Russian gasoline consumption seen steady, exports likely to grow
Consumption of gasoline in Russia is stagnating due to an economic slowdown and lower incomes, according to delegates at Creon Energy’s conference in Moscow on the prospects for motor fuel Monday.
Domestic sales were 35.2 million mt in 2017, unchanged on the year, according to data provided at the conference. Meanwhile production in 2017 was slightly down on the year at 39.2 million mt mostly due to refinery maintenance, senior analyst at Creon Energy, Maria Dubinina, said.
But output is expected to grow in 2018, head of the Commodities Market Analytics (ATR) agency Mikhail Turukalov said on the sidelines of the conference. With domestic consumption expected to remain flat, the extra volumes are likely to head to exports.
At least three Russian refineries — Kirishi, Antipinsky and Taneco — are due to launch gasoline units this year, which would result in higher gasoline production.
Gasoline export netbacks have been exceeding domestic prices thus denting into refineries’ profitability.
“Refineries suffered as the premium [to the netback] disappeared,” senior consultant at Vygon Consulting Alexander Bylkin said. “Refineries buy crude based on the netback, and its unprofitable for them to sell products below the netback,” he added.
However, Bylkin said regulators encourage refineries to sell domestically rather than to premium export markets. Last year gasoline exports dropped to 4.1 million mt from 4.9 million mt in 2016, according to Creon Energy data.
“The market is ‘catastrophically’ unfavorable for gasoline producers since about mid-2016, due to artificial price regulation,” Turukalov said on the sidelines of the conference.
Delegates also called for the government to reassess the impact of taxation on the export netbacks, which had exacerbated the situation.
According to initial plans, the excise tax was due to drop to offset the higher mineral extraction tax and lower export duties. But instead the excise duties were raised in January with another hike due in July, both of which combined with the lower export duty had pushed the netbacks up.
However, while spot prices at refineries started to rebound in February and broke historic records in March, retail prices have been held in check by regulators, delegates said.
Retail margins fell from Rb4/liter (7 cents/liter) before to zero or Rb1/liter on average, said Bylkin.
Low margins hurt independent retailers in particular because, unlike oil majors, they cannot offset their losses. Hence many opt to sell counterfeit product, with counterfeit accounting for 5%-30% of motor fuel, according to data from Rosstandard.
Many retailers sell products such as technological diesel fraction, which is Rb4-Rb5/liter cheaper than 10 ppm diesel.
Separately, diesel consumption grew marginally by 2% in 2017 to 33 million mt, while exports were flat on the year at 43.7 million mt, according to Creon Energy data.
Production grew by 1% to 77 million mt, with exports accounting for around 57% of it. In 2015 and 2016 exports and output were lower than in 2014 but production rebounded again in 2017.
Domestic refining fell in 2015 and 2016 due to the lower crude price, but rose in 2017, according to Creon Energy data.
Typically lower crude prices lead to a lower subsidy for Russian refineries which benefit from the spread between crude and product export duties which narrows at a lower crude price.
However, in 2017, processing has increased at many refineries, apart from those affected by maintenance.
Mini refineries increased their processing by 15%. Mini refineries benefit from access to cheaper or lighter crude but some also sell products without paying excise or export duty, Bylkin said.