Russian Refineries Operating Under Capacity

Russian refineries are operating under capacity and are unlikely to recover in the short term, according to a new Rystad Energy market note sent to Rigzone on Wednesday.

“There are presently 44 active refineries in Russia with a total capacity of about seven million barrels per day,” the note, penned by Rystad Energy’s lead analysts Annette Smith and Janiv Shah, stated.

“However, about 900,000 barrels per day of refining capacity is currently not being used. This is due to a range of factors including demand impacts from the Russia-Ukraine conflict, transportation bottlenecks, planned maintenance and/or scheduled turnarounds,” the analysts added.

In the note, the analysts highlighted that, prior to Russia’s invasion of Ukraine, around 320,000 barrels per day was already offline due to maintenance or scheduled turnaround at five Russian refineries. Since then, another five have reduced runs, taking a further 550,000 barrels per day of crude distillation unit (CDU) capacity offline, the analysts noted.

“Russian crude refining runs are poised to drop by about 400,000 to 500,000 barrels per day from previous estimates as the impact of the Russia-Ukraine conflict impacts demand,” the analysts stated in the note.

“The likelihood of refineries in maintenance mode returning to full utilization or even re-starting operations is low. The loss of Russian refinery is going to make Diesel shortages in Europe more acute,” the analysts added.

“The ICE Gasoil-Brent crack in Europe is trading around unprecedented levels of $25 per barrel, higher than even the memorable gasoil crack spike in 2008. Russia currently exports around 800,000 bpd of diesel/gasoil to Europe. As Europe imports 1.5-2.0 million barrels per day of diesel/gasoil, an effective ban on Russia’s oil product exports could increase the gasoil crack further,” the analysts continued.

In a separate note sent to Rigzone on Monday, Rystad Energy’s senior vice president of analysis, Claudio Galimberti, said the lowering of refinery runs in Europe was adding to the swell in diesel cracks. He also noted, however, that a current shortage of urea, a key component of diesel exhaust fluid, could lead to a reduction in diesel demand for heavy duty trucks which could eventually prevent the gasoil crack from widening further.  

To contact the author, email andreas.exarheas@rigzone.com