August 2015

HYDROCARBONENGINEERING August 2015 www.hydrocarbonengineering.com We create chemistry that makes individual refiners love fueling the world.

As the global leader in catalysis, BASF's drive is to fuel the world by providing innovative technologies, products, and services to enhance performance and sustainability for the petroleum refining industry. We create and deliver value to refineries through flexible FCC catalysts and additive solutions, and advanced technical service. When individual solutions solve global problems, it's because at BASF, we create chemistry. www.catalysts.basf.com/refining contents August 2015 Volume 20 Number 8 ISSN 1468-9340

(03) Comment (59) Hydrogen from hydrogen sulfide: part two (05) World News Rasheed A. Adewale, Abdallah S. Berrouk and Satyadileep Dara, Petroleum Institute, UAE, examine new processes for the (12) Russian refining dissociation of hydrogen sulfide into hydrogen and sulfur Nancy Yamaguchi, Contributing Editor, discusses developments in Russia's downstream oil sector, and the push for upgrading (64) Revolutionary sulfur recovery and exports Mark C. Anderson, ThioSolv, LLC, USA, outlines a new process that can help refineries to increase sulfur recovery capacity (26) Mountain high, ocean deep and reduce operating costs Stephen Harrison and Ismail Erilhan, Linde Gases, discuss means to reduce atmospheric emissions from marine shipping (71) The power of connection Marco Salvemini, GE Oil & Gas, Italy, explains how condition (35) Quality not quantity monitoring and remote diagnostics can help to connect At a time of low oil prices, many have started to question people, data and machines in the oil and gas industry whether opportunities for smaller scale gas to liquids remain. Neville Hargreaves, Velocys, UK, explains where these (75) Need an upgrade? opportunities still do exist and why, in this tougher market, Dmitry Moskalenko, Vitaly Tatarinov, Alexey Borovkov and quality counts Denis Pestov, Hoerbiger Moscow, explain how converting an old reciprocating compressor to mini lube operation has (39) Know your stuff cut costs and improved reliability at a Russian petrochemical Ankur Jariwala, Cameron, USA, explains how selecting an facility efficient and cost effective gas treating system calls for thorough self analysis (78) Evolutionary challenges Tom Brown, Elliot Group, USA, considers why the evolution of (45) Putting a trace on components: olefin production poses compression challenges part two Johnny Johnson, Jeff Matthews annd Jane Nichols, URS (85) Precision piping Corporation, USA, discuss optimisation of the application and Medhat Zaghloul, Compressor Controls Corporation, USA, arrangement of process technologies for specific feed gas discusses parallel expander recompressor controls and piping compositions layouts for parallel turbomachinery trains (50) Pioneering ethane technology (89) 21st century reciprocating Christopher Campos, Ebara International Corp., USA, talks compressors through the development of ethane technology, providing a Greg Phillippi, Ariel Corporation, USA, outlines the role, and logistical view of natural gas liquid products development, of reciprocating compressors in the downstream (55) Pinched performance: part two oil and gas industry Ralph Weiland, Nate Hatcher and Scott Alvis, Optimized Gas (95) Compressor Review Treating, Inc., USA, discuss the importance of quantitative Hydrocarbon Engineering provides an overview of the awareness of absorber pinch conditions most advanced compressor technologies available in the downstream processing industry (120) 15 facts on... This month we give you 15 facts on Brazil

Two cracked gas compressors at Elliott Group’s Jeannette, Pennsylvania, factory are prepared This month's for shipment to a new ethylene plant along the Gulf Coast. Cracked gas and refrigeration front cover compressors from Elliott’s factories in the USA and Japan are operating in olefin plants throughout the world.

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SANDVIK-what-we-do-pastille_granule_block.indd 2 13/06/2014 11:03 comment Claira Lloyd Editor ome sections of our industry are taking a hit due to the sector so much so that there the drop in oil prices, but one segment that appears is very little other nations, such as to be growing in leaps in bounds is petrochemicals. Europe, can do to compete. Europe’s In a recent market report, Transparency Market petrochemicals sector is of course Research said that the global petrochemicals sector benefitting from the cheap feedstock Swas valued at US$558.61 billion in 2013 and is expected to hit prices to an extent, as its main US$885.07 billion by 2020, equating to a compound annual feedstock is naphtha, however, as growth rate (CAGR) of 6.8% between 2014 and 2020. But, I do Ben van Beurden, Chief Executive of wonder, is everyone going to benefit equally? Royal Dutch Shell, said in a recent Frost & Sullivan recently commented on Mexico’s Financial Times article, “in terms of petrochemicals sector. The company reported that fundamental competitiveness, Europe is still behind the US and petrochemicals markets throughout the country are expected the Middle East because the feedstock is still more expensive.” to grow at the highest CAGR from 2014 - 2020, between 11.3% So, Europe seems to be a region that isn’t having such a and 8.7%, respectively. This is a market revenue increase from good run in the petrochemicals sector and sadly the plastics 2013 levels of US$1.06 billion to an estimated US$1.64 billion industry isn’t reaping cheap oil price benefits either. Over in 2020. This growth is coming markedly from the automotive the last 10 years, Europe’s petrochemicals sector has been industry as the industry looks to make vehicles lighter and suffering from chronic under investment, so much so that more efficient, which calls for plastic components rather than EuPC has reported that over the past six months there have metal to save weight. But it doesn’t stop there. Automotive been 41 shutdowns across Europe’s petrochemical plants in manufacturers are (re)locating factories in Mexico to encourage comparison to 26 for the whole of 2014. This has of course petrochemicals growth further as, as Frost & Sullivan has had the knock on effect of keeping petrochemicals prices reported, the nation has multiple trade agreements in place, high, despite lower feedstock prices, due to the cut in output which means that import taxes do not have to be paid by and volumes available on the market. This is obviously not manufacturers, and this has created a very favourable economic good news for plastics companies in the region, as they have environment. to continue paying high prices. So it seems that while the The US is another country benefitting from petrochemicals global petrochemicals sector is moving from strength to sector growth, and I’m sure we all know why. The speedy strength on the whole, the wealth is not equally shared or development of shale gas is providing a cheap and alternative proportional geographically, or necessarily beneficial to those feedstock for the nation’s petrochemicals sector. It is enhancing further down the sector’s supply chain. contact info

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Russia | IMPROVED EFFICIENCY AND USA | ETHYLENE RELIABILITY STORAGE

