Why refineries are cutting oil refining and how this will affect consumers
In January, Russian oil refineries (ORPs) reduced oil refining. Production was affected by local emergencies, numerous drone attacks and, as a result, the failure of some installations. Well, in March, a seasonal repair campaign starts at factories, which coincides with the traditional increase in consumer demand for gasoline. Will Russia face fuel shortages as a result of these events, and will the authorities strictly regulate the market? Experts told MK about this: director of the Energy Development Fund Sergei Pikin, expert of the Financial University and the National Energy Security Fund Igor Yushkov, investment strategist of the Arikapital Management Company, associate professor of the Financial University under the Government of the Russian Federation Sergei Suverov.
Yes, this is possible. Export ban — This is the last argument in the dispute with companies. One of the reasons that can lead to this is — the refinery undergoes preventive maintenance. Every year, factories en masse go out for repairs in the summer. Something needs to be done about this. Perhaps in 2024 the government will build this schedule more strictly so that there is no physical shortage of gasoline. The country's domestic fuel consumption is growing. After the pandemic and the closure of airports in southern Russia, people began to increasingly travel by car. In summer, the demand for gasoline increases. And at the same moment, as soon as the automobile season begins, scheduled repairs at the refinery begin. Plus, agricultural machinery, which is especially actively used during this period, takes up a significant share of fuel resources. In addition, some of the diesel fuel goes to the wastewater treatment plant. Therefore, what is important here is rather the issue of synchronizing the operation of the refinery. But if we have enough diesel, the situation with gasoline is more complicated. Now, if at least 1-2% of production volume falls, fuel will have to be brought in from other regions. It turns out that logistics will become more difficult. But this is rather a problem of the companies themselves. The state has a reinforced concrete position: yes, fuel prices rise every year on the stock exchange, but we must make sure that it does not rise above retail inflation.”
If we talk about the specific refinery where the emergency occurred, then, according to Minister Shulginov, this plant will be repaired in about a month. Relatively speaking, by the beginning of March it will be working again — that is, even before the start of the active season for using gasoline. Therefore, I don’t think that there will be any difficulties with gasoline.
"Nizhny Novgorod Oil Refinery — one of the largest in terms of gasoline production. And here it is necessary to clarify that approximately the same amount of gasoline is produced in Russia as is consumed on the domestic market: approximately 90% of what is produced is consumed immediately. So, the Nizhny Novgorod refinery produced approximately 10% of all Russian gasoline. It turns out that due to the accident we are faced with either a shortage in the domestic market or we stop exporting. As for diesel, about 50% of what Russia produces is exported. And here it is impossible to ban, for example, the export of diesel. Then all factories will have to either be stopped or reconfigured. And this is a rather dangerous story.»
The most effective tool that authorities can use is the use of a damper. The point is that the state subsidizes the cost of petroleum products to oil companies if their price on export markets is higher than on the domestic market. This mechanism has been used quite effectively in the past. But in 2023, the government abolished the damper, and this was one of the reasons for the rise in prices for petroleum products. Now the previous damper parameters have been returned, so I hope this will stabilize fuel prices. Another tool is the ban on the export of petroleum products, but this measure has a downside. This, in particular, deprives oil workers of foreign exchange income and, from a macroeconomic point of view, negatively affects the ruble exchange rate. Therefore, this is a fairly harsh measure, but with large side effects. Therefore, it’s probably better to hold it until better times.”
"Yes, Ukraine is constantly trying to attack our processing plants or fuel storage facilities. And indeed they are at risk. Therefore, there is a prospect of a physical shortage of gasoline production. But there is a way out of this situation. We will be able to buy more gasoline from Belarus. They have two large refineries that are underutilized. But here the prices will be completely different — higher.»
"After the accident at the refinery, the government, remembering the mistakes of last year, announced, just in case, that it could introduce an export ban. But no catastrophe occurred and this measure was not needed. So the authorities will solve the issue with gasoline in the paradigm that has developed in recent years: retail prices are not higher than inflation.»
The Ministry of Finance would be happy to abolish the damper completely. Therefore, if something goes wrong, for example, some new pandemic sweeps the whole world, then the damper parameters will be reviewed again. Because budget revenues will decline. You can come up with many similar scenarios. But all other things being equal, as it seems now, as of the beginning of February they will not touch anything.”
Yushkov: “The budget for 2023 was initially planned with a three percent deficit. As a result, the deficit was slightly more than 1%. That is, on the whole, they actually worked even better than planned. The non-oil and gas sector has generated quite large revenues for the federal budget. This year we will see what happens on the global oil market. The revenues of the entire Russian budget will largely depend on this.”
In my opinion, not yet. Because even at the most critical time for the market, in September last year, the most that had to be done was to introduce an export ban. This is not a regulation system, but simply a barrier that has been closed, — and that's all. Our authorities are trying to act in a mode of manual, but market regulation. This segment works well, but excessive intervention can ruin the well-functioning mechanism itself. To be honest, there was no sign of government regulation even during the crisis, and even more so now.”
It would take longer for the market to come to its senses, and accusations would pour in towards the government that the authorities are not doing anything, that they simply left everyone alone with the disaster. But the authorities intervened and introduced a fairly strict measure in the form of an export ban. It worked relatively quickly. In Russia, on the one hand, there is no desire to switch to strict regulation of the fuel market. But, on the other hand, the state has tools to influence the market. For example, the authorities can change the excise tax, various taxes, the economics of companies, or those very damper payments that we discussed earlier. But the authorities do not want to change anything radically.
It must be understood that the industry still operates in the international trading system. It is impossible to create separate sandboxes for the same product within the framework of international trade. All attempts in other countries to do something similar led to the fact that the industry degraded. A striking example — Venezuela. Yes, fuel there was cheaper than water. And look what this led to? Oil production there has now fallen sharply. There is only water left.»
"Firstly, it's a matter of logistics. There are key geographic nodes where fuel distribution comes from: both gasoline and diesel. From these nodes, fuel is delivered either by rail, by road, or by pipe. The final cost depends on the method of transportation. But there is another factor that influences the price. For example, in the Siberian part of the country, in fact, every oil refinery — it is a monopolist in its region. And each region there is the size of a good European country. If the plant stops for some reason, then delivering fuel from other regions becomes very, very expensive. Locally there may be prices as high as a hundred rubles per liter.»
If in Western countries the dependence of fuel on oil prices is quite large and the cost of oil is the main component in the price of gasoline, then in Russia the situation is a little different. In our country, 70% of the cost of gasoline comes from taxes, and only about 10–15% comes from oil. That’s why our oil price is — is not the main factor in pricing the cost of petroleum products.»
«If we start from the realities of today, then we will probably meet the inflation rate. But the question is: what will inflation be? I think 6-6.5% is quite possible. And the price of fuel on average across the country will rise by the same amount.”
Within this year, the dynamics of prices for diesel and gasoline will differ. Let me remind you that diesel is what we export, but gasoline is practically not exported. Therefore, for gasoline, we will meet inflation one hundred percent. It's hard to say with a diesel engine. Global rule — the cost of fuel at retail is growing no higher than inflation — has been working properly since 2018. This is an axiom.»
November 16, 2023 77.42
November 29 82.88
December 12 73.24
December 26 81.07
January 8, 2024 76.12
January 26 82.95
2 February 77.33
February 9 82.19