Agrochemistry and oil refining in Russia. S.D. Turgunov General Director

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1 Agrochemistry and oil refining in Russia S.D. Turgunov General Director

2 Russian methanol market 2

3 Methanol production in Russia kt Methanol production capacities in Russia NZSP Ammoni Novatek Yurkharovneftegaz Acron Angarsk NKhK Nevinnomysski Azot NAK Azot Shchekinoazot Sibmetakhim Togliattiazot Metafraks Balance of methanol production and consumption in Russia kt production Consumption plants were produced methanol in Russia in 216 Production potential in Russia is growing both due to commissioning of new plants (238 ktpa at Ammoni) and reconstruction of the existing plants Reconstruction of the methanol plant at Metafraks continued in 216; its capacity was increased to 1 mln 1 ktpa. After completion of the second stage of the reconstruction, capacity of the company will increase by 1% to 3.37 t/d (1,2 ktpa) Production capacities are increasing, but the utilization factor is decreasing in Russia on average. Russian average capacities utilization, %

4 Consumption and supplies of methanol in Russia Structure of distribution of methanol produced in Russia kt 4 35 Demand of the internal market is fully met by the internal production resources; no import Commercial Internal consumption export Structure of methanol consumption in Russia, 216 Share of commercial methanol (supplies to internal market) is over 4% of the total production volume in recent years. Due to a decrease in the demand from gas plants in 216, supplies to Russian consumers reduced by 195 kt and made 1 mln 49 kt. 715 kt of methanol or 19% of the total volume of produced product was processed directly by manufacturing plants. Acetic acid Chemistry 4,2% 3,7% TAME 2,2% Oil and gas industry 14,9% Others 5,7% Formaldehyde (formalin, UFC) 37,7% Russian structure of methanol consumption is different from the global one. Consumption of methanol for formaldehyde on the global market is only 3%; about a half of the consumed methanol in Russia is accounted for methanol (including isoprene production). Over 3% of methanol in the world is consumed as a fuel either directly or indirectly through MTBE/TAME. Methanol is not used as an alternative fuel in Russia and the share of oxygenates in the structure of methanol consumption is about 2%. MTBE 19,3% Isoprene 12,3% 4

5 Methanol supplies. Export mmt 1,6 1,5 1,5 1,4 1,4 1,3 1,3 1,2 1,2 1,1 42% 45% 41% 4% 35% 35% 3% 25% 2% 15% 1% 5% % Export Share of export in production Export is regulated by the internal demand Marked growth in demand at a small increase in production resulted in a sharp reduction of export in 215 (minus 247 kt) Decrease in methanol consumption by Russian consumers in 214 and 216 was the reason for export growth to 1,5 mmt Main countries receiving Russian methanol in 216 Germany Ukraine 4% 1% Belarus 2% Lithuania 4% Others 2% Finland (consumption) 14 kt(9%) a half of domestic methanol is supplied to customers not directly, and through the ports of Finland where methanol needs to be brought by rail Romania 6% Poland 15% Finland 52% Belgium Sweden Great Britain Denmark Significant part of methanol supplied from Russia to Finland (66 kt from 8 kt in 216) is transited to other countries. Russian methanol is also transited through Slovakia. Slovakia 12% Kazakhstan 2% Poland Netherlands Others 5

6 Methanol production projects in Russia MetaSev (1.65) 22 BGKhK (1.7) 225 EKOZON Ltd. (1.6) 225 Russian Investments TPGK (1.3) 223 Shchekinoazot (.45) 218 Shchekinoazot (,5) 221. OTEKO (3.5) 221 RICOAL (1.9) 221 MTO UralMethanolGroup (.6) 22 Mangazeya (.1) 221 ESN (1.2) 221 NKhG (1.8) 221 YaTEK (1.7) YatEK (1.7) Mitsubishi Corporation RUS (1) 225 SUEK and Marubeni 17 projects altogether with the design capacity of 2,7 mmt excluding projects, the capacity of which is not announced yet (Russian Investments, SUEK and Marubeni) 6

7 Russian gas prices regulated by Federal Tariff Service USD/mmBTU 2,5 2, 2,2 2,1 2,3 2,3 2,3 1,9 2,3 1,5 1,5 1,,5, Leningrad Region Arkhangelsk Region Rostov Region Krasnodar Territory Primorsky Territory Sakhalin Region Sverdlovsk Region Tula Region Ekozon, Pikalevo BGKhK, Ust Luga NGSK, Ust Luga Russian Investments RICOAL OTEKO, Taman NKhG, Kozmino Mitsubishi, Sakhalin UralMethnolGroup, Nizhni Tagil Shchekinoazot, Pervomayski 7