oneywell Process Solutions (HPS) impact on quality control, improves B&I has been awarded a contract Hhas announced that its control process, and impacts on product Cvalued at approximately technology will help improve processing costs at Lukoil's facility. It US$115 million, as part of the scope of the efficiency and reliability at Lukoil's will help optimise the overall ethylene project, by Ingleside Ethylene gasoline blending facility in Kstovo, performance of a facility that is a key to LLC, a joint venture between Meixchem, Russia. The company's meeting Russia's growing need for S.A.B. de C.V. and Occidental Chemical Nizhegorodnefteorgsintez refinery uses production fuels. Corporation (OxyChem), a subsidiary of HPS' Profit® Blend Optimizer software, Lukoil-Nizhegorodnefteorgsintez Occidental Petroleum Corporation, for which is designed specifically for obtained a system for real time blending the engineering, procurement and online blend reformulation and recipe optimisation, which controls the construction of an ethylene storage optimisation, allowing for efficient process automatically using a flow facility in Marham, Texas. production of fuels to required analyser (IR spectrometer by Bruker) The scope of work consists of the specifications. Lukoil is one of the measuring the component and blend surface facilities, including compression, leading primary crude oil processing properties, APC virtual analysers and dehydration, metering and associated companies in Russia. laboratory data enabling production of pipe fabrication, at the salt cavern Profit Blend Optimizer, formerly gasoline of a preset quality at minimum storage location. The storage facility is known as OpenBPC, has a significant costs. integral with the ethylene cracker where as previously announced, CB&I is South Korea | providing the license for the ethylene RESIDUE CONVERSION UPGRADE technology, five short residence time cracking heaters and the engineering, xens has been awarded several Axens has supplied an atmospheric procurement and construction of the contracts for the expansion of the residue desulfurisation unit (Hyvahl™), a A ethylene cracker in Ingleside, Texas. existing residue conversion facilities at High Severity FCC unit (HS-FCC™), an S-Oil’s Onsan refinery in South Korea. unsaturated LPG extractive sweetening The Residue Upgrading Complex unit (Sulfrex™), a selective Australia | TRIO OF Project (RUCP) is aimed at reducing fuel desulfurisation unit (Prime-G+™), and a CONTRACTS oil production while producing C4-stream processing section. The propylene through the conversion of company will also provide technology pplus+ though its division Applus+ atmospheric residue, and will include licenses, basic engineering, catalysts, RTD, has been awarded a trio of the world’s first commercial High adsorbents and proprietary equipment A contracts worth AUS$22.5 million for Severity FCC unit (HS-FCC™). for the complex. work on the Ichthys LNG project's onshore LNG facilities. The contracts USA | LONG TERM AGREEMENT SIGNED were awarded by Laing O'Rourke Australia, Mondelphous Engineering raxair, Inc. has signed a long term Delaware City Refining with nitrogen for Associates and UGL Kentz JV. The Pagreement with Delaware City its operational needs. contracts will see Applus+ RTD provide Refining Company in which Praxair will This new carbon dioxide source, inspection engineering, asset integrity purchase crude carbon dioxide from the which will begin serving customers in management and advanced refinery. Praxair will build, own and 2016, further strengthens Praxair's supply non-destructive testing services on two operate a 450 tpd carbon dioxide position in the Northeast. Praxair LNG tanks, one LPG tank, one butane tank purification and liquefaction plant at previously started up a 450 tpd carbon and two OBSL and ISBL mechanicals. the refinery, producing beverage quality dioxide purification facility in Hopewell, Applus+ RTD's Rayscan Tankscan will liquid carbon dioxide for distribution Virginia, and also opearates carbon be used throughout the three year into the Northeastern US merchant dioxide facilities in Southeastern contracts, which is the first time the market. Praxair already supplies Canada. technology has been used in Australia.

HYDROCARBON 5 ENGINEERING August 2015 w rld news

INBRIEF Poland | REFINERY EPC CONTRACT

arie Tecnimont S.p.A has The overall contract is estimated Indonesia Mannounced that its subsidiary to be worth approximatley Entrepose, a VINCI subsidiary, has KT-Kinetics Technology S.p.A has €304 million and the project completed the acquisition of Indonesian been awarded an engineering, completion is expected in 2018. company PT Istana Karang Laut (IKL). IKL procurement and construction The contract includes the is a recognised player in the upstream and contract by Lotos Asfalt Sp. zo.o, a implementation of a delayed coking downstream sectors of Asia's oil and gas subsidiary of Grupa LOTOS SA, unit, a coker naphtha hydrotreating industry. The company has 130 employees related to a refinery unit upgrade at unit, a hydrogen production unit and generates revenue of approximately the Gdansk refinery, in the (licensed by KT) together with €30 million. framework of the EFRA (Effective ancillary units in the premises of the Refining) project. Gdansk refinery. UK Puma Energy has obtained all the required Oman | REFINERY EXPANSION PROJECT government and HMRC licences as well as the support of the Welsh Government etso's intelligent solenoid if needed, for its extension project at Assembly to acquire a series of UK Mvalves have been chosen by the Sohar refinery, owned by Oman assets from Merco Petroleum Limited. Daelim, a South Korean EPC company, Oil Refineries and Petroleum The acquisition includes the Milford to ensure highly reliable emergency Industries Company (Orpic). Haven facility in Wales and three island shutdown (ESD) valve operation for The valves were chosen because terminals at Westerleigh, Theale and over 600 safety critical valves being of their ability to perform partial Bedworth. used in the expansion project at valve stroke tests on a regular basis Orpic's Sohar refinery. to verify performance for the plant's Portugal Daelim has selected Neles predictive maintenance purpose, as ECOSLOPS has officially inaugurated ValvGuard intelligent solenoid valves well as to maintain the required its first industrial site in Sinès. The to ensure that all safety actions can safety integrity level for the safety official inauguration took place in the be implemented reliably on demand, loops. presence of the Vice Prime Minister of Portugal, the Minister of Environment of Ivory Coast and the President of the Kuwait | HYDROGEN PRODUCTION FURNACE Port of Sinès, together with ECOSLOPS' anoir Industries has been sulfur content of the petrochemical customers and partners. Msuccessfully awarded a contract products. by ITT and Heurtey PetroChem to As a whole, more than 24 km of Poland provide complete solutions of pipes will be delivered to the KNPC ABB's Safety Execution Center (SEC) in reforming Manaurite® XM tubes, sites for implementation in the Haldor Wroclaw, Poland, has been certified by refractory collector lines and transfer Topsoe technology reforming furnaces. TÜV as having in place and applying lines to equip three hydrogen The daily capacity of the KNPC a functional safety management production furnaces for the Kuwait refineries will be improved by 10% to system (FSMS) for the delivery and National Petroleum Company group reach 800 000 bpd, while the sulfur implementation of safety system (KNPC). content of the products will be projects in accordance to international Manoir Industries deliveries are reduced by 5%. industry standards. These standards part of the strategic KNPC programme The award further strengthens include IEC 61508 and IEC 61511 for 'Clean Fuel Project', which aims at Manoir Industries presence in the integration and implementation of safety upgrading the hydrogen production Middle East and confirms its leadership instrumented systems (SIS). volume of these integrated refinery in delivering competitive global plants so as to enhance the refinery reforming solutions from its production production capacity and reduce the sites in China and Europe.

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cbi_he_ad_aug_2015.indd 1 7/9/2015 2:51:28 PM w rld news

INBRIEF Kuwait | ENGINEERING AND SUPPLY

eolia Water Technologies, manages the project, which was set up Asia Pacific Vthrough its subsidiary by Fluor, Daewoo and Hyundai. Permasense has appointed a local VWS Oil & Gas, has been awarded a The technologies to be supplied agent for Australia, New Zealand US$20 million contract in Kuwait for and commissioned by Veolia include a and Papua New Guinea. Corrosion the engineering, supply and steam producing waste heat boiler, two Control Engineering (CCE) will work commissioning of a complete heat exchangers, dry fume treatment with Permasense to provide business incineration unit to handle oily and technologies and storage and dosing development and customer support to biological sludge. reagents. upstream, downstream and mining clients Veolia is supplying the sludge In addition, Veolia will purchase and in the Asia Pacific region. treatment technologies to two oil manufacture all the required equipment, refineries as part of a major project instrumentation, piping and structures, that covers a broad revamping of sourcing them through its own network USA Kuwait National Petroleum Company of subcontractors based in Europe and KBR has agreed to enter into two new facilities. Veolia is providing its the Middle East. The project should be partnerships with Bernhard Capital expertise to the joint venture that delivered in the next 16 months. Partners. The first agreement will establish a new, equally owned and managed company, Brown & Root USA | GAS MEASUREMENT SOLUTION Industrial Services. KBR's Industrial Services Americas will be come part emGas has selected Flow-Cal, Inc.'s combined capacity of approximately of the company and will comprise Ssoftware suite as its corporate gas 388 million ft3/d. WINK Engineering. measurement solution. SemGas, has SemGas is using FLOWCAL to chosen to implement Flow-Cal’s acquire more accurate information in a Middle East Client/Server version with TESTit and timely manner by automating and A Strategic Alliance Agreement has CALCit field products, providing field streamlining several key processes. With been signed by the APS Group and and office personnel with advanced FLOWCAL’s advanced validation filters, Cape Middle East. The agreement opens tools for automation, equipment the software generates exceptions that the way for historic cooperation between testing and verification, as well as gas are based on SemGas’ configuration and the two companies in the Middle East flow measurement calculations. desired level of granularity. From a single region. The cooperation will provide SemGas, a segment of SemGroup screen, the exception resolver feature both companies with many advantages, Corporation, owns and operates more enables expedited analysis of suspect including providing APS with increased than 1300 miles of gathering pipelines in data with a hyperlink to quickly perform exposure to Cape's existing client Kansas, Oklahoma and Texas, as well as any edits, all while maintaining a full network and Cape benefitting from a four processing plants that have a audit trail compliant with API standards. broadening of specialised corrosion services. Canada | FIVE YEAR CONTRACT

