Downstream (Refining and Commerce)

Rosneft is the largest oil and gas refining company in the Russian Federation. In recent years, the Company’s oil refining operations have been focused on meeting the market demand for high-quality petroleum products. Rosneft has been consistently implementing a refinery upgrade program for several years, including renovation of the Komsomolsk Refinery, upgrade of the Tuapse Refinery, and renovation and upgrades of the Achinsk Refinery, Angarsk Petrochemical Company, and Samara group refineries, thereby increasing the quality and competitiveness of Rosneft products. Rosneft’s refinery upgrade program is the most ambitious of its kind in the Russian oil industry; one of its aims is to fulfil the Company’s obligations under a quadripartite agreement. Within the program, the Company fully transitioned its motor fuels production for the Russian domestic market in 2015 to Euro 5 compliant motor fuels, as required by the Technical Regulations of the Russian Federation. In 2016, the Company constructed and commissioned catalytic cracking and MTBE production facilities at the Kuibyshev Refinery, a catalyst regeneration unit was put into operation at the Novokuibyshevsk Catalyzers Plant, and a rapid cycle pressure swing adsorption (RCPSA) unit was launched at the Syzran Refinery. In 2017, the bitumen production unit at the Ryazan Refinery was fitted with a new oxidation feedstock preparation component, and the production of bitumens with improved consumer properties was launched. The Angarsk Refinery installed core large-capacity process equipment for the ongoing construction of its diesel fuel hydrotreater. As part of its import substitution program, the Company transitioned the Achinsk Refinery’s kerosene hydrotreaters and the Ryazan Oil Refining Company’s catalytic reformers to catalysts produced by the Angarsk Catalyzers and Organic Synthesis Plant in 2016, and the gasoline reforming units of the Kuibyshev and Saratov Refineries were transitioned in 2017.

Rosneft is an active player in the oil and petroleum products market in Russia and abroad. Rosneft is the largest oil exporter in the Russian Federation; its crude oil is exported to European, Asia-Pacific, and CIS countries, sold in the international market, and supplied for refining to the Company’s own refineries in Russia and abroad.

Russia’s Oil Refining Profile, mmt Source: CDU TEK.
Oil Refining in Russia, mmt

Amid growing competition in the oil market, the Company pays close attention to boosting its export volumes under long-term contracts, including oil supplies under contracts with CNPC and supplies to Europe under direct contracts. Developing cooperation with key partners in oil supply is essential to enhancing the Company’s competitive advantage in the international oil market. In Q4 2016, contracts were signed to supply a total 10.2 mmt of oil to Belarus and 7.3 mmt to Germany in 2017. Furthermore, an additional agreement was signed to increase oil supplies to China via Kazakhstan by 3 mmt per year to 10 mmt, and the contract was extended to 2019–2023, resulting in up to 56 mmt of oil to be additionally supplied via this route by 2023.

The Company is consolidating its competitive position in the European market through refining oil at German refineries. As of 1 January 2017, following the restructuring of the ROG joint venture with BP Plc, Rosneft’s indirect interest increased to a 25% stake in the Bayernoil Refinery from 12.5%; a 24% stake in the MiRO Refinery from 12%; and a 54.17% stake in the PCK Refinery (Schwedt) from 35.42%.The Gelsenkirchen Refinery is now fully controlled by BP Plc.

Rosneft is consistently implementing plans for diversification in the Asia-Pacific markets. Rosneft successfully closed a strategic deal to acquire a 49% in Essar Oil Limited in August 2017. The acquisition of a stake in a best-in-class asset with significant development potential enabled the Company to enter the Indian oil refining market, one of the world’s fastest growing markets. Rosneft has already begun supplying oil from its contract portfolio to the Vadinar Refinery. The Company’s entry to the new growth markets in Asia-Pacific will be supported by establishing strategic partnerships with the region’s oil and gas companies, the expansion of direct oil and petroleum product supplies, and implementation of new projects.

A Group Subsidiary signed a contract with the Iraqi Kurdistan Regional Government for the purchase and sale of oil in 2017–2019, its execution will expand the Company’s trading opportunities and enable a higher cost efficiency of feedstock supplies to the Company’s foreign refineries.

The Company’s main competitors in Russian oil exports are Russian vertically integrated companies such as LUKOIL, Surgutneftegas, and Gazprom Neft. At the same time, all Russian producers have their own export schedule for oil transportation outside the Russian customs zone based on equal access to the oil trunk pipeline system and seaport terminals. The main competitors supplying other crude oil grades to the export market are international and national oil companies such as Shell, ВР, ExxonMobil, Chevron, Total, Statoil, Saudi Aramco, NIOC, etc.

Rosneft is one of the largest players on Russian gasoline and diesel fuel markets, operating the largest retail chain in Russia, with 2,901 filling stations. Petroleum products are sold in the domestic market across all federal districts of the Russian Federation. The Company relies on extensive own and third-party infrastructure for marketing and distribution of petroleum products (oil depots, filling stations), which takes into account the capacity of regional markets and consumer demand. The Rosneft trademark is one of the most recognizable in the oil products market across the regions of the Company’s operation, and it is associated with high-quality fuel sold at filling stations.

Novokuibyshevsk Oils and Additives Plant Novokuibyshevsk Oils and Additives Plant

As with oil, the Company’s petroleum products are exported to European, Asia Pacific, and CIS countries. The Company’s competitive advantage is its ability to maintain stable relations with foreign partners, and in particular, expand and renew oil product supply contracts. In Q4 2016, Rosneft signed a new contract with JX Nippon Oil & Energy Corporation for the delivery of up to 1.1 mmt of stable natural gasoline during 2017. To promote existing partnership relations between Petrocas Energy (Rosneft Group Subsidiary) and Motor Oil Hellas (Greece), in Q4 2017, Rosneft, Petrocas Energy, and Motor Oil Hellas Corinth Refineries signed a trilateral agreement of intent for crude oil and petroleum products supply in the next five years, which includes the option to increase supply volumes by 7.5 mmt per year.

Expanding the geographical distribution of its petroleum products is a crucial priority for the Company. In Q1 2017, Rosneft and Turkish Demiroren Group Companies signed an agreement on petroleum products supply in 2018–2020. The agreement determines the intention of the parties to sign an additional contract for the supply of up to 4.6 mmt of petroleum products by 2020, including 3.6 mmt of diesel fuel with an ultra-low sulfur content of 10 ppm as well as 1.0 mmt of liquefied petroleum gas. Following the contract’s signing, Rosneft will considerably strengthen its position in the Turkish market, and will be able to supply an additional 11.3% of imported diesel fuel, making up about 6% of all diesel fuel consumed in the country. Furthermore, Rosneft and BA Gas Enerji Sanayi ve Ticaret A.S. entered into a cooperative agreement to arrange the supply of up to 6 mmt of petroleum products per year, including those produced by Rosneft, to end consumers in Turkey.

The Company’s main competitors in domestic sales of petroleum products are Russian vertically integrated companies such as LUKOIL, Surgutneftegas, Gazprom Neft, and Tatneft, while the main competitors supplying petroleum products to the export market are major international oil companies such as Shell, ВР, Total, ExxonMobil, and Chevron.

Motor Fuels Production in Russia,Financial statements. Rosneft data for 2015 and 2016 is shown in the pro-forma including Bashneft, since 1 January 2015. mmt Source: CDU TEK.