In 2020, the balance of oil supplies via the Transneft system may shift from export routes to Russian refineries. Based on oil companies’ preliminary requests, they intend to increase refining by 13 million tonnes, while reducing exports. Experts believe that the operations of Russian refineries as a whole remain quite profitable against significant governmental compensations. At the same time, crude export via ports - the volume of crude export grew by 11% in 2019 mostly due to the force majeure at the Druzhba oil pipeline - may fall again next year. Pumping via Belarus, with which no agreement on the transit price has been signed yet, shall be restored from 42 million to 50 million tonnes.
In 2020, Transneft is to accept about 488.5 million tonnes of oil into its pipeline system based on the shippers’ requests. Moreover, deliveries to Russian refineries shall grow by 5.3% to reach 259 million tonnes while export shall decrease by 3.9% down to 229.5 million tonnes compared to 2019. Last year, the dynamic was reversed — exports grew (by 3.6% up to 238.8 million tonnes), while supplies to refineries declined (by 1.3%). The reason lay in the details of the tax manoeuvre: lower oil export duties with a simultaneously increased severance tax made export more profitable, other things being equal.
Sergey Agibalov, Head of Argus’s Oil and Petroleum Products Department, says that there are objective reasons for increased oil consumption on the domestic market.
- Firstly, he says, a number of new units have been launched, the largest one at Tatneft’s TANECO.
- Secondly, large-scale modernisation and high investment made certain refining capacities highly profitable, for example, at LUKOIL and GazpromNeft.
- And, as refineries are being modernised, there are prerequisites for further increase in oil consumption on the domestic market, says the expert.
Moreover, given the state compensation for refiners within the tax manoeuvre, the profitability of some refineries will only increase in 2020 due to regional payments (the so-called logistic ratio), says Mr. Agibalov.
However, a significant increase in diesel fuel production in Russia will also create difficulties for oil companies, as they will have to hunt for profitable sales markets and compete both with one another and with global suppliers.
According to Mr. Agibalov, had the capacities of the Antipinsky Refinery not been stopped for several months in 2019, the increase in oil consumption within the Russian Federation would have already occurred by the end of the year.
At the same time, the expert says, the declared volume of supplies to refineries can still be adjusted depending on the situation. According to estimates performed by the consulting division of the Argus pricing agency, the discount of Russian Urals (domestic) to the price of North Sea Dated (similar to Brent) could be $ 2–4 per barrel in 2020. Therefore, it seems now more logical for oil companies to announce high supplies to oil refineries, and if the petroleum products export situation becomes less favorable, they can always send the oil for export.
Based on the data presented by Transneft, the system will retain significant free export capacities in the European ports of the Russian Federation.
According to the existing plans, export via ports will be reduced by 23 million tonnes down to 115 million tonnes compared to 2019, while supplies via the Druzhba pipeline will amount to 50 million tonnes (against 42.3 million tonnes last year). Deliveries to China are expected to reach maximum capacity (40 million tonnes via the pipe), and export via Kozmino will also remain almost unchanged (about 35 million tonnes). Kommersant sources note that the expansion of the ports’ oil export capacities will allow Russian oil companies, if necessary, to redirect the volumes from the Druzhba pipeline to the sea. The terms of delivery along the Belarus route have not yet been agreed upon, and Minsk has repeatedly announced possible reductions in pumping through the country’s territory.