Downstream (Refining and Commerce)
Rosneft is the largest refiner in the Russian Federation; the Company's refining business includes 13 large refineries, as well as petrochemical and gas processing plants located in five federal districts – Central, Volga, Southern, Siberian, and Far Eastern. The Company’s oil refining operations are focused primarily on the strategic task of supplying high-quality petroleum products to the Russian domestic market, including remote Russian regions. Thus, the Achinsk, Komsomolsk, and Angarsk refineries are the key suppliers of motor fuels for the Eastern Siberian and the Far Eastern regions, ensuring uninterrupted supply and trimming the rise in price that would inevitably be the case if petroleum products were delivered from refineries of Central Russia.
In general, unlike the majority of other Russian producers, the Company's oil refineries are characterized by a considerable remoteness from export markets due to their geographical location, which limits the economic efficiency of oil refining; in the meantime, the Company continues its efforts to connect the refineries to the Transneft’s oil trunk pipeline system.
Oil refining throughput at the Company's Russian refineries in 2018 amounted to 103.3 mmt (a year-on-year increase of 2.8%). Taking into account foreign assets, amid improved market conditions, this figure grew by 2.0% to 115.0 mmt. Oil refining throughput at the Company’s Russian refineries in Q4 2018 amounted to 26.8 mmt (a quarter-on-quarter increase of 0.1% and a year-on-year increase of 5.6%).
The oil refineries are continuing the projects for the development and maintenance of their existing capacities. In line with the previously approved Rosneft–2022 Strategy, in 2018, the Syzran Refinery implemented large-scale programs for the technical re-equipment of the oil and petroleum products testing center – the central laboratory. In H2 2018, the operator room in the production control center at the Komsomolsk Refinery was equipped with advanced digital equipment enabling to monitor the operating parameters of refinery major process units: two crude oil distillation units, distillate hydrotreating units, and sulfur production units. Introducing the modern digital solutions enables the Company to improve the process efficiency, ensure the equipment operational stability, strengthen the product quality control system, and significantly improve the industrial safety level and the performance of engineering personnel. In May 2018, Ufaorgsintez finished an investment project on upgrading the isopropyl benzene (cumene) production unit. The new operating procedure provides a safe environmentally friendly production and reduces the consumption of feedstock and energy. Ufaorgsintez was a pioneer in applying this technology in Russia.
In April 2018, the Ufa group of the Company's refineries started commercial production of improved high-octane gasoline AI-95 of Euro-6 class, which is superior to Euro-5 compliant motor fuels currently produced in the Russian Federation with respect to the environmental and performance indicators. In September 2018, the Saratov Refinery joined the commercial production of high-octane gasoline of Euro-6 class. The fuel has received positive customer feedback in the sales regions – in Bashkortostan and the Krasnodar Territory. In August 2018, the first batch of Pulsar-100 high-octane gasoline was produced, which is currently sold at most of the Rosneft’s filling stations in the Moscow Region.
In H2 2018, the Novokuibyshevsk Refinery put an environmental facility into operation – an advanced treatment unit with a membrane bioreactor at biochemical wastewater treatment facilities. This unit provides a high degree of purification and return of water to the production cycle, thereby minimizing the consumption of water resources.
As part of the import substitution program in 2018, the catalysts purchased for hydrogen production units at the Kuibyshev and Ryazan Refineries were replaced with the catalysts produced by the Angarsk Catalyzers and Organic Synthesis Plant.
In December 2018, the Angarsk Refinery completed the installation operations to replace a column of the gas fractionation unit producing the components of gasoline fractions and fuel gases, thereby improving the production reliability and the environmental and industrial safety level.
Rosneft is an active player in the oil and petroleum products market in Russia and abroad and 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.
Developing cooperation with key partners in oil supply is essential to enhancing the Company’s competitive advantage in the international oil market. 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 China National Petroleum Corporation and supplies to Europe under direct contracts. In 2018, Rosneft signed long-term contracts with Grupa Lotos to supply 6.4 to 12.6 mmt of oil to Poland and with Total Oil Trading to supply 4.8 to 10.8 mmt of oil to Germany. The Company also captures opportunities of expanding partnership through short-term contracts. Rosneft and the China National Chemical Corporation (ChemChina) in November 2018 signed a contract to supply 2.4 mmt of ESPO oil during the year via the port of Kozmino. This contract makes it possible to increase the direct supply of oil to the Chinese market having strategic importance for the Company. Rosneft also signed annual contracts with Shell and Eni to export 3.9 mmt of feedstock to Germany and with Socar Trading to supply up to one mmt of oil to the Turkish oil refinery. As part of enhancing cooperation with the Republic of Belarus, the Company signed contracts with Naftan, BNK, and Mozyr Oil Refinery to supply a total of up to 8.7 mmt of oil.
