Commerce and Logistics

CRUDE OIL SALES

Rosneft pursues a policy aimed at ensuring a balanced mix of oil monetization channels, including sales under long-term contracts, through tender-based spot transactions, and domestic market sales, as well as refining at its own facilities in Russia, Germany, and India.

The Company continuously monitors the cost efficiency of its oil monetization channels to maximize the share of high-margin channels in its overall sales structure.

In the reporting year, the Company supplied about 100.5 mmt of oil to Russian refineries, a 15% growth year-on-year (including supplies to Bashneft’s refineries since October 2016). The sharp increase in shipments was mainly driven by the Bashneft assets acquired in Q4 2016.

In addition to the oil supplies shipped to its own refineries in Russia during 2017, the Company shipped 4.5 mmt of own oil to German refineries partially owned by the Company, a 3% growth year-on-year.

The total sales of crude oil shipped to third parties in 2017 totaled 128.7 mmt, including 6.9 mmt of oil sold domestically.

KEY EXPORT ACHIEVEMENTS

In 2017, eastbound oil supplies grew 10.7% to 47.7 mmt

The Company’s oil supplies to China including international trading reached a record high of 39.1 mmt

Supplies to China under long-term contracts increased 9.5% to 30.0 mmt



121.8 mmt oil exports to FSU and non-FSU countries
100.5 mmt oil supplies to the Company’s Russian refineries in 2017


Breakdown of Exports, %
Башнефть

Oil Exports to FSU and Non-FSU Countries

In the reporting year, Rosneft’s FSU and non-FSU oil exports totaled 121.8 mmt. Economically, eastbound exports such as pipeline supplies to China and sales via the Kozmino and De-Kastri ports are the most attractive oil export destinations for the Company. In 2017, supplies to eastern countries were 47.7 mmt, 10.7% up year-on-year.

In addition, the Company exported 65.7 mmt of oil to Northwestern, Central, and Eastern Europe, the Mediterranean, and other destinations outside the CIS, while exports to the CIS totaled 8.4 mmt.

The bulk of the Company’s crude oil exports are transported via the Transneft system, including the trunk pipeline network and ports. In the reporting year, the Company primarily exported crude oil via the following:

  • Pipeline: approximately 103.1 mmt, accounting for 84.7% of total oil exports, including a further 48.4 mmt via ports and about 54.7 mmt via pipeline to China, Belarus, and Central and Eastern Europe
  • Transportation by rail and mixed transport: 2.2 mmt, accounting for 1.8% of total exports, excluding the impact of acquired assets. These exports were mainly supplies via the Caspian Pipeline Consortium (CPC) and by rail to China via Mongolia

In addition to the above routes, 4.9 mmt of the Company’s oil was shipped via the De-Kastri and Varandey export terminals in 2017, and about 11.6 mmt of third-party oil was exported outside the CIS via the Company’s trading entities.

In 2017, the Company supplied 2.1 mmt of oil and gas condensate via the Caspian Pipeline Consortium, which runs from the Tengiz oil field in Western Kazakhstan to the port of Novorossiysk.

Sokol single-point oil terminal, De-Kastri port Sokol single-point oil terminal, De-Kastri port

Oil Supplies under Long-Term Contracts

In 2017, the Company continued supplying oil under Urals oil supply contracts on a prepayment basis to Glencore, Vitol, and Trafigura via the ports of Novorossiysk, Primorsk, and Ust-Luga. A stable long-term oil supply channel is provided by the contracts, under which the selling prices are in line with those obtained by the Company at regular tenders.

During 2017, supplies under these contracts totaled 13.7 mmt, including:

  • Glencore – 7.1 mmt
  • Vitol – 4.7 mmt
  • Trafigura – 1.8 mmt.

An additional agreement signed between Rosneft and China National Petroleum Corporation (CNPC) became effective in 2017, entailing the increase of oil supplies to China via Kazakhstan and an extension of the existing contract between the parties, effective since 2013, until the end of 2023. Under the Agreement, supplies to China will reach 91 mmt over 10 years, further supporting scheduled supplies to Rosneft’s strategic market. Supplies to CNPC totaled 30.0 mmt in 2017, including 10 mmt via Kazakhstan.

Expanding Cooperation on the Trading of Oil and Petroleum Products

The Company continued its focus on end consumers during 2017, with exports amounting to 65 mmt, flat year-on-year.

