#incident #Lukoil #illustrates #Russias #problems
And only one company knew how to solve the problem in the fuel production department of the NORSI oil refining company, located on the banks of the Volga, about 430 kilometers east of Moscow. The only problem is that the company is American, five sources involved in the incident told .
The international oil engineering company UOP withdrew from Russia as soon as Moscow started February 2022 invasion of Ukraine.
“They (engineers) rushed to find spare parts and could not find anything. We had to stop the work of all the equipment,” a source close to Lukoil told on condition of anonymity because he is not authorized to communicate with the media.
Another four sources confirmed that the equipment for catalytic cracking, used to convert heavier hydrocarbons into gasoline, has been out of service since January and it is not at all clear when it will be repaired because Russia simply does not have the skills to do it. KK-1 is one of two catalytic cracking units at the plant.
Two sources said the breakdown caused a 40 percent drop in fuel production at Russia’s fourth-largest oil refiner, NORSI. Lukoil did not respond to requests for comment on the situation.
The Lukoil oil refining company is an example that illustrates the serious problems of the Russian energy sector. A number of companies built with the help of US and European engineering companies face serious challenges if Western sanctions fail, at least ten Russian industry sources have confirmed.
Ukraine’s drone attacks, which have damaged at least ten Russian oil refineries this year, make the problem even worse. Due to them, in the first quarter of this year, Russian oil refining companies are working at 14 percent. lower performance, according to calculations.
“If drone strikes continue at this rate and Russia’s air defenses don’t improve, Ukraine will knock out Russian oil refineries faster than the Russians can fix them,” says an expert on the Russian energy industry and a think tank at the Carnegie Endowment for International Peace. collaborator Sergej Vakulenka.
Russia’s top energy official, Deputy Prime Minister Alexander Novak, said last week that NORSI should resume work after the failures in a month or two, as Russian companies are currently producing the necessary spare parts. He also emphasized that after the drone attacks, Russian oil refining companies have increased production, and there is no deficit in the local fuel market.
The Russian Ministry of Energy does not comment on the situation. Minister Nikolajus Šulginovas said that all oil refining companies will resume work by June, but did not provide details.
The NORSI oil refining company, located near Nizhny Novgorod, can produce 405,000 barrels per month. tons of gasoline or 11 percent. of all gasoline produced in Russia. Current production disruptions will cost Lukoil almost 100 million. dollars in lost profits per month. Such an amount is presented taking into account the price of s gasoline, which reaches 587 dollars per ton, calculated by .
UOP’s parent company, Honeywell International Inc, said in a statement to that it would not provide equipment, spare parts, production or services to the refinery in Nizhny Novgorod from February 2022. The situation is the same with the individually managed ECO oil refinery in ECO Slavianske near Kubane.
On March 18, the oil refinery in Slaviansk near Kuban was targeted by a Ukrainian drone, and there was a brief fire there.
“We are actively working to prevent any possible route of our products to Russia through third countries,” Honeywell assured in an email. According to the company, it complies with all applicable export license requirements, sanctions and regulatory instruments.
The United States and its allies have imposed sanctions on thousands of targets in Russia since the start of the invasion of Ukraine, and around a thousand companies have withdrawn from the country.
Russia’s export-oriented $2.2 trillion economy has proven relatively resilient to unprecedented sanctions over the past two years: something neither Moscow nor the West anticipated.
A war of attrition
Western companies such as UOP and Swedish engineering group ABB have supplied technology and software to all 40 of Russia’s largest oil refiners over the past two decades, according to ten Russian industry sources. Each of them uses a mixture of Russian and foreign equipment.
ABB confirmed to that it stopped taking new orders from Russia as soon as the war in Ukraine broke out in February 2022, and has no plans to return to Russia after its current contractual obligations expire, a spokesman said. The company did not want to say more about its current obligations.
None of the five sources suggested that the turbine failure at the NORSI plant in January could be linked to the drone attacks, but said the plant’s troubles have deepened since it was first hit by a Ukrainian drone in February. Then the equipment was damaged.
As in the United States, the price of gasoline in Russia is an extremely politically sensitive issue, and the government is trying to somehow limit price increases. Among the recently implemented measures is the ban on the export of gasoline for the next six months, which came into force in February.
Ukraine explains that it is attacking Russian oil refineries to undermine the Kremlin’s war machine, which is best done by cutting state revenues and disrupting the military’s fuel supply.
“Drones are tens, if not hundreds, of times cheaper than repairing factories, which is very important in this war of attrition,” says S. Vakulenka, former head of strategy at Russian energy giant Gazprom Neft. He left the company as soon as the war in Ukraine started.
Russia is the second largest oil exporter in the world. After the introduction of sanctions, Moscow directed most of its crude oil and products to Asia and Africa.
If Moscow had to drastically reduce the volume of oil refining, it would be forced to reduce the export of fuel as well, reorienting itself to the sale of crude oil.
Currently, Russia only sells crude oil to a few large buyers such as China, India and Turkey, but the range of buyers for the fuel is much wider, as it can supply smaller buyers without extensive refining infrastructure in Africa and South America.
The history of Russian oil refining dates back to the 1950s, when the United States provided the necessary equipment on a lease basis during World War II.
After the collapse of the Soviet Union, Russian oil companies invested tens of billions of dollars in equipment upgrades, aided by companies such as UOP and ABB.
UOP helped to modernize NORSI and Slaviansk near Kubane ECO oil refining companies. Asked by to specify which other Russian factories it helped modernize, it did not.
The United States has imposed sanctions on companies around the world, including Turkey, to ensure that Russia does not get the technology it needs.
Countries targeted by Western sanctions, such as Russia and Iran, are able to find ways around the system and obtain spare parts for Western technology such as airplanes or cars. Only oil-refining machinery is significantly rarer and more specialized, and stricter controls have been introduced to prevent Russians from importing spare parts through third countries, sources say.
According to two sources, Lukoil has asked Chinese companies to help repair the KK-1 equipment at the NORSI plant. The interviewees did not name the Chinese companies. Lukoil also did not respond when asked if it had turned to China for help.
“China has the necessary technology. Only very often this means an expensive replacement of the equipment, rather than a routine repair,” said one source.
