Getting closer to the finish line

29.05.2014

TANECO and Antipinsky Oil Refinery have reached final construction stages IN 2016, TWO NEW GREENFIELD OIL REFINING COMPLEXES - TANECO (NIZHNEKAMSK) AND ANTIPINSKY OIL REFINERY (TYUMEN) WITH A CAPACITY OF MORE THAN 7 MTPA EACH - WILL ASSERT THEMSELVES FULL FORCE IN THE RUSSIAN FUEL MARKET. THE FIRST ONE IS BEING BUILT BY TATNEFT, THE LARGEST SHAREHOLDER OF WHICH IS THE GOVERNMENT OF TATARSTAN, THE SECOND ONE BY NEW STREAM, A PRIVATE COMPANY CREATING A VERTICALLY INTEGRATED OIL COMPANY ON THE BASIS OF THE REFINERY BEING BUILT: IT WILL ACQUIRE PRODUCING ASSETS AND OILFIELDS TO ENSURE SELF-SUFFICIENCY IN CRUDE, AND CREATE RETAIL DISTRIBUTION SYSTEM. IN THE PROCESS OF CONSTRUCTION, BOTH OF THEM HAVE EXPERIENCED HARDSHIPS, BUT THE GOAL HAS ALMOST BEEN ACHIEVED. THUS, TANECO HAS STARTED THE CURRENT YEAR BY COMMISSIONING EURO-5 DIESEL FUEL PRODUCTION FACILITIES; ANTIPINSKY OIL REFINERY INTENDS TO DO THE SAME AT THE END OF THE YEAR. BOTH COMPANIES HAVE SCHEDULED THE COMMENCEMENT OF PRODUCTION OF EURO-5 GASOLINE FOR 2016. BY THAT TIME, THE OIL REFINING DEPTH AT TANECO WILL BE 97%, AT ANTIPINSKY OIL REFINERY – OVER 94%, AND THE PRODUCTION OF HEAVY FRACTIONS WILL BE COMPLETELY PHASED OUT. NOTE THAT THE COST OF THESE PROJECTS OF SAME CAPACITY VARIES ALMOST TWOFOLD: 250 BILLION RUBLES (ABOUT USD 7 BILLION) HAS ALREADY BEEN INVESTED IN THE NIZHNEKAMSK PLANT, THE COST OF THE TYUMEN REFINERY IS ESTIMATED AT USD 3.8 BILLION. 

The first stage of TANECO refinery complex with a capacity of 7 MTPA was put into commercial operation at the end of 2011. Until recently, the oil refinery was yielding the first stage products (high-sulfur naphtha, furnace and boiler fuel, fuel oil, vacuum gas oil, kerosene and diesel fractions). The refinery depth, however, was no more than 50%. To become a full-scale refiner, TANECO needed to put into operation a number of the most important process facilities.

TANECO Meets the Schedule
In March 2014, the company received a positive opinion of Rostekhnadzor concerning the commissioning of one of them – the combined vacuum gasoil hydrocracking unit. The launch of a hydrocracking facility (under Chevron license) has enabled TANECO to process up to 2.9 MTPA of vacuum gas oil and, at the same time, to produce 1.16 MTPA of Euro-4 and Euro-5 compliant diesel fuel, 380 KTPA of Jet aviation kerosene, over 600 KTPA of straight-run gasoline, and hydrotreated vacuum gas oil (part of which will be used for production of base oils (250 KTPA); the commissioning of the production facility is scheduled for the end of 2014). The yield of light hydrocarbon products increased from 48.16 to 67.37%, and the refining depth reached 73.54%. So now, there is no reason to call the TANECO complex a "big teapot refinery".
 
Earlier, Tatneft (the investor and operator of the TANECO complex) announced plans to deliver over 1 million tons of Euro-5 compliant diesel fuel to the Russian market in 2014. According to Nail Maganov, Director General of Tatneft, the fuel will be distributed primarily through the TATNEFT retail network that has 524 filling stations. Maganov also said that the construction cost of the hydrocracking unit totaled RUB 40 billion, and, since the beginning of the construction, the company had invested in the TANECO project about RUB 250 billion. The company explains such a high price by technological characteristics of the complex designed to process sour crude oil.

