Ports to be flushed with diesel
Modernization of Russian refineries, situation in the global oil market and redirection of oil export flows to the Far East will lead to growing exports of diesel fuel, mostly by “Sever” and “Yug” pipeline systems. Starting from 2015, Transneft will accept into the system only Euro-5 diesel fuel.
Thanks to the programme on modernization of refining, Russia will reduce production of heavy fuel oil and increase production of diesel fuel. According to the forecasts for a couple of years, Russia’s exports of heavy fuel oil will make 40 mln t per year while Europe is short of this product. Besides, the demand for diesel fuel in Europe will grow from January 1, 2015 when new MARPOL requirements setting 0.1% limit of sulphur content in ship bunker come into effect and close the door on using heavy fuel oil without special devices like scrubbers. More over, ecological class of diesel fuel produced in Russia will grow – a transition to large-scale production of Euro-5 standard fuel is expected.
On the other hand, reduction or stagnation of oil exports seems to be most probable. Also, a considerable part of oil will flow to the Far East when the East Siberia – Pacific Ocean pipeline is launched.
Amid those structural changes in the market, Transneft OJSC is set to boost the capacity of the Sever and the Yug pipeline systems with port Primorsk and port Novorossiysk as their end points. The existing oil pipelines are to be used for diesel fuel and new operation pipelines are to be built.
As Transneft's deputy vice president Vladimir Nazarov told journalists, the Company is implementing a large-scale investment project on repurposing of oil pipelines for diesel fuel under Sever system. Investments will total RUB 25-26 bln. Annual capacity of the system is supposed to reach 17 mln t of diesel fuel from 2017 and 25 mln t from 2018. The project is based on the resources of Kirishi refinery.
The project on repurposing of oil pipeline for oil product pipeline is considered to be more profitable as compared with the construction of the new one despite the technological challenges.
Consequently, throughput of port Primorsk will change. In 2013, oil transshipment via port Primorsk totaled 54.4 mln t while the forecast of Spetsmornefteport Primorsk LLC says it will make 43 mln t in 2014 and the same volume in 2015. However, transshipment of diesel fuel will increase from 9.3 mln t in 2013 to 11 mln t in 2014 and to 14.5 mln t in 2015.
At the same time, oil product pipeline from port Primorsk to RPK-Vysotsk-LUKOIL-II (Leningrad region) will be built under the agreement with LUKOIL. The project implementation is supposed to be started in November 2014, the pipeline is to become operational from November’15. With the implementation of the Sever project, the capacity of the pipeline towards Vysotsk may be increased up to 3-5 mln t of diesel fuel per year. It is essential for the Transneft not to reduce transshipment via Primorsk (the Company is a shareholder of the port).
The plans for the southern direction are also quite ambitious. Yug system is to be expanded, for diesel fuel in particular. Transneft does not reveal the volume of investments into this project but says it will be implemented in two phases: the first phase of the project implies the conversion of Tikhoretsk-Novorossiysk oil pipeline into oil product pipeline (6 mln t from 2016). The second phase implies the construction of Volgograd-Tikhoretsk oil product pipeline to raise the capacity of the pipeline system to 9 mln t of diesel fuel per year.
In general, implementation of the Sever and the Yug expansion projects will let Russia export up to 34 mln t of diesel fuel with maximum exports of 40 mln t.
As of today, export facilities of port Primorsk and port Novorossiysk make a part of Novorossiysk Commercial Sea Port, the shareholders of which are Transneft and Summa Group. Possible separation of the assets between the two companies is under discussion today though the final decision has not been taken yet. One of the most probable solutions is the separation of oil and dry cargo handling facilities between Transneft abd Summa respectively.