New refinery proposal will add to domestic competition

The Russian government has proposed an eight BILLION dollar project to build a refinery to supply the internal market. That's goes with a set of measures to cut rising fuel prices on the domestic market.

The domestic market should be more attractive for oil producers than exporting, with Russia short of quality fuels said Prime Minister Vladimir Putin.

The Government unveiled an EIGHT BILLION dollar project to build an independent refinery that should hold back the price on oil products in Russia.

If project goes ahead – The first refinery built since the Soviet era  – the new plant with a 12 million tonne capacity will assist independent oil producers that are not connected to the large vertically integrated companies.

Elena Korzun, General Director of Assoneft, says,

Russian independent companies extract 4% or 20 million tons (out of almost 500 million tons) and we don't refine because we have no capacity. It should be a government refinery and together with it's construction the problem of oil exchange will be resolved.

The question remaining is the location of the proposed refinery.  Inland sites might be better for the domestic market, however a coastal location will offer export opportunities, as Jeff Roberts, President of Pomor Petroleum notes.

Murmansk. That's where pipeline from West Siberia is supposed to be and it's still the best place – its the only ocean port, can take very big vessels, and get to the States very easily.

Currently Russia refines 230 million tons of oil, together with exporting almost the same amount of crude.  Like many countries, Russia suffers from a lack of refining capacity.

Modern refineries can increase the currently low volumes of finished products, like kerosene jet fuel, petroleum and diesel, being produced

Gennady Shmal, the President of the Oil and Gas Producers Union says the new refinery will add to competition.

The new refinery will create competition and may limit rising fuel prices. It is necessary for independent oil producers who currently they sell a larger part of their crude production to large oil companies for less than the market price.

The new refinery project has not been presented to the energy ministery yet and there is no funding for construction yet either.

However the introduction of differentiated tariffs for light and heavy fuels at the end of 2004 made refining a more attractive business as the government introduced tariffs to deter oil companies from exporting crude.