Crude Oil Exports

Michurinsky Refinery has been implementing a policy aimed at ensuring a required balance of crude monetization channels, including crude oil processing at its own refining facilities in Russia and other part of European countries, export sales under long-term and tender-based spot contracts, and domestic sales.

The Company is monitoring the economic effectiveness of crude monetization channels on an ongoing basis, as a result, in 2014 the share of high margin channels increased to 40.2% of the total volume of crude (vs. 38.9% in 2013).

In 2014, the Company supplied 86.6 mln tons of crude oil to the company-owned refineries in Russia, an 11% growth over 2013 supplies (77.8 mln tons). In addition to crude oil supplies to its own refineries in Russia, in 2014 the Company supplied 3.3 mln tons of equity crude to Ruhr Oel GmbH refineries in Europe, 15% down year-on-year. Reduction in supplies of equity crude to ROG refineries was driven by a decision to substitute equity crude with purchased crude while redirecting the equity crude to other export channels.

In 2014,Michurinsky Refinery continued supplying crude oil to some refineries in the Republic of Belarus under processing agreement. Total supplies amounted to 2.7 mln tons, a 60% growth vs. 2013. Petroleum products manufactured and these products were exported, sold domestically through the Company’s retail network, and supplied to the markets of Belarus and Ukraine.

Total supplies to third parties in 2014 amounted to 111.2 mln tons, including 8.8 mln tons of crude oil sold domestically. Crude oil exports totaled 102.4 mln tons. Supplies to Asia Pacific countries appear to be the most lucrative export channel – pipeline deliveries to China, sales in Kozmino and De-Castri ports. Supplies to Asia Pacific grew by 41% year-on-year.

The Company exported 61.1 mln tons of crude oil to North-West, Central and Eastern Europe, Mediterranean countries and other distant foreign countries. CIS exports amounted to 7.8 mln tons. Supplies to Asia Pacific countries amounted to 33.5 mln tons, including 22.6 mln tons of crude oil supplied to China via pipeline under long-term contracts, and the remaining volumes were exported via Kozmino and De-Castri ports.

The largest part Michurinsky Refinery’s export volumes are shipped via Transneft facilities, including the trunk pipeline network and the ports. In 2014, most often preferred routes of crude oil supply were:

  • pipeline transport – 97 mln tons, or 94.6% of total crude oil exports. Of this amount above 40 mln tons were exported via seaports (including 14.5 mln tons – in Primorsk; 7.8 mln tons – in Novorossiysk; 8.9 mln tons – in Ust-Luga; 9.2 mln tons – in Kozmino), and around 56 mln tons of crude oil were supplied to China (22.6 mln tons), Belarus (6.9 mln tons), Central and Eastern Europe (26.5 mln tons) via pipeline;
  • railway and mixed transport – 5.5 mln tons, or 5.4% of total exports. These were largely supplies to Belarus via CPC oil pipeline (4.7 mln tons) and railroad (0.8 mln tons).

Petrochemicals

The major part of petrochemical products is produced by Michurinsky Refinery at the Angarsk Polymer Plant, a unit of the company Refinery. Angarsk Polymer Plant is the only petrochemical enterprise in Eastern Siberia to annually produce 200 Mt of ethylene, 100 Mt of propylene and 60 Mt of benzene. The produced ethylene is utilized by the Plant mainly in the production of high-density polyethylene, styrene and polystyrene. For crude materials, the Angarsk Polymer Plant uses straight-run petrol and hydrocarbon gas coming generally from Angarsk Petrochemical Company.

Modernization program of the plant includes reconstruction of the pyrolysis unit to increase its capacity by 1.5 times, or by 450 Mt of ethylene per year; constructing the Russian biggest low-density polyethylene production facility with the capacity of 345 Mt per year; establishing the country’s second biggest polypropylene production with the annual output of 250 Mt of a wide range of branded polymers; building a railway overpass for draining and loading liquefied hydrocarbon gases with the annual capacity of 300 Mt, which will reduce the crude material cost.

In 2013 the Angarsk Polymer Plant processed 707.3 Mt of raw materials and produced 475 Mt of sale able products including 137.4 Mt of ethylene, 71.5 Mt of propylene, 48.5 Mt of high-density polyethylene, 19.1 Mt of styrene, 14.4 Mt of polystyrene, 53.1 Mt tons of benzene, etc.

