The annual rise of sulfur content in Russian crude sparks the concern of European consumers, despite stable volumes of delivery in the western direction. Transneft monitors the quality of crude fed to the pipeline system, but it is the Russian Energy Ministry that should think of timelines and ways for addressing this problem, said Vice President of the pipeline monopoly Sergey Andronov in his interview for Interfax.
- How critical is the situation with a higher sulfur content and density in the Urals-grade crude supplied to Europe, in the opinion of Transneft? What’s the reason for its increase? How much will the level of sulfur and crude density rise in 2018-2019?
- We see three main factors affecting the quality of crude in our system. The first one is definitely the growth of sour crude fed to the Transneft system, since from 2014 to 2017 it amounted to about 5 million tonnes. The second is the reduction of high-sulfur crude volumes refined in Russia during the same period. But the main factor is the planned diversion of around 12 million tonnes, starting in 2018, from west to east – in view of the need to keep the contractual commitments made within the framework of intergovernmental agreements signed between Russia and China.
As per the forecast submitted by the Company to the Ministry, in 2018 the sulfur content in the crude delivered in the direction of Primorsk will stand at 1.63%, in the direction of Novorossiysk – at 1.55%; Ust-Luga and Druzhba – at 1.8%. As regards this year, we’ll keep within the parameters set for the normal commodity traffic scheme in 2017: 1.63-1.65% for Druzhba, 1.5% for Novorossiysk, 1.53% for Primorsk, 1.65% for Ust-Luga.
As for the future, much will depend on the decisions that can be made by our specialized Ministry.
- Will Transneft still be able to provide long-term quality guarantees for the crude delivered in the direction of Primorsk – at the level of 1.6% stipulated in the specification of the futures contract for the Urals grade?
- Provided the oil companies keep to their midterm requests for crude to be fed to the Transneft system, we do not see any significant risks that may result in the parameters indicated in the specification to be exceeded. But unfortunately, shippers do not always keep their oil delivery commitments. One example is the failure to feed the claimed volumes of crude produced in the Komi Republic to the system in 2017, over the oil pipeline Zapolyarye – Purpe. As per the official information of SPIMEX, the quality characteristics of Russian crude exported in fulfillment of the futures contract for the Urals – Primorsk crude must comply with the requirements for grade 2, type 2, group 1 oil, specified in the RF public standard “Oil. General Technical Specifications. GOST P 51858-2002” (1.8% for sulfur) and the parameters designated in the normal commodity traffic scheme (up to 1.55% for 2017). The second parameter can be changed in case of the sulfur index increase for the above-mentioned commodity flow. As we can see, a certain margin still exists in this area.
- Will it be possible to preserve the Siberian Light grade with sulfur content at the level of 0.6%, and under what circumstances?
- In several recent years the volume of SibLight crude oil export stabilized at the level of 6 million tonnes a year. Given the ample resources of low-sulfur crude oil, we do not see any prerequisites for the sulfur content to exceed 0.6% in the given grade in the midterm outlook.
- How does the higher sulfur content in the system affect the domestic market? What Russian refineries are ready to receive crude oil with a higher sulfur content and in what volumes?
- As per the instructions of the government and the Energy Ministry, the entire accrued sour crude was exported, whereas the quality characteristics of crude oil delivered to Russian refineries were maintained at the level of 2014. At the present moment, the quality of crude oil delivered to Russian refineries is stable. In the forecast of the crude quality, however, the sulfur content is expected to rise, starting in 2018, to 1.3% at Tuapse Refinery and to 1.84% at TANECO.
- Do the European consumers of Russian crude oil lodge more complaints? For what European manufacturers this could be critical?
- Both oil producers and foreign consumers repeatedly called the attention to deterioration of the Russian Urals crude (for export) quality via the International Association of Oil Transporters (IAOT). This is one of the key issues in the Association’s agenda. Thus in 2017 two complaints were forwarded on behalf of IAOT to the Russian Energy Ministry, regarding the deteriorating quality of the crude oil exported to Europe over the Druzhba oil pipeline.
Transneft informs its colleagues at IAOT meetings about the forecasts of crude quality dynamics, so our partners get quite expeditious updates.
- What’s your forecast of sour crude to be fed to the Transneft system till 2020?
- We forecast 87.5 million tonnes of high-sulfur oil to be fed to the Transneft system in 2018, 88 mln tonnes – in 2019, and 88.5 mln tonnes in 2020.
- What solutions to this problem are suggested? At what routes is it possible to increase the supplies of sour crude?
- We actually have few alternatives. The first one is separation of a high-sulfur flow, as we already suggested, in the direction of Port Ust-Luga, in the amount of up to 36 mln tonnes a year. The second one is redistribution of sour crude in the eastern direction, with a 0.65% sulfur content in the crude oil for export and up to 0.75% sulfur content in the crude delivered to Russian refineries, as specified in the Normal Commodity Traffic Scheme.