Within efforts to strengthen relations with end consumers, the Company renewed its contracts with Shell and ENI for oil supply via the Druzhba oil pipeline to Germany in 2017

During the year, Rosneft also supplied close to 217 thousand tonnes of crude and base oils to Cubametales, the authorized Cuban company under an intergovernmental agreement between the Russian Federation and the Republic of Cuba. During further negotiations, the parties agreed to continue Rosneft’s supply of oil and petroleum products, signing a relevant agreement.

Коммерция и логистика

PETROLEUM PRODUCT SALES

Export Sales of Petroleum Products

In 2017, the Company substantially increased its petroleum product exports to 70.2 mmt, 8% up year-on-year.

During the year, the Company continued expanding its transportation of petroleum products by river. Bashneft’s refineries made first shipments of low-viscosity marine fuel to the Black Sea region and fuel oil to destinations in the Volga-Baltic Waterway during the summer navigation season. The new routes serve to optimize the Company’s transportation costs and expand logistics capabilities.

In order to supply its transshipment facilities and promote petroleum product trading, the Company continued shipping stable natural gasoline from the Khabarovsk Refinery to the port of Nakhodka under existing export contracts.

Domestic Sales of Petroleum Products

Rosneft is the largest motor fuel seller in Russia trading on the exchange, totaling 39.4 mmt in domestic sales of petroleum products in 2017, up 17% year-on-year. The Company traded extensively in petroleum products on the exchange – in 2017, its share (including the Ufa group of refineries) in the total exchange trading volume was:

  • 48% for motor gasoline
  • 40% for diesel fuel
  • 47% for fuel oil.

The Company exceeded the sales volume targets on the exchange approved by a joint order of the Russian Federal Antimonopoly Service and the Russian Ministry of Energy dated 30 April 2014. In 2017, 25% of total motor gasoline output, 10% of diesel fuel, 15.4% of kerosene, and 3.5% of fuel oil from Rosneft’s refineries (including the Ufa group of refineries) were sold on the exchange, with the targets set at 10%, 5%, 10%, and 2%, respectively.

MEETING FEDERAL DEMAND

Meeting the petroleum products demand of federal clients is a priority business area of the Company under Rosneft’s Policy. In 2017, the Company fully met the demand from Russian military units deployed in the Central and Eastern Military Districts, as well as units of EMERCOM of Russia and the Investigative Committee of Russia. As part of expanding its relations with federal clients, the Company and its specialized marketing and distribution companies were appointed as the sole suppliers of motor fuels to the Russian Ministry of Internal Affairs and Federal National Guard Service under relevant decrees of the Russian Government. Relations with other federal clients will be continued in 2018.

Sales of Petroleum Products to FSU Countries

In 2017, Rosneft continued its stable and uninterrupted tanker supplies of petroleum products to Armenia, meeting 70% of the country’s demand and supplying 164.3 thousand tonnes of high-quality gasoline and diesel fuel to the market from the Company’s Russian refineries.

Rosneft also supplies gasoline and diesel fuel to its sales subsidiary in the Kyrgyz Republic, RN-Kyrgyznefteprodukt, for resale via own retail network and wholesale channels. In 2017, supplies of petroleum products to the Republic totaled 90.3 thousand tonnes.

The Company continues to focus on expanding its international footprint and diversifying its supply routes. In 2017, the Company continued to supply petroleum products to the retail network in Georgia, totaling 76.7 thousand tonnes, as well as to European customers, including Motor Oil Hellas (Greece), Demiroren Group (Turkey), and Mabanaft GmbH (Germany), totaling 679.2 thousand tonnes of diesel fuel. In 2017, the Company’s joint venture, Petrocas, acquired a refueling facility at the airport of Tbilisi.

Коммерция и логистика Rosneft's marine terminal in Nakhodka

GAS SALES

Gas Sales, bcm

Rosneft supplies natural gas, dry stripped gas, and associated petroleum gas to consumers in the Russian Federation.

Associated petroleum gas is processed at the Company’s own gas processing plants, as well as by the third parties, SIBUR Holding and Surgutneftegas.

Through Gazprom’s gas transportation system under a gas transportation contract, the Company’s natural and dry stripped gas is supplied to both end users and regional sales companies in almost 40 regions.

Rosneft maximizes gas monetization by developing a commodity transport flow optimization system used for calculating the operational gas balance.

In 2017, the volume of gas sold by Rosneft on the domestic market amounted to 63.2 bcm, including 36.13 bcm in Western Siberia and the Ural Federal District, 2.40 bcm in Southern Russia, 0.85 bcm in the Far East, and 23.84 bcm in European Russia and other regions. Gas sales revenue increased by 1.2% compared to 2016, amounting to RUB 210 bln and accompanied by the average selling price increase of 2.8% due to gas price indexing of 3.9% in the domestic market for all consumer groups, effective from 1 July 2017.

