(EnergyAsia, January 26 2015, Monday) — Russia will increase its crude sales abroad by about 200,000 b/d next month in response to reduced export tax rates and weak demand from domestic refiners, according to US-based consultant ESAI Energy.
In its CIS Watch report, ESAI said it expects Russia to export more crude oil and less petroleum products, especially fuel oil.
The report said lower crude export tax coupled with low oil prices will worsen the outlook for Russia’s refining profitability in 2015, causing a few operators to permanently shut down.
“Russia re-structured oil export duties as part of the widely discussed “tax maneuver” in the oil industry. Under the new structure, the size of the crude oil export duty is smaller for a given Urals price,” said ESAI.
For Russian refiners, the duties, which are based on a formula linked to the Urals crude price, determine the bulk of their profits. With Urals averaging US$98 per barrel last year, the average crude oil export duty was set at US$48 per barrel.
“A simple refinery would process crude into products, export them, and pay US$34 in product export duties, US$14 less than it would have paid to export the crude. The US$14 difference ensured the refinery a tidy profit even if the intermediate products it produced were worth no more than the crude,” said ESAI.
With the collapse of the Urals price and the new tax structure, the government will set the crude oil export duty at US$15 per barrel in February.
“When the crude oil export duty is US$15 per barrel, the difference between the duty on a barrel of crude and a barrel of products produced by a simple refinery shrinks to less than US$5,” said ESAI Energy’s principal Andrew Reed.
“In February, some simple refineries will close permanently. Most mainstream refineries will remain profitable, but some will no longer have an incentive to maximise throughput as they have done for the last decade,” he said.
“Throughput cuts will lead to an increase in Russian crude exports. In the next few months, Russia is likely to export about 200,000 b/d more crude compared to a year ago. Meanwhile, Russia will produce and export less fuel oil.”
The Russian economy is reeling from the combined impact of the global oil price collapse and Western trade sanctions against Moscow since early last year.
According to OPEC, Russia’s economy will not grow this year after edging up 0.3% in 2014.