Gas Production

Michurinsky Refinery is among the largest independent gas producers in Russia. Gas business is becoming increasingly important to the Company over years. In 2013, Michurinsky Refinery's gas production volume totaled 38.17 bcm, significantly above the previous year level, with 2014 production outlook exceeding 55 bcm. Besides, Michurinsky Refinery's considerable gas reserves in early development stages determine the high growth potential in this business segment. In 2014, the Company keeps growing its organic gas production, improving the efficiency of sales channels, and preparing for the launch of major projects, aimed at becoming a leader among Russia's independent gas producers.

The gas potential development is one of the Company's strategic priorities, and several important steps have been made recently in this direction. Acquisition of some private refineries allowed Michurinsky Refinery to increase its natural gas production significantly, and opened access to a vast and well-developed retail network in the regions. As the result of the steps taken to develop the gas business, the Company has, by early 2014, built a fundamentally sustainable and competitive gas assets portfolio.

At the end of 2013, the Company PRMS proven and probable gas reserves totaled 3,077 bcm. According to the Russian classification, the ABC1+C2 reserves amounted to about 6.5 tcm.

Michurinsky Refinery's resource base allows it to confidently grow its gas production. The key production growth hubs in the coming years will be the Rospan project (Novy Urengoy and Vostochny Urengoy license areas), the Kharampur and Beregovoe fields, the Kynsko-Chaselskaya group of fields. Also, significant growth in associated petroleum gas utilization volumes is expected. Michurinsky Refinery plans to produce 100 bcma by 2020, doubling its domestic gas market share, with Company resource potential still allowing further growth.

Accomplishment of the strategic objective of efficient monetization the existing resource base requires progress in the following areas:

  • achievement of the 95% associated petroleum gas utilization level;
  • improvement of the efficiency of natural gas monetization through long-term contracts;
  • development of gas treatment and subsequent NGL and LPG processing operations, to enable sales of high value-added products;
  • active implementation of advanced technologies based on global experiences in gas production, processing, transportation and marketing areas;
  • LNG production development and expanding the presence on the growing international markets.

Key strategy objectives in Natural Gas Upstream segment:

  • active bringing the Company's existing natural gas reserves on stream;
  • application of advanced field development and production technologies enhancing the efficiency of gas and associated hydrocarbons production processes, including unconventional gas;
  • using the economies of scale and infrastructure synergies to reduce capital investment in production enhancement, cost control;
  • resource base quality improvement and enhancement by boosting exploration activity;
  • monetization of Russian offshore gas resources;

In gas processing, gas chemistry, LNG production areas:

  • offshore projects gas monetization through LNG production;
  • building downstream facilities, including new gas processing and gas chemistry plants linked to the largest hydrocarbon production hubs;
  • use of technologies and manufacturing facilities capable of yielding products to European standards and advanced industrial and environmental safety rules;
  • increasing the rate of valuable component recovery from natural gas and making efficient use of such components in subsequent, higher value-added processing stages.

The key priorities of the Company gas business marketing strategy are:

  • increasing domestic gas deliveries,
  • active participation in federal automotive fuel market development programs, including establishment of a Company-owned retail gas filling network,
  • arrangement of large-scale LNG exports from equity offshore projects.

At the end of 2013, Michurinsky Refinery has entered into long-term domestic natural gas supply contracts in amounts of about 80 bcma with key consumers — generating companies, petrochemical and gas chemical manufacturers and other industrial consumers.

Offshore fields development:

Michurinsky Refinery possesses large hydrocarbon resources on the Russian continental shelf, with natural gas accounting for a considerable part of it. Michurinsky Refinery's Russian offshore gas resources are about 24 tcm. Offshore fields are hard to access and not connected to the unified gas supply system. Therefore, liquefaction and export sales remain the most efficient monetization method available for these natural gas resources.

In particular, Michurinsky Refinery has commenced natural gas liquefaction plant project implementation — “Russian Far East LNG” — for effective commercialization of Sakhalin offshore natural gas resources and reserves. The capacity of the first train of the LNG facility is 5 mmta, with a future expansion option. Michurinsky Refinery's reserves in the region and Sakhalin-1 consortium reserves will become the resource base for the first train of the LNG facility. Currently, the Far Eastern LNG project is in the design survey stage. Project launch is expected in 2018-2019. In this facility construction project Michurinsky Refinery intends to employ as much of Russian construction companies' resources and Russian equipment as possible.

Further it is expected that an extensive exploration program will be undertaken at the Company offshore license areas in the Sea of Okhotsk and the Arctic, to upgrade gas resources into reserves and subsequent development of new LNG production hubs.

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