As the next construction stage, TANECO is going to build a deep conversion plant comprising a delayed coking unit (its end product is planned to be used at the Nizhnekamskaya TPP owned by Tatneft, which will ensure a closed-cycle production), catalytic cracking, catalytic reforming and isomerization units. These complexes will enable the company to increase oil refining depth up to 97% and commence the production of Euro-5 compliant gasoline. The stated deadline for completion of the construction of a deep conversion complex is 2016.

TANECO refined 7.6 million tons of oil in 2013. Meanwhile, the share of commercial-grade fuel oil in the volume of products manufactured amounted to 25%. This year, TANECO is planning to refine 8.5 million tons of crude oil, and, according to Nail Maganov, next year TANECO is going to completely stop fuel oil production.

The refining throughput is eventually expected to be brought up at TANECO to 9 MTPA. However, such growth would require Transneft approval. Negotiations are in progress, but they seem to be complicated by the existing differences between the parties. To remind our readers, at the beginning of 2013 Transneft and Tatneft had a conflict over the failure by the latter to meet the deadlines for the commissioning of the hydrocracking unit and, hence, TANECO’s conversion (according to its specialization) to refining of oil with a sulfur content of 2.2-2.3%. The company continued refining crude oil with a sulfur content of 1.8%. Therefore, Transneft had to redirect sour crude streams in its pipeline system to Kazakhstan, and extend the deadline for Tatneft to 2016 (see article "Tatneft Granted Three Years" in Oil & Capital Issue 3, 2013); and today, despite the commissioning of the hydrocracking unit, TANECO is not in a hurry to switch over to high-sulfur oil. As Igor Demin, adviser to Transneft President, informed Petroleum Information Agency, “at this point, TANECO is not discussing the commencement of supplies of higher sulfur content to the refinery with the pipeline company”. Apparently, they are going to use the advantages of the deadline extension to the full. Nevertheless, Tatneft executives believe that it is still possible to come to an agreement to increase the refining throughput (and hence the pipeline supplies) up to 9 MTPA.

Oil for the Refinery
On November 1, 2010, New Stream, together with its partners (that have not been named), acquired from TNK-VR Tarkhovskoye LLC that has licenses for prospecting, exploration and production of crude oil in six license blocks of the Ural Federal District, which have six fields under development (Ershovoye, Sorominskoye, North-Sorominskoye, North-Tarkhovskoye, Nikolskoye, Tul'-Eganskoye) and one field (West-Tarkhovskoye) in the exploration stage.

As of the beginning of 2012, their total geological reserves of ABC1+C2 category amounted to 75 million tons, recoverable reserves – 8.5 million tons. In 2011, the crude oil production totaled 336 thous. tons. In 2012, two horizontal wells were drilled increasing the production by 10% and exceeded the daily production limit of 1,000 tons. In 2013, Tarkhovskoye field produced 330,000 tons. 2014 plan is 342,000 tons. It is planned to drill three producing directional wells in the Tul'-Eganskoye field, and to drill and commission 11 such wells in total, until 2016. Sidetracking and three frac jobs are scheduled for this year at Sorominskoye, Ershovoye, and North-Tarkhovskoye fields. The implementation of the aforesaid plans should bring crude oil production at the Tarkhovskoye fields to 400,000 tons by 2015.

In 2012, the oil delivered from the Tarkhovskoye (supplied by oil trunk pipeline) covered 10% of the Antipinsky Oil Refinery’s crude oil requirement. The remaining part was purchased. In 2013 and 2014, the share of the company in pipeline supplies to the oil refinery amounted to 5%. Long-term supply agreements have been signed with LUKOIL and Surgutneftegas.

Earlier, New Stream announced plans to fully provide the refinery with its own crude oil. Considering that in 2014 its capacity increased to 7.7 MTPA, it requires adequate oil volumes, as well. If the plans have not changed, new substantial upstream purchases should be expected. Two years ago, the company told Oil&Capital that negotiations with the owners of several companies were underway. Today, however, they would not comment on the subject.