8 Mineral fertilizers 8

9 Production and consumption of mineral fertilizers in Russia mmt Balance of production and consumption of mineral fertilizers in Russia (based on 1% nutrient materials) ,3 19,6 8,7% 5,3 5,4 86,4% 86,6% 19,9 2,7 Type structure of mineral fertilizers production in Russia, 216 4,6 86% ,5 88% 87% 86% 85% 84% 83% 82% 81% 8% 79% 78% 77% production Consumption Utilization of capacities in Russia Main trends of the Russian mineral fertilizers market: Russian market of mineral and chemical fertilizers is consolidated: Main players in the segment of nitrogen and phosphoric fertilizers: MCC EuroChem, Uralchem, PhosAgro and Acron. Main player on the ammonia market is Togliattiazot capacities of the plant make 22% of the Russian ammonia production volume Key player on the carbamide market in Russia is Nak Azot 17% of the Russian carbamide production volume Market of mineral fertilizers grows by 4% on average in 216. The only segment where the production is dropping is the segment of potassium fertilizers. This can be explained by the fact that Uralkali reduced the capacities because of the accident at the Solikamsk-2 mine at the end of 214. The volume of production did not restore. potassium fertilizers 38% (based on 1% K2O) phosphoric fertilizers 17% nitrogen fertilizers 45% (based on 1% N) (based on 1% P25) Growth rates of mineral fertilizers production by types Phosphoric fertilizers 7% 9.8% Nitrogen fertilizers 5.3% 8.5% Potassium fertilizers -4.1% -3.8% 9

10 Export of mineral fertilizers from Russia (based on 1% nutrient materials) mmt 16, 15,5 15, 14,5 14, 13,5 13, 12,5 12, 13,1 71% 14,3 73% 15,4 77% 15,3 74% 78% 77% 76% 75% 74% 73% 72% 71% 7% 69% Limited volume of the domestic market determines the export orientation of Russian manufacturers (steadily over 7% in production) Profitability of production and competitiveness of the Russian product, including foreign markets, grow in Russia due to the expenditures in roubles Brazil (21%), China (11%) and USA (8%) are the key markets for Russian fertilizers 11, export Share of export in production 68% Export of nitrogen fertilizers from Russia Export of potassium fertilizers from Russia Export of mixed fertilizers from Russia India 3% Estonia 3% Others 37% Peru 4% Turkey 5% Brazil 28% USA 13% Ukraine 7% Malaysia 5% Poland 5% Indonesia 6% Others 24% USA 6% India 1% China 27% Brazil 17% Others 4% India 4% Turkey 5% Brazil 15% UAE 5% Ukraine 15% China 1% Estonia 6% 1

11 Prices for mineral fertilizers Average prices for phosphoric fertilizers, $/t Annual change Diammonium phosphate, FOB USA % Monoammonium phosphate, FOB Baltic Sea % Triple superphosphate, FOB Tunisia % NPK , FOB CIS countries % Average prices for potassium chloride, $/t Annual change Spot FOB Baltics % Spot FOB Vancouver % Average prices for nitrogen fertilizers Annual change Ammonia, FOB Yuzhny % Carbamide, FOB Yuzhny % Аmmoniac saltpeter, FOB Black Sea % Carbomide-ammonium mixture, FOB CIS countries % Reduction of global prices is mainly determined by the decline in demand from the key consuming regions (China, Latin America, etc.). Rates of decline for different types of fertilizers are from 15% for ammoniac saltpeter to 35% for potassium fertilizers In the conditions of reduction of global prices for mineral fertilizers, Russian manufacturers increase the production volumes due to the weak rouble and continue putting new plants into operation 11

12 Projects Apatite concentrate Plant Capacity increase, kt Commissioning Kovdorskiy GOK (EuroChem) 441 Stage I (completed) Stage II North-Western Phosphorous Company (stage II) (Acron) 1, 218 (possibly 217) Apatit, Kirovsk (PhosAgro) 8 Completed Total 2,241 Potassium chloride Plant Capacity increase, kt Commissioning EuroChem VolgaKali Potash (stage I) 2,3 218 Uralkali, Berezniki (extension of Solikams-3) Uralkali, Berezniki (Ust-Yayva area + Solikamsk-3) 2,8 225 Verkhnekamsk Potash Company, Berezniki/Talizky GOK (Acron) 1, 221 EuroChem Usolsky Potash Plant (stage I) 2, Total 9,22 Ammonia Plant Capacity increase, kt Commissioning Ammoni, Mendeleyevsk 455 (717 w/o methanol) Completed Metafraks, Gubakha Nemanazot, Kalinigrad Region 1,5 n/a Kuybyshevazot, Togliatti Acron, Veliky Novgorod (completed) Shchekinoazot Novomoskovsky Azot (EuroChem) 28 completed PhosAgro Cherepovets (PhosAgro) Integrated mining and chemical plant in the Republic of Sakha Integrated mining and chemical plant in the Khabarovsk Territory 1, n/a Azot, Kemerovo (SDS Azot) 77 n/a MCC EuroChem, Kingisepp 1, 218 Nakhodka Mineral Fertilizers Plant 1, Total 7,894 12