USA acobs Engineering Group Inc. has outages at Suncor facilities. Turaround Hydrocarb Energy Corporation has Jbeen awarded a five year, multiple services to be provided under this announced that its new gas compression use contract by Suncor Energy contract include mechanical, piping facility and related maintenance has Service Inc. for turnaround services at and support services. been substantially completed and the Suncor facilities located in the Wood In 2014, Jacobs completed over company is now turning up production Buffalo region of Alberta, Canada. 700 000 turnaround work hours with that has been mostly shut in since the Under the terms of the contract, more than 830 employees and end of 2014. The company plans to report Jacobs may provide prework, contractors across Suncor's Wood substantially increased production soon. execution and post work for Buffalo sites. All work hours were turnaround events during planned completed without a significant injury.

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www.fmctechnologies.com w rld news news digest | DIARYDATES KBC | OIL MARKET OUTLOOK

rent crude prices fell by than Dated Brent, taking LLS to a 14 - 17 September Bapproximately US$3/bbl in June US$1.55/bbl premium to Brent, the TPS 2015 (compared with May) to average highest since 2013. US refinery George R. Brown Convention Centre US$61.70/bbl. According to KBC Energy throughputs are high, as utilisation Houston, Texas Economics’ Oil Market Outlook for remained above 90% for the third Tel: 979-845-7417 July 2015, this weakness stemmed from consecutive month. The Bakken/Brent Email: [email protected] both the physical and futures markets, spread has narrowed from as much as and shows no signs of dwindling any minus US$8.30/bbl in March to average 16 - 18 September time soon. KBC anticipates that Dated only minus US$1.40/bbl in June. GPA Europe Brent will fall to as low as Refining margins in the three key Hilton Florence Metropole US$56.80/bbl in September, with global refining centres were mixed in Florence, Italy plentiful supplies over the summer and June compared to May. European Tel: +44 1252 625 542 autumn refinery maintenance limiting conversion margins increased by Email: [email protected] crude demand. However, prices are US$1.90/bbl to US$8.25/bbl in June, expected to recover as the supply supported by firmer gasoline cracks, 29 - 30 September overhang is absorbed with increased while Singapore cracking margins Tank Storage Asia winter product demand, and another dropped to US$6.90/bbl in June on Marina Bay Sands summer of strong gasoline demand weaker gas/diesel oil and fuel oil Singapore forecast for next year, pushing prices to cracks. The Singapore gasoline crack Tel: +44 (0)20 8843 8817 as high as US$69.50/bbl in July, and spread widened from US$20.35/bbl to Email: [email protected] averaging US$65.30/bbl over 2016. US$22.40/bbl, which was offset by On the physical side, the Atlantic weakening fuel oil and naphtha cracks. 4 - 7 October Basin is amply supplied at present with In the US, gross margins in June for the light sweet crudes which set the FCC/Coking Maya/Mars and LLS 3-2-1 AFPM Q&A Technology Forum benchmarks. Refinery maintenance has operations strengthened from the New Orleans Marriott eased globally and margins remain high, previous month, led by stronger New Orleans, Louisiana increasing crude throughputs, but gasoline cracks. EIA data released at the Tel: +1 202-457-0480 physical supply is running well ahead of end of June showed gasoline stocks Email: [email protected] demand, with differentials coming falling 1.78 million bbl to under pressure. In the US, LLS was 216.7 million bbl, compared with an 27 - 30 October down in June, losing US$1.70/bbl expectation of a 0.5 million bbl Gastech 2015 month on month, but still faring better increase. Singapore Expo Singapore Tel: +44 (0) 203 772 6029 AFPM | E30 GASOLINE APPEAL DECISION Email: [email protected] merican Fuel & Petrochemical reality that E30 gasoline is not 9 - 12 November AManufacturers (AFPM) President commercially available, as is required by Sulphur 2015 Chet Thompson has made a statement law to be used as a test fuel, and Sheraton Centre on the ruling by the US Court of therefore denied the petition. Today's Toronto, Canada Appeals for the District of Columbia to decision underscores the fact that the Tel: +44 (0) 20 7903 2444 deny a lawsuit brought by the Energy market is void of E30 for one glaring Email: [email protected] Future Coalition and the biofuel reason; consumers are not demanding producers against the Environmental fuels with higher concentrations of Protection Agency (EPA) because of its ethanol. We hope EPA will also heed decision not to use E30 gasoline as a that important distinction as it works test fuel. to finalise its proposal for "We are pleased that the Court implementing the federal biofuel recognised the undeniable market mandate."

10 HYDROCARBON August 2015 ENGINEERING TECHNICAL BULLETIN

CAT-AID FCC additive for high iron feeds Many shale oil feeds contain high levels of metal Base catalyst without CAT-AID: contaminants such as Nickel, Vanadium, Calcium, Iron, Sodium and Potassium which can limit the refiner’s ability to process these feeds and significantly impact unit operation and the profitability of the Fluid Catalytic Cracking Unit (FCC).

Iron poisoning, in particular, can have an adverse effect on FCC performance, causing many challenges for refiners through diminished conversion, increased slurry, coke, dry gas selectivity and increased regenerator flue gas SOx emissions.

When the iron content is high enough it reacts with the silica from the base catalyst and essentially seals off the catalyst interior by forming a shell-like layer at the catalyst surface that inhibits hydrocarbon diffusion into and out of the catalyst particle interior. Often refiners will try to tackle iron poisoning with increased fresh catalyst make-up rate or use of added equilibrium catalyst to Base catalyst with CAT-AID: dilute the iron by flushing it out of the FCC unit.

TM Johnson Matthey’s INTERCATJM catalyst enhancement additive, CAT-AIDTM, is an effective metals trap for vanadium and other contaminants such as iron. CAT-AID was originally designed to capture vanadium, a permanent poison that accumulates on the catalyst where it causes catalyst deactivation and promotes undesirable dehydrogenation reactions, leading to increased coke and gas make.

In recent commercial applications CAT-AID has been found to be able to reverse the effects of iron poisoning of the FCC catalyst. By breaking down the nodular iron-rich shell on the surface of the catalyst, CAT-AID opens up access to the inner core of the catalyst, allowing it to become available for cracking once more. Many refiners who process residue and shale crudes have This significantly increases the profitability of the FCC turned to Johnson Matthey’s CAT-AID, as an effective way operation by relieving operating constraint, improving to mitigate the effects of feed contaminants, and have product yields, and reducing fresh and flushing realized substantial benefits resulting from improved unit equilibrium catalyst consumption. operation. RUSSIAN REFINING

he past year has brought additional political and According to Prime Minister Dmitry Medvedev in his economic turmoil to Russia. The ongoing opening remarks at the March 2015 ‘Meeting to discuss draft Ukrainian crisis motivated a number of countries Russia's Energy Strategy until 2035’, published by the Russian to apply sanctions against certain businesses and Ministry of Energy, "The fuel and energy complex accounts Tindividuals in Russia and the Ukraine, and Russia responded for over a quarter of the gross domestic product, almost 30% with sanctions of its own. The Russian Ruble slid from of the national budget, more than two thirds of export exchange rates of approximately US$0.029/RUB in the revenue and a quarter of total investments." summer of 2014 to lows in the range of US$0.014 - 0.016/RUB Many economists estimate that, all things considered, oil in late 2014 and early 2015, and they are approximately and gas account for over one half of Russian government US$0.018/RUB at the time of writing. The Ruble closely income. Although there have been market based reforms and tracks international oil prices; therefore, in addition to the privatisation, the government has stepped back from this international sanctions, confidence in the Russian economy course and become more heavily involved in managing the is also being undermined by the weakness of oil prices. industry. One example is the recent seizure of mid sized oil

