At least three Russian refineries have halted processing or reduced operations due to significant financial losses stemming from export restrictions, rising crude prices, and high borrowing costs. This situation underscores the challenges facing the Russian refining industry, which is grappling with the impacts of Western sanctions, drone attacks, and a volatile energy market.
Refinery Closures:
The affected refineries include Tuapse, Ilsky, and Novoshakhtinsky, which have either cut back operations or suspended processing entirely in recent months.
These developments have not been publicly reported before and indicate a troubling trend for the sector.
Economic Impact:
The crisis is leading to decreased fuel exports and reduced revenues for companies, adversely affecting the state budget amid high inflation and sluggish energy demand.
While global refiners enjoyed record profits in 2021 and 2022, margins have sharply declined due to the opening of new plants and a slowdown in demand.
Operational Challenges:
Russia’s less sophisticated refineries, which do not produce premium fuels, are facing the most significant losses, with some reporting deficits of up to 10,000 roubles ($102) per metric ton.
More complex refineries are also struggling, with some operating at narrow losses despite modest profits from light fuel sales.
Market Conditions:
Russia has about 30 major refineries capable of processing 5.5 million barrels per day (bpd), making it a key player in global fuel exports.
The country exports approximately 2 million bpd of oil products, consuming the remainder domestically.
Company Responses:
State-run Rosneft has suspended operations at its Tuapse plant multiple times this year due to weak margins. Other major firms like Surgutneftegaz and Lukoil have also been affected but did not respond to inquiries.
Smaller refineries like Ilsky and Novoshakhtinsky have been operating at half capacity due to poor margins and drone strikes.
Financial Strain:
The central bank’s recent interest rate hike to 21% has further complicated the financial landscape for these plants.
Rising domestic crude prices, which reached 50,000 roubles per ton in October, have exceeded the profit threshold for independent refiners, who need a maximum price of 35,000 roubles to remain viable.
Future Outlook:
Some smaller refineries have sought government assistance, including subsidies, to navigate these financial difficulties.
Industry sources anticipate that actual refinery closures could occur early next year if conditions do not improve.