Let us add that another ELOU unit with a capacity of 7 MTPA has been scheduled for construction at the TANECO site, whereupon the total oil refining throughput in Tatarstan (considering TAIF-NK throughput capacity) would exceed 21 MTPA, while the scheduled production of Tatneft and Tatarstan’s small oil companies will be at the level of 32 MTPA.

Meeting the Needs of the Region
The Tyumen Region leaders strongly supported the idea of setting up the Antipinsky Oil Refinery. And it makes perfect sense. The region containing a major part of Russia’s oil and natural gas reserves has to bring light petroleum products — about 1.2 MTPA — from other areas. In particular, from Omsk Oil Refinery, Ufa oil refineries, Permnefteorgsintez  located at the distance of 550, 800 and 600 km respectively. Naturally, it affects the price of fuel sold in the Tyumen Region. Once the Antipinsky Oil Refinery starts manufacturing high-quality fuel, the Tyumen Region will become the largest consumer of its products.

Due to the project’s economic significance to the region, the Refinery receives substantial government support. In 2011, in was included in the Tyumen Region Development Concept up to 2030 and in the list of investment projects under the Ural Federal District development strategy. The company has been granted tax concessions and receives administrative support. It was reported that the tax concessions granted to the Antipinsky Oil Refinery in 2009 –2012 totaled RUB 306.5 million and would amount to RUB 454.5 million in 2013 – 2014.

Antipinsky Oil Refinery Gains Momentum

New Stream Group-owned Antipinsky Oil Refinery CJSC, which, in turn, owns the eponymous refinery located in the industrial area of Tyumen was registered in 2004. It was co-founded by a Moscow businessmen Dmitry Mazurov (presently the Chairman of  the Board of Directors and controlling shareholder) and Mikhail Bereshchansky, (member of the Board of Directors, Chairman of the Business Activity Committee) (see “Tyumen New Stream” in Oil & Capital Issue  6, 2012).  The first Antipinsky Oil Refinery’s production complex with the crude oil throughput capacity of up to 400 thous. TPA was commissioned for commercial operation in 2006. Its main facilities included ELOU-AT-1 primary crude oil distillation unit and a 52 thous. m3 feed and product tank farm. The crude oil refining depth was up to 57%. The shareholders set themselves the goal to turn the facility into a major oil refinery complex.  The main things required for that were there — huge oil reserves of the Tyumen Region and a great demand for high quality fuel (see “Meeting the Needs of the Region”). 

The modernization completed by 2008 enabled the refinery to increase its capacity to 740 thous. TPA. However, it could not expand any further without being connected to Transneft trunk pipelines system. In the spring of 2010, the problem was resolved — the refinery got connected to the trunk pipelines system (see also “Insider in the Project”). The agreement signed with Sibnefteprovod, a Transneft subsidiary, ensured supplies of oil to the refinery through the pipeline system in the amount of up to 6 MTPA. It enabled the refinery to commission in May 2010 its Workflow Phase II (with the capacity of almost 2.8 MTPA) including ELOU-AT-2 unit, gasoline stabilizer unit and a 120 thous. m3 feed and product tank farm. Thus, the overall capacity of the complex grew up to 3.6 MTPA. Capital investment by that time totaled USD 500 million.

After the modernization, the oil throughput capacity of the second ELOU-AT increased to 3.5 MTPA and the refinery’s total  capacity to 4.2 MTPA. Thereafter, Workflow Phase III went into an active construction stage.

Workflow Phase III provided for the capacity expansion to over 7.7 MTPA, production of Euro-5 compliant diesel fuel (from the end of 2014 года), achievement of 94% refining depth (from the end of 2015), commencement of the production of Euro-5 compliant gasoline (from 1Q 2016) and the commissioning of gasoil hydrocracking unit. Moreover, at that stage, the company also planned to acquire oil producing assets and the capacities required to export the products, set up its own logistics network and filling stations chain. In other words, it was essentially the declaration of intent to build a vertically integrated oil company (VIOC) (see “Oil for Refinery”). In January 2014, the new ELOU-AT-3 with the throughput of 3.7 MTPA was commissioned enabling the refinery to bring its capacity to 7.7 MTPA. At the same time, the commercial-grade diesel oil tank farm for 80 thous. m3 and crude oil tank farm for 60 thous. m3 were commissioned. The ceremony of ELOU-AT-3 commissioning was attended by the Chairman of the State Duma Sergei Naryshkin.