12 St. Basil's Cathedral in Moscow's Red Square.

13 company Bashneft, which is discussed further in the centrally planned economy for so long, however, that some of company section below. Russia's crude export revenues have this culture remained, even after privatisation. Most recently, been reduced by the collapse in international oil prices, and in fact, the central government has seemed more keen to a number of changes are being made in taxation affecting the return to direct ownership and management of the oil oil industry, which the government hopes will increase industry, and it has backed away from privatisation. revenues. Third, the oil industry has been encouraged to expand The fall in oil prices and the continuing lack of OPEC unity export activity. Public policy regarding product quality has created an intense focus on events in the Russian oil specifications, taxation, and international relations are strongly sector, because it is believed that if Russia increases influencing the volumes and patterns of trade. The recent production and exports, it could flood the market and weaken relaxation of the export duty on refined products offers an prices even further. Russia has immense reserves, and example, since it made product exports more economically production has been held reasonably steady. Across the attractive than crude exports. Russian companies immediately Atlantic Ocean, oil production in the US has surged, while reduced their exports of crude, raised refinery runs, and demand has continued to fall. Oil demand is falling in much of boosted product exports. Europe as well. Even though demand continues to grow in Fourth, and related to the point above, the refining Asia, the Middle East, Latin America and Africa, this demand industry has been required to expand and modernise in order increase has not offset the supply increase. These events have to meet tighter petroleum product standards, both for conspired to cut into the call on OPEC oil, a drop of domestic markets and to make Russian exports comply with approximately 1.5 million bpd over the past three years. OPEC European specifications. Every major refining company has leaders have been unwilling to rein in production in order to worked to improve product quality, and many have exceeded support a price recovery when the end result could merely be expectations and moved to Euro standard fuels well ahead of to tempt additional production in the US and Russia. A push schedule. The excise tax structure has encouraged this switch. by Russia to increase oil exports to boost revenue could For example, in 2013, the excise tax rates for Euro 5 gasoline swiftly shut in additional OPEC oil, given its proximity to the were reduced by 8.8%, while the excise tax rates for Euro 4, major markets of Europe and its increasingly long reach into Euro 3 and lower grades of gasoline were raised by Asia. Events in Russia are closely watched by OPEC. Indeed, in approximately 27% to 28%. In 2014 the excise tax on Euro 4 September 2014, OPEC held its third high level energy dialogue gasoline was RUB9916/t, while the excise tax on Euro 5 meeting with Russia, and a fourth such meeting is scheduled gasoline was RUB6450/t. for 2015. This article discusses developments in Russia's As Russia's oil industry has grown and adapted, essentially refining industry and how it is being reshaped by market and all of the companies have restructured, entered into joint regulatory changes, and how tax policies are encouraging ventures, acquired new holdings, or merged with other exports of both crude and crude products. companies. Many have forged stronger international ties as well, with some companies participating in refinery projects Common themes in the abroad. The low oil prices, weaker Ruble, and current structure of Russia's refining sanctions, however, are impeding the ability of Russian oil companies companies to raise capital, which is making it difficult to pay Russia's oil companies were wrenched by the dissolution of for the current round of investments, not to mention any the Soviet Union. Oil production in the now Former Soviet future investment phases. Union (FSU) region collapsed from approximately 12.6 million bpd in 1987 to less than 7.2 million bpd in 1996, a Fuel quality and tax policies drop of approximately 5.5 million bpd. During that decade, FSU drive refinery investment and oil demand fell from approximately 8.46 million bpd in 1987 to oil trade 3.84 million bpd in 1997, a drop of 4.6 million bpd. The industry Almost all governments attempt to use regulation and tax was inefficient, and infrastructure was in sad shape. It took policy to nudge business investment and trade behaviour. In years to institute the reforms needed to make Russian Russia, the level of state involvement remains very high. The companies competitive in the international market. But Russia Russian government enacted a set of tax reforms for the oil did recover and has become a powerhouse in the global oil industry in 2011. Since then, however, Russia has been hit hard market once again. by the collapse in international oil prices and the international Some common themes emerged as Russian refining sanctions. According to the Russian Prime Minister, roughly companies were reformed. First, most adopted some form of 30% of the national budget depends on fuel and energy. vertical integration. There was a great deal of shuffling and Lengthy discussions between government and industry have reorganisation as companies strove to improve efficiency all resulted in a number of amendments to the tax reforms. The along the supply chain: crude oil exploration and production, central government's stance is that the tax changes strike a crude storage, pipelining and other transport to domestic and balance between the revenue needs of government and the foreign markets, refining, product movement, and retail needs of energy producers and refiners. Many of the refining marketing. companies believe that the tax changes will harm their Second, majority ownership and control of the oil profitability and that they will bear a disproportionate share companies remained with the government, but there was an of the tax burden. increased interest in and need for private sector investment As the refining industry began to modernise, many of the and foreign participation. Companies had operated under a smaller and less efficient refineries finally began to close, or

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Untitled-6 1 20/08/2014 14:31 Table 1. Key tax items affecting the Russian petroleum industry Production side, MET: 2014 2015 2015 original 2016 2016 original 2017 2017 original Mineral Extraction Tax (MET), RUB/t 493 765 530 857 559 919 559 Converted to US$/bbl US$1.22 US$1.89 US$1.31 US$2.11 US$1.38 US$2.27 US$1.38 Consumption side, excise tax: 2014 2015 2015 original 2016 2016 original 2017 Gasoline Euro 4, RUB/t 9916 7300 10858 7350 5830 Gasoline Euro 5, RUB/t 6450 5530 7750 7350 9500 5830 Diesel, RUB/t 5427 3450 5970 4150 3950 Converted to US$/bbl Gasoline Euro 4, US$/bbl US$21.00 US$15.46 US$22.99 US$15.56 US$- US$12.35 Gasoline Euro 5, US$/bbl US$13.66 US $11.71 US$16.41 US$15.56 US$20.12 US$12.35 Diesel, US$/bbl US$13.02 US$8.28 US$14.33 US$9.96 US$- US$9.48 Trade side: export duty Crude, RUB/t 59% 42% 57% 36% 55% 30% 55% Products expressed as % of crude Lt and MD distillates, aromatics 65% 48% 63% 40% 61% 30% 61% Gasoline 90% 78% 90% 61% 90% 30% 90% Naphtha 90% 85% 90% 71% 90% 55% 90% Fuel oil, bitumen, other heavy 90% 76% 100% 82% 100% 100% 100% Lube oils 66% 48% 100% 40% 100% 30% 100% Petroleum coke 66% 6.5% 100% 6.5% 100% 6.5% 100% *The exchange rate is approximately US$0.018/RUB because of the slump in the value of the Ruble in recent months The only way to go is upgrade

