(EnergyAsia, February 11 2014, Tuesday) — Russia’s export of ultra-low sulphur diesel will quadruple by 2020 as reforms of the country’s oil export duties will substantially boost its investment in hydrocracking and other secondary refining units, predicts US consulting firm ESAI Energy.
In a new study, “From Russia without Sulfur: Russian Oil Tax Reform Upends Global Petroleum Product Markets,” ESAI said Moscow will raise the duty on fuel oil exports to the same level as its crude exports.
“Once as low as 40%, the duty is currently 66% and will rise to 100% after 2014,” it said, forcing Russian refiners to upgrade their plants to produce higher value lighter products.
“The oil export duty reform shifts profits from the bottom to the middle of the barrel, which really forces the hand of Russia’s less complex refineries to invest in upgrading units,” said ESAI Energy’s principal consultant, Andrew Reed.
Refiners will speed up the addition of hydrocracking and catalytic cracking units, with the commissioning of two 56,000 b/d hydrocrackers underway this quarter.
“These projects are just the tip of the iceberg,” Reed said, pointing out that Moscow’s move to raise the export duty on fuel oil while lowering the export duty for diesel creates an incentive for refiners to process fuel oil into clean products like diesel.
The ESAI study said the resulting increased ultra-low sulphur diesel exports from Russia will have “major consequences” for refining margins and market share in Europe.
The spread of Rotterdam 10 parts per million (ppm) diesel to Brent cannot realistically stay in the US$17 to US$20 per barrel range seen in 2011-2013,” said Mr Reed.
“Diesel spreads are the bread and butter of a European refinery, so weaker spreads are bad news.”