Refinery in Nizhny Novgorod may halve gasoline production

As Kommersant learned, LUKOIL became the first major victim of Western sanctions in oil refining. Its Nizhny Novgorod refinery, one of the largest in the Russian Federation, completely shut down one of the two catalytic cracking units, key for the production of gasoline, due to the accident. A second catalytic cracker also broke down in late December but has since been restarted. LUKOIL will now have to look for a replacement for failed Western equipment. The oil company stopped selling AI-95 gasoline on the stock exchange last week, but so far the impact on stock prices has been insignificant due to low demand for fuel in winter.

In January, LUKOIL’s catalytic cracking unit at the Nizhny Novgorod Refinery, which allows the production of high-octane gasoline, failed, several Kommersant interlocutors told. According to them, the reason for its shutdown on January 4 was the breakdown of foreign compressor equipment, which cannot be replaced in the near future due to Western sanctions. Kommersant’s interlocutors claim that LUKOIL will strive to complete repairs at this installation by spring.

LUKOIL, in response to a request from Kommersant, called the accident an “incident at a process unit,” confirming its shutdown. The company promised to satisfy “the needs of the domestic market in coordination with its other participants using all available resources.”

In total, the Nizhny Novgorod Refinery has two catalytic cracking units, commissioned in 2010 and 2015, respectively. The older installation has now been taken out of service. At the same time, on December 26, 2023, as Kommersant’s interlocutors clarified, a breakdown also occurred at the catalytic cracking unit commissioned in 2015, but since then it has been able to be launched at a lower power. In addition, on December 21, 2023, LUKOIL itself reported a fire at one of its installations. According to Kommersant, in 2022 the Nizhny Novgorod Oil Refinery processed about 15 million tons of oil, which is approximately 5% of total refining in Russia.

Western sanctions in oil refining have so far mainly led to an increase in scheduled repairs at refineries or a slowdown in the modernization process. The most striking example is the protracted repair of Gazprom’s Astrakhan gas processing plant, which last year did not produce gasoline for several months.

The accident at the Nizhny Novgorod refinery was the first known case where a shortage of equipment due to sanctions could lead to the loss of production of a significant volume of high-octane fuel.

The Nizhny Novgorod refinery is important for supplying the Moscow region, which accounts for about 30% of gasoline consumption in the country. Thus, gasoline was delivered to Moscow from the Nizhny Novgorod refinery via pipeline. Compensation shipments from other refineries will most likely have to be transported by rail, which will lead to a significant increase in logistics costs and increased delivery times.

Kommersant’s sources note that LUKOIL stopped sales of AI-95 on the stock exchange on January 10, and as a result, the price of fuel on the stock exchange went up. According to two Kommersant sources, this tactics of the oil company is explained by the desire to provide fuel to its own gas stations. However, this provokes market participants to stock up on fuel, which does not yet pose a big problem due to the seasonal decline in demand. Since the beginning of the year, AI-95 and AI-92 at SPbMTSB in the European part of the Russian Federation have risen in price by 2.5% and 3.2%, to 43.4 thousand and 40.6 thousand rubles. per ton respectively.

Nizhegorodnefteorgsintez, one of the largest gasoline producers in Russia, produced an average of 410 thousand tons per month in 2023, and 4.6 million tons in 11 months, notes Alexandra Zubacheva from Petromarket. According to her, in recent months the entire volume of gasoline has been directed to the domestic market. The two cat cracking units are core to the production of gasoline components at the refinery and were fully operational in 2023. According to Ms. Zubacheva, the failure of one of the catalytic cracking units will initially lead to a situation where the plant will produce half of the usual volume of gasoline, but over time it will be able to increase output. “The loss of 200 thousand tons per month is a lot, of course, but the Russian market can easily find such volumes, and besides, now is not the season of the highest demand for gasoline,” the analyst concludes.

Dmitry Kozlov, Olga Mordyushenko