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HCE_U&R.indd 1 06.07.2015 14:54:57 else began to operate only sporadically in niche markets. The planned to raise the MET to RUB530/t in 2015 (US$9.54), but larger refineries serving metropolitan areas and export it now is raising this rate to RUB765/t (US$13.77/t). The markets have been required to invest in order to improve proposed rate of RUB559/t (US$10.06) in 2016 and 2017 was fuel quality, just as many of their counterparts in Europe, raised to RUB856/t (US$15.41) in 2016 and RUB919/t Asia and the Americas have been required to invest. The (US$16.54) in 2017. allowable sulfur level in motor gasoline was cut from The tax increases are expected to be passed on to 500 ppm to 150 ppm in 2011, 50 ppm in 2012, to 10 ppm in consumers, which is likely to have a dampening effect on 2015. Benzene content was reduced to 1% by volume in 2011, domestic use. The International Energy Agency (IEA) believes and total aromatics are now limited to 35% by volume, down that Russian oil demand will fall by approximately 4% in 2015 from a maximum of 42% in 2011. Diesel sulfur levels have relative to 2014. In part, however, the increase in costs to the been cut from 500 ppm Grade 2 and 350 ppm Grade 3 consumer will be offset by a reduction in the excise tax (consistent with Euro 2 and Euro 3) to 50 ppm Grade 4 in charged on gasoline and diesel. In 2014 the excise tax on 2012, and are being cut to 10 ppm by 2015, consistent with Euro 4 gasoline was RUB9916/t (US$21/bbl), while the tax on Euro 5. The minimum cetane number is 51. Now, some Euro 5 gasoline was RUB6450/t (US$13.66/bbl). The excise investments and trade patterns are being influenced tax differential also hastened the adoption of Euro 5 increasingly by changes in Russia's tax policies affecting the gasoline. The excise tax on diesel was RUB5427/t oil industry. (US$13.02/bbl). Under the previous tax plan, the excise taxes The main tax items are the Mineral Extraction Tax (MET) for all three of these fuels would have gone up in 2015, but assessed on production, the crude and product export they now have been reduced to RUB7300/t for Euro 4 duties, and the excise taxes on refined products. The Russian gasoline, RUB5530/t for Euro 5 gasoline, and RUB3450/t for Ministry of Energy has made numerous changes in tax diesel. regulations affecting the oil industry, and additional changes The export duties are expressed as percentage rates are proposed for 2015, 2016 and 2017. The current reforms are relative to crude, which follows the market, but with a being called the ‘tax manouevre’. monthly lag. Therefore, if the price of crude rises, the export Table 1 presents an overview of some of the key tax duty rises in tandem. The reference crude price used is a elements affecting the oil industry. First, on the production calculated monthly average price for Urals crude on the side, the Mineral Extraction Tax is a production tax charged international market. The rates of crude export duty include on a RUB/t basis. It was RUB493/t in 2014, or US$8.87/t a step function based on crude price, but the step function using the exchange rate of US$0.018/RUB. The government applies to low crude prices, so the first steps are currently The only way to go is upgrade

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HCE_U&R.indd 1 06.07.2015 14:54:57 scheduled to go to 57% in 2015, down slightly from 59% in 2014. Another slight reduction, to 55%, was planned for 2016 and 2017. Under the latest tax plan, however, the export duty will be cut to 42% in 2015, 36% in 2016, and 30% in 2017. Crude feedstock costs to refiners will therefore rise. The export duties on refined products are now slated for several changes as well, however. Cutting product export duties partly will counteract the reduction in crude export duties, since the economics of product exports will be improved as well. The export duties on light and middle distillates and on aromatics (benzene, toluene and xylenes,) were 65% in 2014. They were scheduled for a slight reduction to 63% in 2015 and 61% in Figure 1. FSU crude exports. Source: IEA. 2016 - 2017. Under the new plan, the export duties will be reduced more swiftly to 48% in 2015, 40% in 2016, and 30% in 2017, making exports of these products more economical. Naphtha export duties were slated to remain unchanged at 90% from 2014 through 2017, but the duty is now being reduced to 85% in 2015, 71% in 2016, and 55% in 2017. The gasoline export duty was 90% in 2014, and it also was planned to remain at 90% through 2017, but now it has been cut to 78% in 2015, 61% in 2016, and 30% in 2017. The export duty on lubricating oils was 66% in 2014. It was slated to rise to 100% in 2015, 2016 and 2017. Now, it is scheduled to be cut to 48% in 2015, 40% in 2016, and 30% in 2017. The export duty on petroleum coke was also 66% in 2014 and was scheduled to go to 100% in 2015, 2016 and 2017. It has been cut to a mere 6.5%, which also is a reflection of how little some petroleum cokes are worth as export commodities. The export duties on fuel oil, Figure 2. FSU product exports shift away from fuel oil. bitumen, and certain other heavy products were planned Source: IEA. to rise from 90% in 2014 to 100% in 2015, 2016 and 2017. The planned increase is now being phased in more slowly, going from 76% in 2015 and 82% in 2016 before rising to 100% in 2017. The selective shifting of export duties should encourage downstream processing at refineries, thereby supporting investments in fuel oil destruction technologies. As Figure 1 illustrates, the first quarter of 2015 showed an uptick in FSU crude exports by sea, 5.29 million bpd as compared to 4.49 million bpd in 2014, according to the IEA. Exports via the giant Druzhba Pipeline rose slightly to 1.07 million bpd, compared with 1.01 million bpd in 2014. Exports by other modes declined from 0.4 million bpd in 2014 to 0.25 million bpd during the first quarter of 2015. Figure 2 shows how refined product exports have changed, partly in response to changes in export duties, and partly in response to the commissioning of new refinery units. In 2007, fuel oil exports were 1.1 million bpd. Note, however, that this category also includes exports of Figure 3. Russian crude and product exports. Source: IEA. vacuum gasoil (VGO), which is a relatively desirable export commodity to other cracking refineries. Fuel oil exports irrelevant. At prices above US$25/bbl, the duty in 2014 was climbed to 1.72 million bpd in 2012 before levelling off. The US$4 plus 59% times the actual price minus US$25/bbl. The IEA reports that fuel oil exports subsided to 1.65 million bpd hefty export duty has increased the amount of domestic during the first quarter of 2015. Diesel exports averaged crude available to domestic refineries at relatively low cost, 0.95 million bpd in 2007, and they declined to which in turn has supported refiner margins. But under the 0.77 million bpd in 2011. Exports of other products also tax manouevre, the crude export duty is now being reduced declined, falling from 0.6 million bpd in 2006 to at an accelerated rate. Previously, the crude export duty was 0.43 million bpd in 2010 and 2011. More recently, however,

