Russian refineries are under increasing pressure due to reduced margins and an unfavorable economic environment. The continued ban on gasoline exports and impending increases in taxes and tariffs are exacerbating the situation, making domestic fuel production increasingly unprofitable.
After a notable decline in October, with oil processing levels hitting a two-year low at 5.14 million barrels per day (bpd), the outlook for December remains gloomy. Refineries face not only increased production costs, but also a less favorable compensation mechanism, designed to cushion the difference between export prices and those of the domestic market.
According to industry consultants, the production of 92 RON gasoline is barely profitable, while that of 95 RON gasoline results in losses. Only diesel products still show positive margins.
Rail delays and rising stocks
Rail delays are a major obstacle, preventing timely delivery of refined products and generating excess inventory. This situation forces refineries to slow down their production to avoid saturation of storage capacities. These logistical problems are worsening as planned fare increases approach: rail fares will increase by 13.8% in December, followed by excise tax adjustments in January.
Export-oriented sites, such as the Tuapse refinery on the Black Sea, have sometimes had to interrupt operations for economic reasons. Additionally, this site was repeatedly targeted by Ukrainian drone attacks earlier this year, causing significant repair costs.
An impact on modernization projects
High interest rates, set at 21% by the Central Bank of Russia in September, are also holding back refinery modernization projects. For example, the small Ilsky refinery, which plans to launch a gasoline production complex in 2024, has requested state assistance to offset the prohibitive costs associated with borrowing.
Western sanctions limit access to the technologies needed to modernize facilities, leading to delays in projects already underway. According to Alexander Kotov, consultant at NEFT Research, only advanced projects will be completed, but with own funds rather than loans.
The outlook for the industry
Despite current challenges, some analysts believe that tax adjustments or aid could revive modernization programs beyond 2026. However, the immediate priority for refineries appears to be managing costs and preserving margins in an economic and economic environment. increasingly restrictive policy.