13 Plant Capacity increase, kt Commissioning Проекты Ammoniac saltpeter Angarsk nitrogen fertilizer plant (SDS Azot) Ammoni, Mendeleyevsk 38 completed Novomoskovsky Azot (EuroChem) 34 completed Azot, Kemerovo (SDS Azot) 5 n/a Dorogobuzh (Acron) 4 n/a Total 1,89 Carbamide Novomoskovsky Azot (EuroChem) 1 Under revamping Ammoni, Mendeleyevsk completed Acron, Veliky Novgorod 15.2 Under revamping PhosAgro Cherepovets (PhosAgro) Kuybyshevazot, Togliatti Nemanazot, Kaliningrad Region 1,1 n/a Metafraks, Gubakha East Siberian GKhK (?) Togliattiazot Mineralnie udobrenia, Perm 275 (increase) 219 Azot subsidiary of URALCHEM Total 4,976 Calcium carbonate-ammonium nitrate KChKhK subsidiary of URALCHEM 6 (increase) (?) Mixed mineral fertilizers Fosforit (EuroChem) 15 (?) Dorogobuzh (Acron) Nevinnomyssky Azot (EuroChem) 6 (NK) 218 EuroChem Belorechenskie mineralnie udobrenia 5 (NPK) 219 (designing) Acron 6 (azophoska) 216 (completed) Metakhim (PhosAgro) 15/135 (wet-process phosphoric acid/npk) 218 (favorable conclusion of expert review) Total 1,15 Ammonium sulphate EuroChem Belorechenskie mineralnie udobrenia 55 (NS) 217 Kuybyshevazot (ammonium sulphate-nitrate) Kuybyshevazot/Trammo AG PhosAgro Cherepovets Total 87 13

14 Russian oil refining

15 6 mmt 5 Volumes of oil production and primary oil refining in Russia ,2% 25 Taif NK 3% Taneco 3,1% Mini-refineries 3.3% Bashneft 6,6% 3,4% 4% 3,5% 2,6% 2,5% 3% 2% 1,2% 1,3% 1% 1,4%,6% % % Slavneft 5,3% Others 2% Surgutneftegaz 6,6% Rosneft 26,2% -2,1% Lukoil 15% Gazprom neft 11,2% -1,2% Rate of oil production growth Rate of primary refining growth Oil production Primary oil refining Structure of Russian plants by primary oil refining volumes in 216 6% 5% -1% -2% -3% Rate of oil production growth is restoring after a decline in 214 and makes 2.5% in 216. Russian primary oil refining continues dropping from 215. Refining is more sensitive to oil price collapse than production because the margin of Russian refineries is decreasing with the fall of oil prices. mmt Dynamics of primary oil refining volumes in Russia Прочие Antipinsky Refinery TAIF TANEKO Mini-refineries Slavneft Bashneft Surgutneftegaz Gazprom neft LUKOIL Rosneft 15

16 Refineries in Russia. Volume of primary refining and annual growth rate by plants in 216 Rosneft 73,2 mmt -3% RN Komsomolsk Refinery RN Tuapse Refinery Syzran Refinery Novokuibyshevsk Refinery Kuybyshev Refinery Achinsk Refinery VNK Angarsk NKhK Ryazan Refinery Saratov Refinery 6,2 mmt 9,8 mmt 6,3 mmt 7,1 mmt 6,1 mmt 7 mmt 9,2 mmt 15,3 mmt 5,9 mmt -11% 2% -2% -14% -1 % 12 % 2 % -5 % -4% Bashneft (a Rosneft company from 216) 18,3 mmt -5% Bashneft Novoil subsidiary Bashneft Ufaneftekhim subsidiary Bashneft UNPZ subsidiary 6,5 mmt 7,8 mmt 4 mmt 1,1% -1% -19% LUKOIL 41,8 mmt -,1% LUKOIL Volgogradneftepererabotka LUKOIL PNOS LUKOIl UNP LUKOIL Nizhegorodnefteorgsintez 12,8 mmt 12,1 mmt 2,85 mmt 14,8 mmt 1,4% 7,7% -19% -4% Gazprom neft 31,1 mmt -2% Gazpromneft Omsk Refinery Gazpromneft Moscow Refinery 2,5 mmt 1,7 mmt -3% -2% Surgutneftegaz -1% Kirishinefteorgsintez 18,5 mmt -1% 18,5 mmt Gazprom 5,3 mmt -6% Gazprom dobycha Astrakhan Gazprompererabotka, Surgut ZSK Gazprompererabotka, Urengoy ZPKT Gazprom dobycha Yamburg 2,1 mmt 2,8 mmt,3 mmt,3 mmt -4% -13% 4% 1% 16