Thus, the Company continues to successfully diversify oil supply channels with a general ramp-up in feedstock exports in the eastern direction: in 2018, deliveries totaled 59.2 mmt (+24.1% year-on-year), with 16.1 mmt – in Q4 (+2.6% quarter-on-quarter).
In February 2018, 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 is consolidating its competitive position in the European market through refining oil at German refineries. Since 1 January 2017, following the restructuring of the ROG joint venture with BP Plc, Rosneft’s indirect interest stake increased from 12.5% to 25% in the Bayernoil Refinery; from 12% to 24% in the MiRO Refinery; and from 35.42% to 54.17% in the PCK Refinery (Schwedt). The Gelsenkirchen Refinery is now fully controlled by BP Plc. Rosneft is consistently implementing plans to expand its presence in the Asia-Pacific markets. Rosneft successfully closed a strategic deal to acquire a 49% stake in Essar Oil Limited in August 2017 (since June 2018, Nayara Energy Limited). The acquisition of a stake in the 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. 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 products supplies, and implementation of new projects. The Vadinar refinery development program is currently being elaborated, including the setting-up for petrochemical production and access to the Indian petrochemical market.
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, Equinor, Saudi Aramco, NIOC, and etc.
Rosneft is one of the largest players on Russian gasoline and diesel fuel markets and has the largest retail sales network (2,897 filling stations) in Russia. 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.
The Company fully fulfills its obligations to ensure the stable supply of petroleum products to the domestic market, acting within the agreement “On Measures to Stabilize and Develop the Domestic Market of Petroleum Products” concluded with the Ministry of Energy and the Federal Antimonopoly Service of Russia. As the leading supplier of petroleum products to the domestic market, Rosneft in 2018 increased domestic sales of motor fuels to 28.1 mmt, up 3.7% year-on-year. Moreover, in 2018, the Company exceeded the exchange-traded ratio of motor gasolines and diesel fuel by more than twice and by more than a half, respectively.
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. To promote existing partnership relations between Petrocas Energy (Rosneft Group company) 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. While expanding cooperation with end consumers, the Company concluded a contract with the Japanese company, JXTG Nippon, envisaging the supply of over 0.7 mmt of gasoline and gas mixture in 2019.
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 the 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 ultralow 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. In H1 2018, the Company signed long-term contracts for the supply of gasoline and diesel fuel with the largest Mongolian importers of petroleum products. The total value of contracts is USD 2.1 bln. Over 10 years of its presence on the Mongolian fuel market, the Rosneft increased its share to 80%.
In January 2018, Rosneft Deutschland began marketing and selling bitumen in Germany and neighboring countries, providing commercial volumes of road bitumen manufactured at the PCK, Bayernoil, and MiRO refineries. The company signed a contract with Bitumina Handel GmbH & Co. KG for the production of polymer-modified bitumen products according to Rosneft (Alfabit)’s formulation. As a result of successful efforts made in 2018 to create its own marketing direction, a Company’s subsidiary, Rosneft Deutschland, began full-scale marketing and selling oil products in Germany in January 2019 and now acts both as one of the largest refiners and as the leading wholesale supplier of petroleum products to this market. Thus, the transition period following the dissolution of the ROG joint venture was completed as planned. The company supplies petroleum products directly from three German oil refineries partially owned by Rosneft, as well as from over 30 German export terminals by road, rail, and river. The company's customer base comprises more than 500 enterprises in Germany, Poland, the Czech Republic, Switzerland, Austria, and France.
Its main competitors in domestic sales of petroleum products are Russian vertically integrated companies such as LUKOIL, Surgutneftegas, Gazprom Neft, Tatneft, and others, while the main competitors supplying petroleum products to the export market are major international oil companies such as Shell, ВР, Total, ExxonMobil, Chevron, and others.
The company has a special focus on developing the gas business, including improved use of production technologies, efficient gas monetization through the formation of a long-term supply contracts portfolio, the participation in LNG production projects and in the gas and gasoline fuel development program in the Russian Federation, as well as in efforts on creating equal conditions for access to infrastructure facilities and consumers.
Developing the NGV filling station network in Russia is one of Rosneft’s key priorities in the retail business and one of the most important focus areas to expand its competitive advantages in the domestic market. In November 2018, the Company and Beijing Gas Group Company Limited (hereinafter – Beijing Gas) signed a joint venture agreement for construction and operation of the NGV filling stations network in Russia based on LLC Vankorskoye UTT. Under the terms of this agreement, Beijing Gas will receive a share of 45%. The parties are planning to build about 170 NGV filling stations in Russia. They will also consider the possibility to use LNG as a motor fuel.
Rosneft is also augmenting up its trading potential and trading competencies in the international LNG market.