The Sverdlovsk Region remains Rosneft’s leading region of gas sales, where the Company covered approximately 90% of gas demand in 2017, ensuring supply to both industrial facilities and residents.

During 2017, the Company continued its participation in natural gas trading at the St. Petersburg International Mercantile Exchange, launched in October 2014, selling 5.5% of its total exchange trading volume at 1.1 bcm of gas.

Коммерция и логистика Rosneft’s filling stations have 1,899 shops and 1,128 cafés

RETAIL SALES AND SMALL-SCALE WHOLESALE DISTRIBUTION

As the largest retail network in the Russian Federation, Rosneft’s retail business covered 66 regions of Russia in 2017. The Company possesses the widest geographical coverage and holds a leading position in most of its regions of operation. The Company also has retail networks in Abkhazia, Belarus, and Kyrgyzstan. Rosneft’s brand of filling stations is one of the most widely recognized both in name and fuel quality within Russia.

As at 31 December 2017, the Company’s existing network of filling stations comprised 2,966 stations, including 65 filling stations in Abkhazia, Kyrgyzstan, and the Republic of Belarus, and housing 1,899 shops and 1,128 cafés. As at 31 December 2017, the Company had 137 oil depots with a combined capacity of 2.2 mmcm and approximately a thousand gasoline tanker trucks in operation.

Including the integration of Bashneft in Q4 2016, petroleum product retail sales amounted to 11.7 mmt in 2017, constituting a 8% increase compared to 2016 and petroleum product sales per filling station averaging 10.8 tonnes per day.

Initiatives within the Company’s retail business development strategy entailed the following:

  • Commencement of fuel portfolio unification by transitioning to a unified Pulsar fuel brand for Rosneft- and TNK-branded filling stations in Moscow, the Moscow Region, and St. Petersburg
  • Successful improvement upon the efficiency of branded fuel production through the transitioning to a single additive utilized in the production of fuel intended for filling stations across the Company’s retail network brand portfolio.
  • Implementation of the Android Pay contactless payment system at all Rosneft, TNK, BP, and Bashneft filling stations for an improved customer experience. Consistent promotion of the Company’s retail offers on social media networks
  • Completion of the nation-wide roll-out of a customer loyalty program, “Family Team”, at 2,159 Rosneft and TNK filling stations in 56 regions of Russia
  • As at the end of 2017, 5.4 million customers were enrolled in the program. Starting from 21 June 2017, 1.1 million customers were enrolled in the BP Club loyalty program across the regions in which BP’s multifunctional filling stations operate
  • Running of a total 88 local fuel marketing campaigns, 66 loyalty program campaigns, and 338 related product promotion campaigns
  • The expanded range of food offered at filling stations helped sell approximately 33 million cups of coffee, a 10% year-on-year growth. The growth followed installations of 198 coffee machines and 263 hot dog rollers at 42 marketing and distribution subsidiaries of the Company

Retail sales and small-scale wholesale distribution of petroleum products at regional oil depots totaled 6.5 mmt in 2017, up 17% compared to 2016. The positive results were achieved by developing small-scale wholesale distribution on regional markets, including:

  • active customer attraction policies
  • increasing corporate sales volumes via fuel cards, as well as small-scale wholesale distribution to major government agencies: by decrees of the Government of the Russian Federation, Rosneft Group Subsidiaries were appointed as the sole suppliers to the Ministry of Defense of the Russian Federation, the Investigative Committee of Russia, the EMERCOM of Russia, the Ministry of Internal Affairs of the Russian Federation, and the National Guard Services of Russia
  • exchange sales development: in 2017, 19 Rosneft Group Subsidiaries from 29 regions of the Russian Federation traded motor fuels at the St. Petersburg International Mercantile Exchange (JSC SPIMEX)
  • development of a long-term contracting program in 18 regions of the Russian Federation.

Improvements in Retail Business Efficiency

Initiatives were undertaken to improve the Company’s retail business efficiency, including optimizing operating costs of filling stations and oil depots, and administrative costs. As a result, in spite of inflation, retail business costs remained flat year-on-year. In 2017, operating costs decreased by 4% vs. 2016 on a comparable basis. Within efforts to improve the efficiency of its oil depot facilities in 2017, the Company closed poorly performing oil depots that were not up to technical and operational standards. The Company has also reduced its operating costs through optimizing the logistics of direct petroleum product supplies by utilizing gasoline tanker trucks from refineries for direct supplies and upgrading its tanker fleets, with direct supply volumes in 2017 increasing by 7% year-on-year.