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© 2015 Baker Hughes Incorporated. All Rights Reserved. 42753 02/2015 exports of diesel and other products have begun to climb. In 2013, Rosneft continued to integrate TNK-BP's assets, Diesel exports averaged 0.95 million bpd in 2014 and and the company's liquid hydrocarbon production jumped 1.11 million bpd during the first quarter of 2015. Other product 72% above 2012's level, reaching 4.196 million bpd. Rosneft exports rose to 0.57 million bpd in 2014 and 0.73 million bpd raised its domestic and foreign refinery crude runs from during the first quarter of 2015. 90.12 million t in 2013 to 99.83 million t in 2014, an increase Figure 3 compares crude exports with product exports of 10.8%. Despite weakness in global markets, Rosneft from 2007 through the first quarter of 2015. The earlier raised its crude oil and product sales from 192.9 million t in export duty structure favoured product exports over crude 2013 to 207.4 million t in 2014. Natural gas sales surged from exports, and as the chart shows, crude exports declined from 39.07 billion m3 in 2013 to 56.53 billion m 3 in 2014. Still, the 6.77 million bpd in 2010 to 6.1 million bpd in 2014. Product fall in the price of oil and the decline in the value of the exports, in contrast, grew from 2.85 million bpd in 2010 to Ruble are making it difficult to repay the approximately 3.24 million bpd in 2014 and 3.6 million bpd during the first US$30 billion in debt, and Rosneft has asked the central quarter of 2015. Now, the most striking feature is the fact government for a bailout of sorts. that the first quarter of 2015 brought an increase in exports Rosneft's largest refineries are Angarsk (385 000 bpd) of both crude and products, an addition of 0.51 million bpd and Achinsk (142 000 bpd) in Eastern Siberia, Kuibyshev of crude and 0.36 million bpd of products, for a total (135 000 bpd), Novokuibyshev (192 kbpd) and Syrzan increase of 0.87 million bpd in FSU net oil exports. Under the (214 000 bpd) in the Volga-Urals region, Komsomolsk in the tax manouevre, the export duties for both crude and Russian Far East (162 000 bpd), and Tuapse on the Black Sea products all were reduced, making exports more economical (90 000 bpd, now being expanded). Rosneft also owns for all commodities, and not for one set of commodities at several small refineries. The company is in the midst of a the expense of another. Compounding this was a decline in refinery modernisation programme to boost production of domestic demand, and a strengthening of the Ruble, which Euro 5 compatible fuels. had started the year at an exchange rate of approximately Rosneft's refinery modernisation programme includes US$0.015/RUB and climbed to US$0.017/RUB in March. The the construction of 30 new units plus the reconstruction of Ruble has continued to strengthen, and the exchange rate is 20 existing units at its seven main refineries. In 2009 - 2010, currently US$0.018/RUB. On a related note, since the Ruble new hydrogen units were commissioned at Novokuibyshev, correlates with oil prices, there has been a strengthening of Kuibyshev, and Syrzan. Isomerization units were built at oil prices. Spot prices for Brent crude averaged US$47.76/bbl Syrzan, Angarsk and Kuibyshev. Reconstruction work was in January 2015, and they rose to US$55.89/bbl in March. The completed at an isomerisation unit at Novokuibyshev, a prices have continued to strengthen, averaging US$59.52/bbl visbreaker at Kuibyshev, and a cat reformer at Syrzan. in April 2015 and US$64.08/bbl in May 2015. The conditions Kuibyshev continued with work on a new cat cracking unit. have therefore been set for a rise in Russian oil exports, Novokuibyshev continued by planning a hydrocracking which have brought a welcome influx of revenue. complex, another cat reformer, and a second isomerisation unit. The catalytic reformer and the isomerisation units Russia's refining companies were commissioned in early 2015, and the old units, which and capacities were built in the 1960s, will be decommissioned. The A number of international agencies and companies track catalytic reformer has a capacity of 1.2 million tpy, or Russian crude refining capacity, but very few accurately approximately 28 000 bpd. The isomeriser has a feed rate report the downstream units and capacities. This understates of 280 000 tpy, or approximately 6500 bpd. the level of ongoing investment and the recent increases in The Syrzan refinery is a deep conversion facility with refinery sophistication. The following paragraphs provide an catalytic and thermal cracking. A new isomerisation unit overview of Russia's key refining companies, their capacities, was added, and it is building a new cat cracker and a diesel and the types of downstream units recently added and/or hydrotreater. planned. The majority of the units and capacities are based In 2014, Rosneft completed the construction of on individual company information, supplemented by the isomerisation units at Kuibyshev and Ryazan. A vacuum author's estimates and calculations. distillation unit was also completed at Ryazan in 2014. A delayed coker was added at Komsomolsk in 2011, and Rosneft a hydrocracker is planned as well. The company also Rosneft is Russia's largest oil company in terms of both upgraded its cat cracker. This refinery is a key fuel provider upstream oil production and downstream processing, and it in Russia's Far East, and it also exports product to Asia via is also a major producer of natural gas. Rosneft has expanded Rosneft's Nakhodka terminal and the third party Vanino boldly. It now produces oil via 29 subsidiary companies and marine terminal. This refinery also receives crude from joint ventures. Beginning in 2006, Rosneft purchased most of Sakhalin Island, via pipeline from Okha. the assets of Yukos, which was declared bankrupt that year. An isomerisation unit was built at the Achinsk refinery Rosneft went on to acquire TNK-BP, further consolidating its in 2007, and the plans are to build a hydrocracker, a position as not only Russia's premier oil company, but also as delayed coker, another isomerisation unit, and a new cat the largest publicly traded oil company in the world. The reformer to replace the existing unit. On 15 June 2014, a majority shareholder is Rosneftegaz (69.5%), which is a 100% tragic explosion occurred at the Achinsk refinery. Later state owned company. BP owns 19.75%, while the remaining reports stated that there were eight fatalities and several 10.75% of shares are publicly traded. injuries.

20 HYDROCARBON August 2015 ENGINEERING The Angarsk refinery uses cat cracking plus delayed conversion process (two small coking units with a capacity coking as conversion technologies. The refinery added of 18 500 bpd). The Volgograd refinery also added an isomerisation, alkylation and MTBE units. It is building a isomerisation unit and is expanding its vacuum gasoil diesel hydrotreater and a catalytically cracked gasoline capacity. The refinery produces bitumen and lubricating oils. desulfuriser using catalytic distillation technology. This It also has a natural gas fractionator. refinery provides petrochemical naphtha feedstock to the The Perm refinery recently added a large (68 200 bpd) Angarsk polymer plant, also owned by Rosneft. hydrocracker. In 2013, reconstruction of the diesel The Tuapse refinery is undergoing a serious expansion hydrotreater was completed, and work commenced on a and upgrade. Its crude capacity is being expanded from coking unit with a planned capacity of 2.1 million tpy. The 5 million t to 12 million t, essentially by building a new refinery's yield of light products improved from 57.3% in refinery on the existing site. The project has three phases. 2009 to 58.5% in 2013. Gasoline output was 100% high Phase 1, scheduled to be completed in 2015, includes the octane in 2013, and diesel output included 96.8% clean crude and vacuum distillation unit and naphtha hydrotreater diesel. (the naphtha hydrotreater reportedly has been completed). The Nizhny Novgorod refinery is a cat cracking plus Phase 2 will include a hydrogen plant, a vacuum gasoil visbreaking refinery. It recently expanded its crude and hydrocracker with middle distillate hydrotreating, a catalytic product storage reservoirs, and an isomerisation unit was reformer, and an isomerisation unit. The third phase will added. A second complex for catalytic cracking is being built, include a flexicoker. This will transform Tuapse into a with a capacity of approximately 25 000 bpd. The refinery significant deep conversion refinery. Russia views Tuapse as a yield of light products has grown from 42.3% in 2009 to strategically important refinery because of its location on 52.9% in 2013. Gasoline output is 100% high octane. The share the Black Sea. It is located 118 km northwest of Sochi, which of clean diesel in total diesel output is 88.5%. received a huge influx of investment because of the The Ukhta refinery has a simpler configuration. The cat Olympic Games. reformer was revamped in 2006. A visbreaker was As noted, Rosneft took over TNK-BP, with the sale commissioned in 2007. Isomerisation was added in 2009, completed in 2013, but the debt now weighs heavily on the followed by a large diesel hydrotreater in 2012. In 2013, the company. The largest TNK-BP refineries under Rosneft's vacuum distillation unit was rebuilt and capacity was purview are Ryazan (340 000 bpd), Saratov (140 000 bpd) and increased. The light product yield is much lower because of Orsk (130 000 bpd). The Ryazan refinery was upgraded to the lack of cracking capability. Still, the light product yield produce Euro 5 fuels, with the design plan enabling output of rose from 39.7% in 2009 to 40.6% in 2013. The completion nearly 35 000 bpd of Euro 5 diesel. The Saratov refinery is a of the diesel hydrotreater had a major impact on quality; in very old facility, originally built in 1934, but it has completed 2012, clean diesel accounted for 32.2% of diesel output, and numerous upgrades and expansions. Crude capacity was this rose to 80.7% in 2013. raised to 7 million t (140 000 bpd) in 2009. A visbreaker was Lukoil also operates two small refineries in Western built in 2004. The 2010 - 2012 plan called for the construction Siberia, the 7500 bpd Kogalym refinery, and farther west, of an isomerisation unit and a revamp of a diesel the 2400 bpd Uray refinery. Lukoil announced in late 2013 hydrotreater. The catalytic reformers were also modernised that it had committed RUB1.548 billion (approximately in 2012. A bitumen plant is also being built. US$28 million) to upgrade the Kogalym refinery for the Rosneft is also partnering with China's CNPC to build a production of Euro 5 fuels. The modernisation plan includes refinery in China at Tianjin. The refinery crude capacity will an isomerisation unit, reconstruction of the diesel be 13 million tpy, of which 9 million tpy of feedstock will be hydrotreater, and a gasoline compounding unit. from Russia. Rosneft also plans to build a petrochemical In total, the modernisation programme allowed Lukoil plant near the city of Nahodka in the Russian Far East, with a to reduce the output of heavy products (fuel oil and capacity of 3.4 million tpy. China is viewed as the principal vacuum gasoil) from 31% of output in 2011 to 28.4% in 2013. market outlet. Gasoline output rose from 21.6% in 2011 to 22.5% in 2013, while middle distillate output rose from 38.4% in 2011 to Lukoil 39.7% in 2013. Total refining volumes in 2013 were Lukoil is Russia's second largest refining company, with four 45.25 million t, an increase of 1.8% from the previous year. large refineries and three miniature refineries. Lukoil reports Lukoil has strong trade links to the rest of Europe. It that it produces 16.4% of Russia's crude oil and that it owns participates in refineries in Bulgaria (the Burgas refinery), 15.7% of Russia's refinery capacity. The four main refineries Romania (through purchase of the Petrotel Ploiesti refinery in are Nizhny Novgorod (347 000 bpd), Perm (266 000 bpd), 1998), Italy (the ISAB refinery complex in Sicily, with ERG), Ukhta (81 000 bpd) and Volgograd (226 000 bpd). Lukoil and the Netherlands (the Zeeland refinery, also known as launched a programme of expansion and modernisation for Vlissingen, a joint venture with Total). Lukoil sold its interest all of its refineries, scheduled for completion in 2015 - 2016. in the Odessa refinery in Ukraine, which it had acquired in Lukoil reported that all four of its major refineries in Russia 1999, to the Vetek group, citing poor economics. The completed a switch to Euro 5 standard gasoline in July 2012. company noted that it was not planning to acquire The Volgograd refinery recently added a middle distillate additional refineries in Europe, but rather would focus on hydrotreater. Volgograd is not a deep conversion refinery, upgrading its current holdings and more thoroughly but Lukoil plans to change this by adding a hydrocracker of integrating the Italian and Dutch refineries into its existing 3.0 - 3.5 million tpy capacity. Coking has been the main refinery network.

