Every fourth liter of 95 gasoline in Russia is surrogate. Import of quality fuel is already visible and may become massive this summer.
On Thursday, 21 April Creon held the Conference "Gasoline 2011". Co-organizer of the conference was Volgski Orgsintez and IAC Cortes supported the event. According to Sandjar Turgunov, CEO of Creon, who welcomed the participants, the issue of fuel quality is going tobecome more apparent in addition to eternal questions of gasoline prices and independent players` phasing out of the market. Domestic oil refining weakness in high octane gasoline production is disastrous. This year the producers already couldn`t meet the growing demand and fuel shortages at gas stations emerged in the number of regions. Herewith even new technical regulation poorly controls many aspects of fuel quality that leads to surrogates` market`s thriving. However, thanks to these surrogates independent operators are somehow able to compete with major oil companies. Creon gathered the industry representative again to characterize the current situation and discuss the ways of solution.
Mikhail Turukalov who is the chief editor of department of prices and regional markets of IAC "Kortes" made a gasoline market overview. The refining crude oil significant growth was shown by the most of oil refineries in 2010, in the whole industry it rose by 5,6%. The production of motor gasoline is growing much more slowly than oil refining, but the structure of production changes: the high-octane motor gasoline production grows, while low-octane grades production reduces (their share dropped from 31% to 15% in 2010). Another trend - an explosive growth in Euro gasoline production: in 2007 only 6,5% of high-octane gasoline met the standards of Euro 3 and 4, but in 2010 - already a quarter. Technological limitations (lack of secondary processes capacities like isomerization and alkylation) prevent further increase of their output. In this case the gasoline export has almost faded and the import volumes rose sharply. The gasoline deficit has been brewing long ago: consumption has increased by one and half times, but the production - only by 30%. The reason of this also could be tracked in the actions of regulating authorities. Since the beginning of the year the Government "froze" gasoline prices and at the same moment restricted circulation of fuel not conforming to the Euro-3 standards. Thus, production of low-grade gasoline became not profitable for oil refiners, comparing to intermediates which are exported instead. These intermediates are used for the petrochemical industry or sold for "blenders", who produce surrogate 95 using additives. Unsatisfied demand for quality fuel generates deficits and import growth. High octane gasoline imports made mostly from the Ukrainian Lisichansk refinery of THK-BP, which is connected by the pipeline with the south of Russia, but there is no doubt that this summer there will be new players on this emerging market. Mr. Turukalov sees the way out in a radical change of the excises system. It should stimulate the production of better quality fuel, not feedstock for "fuel moonshiners".
Government relies on stock trading in price regulation. However, oilers have to be enticed there almost by force. According to Anton Karpov, Vice President of Interregional Exchange of Oil and Gas Industry, while the Exchange became operational in 2002 in fact it began working only in 2008 after officials` guidance to oil companies. Dynamics of trade shows the strong growth the last 2 years, high-octane gasoline takes second place in sales volumes after diesel fuel. Trading on the exchange is active enough, but hardly plays an indicator role for the market. There is no single base of oil products delivery like in foreign stocks, there are treaty deals between affiliates, inside and manipulation. Restriction of trade activity of subsidiaries of oil companies by the Federal Financial Markets Service can become the partial solution of problems.