A predominant focus throughout 2017 was the complete step-by-step measurement automation for all material flows, as well as procedural controls in oil depot accounting systems and the introduction of electronically metered fuel delivery systems on gasoline tanker trucks to establish quality and quantity of delivered petroleum products.

Automated loading/unloading systems and automated petroleum product weighing systems were installed in 2017 in 13 oil depots. Fuel consumption for own operational needs was reduced by 9% vs. 2016.

The key priorities in maintaining steady demand and top customer loyalty for the Company’s retail and small-scale wholesale distribution network include the implementation of a risk-based fuel quality management system across the entire supply chain, from refinery to consumer, and consistent efforts to prevent sales by deceptive players on the fuel market.

Коммерция и логистика Rosneft’s customers include major air carriers based in Russia and abroad

B2B

Aircraft Refueling Business

Jet fuel is sold through 26 refueling facilities controlled by Rosneft and 23 third-party refueling facilities.

The Company’s main customers in 2017 included Aeroflot, Turkish Airlines, S7, Ural Airlines, Pegas Group, Utair Group, Yakutia, Deutsche Lufthansa, Ellinair, and ALROSA Airline.

As part of its project to enter the international jet fuel supply market, the Company signed a jet fuel supply contract with Kyrgyzstan in 2017, and signed contracts with new counterparties (JSC Aircompany SCAT and JSC KazKontrakt Trade) in the Republic of Kazakhstan.

Due to increased purchasing power and the consequent transportation volume increase within the Russian Federation, Rosneft’s jet fuel sales in 2017 increased by 10% year-on-year to 3.3 mmt.

Jet Fuel Consumer Structure on the Domestic Market in 2017:

Bunkering Business

Rosneft’s bunkering business covers all major Russian sea and river bunkering ports and a number of foreign destinations. Bunker fuel sales in 2017 increased by 47% year-on-year to 2.8 mmt, driven by the sales of cracked fuel oil in the Russian Far East.

In 2017, a number of initiatives were implemented to maintain and expand the Company’s presence in the bunkering market, including:

  • The Company signed its first long-term contract with the world’s leading cruise company, Carnival Corporation & plc, for bunkering services to passenger ships in the St. Petersburg port
  • In expanding its bunker fuel product range, the Company started production and launched the RMG380 III residual marine fuel at Ryazan Oil Refinery Company. The project was carried out as part of the action plan for launching production of marine fuels
  • The Komsomolsk Refinery and Angarsk Petrochemical Company have transitioned from straight-run fuel oil to cracked fuel oil, raising Rosneft’s competitiveness in the market and increasing sales to world-leading consumers such as ocean container lines in the Primorsky Territory
  • The Company exported marine fuel to provide bunkering services to fishing vessels in the Barents Sea and the Kara Sea

Sales of Bitumen Products

In 2017, sales of bitumen materials increased by 23% year-on-year to 2.6 mmt due to the effective development of the Company’s sales platform and the acquisition of Bashneft in October 2016.

Domestic sales accounted for 96% of the Company’s total sales volume during the reporting period.

Rosneft is developing the production and sales of an innovative polymer-modified bitumen (PMB), which substantially improves road surface quality. In 2017, PMB sales increased by 70% year-on-year to 41 thousand tonnes.

The Company’s refineries and third-party processing facilities have begun production of bitumen emulsion and new bitumen grades: GOST 33133, PNST-85, and PMB.

Sales of Lubricants

In 2017, the Company’s sales of lubricants totaled 1,080 thousand tonnes, up 36% year-on-year, partially due to the acquisition of Bashneft in October 2016. Domestic sales accounted for 63% of the total sales volume, totaling 679 thousand tonnes.

In the reporting period, premium lubricant sales amounted to 70 thousand tonnes, up 17% from 2016.

A range of initiatives expanded the Company’s presence in the lubricant market throughout 2017, including the following:

  • New lubricant ranges for passenger and commercial vehicles produced and launched in redesigned canisters
  • Agreements were signed and efforts are underway to substitute imported lubricants with the Company’s products at large enterprises in the Russian Federation
  • In efforts to promote lubricants in the retail channel for passenger vehicles, the Company now has a presence in 12,948 outlets
  • As part of Rosneft’s strategy to boost sales to a key clients, the Company signed a contract with key client KAMAZ, providing for sales of transmission fluids for the factory-fill of KAMAZ vehicles and quenching oils for production needs
Коммерция и логистика RN-Bitum – Rosneft’s specialized subsidiary, is one of the leading bitumen suppliers in the Russian market