HYDROCARBON 21 ENGINEERING August 2015 gasoline and diesel in 2011. In April 2012 the refinery switched to Euro 4 super gasoline, nearly three years ahead of the deadline set by the Russian Technical Regulation. As of the summer of 2013, all output conformed with Euro 5 quality standards. Crude throughput in 2013 reached a new record of 11.08 million t. Additional refinery investment is planned, to extend through the year 2020, including a biological wastewater treatment plant. The Gazprom Neftekhim Salavat refinery is oriented toward petrochemicals, but it also has undertaken several projects to expand fuel production. A 1.5 million tpy visbreaker was commissioned in 2009, followed by a two stage gasoil hydrotreating project in 2009 and 2012. A new atmospheric and vacuum distillation unit was added in 2012, raising capacity to 10 million tpy. Gazprom also owns 50% of Slavneft, and therefore has Figure 4. Russian crude and product values. Source: access to the YaNOS refinery, noted below. Bank of Russia. Slavneft Gazprom Slavneft operates the 15 million tpy (300 000 bpd) YaNOS Gazprom states that it is the world's largest gas business, and refinery, plus a miniature refinery. The company also most of its emphasis is on the gas side, but it also operates operates the Mozyr refinery in Belarus. Slavneft was jointly three large oil refineries in Russia, plus a medium sized owned by Gazneft and TNK-BP. As noted, TNK-BP was refinery and two small refineries. The main refineries are acquired by Rosneft, and Gazprom is the other shareholder. Omsk (428 000 bpd), Moscow (246 000 bpd), and Salavat The YaNOS refinery is the largest in central Russia, and it has (202 000 bpd). In 2012, Gazprom Pererabotka (a Gazprom undertaken a steady programme of upgrades and expansions, subsidiary) increased its stake in Gazprom Neftekhim Salavat including a visbreaker in 2004, a hydrocracker in 2005, a to 97.8%. Gazprom Neft also has access to Slavneft- catalytic reformer in 2006, an isomerisation unit in 2011, and Yaroslavnefteorgsintez. The Gazprom Group has achieved a hydrotreater for catalytically cracked gasoline in 2012. The significant growth in refined product output. Crude and company began producing a full output slate of Euro 5 condensate throughput rose from 44.3 million t in 2009 to gasoline and diesel in July 2012, three years ahead of 66.1 million t in 2013. Motor gasoline production rose from schedule. In 2014, crude runs totalled 15.3 million tpy, a 8648.8 million t in 2009 to 12125.2 million t in 2013. Diesel utilisation rate of 102%. production rose from 11214.2 million t in 2009 to 16215.2 million t in 2013. Gazprom reported that its revenue Bashneft from refined product sales in the fourth quarter of 2014 rose Bashneft has been in flux in recent months because a Moscow to RUB393 billion, up 12% from the fourth quarter of 2013, court ruled that part of its privatisation was illegal, and the when sales revenues amounted to RUB350 billion. government seized the company. Bashneft initially was formed The 21.4 million tpy Omsk refinery is a deep conversion with the transfer of oil related Soviet assets to the regional facility, including coking, visbreaking, cat cracking and government of Bashkortostan. It was privatised in 2002 - 2003. hydrocracking. In 2011, the Omsk refinery launched Euro 4 Over the course of a decade, a controlling interest was gasoline. In 2012, the refinery completed hydrotreaters for purchased by Vladimir Yevtushenkov and placed in his holding diesel and catalytically cracked naphtha, enabling an early company, Sistema. In July 2014, Yevtushenkov was arrested, switchover to production of Euro 5 standard fuels. The one of the accusations being money laundering. He was lubricating oil unit also was expanded. The expansion released in December 2014, with the charges not proven. But programme is ongoing. The cat cracker and alkylation units 71.6% of Bashneft had been seized by the Russian government. are being rebuilt, a new 2 million tpy hydrocracker is Bashneft stock prices plunged. In February 2015, the Moscow planned, and the refinery is adding an MTBE plant. Gazprom arbitration court found in favour of paying damages to reported that its output of high octane gasoline rose by Yevtushenkov that partially compensated him for the seizure. 2.5% to 4.4 million t in 2014 relative to 2013. Crude Share prices began to climb back, but not to their previous throughput rose 5.2% in 2014 above 2013, to 21.3 million t. levels. To many, the incident has caused a loss of confidence Diesel output reportedly rose to 6.3 million t in 2014. The both in business and in government, and writers have likened refinery switched to a full output slate of Euro 5 fuels in the situation to ‘Yukos 2.0’. Still, Bashneft's crude production 2014. has increased significantly in recent months under government At the Moscow refinery, Gazprom recently expanded management. catalytic cracking capacity and added the capability to Bashneft is a vertically integrated oil company with desulfurise catalytically cracked naphthas. It also added an three refineries, which are integrated with one another as isomerisation unit (15 000 bpd) and a diesel hydrotreater well as with petrochemical production. The total installed (40 000 bpd). The Moscow refinery started producing Euro 4 capacity is listed at 24.1 million tpy, or approximately