The problem of independent wholesalers and retailers exclusion out of pricing caused a stormy discussion among the conference participants. CEO of "AE Trade" Anton Erokhin told that industry participants are in an information vacuum. "Rosrezerv", which periodically refreshes its own reserves doesn`t report when they will be available on the market, oil refineries doesn`t inform about the planned maintenance and this affects all other market participants who do not have "secret knowledge". At the same time complaints about the fuel quality against independent operators are unfair, because major oil companies are the ones who make the industry. The trader said pessimistically, that "people who travel outside Moscow should take gas canisters soon to come back home". At the same time gasoline prices only rise. Head of the "Novotek Trading" purchasing department Alexey Torgashev thinks that the situation in spring 2011 resembles the situation in 2008, when oil prices reached 150 USD for a barrel. Then the prices fell sharply, but gasoline in Russia didn`t fall in price, because everybody needed to somehow sell the expensive fuel. Oil companies act differently on the international market. They follow the world prices for oil and diesel, while Russian petrol stations sell the fuel for higher prices than in the U.S. A huge increase in the tax burden on the industry (in particular the double excise increase) also has an influence on the prices. There is less hope for the exchange pricing: there are no resources, the exhibited volumes are "simply ridiculous" and often sold at a high pre-accepted prices. The stations are trying to find any resource and calls to the "blenders". As a result an ordinary diesel with double sulfur sold as Eurodiesel, and compounded heating oil - as an ordinary diesel fuel. MMA and aniline sales manager of "Volzsky Orgsintez" plant Sergey Mayer also touched this topic. He told that 20-25% of 95-th gasoline is made from 92-th. It is necessary to reduce drastically the excise tax on Ai-95 to remedy this situation.
As we all know, recently new technical regulations on fuel quality have been accepted. Vladimir Bulatnikov, the chief technologist of All-Russian Scientific Research Institute of Oil Refining criticized the document. According to him, issues of fuel production, transportation and storage were not even included in this document, thus supervision exists only on treatment products phase but not its production. The only requirement to gasoline is compliance with 95 octanes. There is no ban for additives in guideline as there is an understanding of inability to make a modern gasoline without additives and supplements (such planned to be banned in 2015MTBE and MMA). Sergei Mayer also mentioned it. In practice, however, it`s possible to use the other additives and if the engine fails after refueling with such gasoline, then unscheduled check of gas station responsible for it could be held only with the approval of Rosstandard and Investigation Committee. Retailers could be penalized by fine up to 30 thousand rubles while a daily turnover of one gas station is 500 thousand. Moreover, there are two assumptions in such a logical chain. The first is that petrol station at the time of inspection had not sell out the whole party of surrogate and the second one is that petrol station has fixed location, and represented not by periodically moving fuel truck with price tags.
RSU of Oil and Gas professor Mikhail Levinbuk has presented the participants a Finnish oil refining (Neste Oil company) example. The company has two refineries with the processing depth and light petroleum output comparable with the best U.S. companies. Neste Oil gets three-quarters of crude oil in Russia, including purchase of Russian oil products for further processing. This system spares feedstock. The company also built oil storages for 7 million tons of oil to reduce price risks. Neste carries out independently a half of the engineering works, produces the innovative additives which are sold out to side consumers. The company is active on the international market, sells in the U.S. up to 1 million tons of gasoline, because there is a surplus of this fuel in Europe.
Naturally, the production of gasoline closely related with road transport, as 43% of Russians are car owners. Vyacheslav Emelianov, the Head of automobile and aviation gasoline Department of All-Russian Scientific Research Institute of Oil Refining consider that forecast of disappearance of cars with low-octane gasoline consumption (80 % today) by 2015 will not justify. The replacement of car fleet going on too slowly and the problems of old cars utilization which makes 50% of car fleet is being solved badly. The primary task that oil refiners should solve is the change of fuel output structure correlated with change of Russian car fleet renovation. Now there is the tendency of long-lasting decline of 80 gasoline production and significant growth of 92 and 95 gasoline manufacturing. The main problem of technical rules is incompetence of officials which develop it. The rules don`t control the additives, which are used by producers of blended surrogates but tries to ban more expensive aniline additive, explaining that emissions of nitrogen oxides increasing, although their contribution to this increase is negligible.
According to Fares Kilzie, the head of Creon, in the current tendency on the market the quality gasoline import`s increase in a number of Russian regions is inevitable as modern car owners are already facing local deficit. Even limited refinery upgrade is going too slowly and after launching new capacities oilers are not always in hurry to increase its utilization as it`s simply and favorably to sell intermediates (naphtha, low-octane fuel, etc). The State can`t do anything as regulators are incompetent and highly related to oil companies which have prepared answer to every step of the government. To move the situation out of dead point is possible only with complete change of actors or total control, which in today`s Russia is extremely hard to implement, or with a massive influx of imported gasoline which has already begun.
