Transneft' AK : Deputy Vice President – Director of the Oil Transportation, Metering and Quality Department at Transneft Igor Katsal Participated in Argus Russian Crude Market 2016 International Conference

In the photo: Deputy Vice President - Director of the Oil Transportation, Metering and Quality Department at Transneft Igor Katsal at the Argus: Russian Crude Market 2016 international conference

Igor Katsal delivered his report 'Russian Export Oil Grades: the Guarantee of Quality and Stability' at the Argus Russian Crude Market 2016 international conference. He emphasized the challenges consistently met by Transneft for assigning the benchmark status to Urals crude.

Igor Katsal mentioned that under dynamic changes of the transported petroleum composition, constantly monitored and analyzed by the company, the issues of quality, technological quality management and reshaping of commodity flows are prioritized.

Igor Katsal reminded that at the present time Transneft forms six export crude grades: four medium sour Urals grades supplied via ports Primorsk, Novorissiysk, Ust-Luga and over Druzhba oil trunk pipeline, and two sweet crude grades: ESPO (East Siberian - Pacific Ocean) supplied via Port Kozmino and Siberian Light supplied via Port Novorossiysk. The quality parameters of export grades, including the sulfur content, comply with the document approved by the RF Ministry of Energy: the Scheme of Standard Technological Commodity Flows.

Export crude grades in the western and eastern directions are formed from the resources of different fields. As for the western direction, these are West Siberian fields of sweet and sour crude, high-sulfur and heavy crude of the Urals-Volga basin and sour crude of the Timan-Pechora province. As for the eastern route, this is only light and sweet crude oils from the fields of Western, Central and Eastern Siberia.

Deputy Vice President of Transneft informed that the Urals crude mixture is by 65% composed of the West Siberian crude, by 31% - of Urals-Volga crude, and by 4% of Timan-Pechora crude.

He also called attention to the fact that compared to 2014 the share of high-sulfur crude oil from Urals-Volga basin has increased in the Urals mix, whereas the share of West Siberian crude has decreased in all Urals export flows, which has caused higher sulfur content in all export flows of this grade. Based on its monitoring of the Urals mix composition, Transneft reports to the RF Ministry of Energy, on a permanent basis, about the trends in changing the parameters of this and other export grades of the Russian crude.

The analysis of the oil quality parameters for the previous period and the forecasts of petroleum companies show the steady tendency towards the oil quality deterioration. Thus it was noted that the share of high-sulfur crude in the system of Transneft has grown since 2009 by 20m tons (the average of 2m tons a year). This regards such production regions as Tatarstan, Bashkiria, Udmurtia and Orenburg Region. Furthermore this increase is not provided by adequate downstream deliveries to oil refineries.

Among other trends taking their toll on the quality of crude in the company's commodity flows, Igor Katsal mentioned higher intake of oil with complicated rhelogical (flow) characteristics and low content of naphtenic hydrocarbons, the progressive 'maturation' factor, field depletion accompanied by an increase of general gravity and sulfur content, growing volumes of sweet crude exported eastwards and delivered to Russian oil refineries, general reduction of sour crude volumes transported westwards (from 205m tons in 2013 to 190.3m tons now).

According to Deputy Vice President, the Ministry of Energy ordered Transneft to feed the growing volume of high-sulfur crude to export commodity flows of the western direction, starting in 2014. For all that, the company succeeded in stabilizing the quality of downstream crude delivered to Russian refineries. Thus the average sulfur content in the oil transported to refineries in Russia's West is maintained on the level of 2014 at 1.62%, whereas in the aggregate the sulfur content across all export routes has risen from 1.51% to 1.55%, on average.

Igor Katsal also stressed that non-uniform oil intake not only at points of conflux of transported flows, but also at points of reception caused random fluctuations in quantitative and quality parameters of commodity flows. 'Crude quality instability under the inadequate supply of refineries with feedstock lowers the effectiveness of oil refining: when plants are operated in non-optimum regimes, this brings about lower commercial yield in some cases and excess demand for energy and catalysts in other cases,' he noted.

Of equal importance is ensuring the stability of parameters in oil export, since any significant overrun of the parameters designated in the state standard may result in a crude oil run sold at a greater discount under unchanged reference quotations. In addition, nonconformity of actual oil parameters to the ones specified in a contract may cause the reduction of the crude run price as a penalty for breaching the contractual terms.

On the other hand, stability of the grade parameters in oil export without substantial quality compromises is an essential condition for this grade to be used as a benchmark for settlements at the stock exchange, to avoid constant changes in discounts, depending on the crude run characteristics, and accordingly the lower proceeds of consignors due to the buyer's margin incommensurate to the real quality. It is for this reason that the stability of quality characteristics is one of the key requirements for the benchmark.

Igor Katsal pointed out that based on the results of reviewing the stability parameters of Russian export crude grades, this factor is most apparent in the export mix formed via repeated mixing of various grades. For example, the Urals mix shipped via Port Novorossiysk is formed stepwise by mixing more than six crude oil grades: West Siberian, Bashkir, Tatar, Udmurt, Kazakh and Krasnodar (the flow fluctuations in terms of sulfur content range from 0.05 to 0.07%). The Primorsk mix is composed of three grades (fluctuations being 0.03%).

Deputy Vice President of Transneft recapitulated that in the exchange trade, where Russian export grades must comply with all requirements for benchmarks, the company's strategic goal is ensuring stability and uniformity in the parameters of export deliveries, which cannot be assured by the traditional technology of forming commodity flows.

In answering to this challenge Transneft developed a target program of stabilizing and improving the quality of transported crude oil. As part of this program, the company implements numerous projects of building and rebuilding the oil mixing and compounding systems at its 17 facilities (oil pump stations Samara, Krotovka, Kaleykino, Perm, Gorky and others), building and refitting chemical labs, crude quality measuring units and other technological facilities in the quality control system, as well as upgrading the facilities with automated equipment and on-line instruments of continuous crude oil quality control and implementing the crude quality network management software.

In conclusion Igor Katsal underscored that the projects of technological overhaul, delivered by his company, were capable of ensuring the assignment of the benchmark status to Urals grade - the world pricing indicator for exported Russian crude oil.