Russian Surgut boosts cleaner fuel sales to Europe
By Maxim Nazarov
MOSCOW, Feb 12 (Reuters) - Russia's largest export refinery is redirecting heating oil with 0.1 percent sulphur towards Europe, trade sources said on Tuesday.
The owner of the 400,000 barrels per day Kirishi refinery, Surgutneftegaz (SNGS.MM), has not confirmed the sales, which would make it among the first Russian producers to supply Europe with the continent's new, cleaner heating oil.
But since the European Union imposed a limit of 0.1 percent sulphur content in heating oil on January 1, traders report low sulphur material has been redirected from industrial customers in the northwest Karelia and Murmansk regions, as well as the Leningrad region, while the refinery is offering more 0.2 percent sulphur material to its Russian buyers.
Amid a nationwide shortage of winter grade gas oil in January, Kirishi, which prices its products against export netbacks, often above other Russian producers, suddenly dropped the refinery price of winter grade 0.2 gas oil some 9.5 percent, making Kirishi material some of the cheapest in Russia. Low-sulphur gas oil practically disappeared, local traders said.
"It has been more difficult to get "green" gas oil from the refinery, and sometimes there is none at all," one of Kirishi's buyers said.
The domestic market offers refiners little reward for producing cleaner fuels. In some of Russia's regional markets, 0.1 material carries no premium at all.
Sales from Kirishi offer further evidence that Russian refiners are technically able to supply cleaner fuels to Western markets and take advantage of substantial premiums for low sulphur material, but face obstacles from export infrastructure.
DEDICATED PIPELINE
Most Russian refineries export the bulk of their product through the state-controlled Transnefteprodukt pipeline system, which has said it cannot guarantee 0.1 percent sulphur until the second half of 2008 at the earliest.
Kirishi, on the other hand, moves product to the St Petersburg Oil Terminal through a dedicated pipeline, which is formally part of the Transnefteprodukt system but operates separately from the rest of the network.
Port sources told Reuters that Kirishi gas oil from the pipeline contains no more than 0.05 percent sulphur, meeting European standards with room to spare.
That pipeline is working at full capacity of 2.5 million tonnes per year, the port sources said, whereas Kirishi produces around 400,000 tonnes of gas oil per month, 75 percent of which meets European spec.
Pipeline constraints mean the recent increase in export volumes may have been dispersed not only to St Petersburg Oil Terminal, but to the Baltic ports via rail, making it difficult to determine how much more 0.1 is flowing to northwest Europe, traders said.
Surgutneftegaz is upgrading the refinery to make more high-spec fuel available both for abroard and Russia, where the number of private cars is multiplying rapidly and includes many imports that require European standard fuels.
The upgrade programme, planned for around 10 years now, was to culminate this year with the launch of a new hydrocracking complex to boost output of middle distillates, as well as a gasoline making catalytic cracker.
Last year, a refinery source said Surgut, like refiners around the world competing for scarce engineering resources, was facing a large cost increase and delays to the hydrocracker launch.
A source at the refinery said this week the launch was scheduled for the fourth quarter of 2008 or early 2009 under a construction schedule approved in 2006.
"The upgrade programme and construction of a cat cracker, hydrocracker and hydrotreater are under way," the source said.
Traders who buy from Kirishi expressed doubts, however.
"All we see right now is a foundation pit," one said. "At this pace, the launch will be in two or three years."
(Reporting by Maxim Nazarov in Moscow)