PRODUCTION PLANNING AND LOGISTICS

MAIN RESULTS IN 2017
  • The Company met its oil and petroleum product shipment targets
  • Refineries production program developed and petroleum product sales destinations approved with a view to maximize refining margins including for the output of Bashneft
  • Agreements signed with Russian Railways to provide discounted railway transportation for supplies from the Saratov Refinery
  • Reduced rates provided by railway operators transporting the Company’s products from the Ufa group of refineries
  • New effective logistics channels established to support petroleum product sales (by river from Bashneft’s refineries)
  • Existing logistics routes optimized, including the expansion of petroleum product shipment channels in the Far East. Due to restrictions on transshipment in the Baltic region, backup routes via Baltic Sea and Black Sea ports were organized
KEY STRATEGIC PRIORITIES
  • Improving the efficiency of production programs at refineries, optimizing shipment schemes, and reducing the Company’s costs
  • Further optimization of production programs at refineries and petroleum product sales to the most profitable destinations
  • Development and implementation of a motor fuel stockpiling program to provide consumers with gasoline during periods of increased demand
  • Reduction of logistics costs involved with product transportation by diversifying modes of transport and optimizing costs of the Company’s own logistics assets
  • Development and organization of new efficient logistics schemes
  • Effective contracting of the fleet for transportation of the Company’s petroleum products by river during the 2018 navigation season
  • Development of a program for petrochemical shipments in tank containers, in response to restrictions on specialized rolling stock

RN-MORSKOY TERMINAL TUAPSE

Коммерция и логистика

Supply sources

  1. Rosneft refineries:
    • Tuapse Refinery
    • Achinsk Refinery
    • Kuibyshev Refinery
    • Novokuibyshevsk Refinery
    • Saratov Refinery
    • Nizhnevartovsk Oil Refining Association
  2. Third-party suppliers

Product flows

Petroleum product exports

Principal destinations

  • Europe:
    Malta, Greece, Italy, Romania, Bulgaria, Spain, Slovenia, France, Germany, the Netherlands, Belgium, Croatia, Cyprus, Israel, Georgia
  • Asia:
    Singapore, Turkey, China, South Korea

Port Facility Modernization

  • Implementation of a production asset renovation program to ensure compliance with new industrial, environmental, and fire safety requirements
  • Facility construction projects completed in 2017: process pipelines at the berths of oil piers (full construction); heating networks (Phases 2 and 3) – 2 stages; systems for automatic petroleum product metering and quality control
  • Further construction of wastewater treatment facilities; refitting jet fuel tanks (floating roofs installation)

Key Achievements in 2017, in numbers

1.1 mmt transshipment of third-party products
10.5 mmt transshipment via the terminal’s own berth
1.4 mmt oil transshipped for the Tuapse Refinery in addition to petroleum product transshipment

RN-MORSKOY TERMINAL TUAPSE

Коммерция и логистика

Supply sources

  1. Rosneft refineries:
    • Komsomolsk Refinery
    • Achinsk Refinery
    • Angarsk Petrochemical Company
  2. Third-party suppliers

Product flows

Petroleum product exports

Transshipment on the domestic market

Bunkering on the domestic and export markets

Principal destinations

  • Asia:
    Taiwan (China), South Korea, Singapore, China, Japan
  • North America:
    the USA
  • The Magadan Region, Kamchatka, Sakhalin Island

Port Facility Modernization

  • Implementation of a production asset renovation program to ensure compliance with new industrial, environmental, and fire safety requirements
  • Continued program to renovate the tank farm, oil pier, process pipelines, and utility networks
  • Transshipment technology modernization planned for 2018–2021, allowing the Terminal to add jet fuels and export heavy fuel oil to the range of transshipped petroleum products

Key Achievements in 2017, in numbers

0.7 mmt transshipment on the domestic market
1.4 mmt transshipment of petroleum products for bunkering
0.3 mmt transshipment of third-party products

RN-ARKHANGELSKNEFTEPRODUKT

Коммерция и логистика

Supply sources

  1. Rosneft refineries:
    • YANOS
    • Ryazan Refinery
  2. Third-party suppliers

Product flows

Petroleum product exports

Transshipment on the domestic market

Bunkering on the domestic and export markets

Product flows

  • Europe:
    the Netherlands, Latvia, Germany, Belgium, the UK
  • Supply to Northern Russia

Port Facility Modernization

  • Implementation of a production asset renovation program to ensure compliance with new industrial, environmental, and fire safety requirements

Key Achievements in 2017, in numbers

0.2 mmt transshipment of third-party products