovernmental agreement, investments in the NIS development exceed 540 million euros. The financing and implementation of the projects are on schedule. The 2012 NIS investment plan pledges over 200 million euros. Gazprom Neft is living up to all of its investment commitments set out by the intergovernmental agreement to finance NIS development.

— Last year oil companies signed agreements with the Federal Anti-Monopoly Service, Rostekhnadzor, and Rosstandart to build and revamp refining capacity. How is this process going?

— The essence of the agreements is to make sure that oil companies meet their commitments to deliver motor fuels (gasoline, jet fuel, diesel) to the domestic market, and implement the development programs set by the four-party agreement. The main focus of this agreement is the refining capacity development. We report status to the government on a monthly basis. In particular, we send status reports to the Ministry of Energy. Our obligations have been spelled out for the period up to 2020.

— Has a comprehensive plan to modernize the Moscow Oil Refinery been approved?

— Yes, a development program for the Moscow Oil Refinery was included in the refining development strategy approved in 2009, and right now we are reviewing and updating this document. During the first phase of the program we’re building new facilities, such as a light naphtha isomerization unit and a catalyst cracked gasoline hydrotreatment unit. And we’re renovating a number of existing facilities that, when brought into operation, will allow us to significantly improve the product quality and reduce impact on the environment. In particular, this year saw the completion of the closed-cycle mechanical treatment facilities and the renovation of the bitumen plant.

During the second phase, plans include upgrading the catalytic cracking unit, which will increase its capacity, renovating the primary refining and reforming facilities, and building a diesel hydrotreatment unit. The deep refining projects at the Moscow Refinery will go into full swing in 2014. We expect the facilities to become operational in 2018-2019.

— What results, do you think, will repairing “the big line” facilities at the Moscow Refinery produce?

— The repairs are intended to improve the reliability and stability of existing systems before the next repair, which will be in two years. It ensures stable operation of existing facilities by replacing obsolete equipment and makes production more efficient. The biggest job will be to replace the reclaimer in the catalytic cracking unit. Such an operation will be performed in Russia for the first time. The enormous weight of the unit will make this job essentially unique and will require a crane with a 1,350 ton capacity which has been specially ordered from Holland.

According to the plan, the repairs will take 60 days, but, understanding the importance of meeting the growing market demand, we’re drafting a day-by-day schedule in order to minimize the downtime and finish the repairs sooner.

— Will you be able to postpone scheduled repairs in the future?

— Preventative maintenance is a set of measures designed to meet the industrial safety requirements for the operation of hazardous facilities. Right now we’re busy putting together a program to make runs between repairs at our refineries longer. We have decided to perform scheduled maintenance once every four years. Introducing these programs at the refineries will result in an improved efficiency and higher yield.

— Will the maintenance of the Moscow Refinery pipeline, which Transneft plans to complete in 2013, impact the refinery’s operation?

— The oil pipeline repairs should not affect the work of the Moscow Refinery. Transneft is ensuring the supply of oil to the plant for refining in accordance with the plans we have announced. The current repairs are a routine program, and I’m confident that Transneft will be able to finish it in the shortest possible timeframe and without causing any problems to the Moscow Refinery. We do not anticipate any interruption of feedstock supply.

Moscow Refinery’s commitment for this year is to refine 10.6 million tons of oil, considering that “the big line” facilities are down. In 2013 “the small line” of Moscow Refinery will go down for scheduled maintenance, so we naturally expect that the refining volume will be higher than this year.

— How much funding is expected to go into your refining depth upgrade program? And how is it divided into phases?

— The main phases include, first of all, professional refining of fuel oil into higher-grade motor fuels, which will cost Gazprom Neft over 170 billion rubles. Here we are looking at the deep refining projects: vacuum gas oil hydrocracking units in Moscow and Omsk, and a delayed coker at the Omsk Refinery. The Moscow Refinery is also looking into the possibility of building facilities to refine tar and generate electricity. In our view, this is one of the best performing projects today. The technical feasibility of introducing such a process is currently being explored.

We’ve also been discussing a project to build deep refining facilities for tar at the Yaroslavl refinery using hyrdrocracking technology and a process to subsequently refine the residuals. We’re currently working out the economics of it, and we’re working with licensors on guarantees to reach the required output quality.

The program to increase refining depth will begin in 2012, to be completed in 5-6 years.

— Tell us about the progress at the Omsk Refinery. When is the diesel hydroskimming unit expected to come on stream?

— On May 30 we launched a catalyst cracked gasoline hydrotreatment unit at the Omsk Refinery. Hydrotreatment of diesel will also be introduced by the end of the year. According to the plan, we’ll complete the startup, installation and adjustment work and begin operating the facility in November.

— Rosneft has announced plans to build an oil refinery in Moscow with an annual capacity of 12 million tons. Will this affect Gazprom Neft’s position in the future as a supplier of oil products in the region?

— The Moscow market is the largest and most attractive in Russia and offers opportunities for growth for all of the players. I don’t think that a new refinery will somehow affect the refining volumes at the Moscow Refinery. It’s our best asset, located in the center of the most important market.