By the end of the year, the refinery will have commissioned the diesel fuel hydrotreating unit, hydrogen generation and sulfur recovery units. They will enable the refinery to improve the quality of diesel fuel to the level meeting Euro-5 standard requirements.

The company emphasizes that the new facilities are commissioned according to the modernization schedule set by the quadripartite agreement signed between FAS, Rostekhnadzor, Gosstandart and Antipinsky Oil Refinery.

Insider in the Project
At the beginning of 2010, Antipinsky Oil Refinery was joined by a new shareholder – Nikolai Yegorov, Vladimir Putin’s fellow student, presently a Professor of Saint Petersburg University and a practicing lawyer (co-founder of Yegorov, Puginsky, Afanasiev and Partners law firm).

According to the refinery’s website, he serves as Deputy Chairman of the Board of Directors and Chairman of the refinery’s Legal Committee.

In all probability, it must have been a coincidence that with Yegorov’s arrival the project got strongly accelerated. The refinery’s main problem was resolved almost instantly — it was connected to the trunk pipeline.

The next stage will be the commissioning in 2015 of the combined deferred tar carbonization unit a fuel oil vacuum distillation module. It should raise the refining depth to 94%. The resulting diesel fuel output with increase to 50% of the total throughput volume.

The Antipinsky Oil Refinery is planning to commence the production of Euro-5 high-octane gasolines in the first quarter of 2016 by commissioning reformer and isomerization units. Further, in 2017-2018, a vacuum gasoil hydrocracking unit will be built. The completion of all the development stages will result in the production of a wide range of high-quality petroleum products, in particular, Euro-5 compliant А-92 and А-95 gasolines, D-Euro-5 diesel fuel (of summer, winter and Arctic grades), petroleum coke and granulated sulfur.

Total capital investment in the refinery’s Workflow Phase III in 2011-2015 is estimated at USD 1.7-1.8 bn, while total investment in the project will amount to USD 3.8 bn. The funds to finance the construction of Workflow Phase III and refinance the existing loan obligations were borrowed by New Stream in the internal market. In January this year, the company obtained a major loan from Sberbank — USD 1.75 bn for 10 years.

The question naturally arises whether the Antipinsky Oil Refinery will develop further, and if so, what direction is it going to take. As O&C was told by the New Stream press service, the capacities in the next few years would remain within the design limits. However, the company is considering the establishment of petrochemical business lines.

There Are Markets Out There

The products manufactured by the Antipinsky Oil Refinery are sold in Russia and exported. The New Stream Group includes New Stream Trading AG (NST), a company registered in Switzerland and established specifically to ensure effective promotion of the Antipinsky Oil Refinery’s products to international markets and raise necessary financing there for the Group’s development in the future.

As of today, NST exports fuel oil, naphtha and diesel fuel manufactured by the Antipinsky Oil Refinery. In 2013, the sale volume  of fuel oil amounted to 1.3 million tons, naphtha — 620 thous. tons, diesel fuel — 540 thous. tons. With the development of the refinery, the range of petroleum products sold by NST will expand. For example, from the end of 2014 it will include Euro-5 compliant diesel oil and from the end of 2015 vacuum gasoil. NST’s partners and buyers of Antipinsky Oil Refinery’s products are leading international companies, such as ВР, Mercuria, Litasco, Sibur International.

As far as the sale of petroleum products in the internal market is concerned, in 2014 the refinery will be able to meet the demand for Euro-5 compliant diesel fuel and in 2016 for Euro-5 compliant gasoline of the entire Ural Federal District. The refinery is currently being connected to Tyumen-Kurgan products pipeline being part of the Transnefteproduct system.

The Group is also working on the development of its own retail network. To date, it comprises 26 filling stations based in Tyumen City and Tyumen Region. New Stream is planning to increase their number to 40-50 by 2016 and operate them under a common brand.

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