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UPDATE 1-Russia's Surgut says launches Europe's largest hydrocracker
December 26, 2013 / 3:21 PM / in 4 years

UPDATE 1-Russia's Surgut says launches Europe's largest hydrocracker

* The complex would produce 98,000 bpd of middle distillates

* Launch been pushed back for years, investment pegged at $2.7 bln

* Rise in Russia’s high-grade fuel output to hit European refineries (Adds detail)

By Vladimir Soldatkin

MOSCOW, Dec 26 (Reuters) - Russia’s third-largest oil producer Surgutneftegas on Thursday launched Europe’s biggest hydrocracker complex to produce more high-grade fuel, a long awaited step that some analysts said was likely to buoy its share price next year.

Russian oil companies have embarked on a $55 billion modernisation programme of refineries up until 2020 to boost output of higher-quality products that are in increased demand and to improve ecological standards.

Increased Russian output of such refined products, including ultra low sulphur diesel, is likely to bring a surge in exports that will hit already cash-strapped European refineries.

The company spent 88.5 billion roubles ($2.7 billion) to build the 98,000 barrels per day (bpd) unit at its northwestern Kirishi oil refinery.

Analysts have said that the sudden launch of the unit, which has been expected for 10 years, would be one of the signals for its share price to start climbing.

“This was quite unexpected, the company has not warned about the launch,” said Alexei Kokin, an analyst with Uralsib brokerage in Moscow.

“I want to understand what would be the real output, I guess we will see it in a couple of months. But it would underpin Surgut’s shares, not right now, but after New Year, that’s for sure.”

Surgut’s shares initially rose on the news but were little changed late in the session in Moscow, as was the broader index.

The complex eclipses in size the 56,000 bpd hydrocracker at the Pernis refinery in the Netherlands, Europe’s largest, which is operated by Royal Dutch Shell.

It will allow Surgut to increase production of high-grade, ultra low sulphur diesel. Last year, Kirishi’s total oil product output stood at 410,000 barrels per day.

Surgut, like refiners around the world competing for scarce engineering resources, has faced cost increases and years of delays to the launch of the hydrocracker, which will refine fuel oil into middle distillates, such as diesel, gasoline and jet fuel.

The production launch had been expected in 2008, but construction was held up by the unit’s complexity and high costs.

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 bottlenecks.

Most Russian refineries export the bulk of their product through the state-controlled Transnefteprodukt pipeline system, which lacks enough capacity to increase pumping volumes.

Kirishi started to export ultra low sulphur diesel to Europe via the Baltic port of Primorsk earlier this week.

Trading sources told Reuters on Tuesday that Kirishi plans to ship between 60,000 tonnes and 80,000 tonnes of ultra low sulphur diesel in December and 150,000 tonnes in January.

$1 = 32.6515 Russian roubles Reporting by Vladimir Soldatkin; Editing by Megan Davies and Anthony Barker

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