international magazine
Main page  |  Contacts  |  
 
CONFERENCE 2007
The Fourth Annual Conference
REFINING AND OIL TRANSIT IN THE CIS AND BALTIC STATES

7-8 June 2007 Odessa Hotel, Odessa, Ukraine

Sponsored by

OilMarket magazine and VNIPIneft engineering company



With official support of
Ukraine's ministry of fuel and energy

Official sponsor ExxonMobil



Media partners: Platts and Argus Media



Exclusive drink

ODESSA GATHERS OIL PROFESSIONALS
New accents for Refining and Transit international conference


For the fourth time now, Odessa welcomed the international conference Oil Refining and Transit in CIS and Baltic States held on 7-8 June. The modest compared to our Moscow forum entry list was compensated by a record geographic spread of the visitors. Representatives of companies from 14 countries run through two days of sessions literally in a single go, finishing conversations well on into the small hours. There was much to talk about - FSU states develop rapidly, though at a somewhat different speed. Interestingly, keeping the same title, the conference is continuously expanding beyond the issues of refining and transit. This year, alternative fuels emerged as the main "side topic". Oilmen increasingly often turn to biofuel technologies, either on their own accord, or being forced by the government. At the same time, refining remained the paramount issue of the conference, with Ukrainian professionals intently listening to successful experiences of Russian and Kazakh projects.

Austria, Great Britain, Bulgaria, Canada, Latvia, Lithuania, Poland, Czech Republic, Switzerland, USA, Estonia and, of course, Russia, Ukraine and Kazakhstan representatives came to the event. Earlier, Belarus (Belneftekhim concern) was regular entry in this list, but the company had rather uneasy spring and summer as Belneftekhim head Aleksandr Borovskiy was arrested. In circumstances, travelling to Odessa was possibly last thing Borovskiy had in mind. This is a pity - would have been interesting to find out about the impact of Belarus newly-introduced oil export duty and synchronisation of oil products export duty with Russia on Belarus refining.

Ukraine: well behind
Ukraine issues were highlighted by Lenid Kosianchuk, head of oil&gas department at Ukraine's ministry of fuels and energy, and Vitaliy Daviy, deputy general director of Ukrneftekhimpererabotka.

Leonid Kosyanchuk centred his presentation around prerequisites for successful development of refining industry, such as close links between the present Ukrainian government and oil industry. "Memorandum with oil refiners and products' suppliers has been signed literally a week after Viktor Yanukovych government had came to power", said the official, illustrating the position of oil industry in government's priority list. He added that Ukraine's minister of fuel and energy Yuri Boiko has extensive experience in refining segment and pays special attention to this sector.

Kosyanchuk signed out most crucial breakthroughs of the present ministerial team, including approval of legislation for stimulating refineries modernisation, setting up differentiated excise tax on diesel fuel and liberalisation of LPG market via export duty reduction. Official said, five more legislation drafts for boosting the refining industry are in the queue, said the official, noting that on the background of political crisis now rampaging Ukraine, any forecast regarding when they will be approved is impossible. The representative of the ministry has downplayed prospectives for development of biofuel technologies in the country. "We think, matching standards of our traditional oil products with European quality standards is more important, though we must monitor alternative fuels opportunities, too", said Leonid Kosyanchuk.

Kazakhstan: the work is in progress and will be done
Shukhrat Danbai, KazMunaiGaz executive director, refining and petrochemicals was one of the most watched speakers at the conference. Kazakhstan is highly prospective oil production region, so record production levels of Kazakhstan-operating companies have long ceased to surprise industry insiders. For the past six years Kazakhstan has more than doubled oil production, from 0.6mn to 1.24mn b/d, and expects to pass 2mn b/d ceiling within five years. His presentation focused on Kazakhstan's oil products market and on refining segment development. Kazakh authorities have unusual but practical viewpoint of switching motor fuels market to Euro standards. "Our car fleet does not need better quality fuel, this will be appreciated neither by engines nor by our citizens", says the official. In no way this means that the government pays insufficient attention to the issue. According to Danbai, Kazakhstan has a special regulation binding refineries to add fuel detergents to its production. Another noteworthy undertaking is prohibition on any gasoline blending outside refineries.

