Page 5 - FSUOGM Week 02 2020
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FSUOGM COMMENTARY FSUOGM
hydro-refining, bitumen and lubricant produc- tion. But there is no evidence that Ukrtatnafta is planning any major new investments at the site.
Old and getting older
Ukraine’s five other, idle refineries are situated in Odessa, Lisichansk, Kherson, Drogobich and Nadvornaya. Prospects for any of these plants returning to operation look dim.
The first two to cease operations were Kher- son in 2006 and Nadvornaya in 2007. Ownership of the Kherson plant, with a nameplate capacity of 7mn tpy (140,000 bpd), changed numerous times in the years after its privatisation in the early 1990s. Unlike Kremenchug, Kherson did not benefit from the influx of foreign investment provided by Tatneft. Its current owner is Ukrain- ian business group Continuum, which uses the plant as a product storage facility. Nadvornaya, meanwhile, is so outdated that it cannot produce fuels to comply with the Euro-3 standard.
The Odessa and Lisichansk refineries, with nominal capacities of 2.8mn tpy (56,000 bpd) and 8mn tpy (160,000 bpd), both went offline in 2013. The Odessa plant benefits from having access to Black Sea oil supplies and between 1999 and its shutdown was owned by Russia’s Lukoil. Lukoil could not find a way of making the creak- ing plant profitable, however, and in 2013 sold it to local private firm Vetek, which had links to associates of former Ukrainian President Viktor Yanukovych. After the 2014 Ukrainian revolu- tion, the refinery was seized by the country’s new authorities, but they have been unable to restart production. The refinery is basic, rating only 3.9 on the Nelson complexity index.
Lisichansk is Ukraine’s most modern and complex refinery, with a Nelson complexity rating of 8.2, having been completed in 1976. It was sold in 2000 to Anglo-Russian venture TNK-BP, which became part of Russia’s Ros- neft in 2011. Despite being technologically superior to Ukraine’s other closed plants, Lisichansk is one of the least likely to restart because of its location in the country’s separa- tist-held east. It sustained considerable damage in the first year of conflict between rebels and Ukrainian forces.
What next?
The longer these refineries remain idle, the more outmoded they become. As it stands, the plants would require substantial investments in repair and modernisation to return to operation and be competitive. As such, it may even be more cost-effective for Ukraine to invest in brand new projects rather than upgrade its existing capacity. At the same time, the dispute between Ukraine and Tatneft which is still playing out in court is likely to make foreign investors think twice before entering the segment.
Unsurprisingly, Ukrtatnafta has advocated for increased tax on imports of petroleum products, claiming it will spur a revival of the domestic industry. But such a move could backfire, resulting in higher fuel prices without encouraging new investment. And ultimately, Kyiv does not seem particularly concerned about Ukraine’s reliance on fuel imports. For the government, independence from foreign gas is a far more important goal, and one that is more realistic.
Ukraine’s last operating oil refinery in Kremenchug.
Week 02 15•January•2020 w w w. N E W S B A S E . c o m
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