22 HYDROCARBON August 2015 ENGINEERING 487 000 bpd. All three refineries have been upgraded and These programmes enabled Bashneft to begin producing expanded, and additional projects are underway. Euro 5 diesel in 2011 and Euro 5 gasoline in 2012, though not The Bashneft-Ufaneftekhim refinery is integrated with all output met this standard, and Euro 4 grades were still petrochemical production. It has an installed capacity of produced. 9.5 million tpy (192 000 bpd). Throughput in 2013 was 170 000 bpd, a utilisation rate of approximately 89%. In Surgutneftegaz 2009, the company added a 1.2 million t delayed coker, Surgutneftegaz operates the Kirishi refinery, near Leningrad in which it expanded to 1.6 million t (approximately Northwestern Russia (sometimes known as KINEF). This is a 29 000 bpd) in 2012. Bashneft also retrofitted its catalytic large refinery, currently approximately 380 000 bpd, but it reformer in 2011 and renovated its hydrocracker in 2012. This started life in 1966 as a simply configured plant with tie ins raised hydrocracker capacity from 0.9 million t to to petrochemical manufacture. In 1993, its rated crude 1.35 million t (approximately 26 000 bpd). The Ufaneftekhim capacity was 16 million tpy, approximately 246 000 bpd. It refinery also includes cat cracking, visbreaking, has recently been the site of a major expansion and upgrade deasphalting, bitumen production, lubes, and an aromatics programme, most of which was completed at the end of extraction plant. 2013. Early investments focused mainly on petrochemicals The Bashneft-Ufimsky refinery is rated at 7.5 million t and sulfur. The catalytic reformer was rebuilt in 2003, (152 000 bpd). The refinery includes a catalytic cracking unit, and followed by various projects related to aromatics extraction in 2013 it completed a hydrotreater for catalytically cracked and purification. An Isomalk unit was completed in 2005 to gasoline. This allowed the production of Euro 5 gasoline. An increase gasoline output. In 2010 - 2012, the elemental sulfur elemental sulfur production unit is under construction, and a recovery unit was upgraded. The main atmospheric and delayed coker was planned to be built in 2018. vacuum crude unit was revamped in 2007, and shortly The Bashneft-Novoil refinery has a capacity of thereafter, kerosene and diesel hydrotreating was upgraded 7.1 million t (142 000 bpd). In 2009 - 2010, a new diesel and expanded, cutting middle distillate sulfur levels from hydrotreater was commissioned. In 2012, the company 2000 ppm to 50 ppm. By the end of 2013, the company had revamped its catalytic gasoline facilities, upgraded its completed the bulk of work on its major programme to isomerisation unit, and completed a sulfuric acid alkylation convert KINEF to a deep conversion refinery. A 4.9 million t unit. Hydrogen production capacity is currently being (approximately 90 000 bpd) vacuum distillation unit was expanded to pave the way for a proposed new hydrocracker. completed to provide feed for a 2.9 million t (58 000 bpd) Bashneft reports that this refinery was the site of the first vacuum gasoil hydrocracker and a 1.9 million t (34 000 bpd) delayed coker in Russia, built originally in 1955. visbreaker. A hydrogen unit was added, as well as additional

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FIVES_PILLARD_PUBLI_184X134_03_09_V2.indd 1 03/09/2014 17:18 sulfur recovery and a wastewater treatment plant. The infrastructure are in the Russian Far East. Low crude prices refinery now produces a full slate of Euro 5 ultra low sulfur and the drop in export duties from the ‘tax manoeuvre’ are diesel. The company is at work on the next phase of currently causing a jump in product exports at the expense investment, which will focus on producing Euro 5 gasolines. of bunkering. This will include additional isomerisation, catalytic reforming, and hydrotreating. This phase is expected to be Conclusion complete by 2017 - 2018. Russia's oil industry is critical to the Russian economy, and it has grown and modernised rapidly in recent years. The Tatneft massive level of investment, however, was predicated on a Tatneft has the distinction of having built Russia's first major continuing regime of high oil prices, a common issue in many grassroots refinery and petrochemical plant in at least a oil producing countries, but complicated at present by decade, located in Tatarstan. The project, known as Taneco, recent extraordinary expenses such as the hosting of the was launched in 2005 and completed in 2012. Its original Sochi Olympic Games and what many political analysts call capacity was 7 million t, or 140 000 bpd. A revamp in 2012 ‘Russian adventurism’ in the Crimean Peninsula and the reportedly allowed utilisation rates of 115%. Taneco includes Ukraine. Russia's relationships with other countries are at a a visbreaker, a naphtha stabilisation unit, hydrotreating, and a low point, and the sanctions are taking a toll. Oil revenue is large asphalt plant. Nameplate capacity is to be doubled to essential. 14 million t by the year 2020. Several key upgrades have been Figure 4 tracks the value of Russia's crude exports and made and are underway that will transform the refinery into product exports from 2000 through 2014, according to the a sophisticated refinery petrochemical complex. The Bank of Russia. In the year 2000, the value of Russia's crude hydrocracker was commissioned in 2014, allowing the oil exports was US$25 272 million, while the value of production of Euro 5 diesel. The hydrocracker is refined product exports was US$10 919 million. Crude approximately 59 000 bpd in size, including around 4000 bpd export values were 2.31 times as much as product export of base oil production. A 25 000 naphtha hydrotreater is values. In 2014, the value of Russian crude exports was being built, along with a platformer and aromatics extraction US$153 888 million, and the value of refined product for petrochemical production as well as gasoline production. exports was US$115 875 million. Crude export values have A delayed coker is under construction and scheduled for fallen to 1.33 times as much as product exports. Indeed, completion in 2015. with the drop in oil prices, Russia needs to sell larger The company is also working to develop some of volumes just to keep revenue stable. When producers feel Tatarstan's bituminous crudes, employing technologies that they have market power, there is incentive to control similar to those used in producing Canadian oilsands (such as production and keep prices strong. This was the OPEC steam assisted gravity drainage, or SAGD). The company is cartel model of the past. In today's market, however, OPEC moving into the retail sector, announcing that it had added has stepped back from attempting to rein in production. 641 gas filling stations across Russia, Ukraine, and in the Russia and the US are two of the reasons why. In the US, Republic of Belarus as of the beginning of 2013. demand has fallen while production is climbing, creating a tremendous reversal in import dependency. In Russia, Alliance demand is declining slightly, production is being boosted Alliance Oil is not a large company, but it is noteworthy where possible, and exports of both crude and product are because it is an independent, vertically integrated being given fresh impetus. With its vast resources and company. The Alliance Group (Alyans) was formed in 2008 strategic location, Russia could even flood the crude when Alliance, a Russian company, merged with West market, if there was advantage to be gained and sufficient Siberian Resources, a Swedish firm with upstream assets in capital to invest in new production and delivery three major oil regions. Alliance runs a refinery at infrastructure. Khabarovsk in Eastern Russia. Refinery capacity was recently Russia is also increasingly able to overwhelm refined expanded to 100 000 bpd. Throughput, however, declined product markets. Driven largely by public policy and the slightly. Refinery volumes in the first quarter of 2015 were demands of the international market, Russia has been 87 342 bpd, compared with 89 029 bpd in the first quarter actively modernising its refining industry. Euro standard fuels of 2014. The expansion programme was undertaken to are now produced for the domestic market as well as export enable the production of Euro 5 fuels, as well as markets, not only in Europe but also in Asia, where quality international specification jet fuel for export to East Asia. standards are keeping pace with Europe. During the coming In 2012, an isomerisation unit was added, and in 2013 the cat year, exports of high value refined products are likely to reformer was revamped. The ongoing modernisation grow because of the new capacity and the reduction in programme will include a hydrotreater, a hydrocracker, and export duty. If Russia was a member of OPEC, perhaps there a visbreaker. The refinery is planning to build a link to the would be some incentive to moderate exports, but it is not, Eastern Siberia-Pacific Ocean (ESPO) pipeline, and it expects and Russia manages its oil industry according to its own to be able to receive up to 40 000 bpd of crude from this requirements. With the resources in place and the line. The majority of its crude production takes place far to investments already made, Russia is motivated to keep wells the west of the refinery, in Tomsk, the Volga-Urals region, pumping and refineries running. Therefore, in both crude and Kazakhstan, Moscow, and the Timano-Pechora region. Most crude product markets, already influential Russia is ready to of its retail outlets, oil product terminals, and transport become even more influential.

24 HYDROCARBON August 2015 ENGINEERING

AUGUST ISSUE

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