The government's steady and composed attitude to the issue of boosting fuel quality doesn't mean that the country's refining is slack. On the contrary, for the past six years total refinery runs of Kazakhstan's Atyrau, Pavlodar and Chimkent refineries grew from 130,000 b/d to 230,000 b/d. OILMARKET monitors the developments and will publish a feature article on Kazakhstan refining industry modernisation programme, highlighting the secrets of creating a powerful petrochemical complex from debris and leftovers of soviet days. Now, Pavlodar refinery is about to complete hydrogen production unit (general contractor - Koch Glitsch), Atyrau refinery has launched 15 new units; definition engineering is already in place for Petrokazakhstan-managed Chimkent refinery.

Chimkent refinery is controlled by KazMunaiGaz and China's CNPC on equal basis. In May, the shareholders inked an agreement specifying their contribution to the plant's modernisation programme. CNPC has already completed the definition engineering for the programme; now KazMunaiGaz has no doubts in project's success, says Danbai.

This experience is particularly relevant for Ukrainian refiners at Ukrtatnafta's 320,000 b/d Kremenchuk refinery. Ukrainian and Tatarstan shareholders of the refinery have no option but to negotiate - otherwise, so bitterly contested assets would fade away into nothing.

Sketched by Danbai outlook for KazMunaiGaz overseas projects looks quite impressive. In 2006 the company suffered a setback in its battle for Lithania's Mazeikiu Nafta concern and turned to refining assets in Black sea, Mediterranean Sea and Caspian region markets. This was largely due to lack of coherent development strategy; now this has been remedied - a team of young experts has developed a strategic programme which is now being implemented.

The executive director also said that KazMunaiGaz is set to start a refinery construction project in Ceyhan, Turkey (endpoint of the BTC pipeline), jointly with Calik Energy (Turkey) and India Oil. Kazakh officials didn't forget their Lithuanian experience: recently PKN Orlen (Poland), the operator of Mazeikiu refinery, was refused access to Kazakhstan oil&gas fields, some of which are already developed by Romanian, Italian, Russian and French companies.

Shukhrat Danbai also confirmed that negotiations with Alliance Group (Russia) on Kherson refinery (Ukraine had hit the road block). "In the end of 2006 we've reached a dead end and stopped the negotiations", he said. On the sidelines, the official said that the stumbling blocks were a mind-blowing price commanded by Alliance for the asset, and some technical issues, including the capacity of the refinery. Alliance designers drafted definition engineering for 60,000 b/d upgrading project - KazMunaiGaz thinks such project unattractive, as investing significant sums would return rather insignificant capacity. Particularly, considering excellent export logistics of the plant. In spite of unsuccessful negotiations, KazMunaiGaz is in no hurry to sell its 20% stake in the refinery

Russia: better, but still
The Odessa forums wouldn't have been the same without presentations by Vladimir Kapustin, general director of VNIPIneft, Doctor of Engineering, Professor, head of refining technologies department at Russia's Gubkin state oil&gas university. Highly respected expert focused on the status of post-soviet refining industry in context of in-depth analysis of global trends, diagnosing the case and highlighting recovery procedures. The presentation of department head at Russia's leading industry university and the director of a large R&D centre deserves a separate feature article - here, we'll stop only on the key points.

Though Kapustin is keen on reproaching Russian refiners in insufficient rate of development, according to his presentation, investments in refinery upgrade projects have doubled over the past two years, to $2.1bn. The state attention to the refining industry (after Sibneft was acquired by Gazprom and Yukos by Rosneft) was vital for boosting modernisation rates, says the expert. Authorities' intention to tighten oil products quality regulations is also a positive trend. Russian President Vladimir Putin insisted oil companies to speed up modernisation projects for refineries, says Kapustin. Yet, the expert prefers to face the reality, not being content with the teething improvements. The state of refining industry in Russia is way better than in Ukraine, but still gives sufficient grounds for Presidential concern.

