Page 11 - FSUOGM Annual Review 2021

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The Gazprom Neft-
owned Moscow oil
refinery. Source:
company website.

Ust-Luga. The ministry noted that several more produce less HFO and other heavily distillates
deals were expected to be signed this year. and more high-value light fuels such as gas-
Russia can currently more than cover its gas- oline. These policies have had some success,
oline needs, but demand is subdued somewhat with Russian fuel oil supply declining from
because of pandemic-related economic weak- 77.7mn tonnes in 2014 to 47.3mn tonnes in
ness. As such, the country may struggle to meet 2019.
consumption with domestic supply within a few Refining depth, a measure used for the effi-
years. What is more, it runs of the risk of short- ciency and complexity of refineries, also reached
ages if there are disruptive, unscheduled repairs. 83.1% in 2019 after stagnating at 70% between
2000 and 2014. But the government is still con-
Rationalising refining cerned about how much fuel oil that refining
Russia is still the biggest exporter of heavy fuel industry yields, viewing this as a drag on the
oil, produced through basic refining techniques. overall value of Russia’s product exports.
Heavy fuel oil has dominated the global shipping The government launched tax reforms in
fuel mix since the 1960s, but increasingly strin- 2011 known collectively as the tax manoeuvre,
gent environmental standards on marine fuel partly aimed at rationalising Russian refining. As
imposed by the International Maritime Organ- part of these reforms it altered fuel export duty
isation (IMO) and governments have eroded its rates over time. Moscow raised export duty on
market share. fuel oil and vacuum gasoil to the same level as
The IMO introduced a 0.5% cap on the crude oil in 2017, while setting duty for gasoline,
sulphur content in fuel at the start of last year, diesel and jet fuel at 30% of oil.
prompting shipowners either to invest in exhaust Some refineries avoided this extra tax burden
cleaning systems or to switch to cleaner oil-based by exploiting a loophole, however. Fuel oil com-
fuels like marine gasoil or alternatives like LNG. prising more than 50% aromatic hydrocarbons
This trend has caused demand for high-sulphur can be booked under a separate customs code,
HFO to crater. enabling companies to avoid duties for these
Modernising the refining industry has been supplies. This loophole was finally closed in Sep-
a central aim of Russian oil policy for the past tember last year, with aromatic hydrocarbons
decade, in order to rematch its product slate now subject to the same duty as fuel oil. Simpler
with global demand. It has introduced policies refineries relying on the loophole will have to
to encourage refiners to revamp their plants to invest in upgrades or risk going under.™

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