October 7, 2011 / 10:51 AM / 8 years ago

Russia refiners could shut with fuel duty hike-LUKOIL

MOSCOW, Oct 7 (Reuters) - More than 600,000 barrels per day of Russian refining capacity will not survive the next stage of oil product export duty reform, due in 2015, if they do not modernise, Russia’s No.2 oil producer said late on Thursday.

That is about 13 percent of refining capacity in Russia, the world’s largest crude oil producer.

Larger Russian oil companies such as LUKOIL are investing in sophisticated units to increase their output of high value motor fuels at the expense of heavy fuel oil, which will be subject to a punitive export duty from 2015.

But smaller refiners have not, and their failure to date has make needed investments are a source of irritation to larger oil companies who have made hefty outlays on their refineries.

Russia has also seen a proliferation of simple “samovar” refineries which distill crude oil and sell the resulting fuel oil on foreign markets, taking advantage of an effective subsidy in the form of a low export duty abolished this month.

Russia could end up with fuel shortages if these refiners do not change their tack, LUKOIL Vice President Leonid Fedun told an investor conference.

LUKOIL Vice President Leonid Fedun, speaking at an investor conference, compared the potential closure of Russian refineries to widespread shuttering of European plants in response to poor economics.

But he noted that closures in Russia — which, he estimated, would decrease supplies of motor gasoline by as much as 5 million tonnes, or about 100,000 barrels per day — would be politically unpopular.

“As of now, in Europe 40 million tonnes of capacity have closed. They had to be closed to stabilise European margins,” Fedun said.

“It will be interesting to see how the regional authorities will respond to the closure of enterprises that are major contributors to their budgets.”

The government, which has spent much of this year fighting a shortage of motor fuel that has pressured transport costs upward in a pre-election year, is trying to force refiners to install cracking capacity, which processes fuel oil into gasoline and diesel.

The authorities have unofficially reined in retail fuel prices in the months preceding a December parliamentary poll and March’s presidential election.

This month it launched a new export duty regime, the so-called 60-66 policy which rewards production of diesel and other high-value fuels.

From this month, exporters must pay the same rate to export fuel oil and higher-value products such as diesel, which is set at 66 percent of the duty on crude oil. But in 2015, the rate on fuel oil and vacuum gas oil will be the same as for crude.

Fedun said he was worried that, when the punitive duty regime on fuel oil entered force in 2015, simple refiners would successfully lobby for a delay, as they did this year when new emissions standards could not be met and resulted in a shortage.

“We will invest,” Fedun added. “But it will be fairly (difficult) from the point of view of security of return.” (Reporting by Melissa Akin)

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