Only 16 out of 28 Russian refineries have secondary facilities; 43 mini-refineries have no deep treatment units either. Only a handful of the refineries have new units for secondary treatment: the 28 refineries have among them five hydrocracking units and six visbreaking units. Visbreaking technology is highly popular in Russia, primarily because of its low-cost, but "we all understand that this is a temporary solution", said general director of VNIPIneft (visbreaking technology adds only up to 5% to refining depth).

The outlook for re-equipping the industry is rather problematic. On becoming Russia's largest refiner, Rosneft put on the brake for modernisation projects for its old and newly acquired refineries - the company's debts stood at huge $34bn mark. Problems exist with Lukoil's Perm refinery modernisation, as well as with modernisation of Norsi refinery (Kstovo); Volgograd refinery upgrading programme suffered a setback after a recent accident at the plant. In trouble with the taxmen is Mikhail Gutseriev's Russneft (see p. 74), the company which started off large-scale upgrading projects at Mozyr (Belarus) and Yaroslavl refineries. Now Gutseriev has more important things than to worry about long-nursed and finally started Orsk refinery modernisation; his company didn't even enter the battle for Yukos' Syzran refinery, which has been eyed up by Russneft owner for some time. According to Kapustin, Tatarstan's Nizhnekamsk project for construction of a refinery and a petrochemical plant has also been put on hold for the lack of financing.

Surgutneftegaz's Kirishi refinery modernisation project is idling. "Bogdanov [president of the company - OM] announces tenders in Surgut daily", noted the specialist, adding that the engineering companies already have literally years-long queue for their services. Kapustin spared a word about the Moscow refinery, once the most modern plant in former Soviet Union, which is being battered in the battles of shareholders, just as the case with Ukraine's UkrTatNafta refinery (Kremenchuk).

Vladimir Kapustin says that dominance of Western engineering companies combined with little demand of Russian technologies pose a major threat to refining industry modernisation. The expert makes no secret of his indignation: "Foreign engineering companies manage the projects, develop definition engineering and supply equipment, while Russian R&D centres have to do the spadework". Kapustin says, strategically and economically unique conditions have surfaced now for rapid development of the refining industry, and Russian oil companies must help such development by granting more modernisation projects.
The one and only disadvantage of, say, VNIPIneft is lack of sources for project financing for large modernisation projects. As Kapustin noted, today's Russian government has an opportunity to set up a large state-owned engineering company, backed by a large state-owned bank. "This would ensure start of large-scale refining and petrochemical projects not only in Russia, but in other states also", convinced the expert.


Can't live with them, can't live without them
Still, Vladimir Kapustin's comprehensible and genial industry patriotism will have to pass a reality test. So far, mainly Western companies can boast already competed hi-tech projects and know-how, as illustrated in conference presentations by representatives of Invensys, Koch-Glitsch, Cal Gavin. Thus, Invensys has the largest in CIS list of completed computer management projects.

The Czech team of Koch-Glitsch (US) was running the projects in Belarus (Novopolotsk refinery modernisation) and Russia (Sosnogorsk gas processing plant construction) back in times when CIS oil&gas holdings had none of today's multibillion dollars budgets. Now the company is completing hydrogen production unit project at Pavlodar refinery (Kazakhstan). Koch-Glitsch success is largely based on adequate project management, said the company's representative Ivan Otevrel. This is something that our domestic managers are yet to learn. Concentrating on project management, Ivan Otevrel highlighted the factors crucial to any project, as their neglect could lead to budget shortage or launch delays - even for the projects with significant financing and over-cautious deadlines. One of such factors - solid and ambitious middle management. "Middle management is the key asset" is the loose translation of his favourite Russian saying (Czech-born Ivan knows Russian perfectly). This is exactly the managerial layer where Russian (leave alone Kazakh and Ukrainian) oil companies have problems.

