Russia's oil product export to East Asia declining

Jan 16, 1997 01:00 AM

Russian oil product exports to East Asia are expected to fall further over the next two years because of meagre refinery runs and creaking export infrastructure. There is the problem of refineries only working at 50 % capacity, which make exports unprofitable for refineries. "A lot of time the exports are done purely for generating hard currency.'', a trader said. There are about 20 refineries in Russia, but only one or two are said to run at more than 50 % capacity while some are operating as low as 30 to 40 %, due to limited cash flow to pay for crude. Sources said Russia's eastern ports have the capacity to handle between 6 and 8 million tonnes per year for exports to East Asia. But they manage only 3 to 4 million tonnes of exports in 1996, down about 30 % from the previous year. Sales to East Asia this year are expected to hover around 3 million tonnes, comprising 0.5 or 0.25 % sulphur diesel, M-100/M-40 fuel oil, which is almost equivalent to the 180-centistoke grade, and A-76 or 83-octane leaded gasoline. China takes about 60 % of Russia's exports to East Asia, mostly diesel and fuel oil. Japan imports 10-15 %, Vietnam 10 %, while the remaining 10-15 % is exported to the Korean peninsula. Russian gasoline almost dominated Vietnam's market but the low quality made it unattractive to most other Asian buyers, which were being fed higher specification material from Thailand, South Korea and Singapore.
Eugene Khartukov, of Moscow's independent International Centre for Petroleum Business Studies, said during a recent conference in Singapore that most Russian refineries were basic, which limited their capacity to produce premium products. The refineries' yield was therefore dominated by heavy fuel oil (35-40 %), while the more valuable lighter products such as diesel, gasoline, kerosene and naphtha accounted for about half of refinery output. A trading source said that despite the higher fuel oil output, exports of the product were limited by high rail freight costs, whereas diesel and gasoline achieved higher export prices which offset the rail costs. The Russian government announced a nation-wide refinery modernisation plan in 1992 to lift oil processing capacity to 82-85 % of capacity. But it will take 12-14 years to implement the programme and the country's refineries will at best achieve 64 % capacity by the end of 1997. Industry sources said Russia's East Asian exports were also choked by the rickety rail system and port facilities. "For the past five years there has been no direct investment into the (port) terminals and rail systems,'' a trader said. "Moscow has a hands-off approach and these facilities have to stand on their own.''

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