Russian Refiners needs to be proactive in order to sustain fuels supplies

Interview Colin Chapman for Oil Market Magazine - September 2011

This year’s Russia’s Refining Technology Conference (RRTC) organized by Euro Petroleum Consultants brought together in Moscow unprecedented amount of participants. Ever growing interest is the best evidence of the very high conference level and the agenda appealing to both Russian and CIS companies as well as international technology and engineering providers. OILMARKET enjoyed an opportunity to ask several questions to Mr. Colin Chapman – a professional with over 40 years of experience in Refining & Petrochemicals, president and founder of Euro Petroleum Consultants.

OILMARKET: As the EPC’s Russia and CIS Oil and Gas Refining and Petrochemical technology week in Russia entered the final stage, could you please outline major trends in the industry?

Colin Chapman: We see that the gas industry is facing, let’s say, new challenges with the development of quite big reserves of shale Gas in the United States. This is replacing quite big imports from Russia of LNG and Russia is now looking for the new markets for the natural gas and LNG. This was one of the topics discussed at the conference as a lot of people in the business were interested in what will follow as a result of this trend. It is clear that if Shale Gas starts to be developed in Europe, Russia’s gas sector will be strongly impacted. This may be the required incentive to focus on other directions for monetization of Russian Natural Gas

OILMARKET: With the Russian natural gas industry likely to be affected by the Shale Gas development in the US and possibly in Europe, what impact will it have on the development of the natural gas refining and petrochemical industry in Russia?

Colin Chapman:Russia has great opportunity and need to develop gas to liquid (GTL) and gas to petrochemical (GTP)  and Gas to Chemicals technology projects. This was again a topic brought up at the conference. Taking into account what happens in the Middle East where there are many GTL, GTP and Gas to chemicals projects, the future looks bright for the Russian and CIS petrochemical developments.

OILMARKET: As far as I know the GTL technology development in Russia is lagging behind the global development trends?

Colin Chapman: Yes, it’s trying with some small units, but generally it is not in a rapidly developing stage, as there are no big projects at the moment compared to say in the Middle East.

OILMARKET: But still ,the potential to benefit from it is in place?

Colin Chapman: Definitely, depending on where the markets are it can be developed in the future. Also, Russia is well behind in developing modern petrochemical complexes. It has to be done at some point. This inexpensive feedstock  should be capitalized to provide the basis for a modern Petrochemicals Industry.

OILMARKET: Would it significantly raise the value generated by the oil and gas industry for the state budget, if Russia invests in the petrochemical technology and gas processing?

Colin Chapman: What it would do, it would help the development of the downstream industries and manufacturing industries, so that would release the need to import the finished goods. It would also significantly improve the situation with the employment in many remote regions of Russian Federation.

OILMARKET: What about the oil refining segment? The refining conference was probably, the busiest part of the Moscow Refining & Petrochemicals week organized by the EPC?

Colin Chapman: The refining sector is undergoing important changes and faces new challenges. The taxation, new export duties levels for crude oil and fuel oil and other products – all it will have impact on the development of the oil refining industry. Hopefully, it will stimulate people to achieve higher conversion {at the refineries – OM}. That’s what is being discussed.

OILMARKET: So, what is the voice of Russia’s refining industry now, are they urged to achieve more conversion now or are they in confusion that causes lack of incentive?

Colin Chapman: I think, if the tax situation stays as it is they will have to increase conversion, because there will be less outlets for fuel oil. It depends on the regions and on the companies. Some companies, like Lukoil, have long term development plans, they are investing in the refineries, while others are moving very slowly and don’t have a clear vision on the way to increase conversion.

OILMARKET: would it be fair to say, that regardless of how strong the incentives were, Lukoil was the most conscious about the need to invest in the refining segment, possibly doing it more than any other vertically integrated company in Russia?

Colin Chapman: I think they have an easier decision making process. They decide on the long term plans, what the investment will be, and they are doing it both, inside and outside Russia, as well as in Europe, and now they have more flexibility because of the favorable market conditions, be it in West Europe, Russia, Ukraine, Romania, Bulgaria. This means that if the margins are changing in one region, they have the possibility to process crude oil in another.

OILMARKET: Getting back to the conference agenda, these recent changes in Russia’s technical regulations on motor fuels opened a lot of discussions.  What do you think is going to happen, what do people in the business say about it?

Colin Chapman: Yes, it’s been discussed a lot. Some companies are proceeding  with their investment plans, others at some refineries are relying on further delays in the deadline to meet the changing specifications.

OILMARKET: Russia suffered in recent years from diesel and gasoline shortages. Is Russia still prone to such troubles?

Colin Chapman: I think, in some regions - yes, there may be shortages. Predicted growth of gasoline demand is very large. So, where is it going to come from? It needs to be produced in the regions where there is consumption growth. Lukoil, for example, is now focusing on increasing production in Nizhny Novgorod, at the expense, of say other regions. If there is an incident in one of the large refineries in the Central region this could impact short-term supplies.

OILMARKET: This still requires very careful attention of both the government and the business. They have to focus on stabilizing the domestic market. I could see some analysis on wires, making parallels of motorfuel shortages in Russia and motor fuel troubles in other BRIC countries like China and India. Those countries have to invest heavily in the development of their refining sectors - billions of dollars, like for instance, India does.

Colin Chapman: Yes, Russia definitely has to be careful, as we could see in several cases as I said  one accident at one large refinery   may trigger shortages. If, say, Ryazan refinery goes down, it will be difficult for Yaroslavl, Norsi and Moscow refineries to satisfy growing market demands.

OILMARKET:Is it fair to say that the situation with the Ron92 (Ai92) blend in Russia makes it a very specific market? Will this blend be a major factor in the years to come and will it help to solve the motor fuels shortages in Russia? We heard some corporate top executives saying that they had no plans to stop Ron92 production at least until 2020, while Russia plans to have Euro-5 gasoline standard in place in 2015?

Colin Chapman: I think many companies do not have plans to eliminate Ron92, as they experience difficulties in meeting modernization deadlines. So, ultimately, gearing up to Ron95 production has to be flexible. There is a possibility that the Ron 92 grade will persist as long as all the other requirements are met eg Sulphur content and aromatics content.

OILMARKET: Now back to the events. It shows that more and more people in the industry are willing to attend the EPC conferences - both Russian & CIS companies as well as Western European and American suppliers interested in these markets. What are the next events that you are planning to hold and which topics will be discussed there?

Colin Chapman: The Moscow Refining & Petrochemicals weeks this year gathered more than 450 delegates in total for the 3 conferences, so it will for sure continue to be one of our annual events held each September.

We can see that this Forum is ideal for exchange of ideas between all participants and this always gives us new ideas for future events. This is also very important for our Consulting activities. It is important that EPC understand fully the specific challenges of this region.

Before that we will be having the Russia & CIS Executive Summit in Dubai in mid February for the second year. This event will be focused more on strategic topics rather than technical ones and will gather top-level executives of major producers and suppliers in the business. After that we’re going back to Moscow in April for The Projects Forum, which will focus on the challenges and accomplishments of actual ongoing and recently completed projects in this rapidly developing region. This conference will be directly followed by the Russia & CIS Bottom of the Barrel Technology Conference & Exhibition that we will be holding for the 6^th year in row covering the latest technology developments for upgrading crude oil residues.