Column by Yuri Barsukov on the significance of the accident at the Nizhny Novgorod refinery

A major accident at the Nizhny Novgorod refinery of LUKOIL, which went unnoticed during the January holidays, after the publication of Kommersant, forced the regulator, represented by the Ministry of Energy, to give public comments. From them, in general, it became clear that this was not an ordinary case and to compensate for the effect on the market, a reduction in gasoline exports would be required not only from LUKOIL, but also from other large oil companies. It also became obvious that restoring the failed catalytic cracking unit would take a long time.

In fact, both LUKOIL and the Ministry of Energy were incredibly lucky (if you can talk about accidents in this way) that the unit broke down in January, when the demand for gasoline in Russia is the lowest during the year. Presumably, as a result of the failure of the installation, 200 thousand tons of AI-95 gasoline per month fell out of balance, which is not very significant against the backdrop of January exports, which last year amounted to more than 600 thousand tons of high-octane gasoline. But if the accident had happened in the spring or summer, it would have been a disaster for the market, which during periods of high demand always faces a shortage of high-octane gasoline. And it is unlikely that the 2 million tons of petroleum product reserves, which the Ministry of Energy is now reporting, could save the situation, since no one on the market understands how much high-octane gasoline is in these 2 million tons, where exactly it is stored, who owns it, and whether anyone will sell it when prices rise. For example, in January 2023, gasoline reserves at oil depots in Russia were around 1 million tons, and six months later – almost 1.3 million tons, but this did not prevent stock prices for gasoline from growing by 45% during this time.

Accidents are inevitable and are not directly related to sanctions – I remember well how strongly the accident at the relatively small Achinsk Oil Refinery in the summer of 2014 affected the market. But sanctions objectively complicate the restoration of installations and increase repair time. In this situation, the market needs a buffer. Currently, the only tool in the regulator’s hand to combat potential fuel shortages is an export ban – but it is unclear how this would help if there was an accident at a large refinery in the summer, when almost no high-octane gasoline is exported. There is no surplus of gasoline in Russia and there will not be for at least several more years, especially given the demand in new territories and the slowdown in the modernization of refineries. Perhaps we should return again to the issue of creating a state reserve, at least only for high-octane gasoline, and carrying out commodity interventions, as is currently working in the grain market. A less radical solution would be the open publication of data on reserves of such fuel at storage locations (there is no military secret in this, tanks do not run on gasoline), which could at least start a dialogue about whether these reserves actually exist.