- In other words, for now the Energy Ministry is still not ready to back your proposal of distinguishing Urals heavy as a special grade?
- We regularly update the Ministry on changes of the crude oil quality in our system. A permanent quality work group led by Deputy Minister Kirill Molodtsov has been formed, where some executives of oil companies are represented, apart from Transneft. We hope that, following the results of its effort, essential decisions will be made, in order to stabilize the quality of crude oil fed to the system.
- Do you think the idea of the Energy Ministry to organize the supplies of high-sulfur oil by rail to Belarus in the amount of 4 mln tonnes a year would save the day?
- This matter is discussed at the Ministry indeed. On our side, we confirmed the technical possibility of shipping up to 4 mln tonnes of crude a year “from pipe to wheels” Yet the final decision should be made by the Energy Ministry and shippers as well as by the receiving side.
- What’s the attitude of Transneft towards the possible increase of crude transit to China via Kazakhstan from 10 to 18 million tonnes? Does the Company see extra risks, as regards the crude oil quality in the system?
- Increasing the transit of Russian crude oil via the territory of Kazakhstan to China and other CIS states form the current 11 mln tonnes to 18 mln tonnes will definitely become another “headache”, if we talk about maintaining the quality of crude exported in the western direction. This will be caused by the diversion of another 7 mln tonnes of sour crude with the sulfur content of up to 1.5%, which is also used to upkeep the quality of crude oil.
To increase the oil pipeline throughput capacity to 18 mln tonnes a year on the Russian and Kazakhstan sections, it is necessary to take technical measures worth around RUB 11 billion, as well as to determine a source of financing. In case of a positive decision, the delivery of this project may take from 3 to 4 years. Finally, another sensitive issue for us is the loss of tariff earnings in view of transition to a shorter haul distance. If this scheme is implemented Transneft forecasts the loss of tariff earnings in the amount of RUB 9.5 billion a year.
- If we get it right next year the sulfur problem won’t be too acute?
- It is the shippers and consumers of Russian crude oil who should decide how acute this problem really is, since it affects them directly. We provided all essential information for them within the quality work group.
- Have you elaborated on increasing the deliveries of crude oil from Kazakhstan producers via Port Makhachkala? What volume will be transshipped in 2018?
- Today the volume of crude oil from Kazkahstan producers to be transited via Port Makhachkala in 2018 in the direction of Port Novorossiysk is planned at the level of about 2 million tonnes. Work is also under way to attract Turkmenistan resources, but I’d abstain from mentioning any specific figures.
- How much of Kashagan oil will be transported over the Atyrau-Samara-Novorossiysk route in 2017? What are the plans for 2018? Will rotatory supply be preserved?
- During 10 months of 2017 we’ve already transported about 600,000 tonnes of Kashagan crude. I believe at the end of the year the volume will be 800-900 thou tonnes. As regards the plans for 2018, we hope deliveries will continue at the level of 2017.
- Is there any vision, how much the oil export form Russia over the pipe will shrink this year?
- In accordance with our forecast, the reduction will be about 3 mln tonnes year-on-year, which is in line with Russia’s commitment to reduce production as per the agreement with OPEC+. Supplies to Western Europe over the Druzhba pipeline are at a rather stable level of about 50 mln tonnes.
- What volume will be transported over Zapolyarye – Purpe in 2017? How much has been requested for 2018? What are the plans for Kuyumba – Taishet?
- We expect about 4.6–4.7 mln of crude oil to be fed to Zapolyarye-Purpe in 2017, whereas in 2018 already 11.1 mln tonnes can be fed to this pipeline. As for Kuyumba-Taishet, we anticipate about 1 mln tonnes of crude to be fed there this year and around 2.9 mln tonnes in 2019. Our forecasts for these two pipelines are based on the requests for 2018 we have received from oil producers.
- Are there any new shippers planning to get connected to ESPO next year? And what are transshipment plans for Port Kozmino?
- In 2018 one more producer, specifically Rostneftegaz, plans to provide around 140,000 tonnes for this oil trunk pipeline.
Transshipment at Kozmino is anticipated at the level of 31.5-31.8 mln tonnes at the end of 2017. As for 2018, we confirmed the technical possibility of transshipment in the amount of 31.3 mln tonnes, so in case of favorable weather conditions and the lack of other negative factors, we believe this volume will be transshipped.
The measures called to increase the capacity of the transshipment complex have been completed; both berths are ready to receive ships with the deadweight of up to 140,000 tonnes. What’s more, we’ll commission two additional tanks till the year’s end, each having the storage capacity of 50,000 tonnes. This will enable us to transship up to 36 mln tonnes at this port. The deadline for the ESPO-2 expansion project delivery remains unchanged: the end of 2020.