The presentation of Martin Gough, director and owner of Cal Gavin (UK), came as a "wakener" for the conference members, particularly for those engaged in servicing heat exchangers. Those units often tower for ten metres and higher, pumping through thousands of tonnes of aggressive hot liquids. Erosion protection for heat exchanger walls is often the life-or-death issue for those working in the environment. Traditional methods for walls cleansing and exchangers' replacement is a headache for plant's accountants, industrial engineers, planning department, traders, etc. - the units forced out of operation for a long, often unspecified period of time. Patented by Martin hiTran device controls turbulence inside the exchanger - wires inside the device turn to computer-controlled angle, directing the flow to scatter scale formations on the walls of exchanger. In the conference hall Martin installed a LCD panel where he was showing a remarkable animation about what exactly is going on inside a heat exchanger. The astonished specialists scratched their heads and started queuing up for contact details

The presentation of Martin Gough, director and owner of Cal Gavin (UK), came as a "wakener" for the conference members, particularly for those engaged in servicing heat exchangers. Those units often tower for ten metres and higher, pumping through thousands of tonnes of aggressive hot liquids. Erosion protection for heat exchanger walls is often the life-or-death issue for those working in the environment. Traditional methods for walls cleansing and exchangers' replacement is a headache for plant's accountants, industrial engineers, planning department, traders, etc. - the units forced out of operation for a long, often unspecified period of time. Patented by Martin hiTran device controls turbulence inside the exchanger - wires inside the device turn to computer-controlled angle, directing the flow to scatter scale formations on the walls of exchanger. In the conference hall Martin installed a LCD panel where he was showing a remarkable animation about what exactly is going on inside a heat exchanger. The astonished specialists scratched their heads and started queuing up for contact details

Refining, but also other industries
Contrast between refining industry development in Russia, Ukraine and Kazakhstan was one of the key discussion topics at the Odessa conference. But there was more to the forum than refining industry issues.

For Ukrainian specialists, a presentation of Transnefteproduct representative (the company recently merged with Transneft pipeline operator) was highly informative, as the country's Ukrtransnafta pipeline operator, a subsidiary of Naftogaz Ukrainy, is currently assessing options for restoring oil products pipeline network rusting away since soviet days. For Ukraine's experts, thousands kilometres long pipeline projects Sever and Yug sounded almost dreamlike, though at the time of the conference first of them required only 10km for completion. Even more impressive was the information that the pipeline would ship diesel fuel of Euro-5 standard (10ppm sulphur) - relevant agreements have already been reached with linked to the pipeline refineries of Lukoil, Gazprom Neft and TNK-BP.

TNK-BP Commerce logistics director Alexei Yarosh stopped on the new developments in the project of reverse usage of Ukraine's Odessa-Brody trunk pipeline. He stated that signed in late 2006 contract on reverse pipeline usage has no operational dates and thus could be terminated at any time if Ukrainian side decides so (the first agreement had a clause on three-year reverse pipeline operation). In return for guaranteed shipment volume, Ukrainian government approved discounted tariffs and port dues for TNK-BP Commerce, though checks shipped volumes every quarter (this year the company ships predictably higher volumes y.o.y.).

The conference members were curiously listening to the presentation by a representative of Latvia's Dinaz holding. He presented a construction project for large refinery, biofuel plant and a new oil terminal in Latvia.

You can download a PDF version of the article (737 kb)
Conferences 2014
Odessa 2014
Archives
Conference 2013
Conference 2012
Conference 2011
Conference 2010
Conference 2011
Conference 2010
Conference 2010
Conference 2009
Conference 2008
Conference 2007
Conference 2006
Conference 2005
Conference 2004