Within the next 5 years, the Russian oil refining complex requires the infusion of additional investment of RUR 1.4 trillion, according to Sergei Shmatko, Russia’s Minister of Energy. The Russian state is pursuing a program to modernize the country’s refineries by intensifying investment in operations downstream. Additional incentives for refineries to modernize will be provided in the form of sanctions for failing to comply with the modernization schedule. The main target of the program is to augment the production of European standard fuel. The absence of adequate refining capacities has for a long time been viewed as a limiting factor for Russia’s export of petroleum products.

Minister Shmatko noted that the government’s resolution to set export taxes on oil produced at 13 oilfields in East Siberia to zero clearly indicates that the hydrocarbons extracted at these sites are destined for foreign markets. East Siberia does not have the necessary refining capacities to process all of the fuel extracted in the region. The Russian Code of Customs provides for lower export tariffs on sweeter crude oil.

Moreover, Minister Shmatko believes that problems in negotiations with Turkey over the construction of the pipeline from Burgas to Alexandroupolis may arise again. Bilateral talks with Sofia on the South Stream project and the building of the Belene nuclear power plant are expected to go through without major obstacles.

Processing operations

Oil refineries in Russia require RUR 1.2 to RUR 1.4 trillion of additional investment by 2015. With the introduction of advanced processing technologies, the refining process will become more efficient, increasing the yield of products up to 83 percent.

The government has already begun taking measures for stimulating investment in downstream operations. In 2008, Russian companies invested RUR 100 billion in the refining industry. By 2015, the country should construct 60 new deep refining units. 

According to Sergei Kudryashov, Deputy Minister of Energy, refineries missing the timeframe for capacity increases should be required to leave the market. 

The production of euro-3 standard gasoline in Russia should have been launched in January of 2009. However, in December of 2008, the start of the new operations was postponed until January 1, 2011.

Russian oil companies are able to sell euro-2 gasoline until the end of 2010, euro-3 standard fuel until the end of 2011, and euro-4 gasoline until 2014. The companies will stop selling class 2 and class 3 diesel fuels by the end of 2011. Sales of class 4 diesel fuel will go through the end of 2014. 

Results for 2009 show that oil refining in Russia decreased slightly by 2.7 million tons. The lowered figure is attributable to the fall in petroleum product demand.

28 big refineries with the capacities of over 1 million tons a year are currently in operation in Russia. There are also 80 smaller refineries. The total capacity of primary refining of Russia’s petroleum-processing companies is 270 million tons. Major refineries produce 81 percent of the total volume of refined products, or around 254.4 million tons.

Even while the quantity of processed oil in Russia decreased in 2009, the volume of crude oil that was recovered actually went up during the year.

Eastern Siberia

According to R.F. Ministry of Energy plans, the oil that would be produced at Eastern Siberia fields should go to export markets. The export tariff on that oil was lowered to zero specifically for the purpose of encouraging exports.   

Russia does not have adequate refining capacities in the east to handle the volume of petroleum that will be produced. As of December 1, 2009, export duties for the Alinskoye, the Dulisminskoye, the Kuyumbinskoye, the Pilyudinskoye, the Severo-Talakanskoye, the Srednebotuobinskoye, the Stanakhskoye, the Talakanskoye (including the eastern block), the Vankorskoye, the Verkhnechonskoye, the Verkhnepeleduiskoye, the Vostochno-Alinskoye, and the Yurubcheno-Tokhomskoye fields have been set to zero. Oil originating at those sites with the density of 694.7 to 872.4 kg/m3 having a sulfur content of 0.1 to 1 percent is exempt from any export duty.  

In the end of 2009, Russia’s Deputy Economic Development Minister Andrei Slepnev said that the number of fields exempt from export duties may go up. Possible additions to the list of oilfields include the Chayandinskoye, the Danilovskoye, the Markovskoye, the Suzunskoye, the Tagulskoye, the Vakunaiskoye, the Yaraktinskoye, the Yuzhno-Talakanskoye, and the Zapadno-Ayanskoye fields. 

Issue in talks with Bulgaria

Minister Shmatko noted that the construction of the pipeline linking Bulgaria’s Burgas to Alexandroupolis in Greece may be jeopardized due to Bulgaria’s insistence for minimizing the project’s environmental risks. 

The original plans for connecting the Black Sea coast with the Aegean cost was designed to circumvent the traditional congested route through the Bosphorus and the Dardanelles. 

Russian officials also think that discussions might come to an impasse because the Bulgarian leadership does not see sufficient economic incentives to begin the project.

Other projects that Russia presently pursues in Bulgaria – negotiations on the South Stream pipeline and the construction of a nuclear power plant at Belne – are proceeding along without difficulties. The South Stream project is being addressed at the “corporate level”, according to Minister Shmatko. 

With regard to the construction of the Belene nuclear facility, the Russian minister commented that even though the German company that was a partner in the project left, the Russian side will take appropriate measures to speed up construction. The atomic plant with two turbines having the capacity of 1 gigawatt each is constructed by Atomstroyexport. After first stating its intentions to take part in the project, German company RWE decided not to pursue it in late 2009.

In the second half of 2009, Russian-Bulgarian relations were marked by a degree of tension, when Bulgaria’s Premier Boyko Borisov declared that the country’s government was going to reconsider its participation in the South Stream project, the Belene nuclear plant construction, and the laying of the pipeline to Alexandroupolis. Most of these difficulties were resolved in September of 2009, after a meeting between Minister Borisov and Vladimir Putin.