Russia: refining challenge

Russia's eastern Khabarovsk refinery, which exports 90% of its output to the Chinese and Singaporean markets, will shut down one distillation unit from Monday.

The other main Russian exporting refineries at Novokuibyshev (Rosneft), Omsk (Gazprom Neft) and Volgograd (Lukoil) will reduce output due to temporary closures, primarily for maintenance work. There are currently 27 refineries in Russia, with the total refining capacity of around 250 million tonnes, or some 53% of total oil production.

Russia has recently sought to stimulate refining domestically as part of the drive to reduce reliance on exports of raw materials. It imposed exorbitant export duties on the export of crude, and last week, President Vladimir Putin ordered the government to come up with a new package of measures to stimulate domestic processing of oil (and other natural resources).

However, some problems remain, such as the production of petroleum products that are not in demand and the distance of many of Russia's main refineries from the export markets. Joint ventures with foreign companies could be a viable strategy to help improve performance, enhance plant capacity and, in some cases, give Russian producers access to European refineries. The latter, however, would require a review of export duties.