17 Refineries in Russia. Volume of primary refining and annual growth rate by plants in 216 Gazprom neftechim Salavat 6,5 mmt,4% TANECO 8,7 mmt 1% TAIF NK 8,3 mmt -1% NNK 4,7 mmt 12% NNK Khabarovsk Refinery 4,7 mmt 12% Slavneft Slavneft YANOS -2% 15 mmt -2% 15 mmt NOVATEK 6,9 mmt 4% «NOVATEK Ust Luga 6,9 mmt 4% 2% Independent refineries in Russia. Volume of primary refining and annual growth rate by plants in mmt Afipsky Refinery Yaysky Refinery Antipinsky Refinery 6 mmt 4% 2,8 mmt -6% 7,8 mmt -4% Krasnodar Refinery KEN 2,1 mmt 26% Mariysky Refinery Ilsky Refinery 1,6 mmt -5% 2,7 mmt Novoshakhtinsk Refinery Mini-refineries -6% 4,4 mmt 39% 9,1 mmt 9% ForteInvest 4,6 mmt -18% Orsknefteorgsintez 4,6 mmt -18% 17

18 Market of main oil products in Russia Balance of production and consumption of motor gasoline in Russia mmt ,5 35,7 35,4 35, ,7 38,3 39, Balance of production and consumption of diesel fuel in Russia mmt ,2 31,8 31,1 32, , 77,3 76,1 76, Internal consumption Production Internal consumption Production Structure of motor gasoline production in Russia by plants, 216 Surgutneftegaz 7% Slavneft 7% Bashneft 1% Gazprom 6% Others 7% Gazprom neft 18% incl. 1% - minirefineries Rosneft 26% Lukoil 19% incl. 1% - minirefineries Structure of diesel fuel production in Russia by plants, 216 Surgutneftegaz 9% Bashneft 9% Slavneft 5% Others 1% Independent refineries 11% Gazprom neft 11% Rosneft 27% Lukoil 18% 18

19 Upgrading Structure of motor gasoline production by ecological classes 12% Structure of diesel fuel production by ecological classes 12% 1% 8% 6% 4% 2% % 24% 63% 74% 35% 84% 93% 17% 41% 11% 2% 15% 9% 2% 6% 6% Class 5 Class 4 Class 3 and lower 1% 8% 6% 4% 2% % 25% 45% 9% 58% 73% 85% 11% 8% 66% 48% 1% 34%,3% 17% 15% Class 5 Class 4 Class 3 and lower Oil conversion ratio in Russia Yield of oil residue per 1 tonne of refined feedstock 8% 78% 76% 79,2% 29% 27% 28,5% 28,1% 28% 27,1% 74% 72% 7% 68% 7,6% 71,1% 71,4% 72,3% 74,2% 25% 23% 21% 25,2% 2,3% 66% %

20 Tax maneuver. Redistribution of tax burden s/т Dynamics of cost of Urals oil and Russian export duty Level of prices for URALS crude oil Export tax for crude oil RUB/$ % 2% 1% % -1% -2% -3% -4% -5% -6% -7% -8% %-13% -18% -26% -48% -68% Growth rate of URALS crude oil prices Growth rate of export tax for crude oil 22% 7% Limit oil export tax rate 6% 59% 42% 42% 3% Main characteristics of Tax Maneuver Reduction in rates of export custom duties for crude oil and oil products Increase in the base rate of subsoil tax for commercial oil Reduction in excise taxes for motor fuels to prevent sharp rise in prices (in the context of subsoil tax increase) Dynamics of subsoil tax and excise tax on motor fuels RUB/t Rates of subsoil tax on the left axis Subsoil tax rate Excise tax for gasoline Excise tax for diesel RUB/t KRUB/t 25,5 25, 24,5 24, 23,5 23, 22,5 22, 21,5 21, Goal of the maneuver is to reduce the budget dependence on the oil prices and mitigate the effect of their fall for the oil industry Average price for motor fuels on the Russian domestic market Motor gasoline, average price of domestic market Diesel fuel, average price of domestic market Russian average export price for motor fuels $/t Motor gasoline, average export price Diesel fuel, average export price