Market overview and competitive environment

Refining and marketing

Rosneft is the largest refiner in Russia. Its refining business includes 13 large refineries, as well as petrochemical and gas processing plants in five federal districts – Central, Volga, Southern, Siberian, and Far Eastern. The Company’s oil refining operations are focused on the strategic task of supplying high-quality petroleum products to the Russian domestic market, including remote regions. 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 curbing price growth that would inevitably be the case if petroleum products were delivered from Central Russian refineries.

In general, unlike those of most of the Russian producers, the Company’s oil refineries are located far from export markets, which limits the economic efficiency of oil refining. However, the Company continues its efforts to connect the refineries to Transneft’s oil trunk pipeline system.

The oil refineries continue upgrade and maintenance projects related to their existing capacities.

In Oil Refining and Petrochemicals, we have been successfully implementing an operational efficiency programme. As part of the Rosneft–2022 Strategy, we work systematically to reduce operating costs at our production facilities, among other things by introducing advanced technologies to cut energy consumption in line with ISO 50001 (Energy Management Systems).

Rosneft’s Innovation Development Programme is aimed at substituting imported technologies for the production of high-quality petroleum products. One of its key objectives is for the Company’s refineries to start using catalysts produced in-house in order to mitigate the exposure to foreign-made products, cut refining costs and boost the competitiveness of Rosneft’s refining segment.

Under the Rosneft–2022 Strategy, the Company's refineries continue rolling out the Digital Plant system to streamline production management.

As an environmentally responsible company, Rosneft is consistent in improving and expanding the development and output of high-tech petroleum products with enhanced environmental performance. The Company is also expanding the sales geography of Euro-6 and AI-100 gasolines and boosting production of RLMS, a low-sulphur marine fuel.

Rosneft is an active player in the domestic and foreign oil and petroleum product markets and Russia’s largest oil exporter. Its crude oil is exported to European, Asia-Pacific, and CIS countries, sold on international markets, and supplied to refineries in Russia and abroad. In general, the Company continues successfully diversifying its oil supply channels. Amid growing competition in the oil market, the Company is focused on boosting export volumes under long-term contracts, including oil supplies to China National Petroleum Corporation (CNPC) and supplies to Europe under direct contracts. Rosneft also captures opportunities of expanding partnerships through short-term contracts.

The Company is consolidating its competitive position in the European market through the operation of its German refineries, whose total throughput in 2020 stood at 10.97 mmt. Rosneft is currently the third largest player in the German refining market. Its capacities provide, on average, an oil refining depth of 93% and a refinery complexity of 9.0, according to the Nelson Index. The local operator is Rosneft Deutschland GmbH. This subsidiary manages the supply of crude to Rosneft-owned refineries (PCK Raffinerie GmbH, MiRO, Bayernoil) and the sales of petroleum products.

Rosneft is consistent in its expansion efforts in the Asia-Pacific Region. Rosneft associate Nayara Energy owns and operates the Vadinar refinery, which accounts for approximately 8% of Indian refining. With a Nelson Index of 11.8, it is one of the country's most advanced facilities of its kind. In 2020, Nayara Energy had a rapidly growing retail network in India, with more than 5,975 operating filling stations (over 8% of all filling stations in India) and 2,200 filling stations in various stages of commissioning.

Rosneft’s main competitors in Russian oil exports are vertically integrated companies such as LUKOIL, Surgutneftegas, and Gazprom Neft. All Russian oil 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. Key competitors supplying other crude oil grades to export markets are international and national oil companies such as Shell, ВР, ExxonMobil, Chevron, Total, Equinor, Saudi Aramco, NIOC, etc.

The Company consistently supplies petroleum products to the domestic market in required quantities. Rosneft is a major player in the Russian wholesale motor gasoline and diesel fuel market. We operate the largest retail network in Russia, offering petroleum products in all federal districts. The Company relies on extensive infrastructure, both own and leased, to market and distribute 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 recognisable for petroleum products across the regions where the Company operates and is associated with quality fuel on sale at filling stations.

The Company exports its petroleum products, just like crude oil, to European, Asia-Pacific, and CIS countries. Its competitive advantage lies in its ability to maintain stable relations with foreign partners, and, specifically, expand and renew petroleum product supply contracts.

As a result of successful efforts made in 2018 to create its own marketing function, Rosneft Deutschland began marketing and selling petroleum products in Germany in January 2019 and now acts both as a major refiner and a leading wholesale supplier of petroleum products to this market. It supplies petroleum products directly from three German refineries partially owned by Rosneft, as well as from over 30 German terminals by road, rail, and river. The company’s customer base includes more than 500 enterprises in Germany, Poland, the Czech Republic, Switzerland, Austria, and France.

Alongside Rosneft, Russian oil majors LUKOIL, Surgutneftegas, Gazprom Neft, Tatneft and other oil companies offer petroleum products on the domestic market. Key competitors in export markets include transnational oil companies (Shell, ВР, Total, ExxonMobil, Chevron, etc.) and local refiners.

Russia’s oil refining dynamics, mmt

Sources: CDU TEK, Rosneft’s reports.

As the oil and gas industry's environmental performance comes under closer scrutiny, the Company is developing its gas business with a focus on production technologies and efficient gas monetisation. The latter includes building a portfolio of long-term supply contracts, participating in LNG production projects as well as in Russia’s gas motor fuel development programme, and the work to create equal conditions for access to infrastructure facilities and consumers.

Developing an NGV filling station network in Russia is one of Rosneft’s priorities in the retail business and one of the most important focus areas, since it enables the Company to expand its competitive advantages in the domestic market.

Rosneft is also building up its trading potential and trading competencies in the international LNG market.

In addition, the Company is successfully expanding in new environmentally-oriented business segments. Zvezda Shipbuilding Complex, created by a consortium led by Rosneft, is building “green” tankers to high environmental standards, with their main and additional power supply units able to run on eco-friendly LNG. Russia’s first "green" Aframax tanker Vladimir Monomakh was launched at the shipyard in May 2020. In July 2020, Zvezda became the only Russian shipyard to obtain an international licence to build LNG carriers with a membrane storage system. In December 2020, it was licensed to build nuclear-powered vessels under the applicable Russian regulations. Zvezda had successfully passed inspections of the Interregional Territorial Department for Siberia and the Far East of the Federal Environmental, Industrial and Nuclear Supervision Service, which made it the only Russian shipyard allowed to build Project 10510 “Leader” ice-breakers.

In an effort to expand its innovative and environmentally-oriented services, Rosneft is developing EV charging infrastructure at its filling stations based on demand forecasts and EV market trends. We have installed and now operate 14 charging points for electric vehicles at our filling stations, including five fast-charging (50 kW) points in the Moscow and Leningrad regions, Vladivostok and Khabarovsk, and nine slow-charging (22 kW) ones in the Tver Region and the Krasnodar Territory. Rosneft has joined forces with some of Russia’s largest electric power companies, to continue expanding its EV charging infrastructure.

Russia’s oil refining breakdown, mmt

Sources: CDU TEK, Rosneft’s reports.

To meet the tougher CO2 regulations in the EU, at Bayernoil and MiRO refineries in Germany we have successfully implemented projects to import and blend with diesel fuel a new bio-component – hydrotreated vegetable oil (HVO). Rosneft seeks to further improve emissions management by working in a number of directions, in particular focusing on "green" hydrogen production.

Russia’s motor fuel production, mmt