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Presentation from:

Vladimir KapustinGeneral DirectorVNIPINEFT

2011 Sponsors Organised by

www.wraconferences.com/rrr

Geneva, November 2011

KEY PROBLEMS OF OIL-REFINING DEVELOPMENT IN RUSSIA

Refining and Petrochemicals in Russia and the CIS Countries XV Annual Roundtable

OAO VNIPIneft General Director,Gubkin Russian State Oil & Gas University,

Head of the Oil Refining Technology Department,Dr.Eng.Sci., Professor

V.M. Kapustin

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TECHNICAL LEVEL OF RUSSIN REFINERIES

1991• Total capacity: 345 MTA• Throughput: 286 MTA• Average load: 83%

2011• Total capacity: 271 MTA• Throughput: 250 MTA• Average load: 92%

Indicator Russia Global

1991 2011

Conversion rate 68 71 ~90

Nelson complexity index 4,2 4,4 6,7*

* Average for industrially developed countries

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KEY PROBLEMS OF OIL-REFINING SECTOR IN RUSSIA

1. Low conversion rate and Nelson complexity index

2. Protracted introduction of technical regulations for petroleum product quality

4. Prolonged construction periods and high financeexpenditure

3. Problems with introducing new customs duties

5. Low share of implemented Russian technologies

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CONVERSION RATE PER COMPANY, %

Bashneft

LUKOIL

Gazprom

Gazprom Neft

TAIF-NK

TNK-BP

Rosneft

Alliance

Russneft

Surgutneftegaz

43,256,7

62,064,5

66,768,0

74,174,6

76,786,2

0,0 20,0 40,0 60,0 80,0 100,0

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PREDICTED INCREASE IN CRUDE OIL CONVERSION RATE TILL 2020

71,1

80,2

85

60

65

70

75

80

85

90

2010 2015 2020

Conversion rate, % At least

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CONSTRUCTION OF NEW DEEP CONVERSION COMPLEXES AS THE WAY OF IMPROVING THE CONVERSION RATE

OAO NK ROSNEFT

Achinsk Hydrocracking complex, 3.2 MTA

Samara Catalytic cracking, 1.2 MTA

Syzran Catalytic cracking, 1.2 MTA

TuapseHydrocracking, 4.0 MTAFlexicoking, 2.6 MTA

Komsomolsk Hydrocracking, 2.0 MTADelayed coking,1.0 MTA

Novokuibyshevsk Hydrocracking, 2.0 MTA

OAO LUKOIL Volgograd Hydrocracking complex, 3,5 MTA

Kstovo 2nd catalytic cracking complex, 2.0 MTA

Perm Delayed coking, 2.1 MTA

2014

2014

2016

20142012

2015

2016

2016

2014

2014

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Hydrocracking, 3.0 MTA

Hydrocracking, 2.0 MTA

Hydrocracking, 2.0 MTA

Hydrocracking, 4.7 MTA

Hydrocracking, 3.3 MTA

Hydrocracking, 0.5 MTA

Hydrocracking, 2.0 MTA

CONSTRUCTION OF NEW DEEP CONVERSION COMPLEXES AS THE WAY OF IMPROVING THE CONVERSION RATE

(continued)

OAO TNK-BP Ryazan

Ufa

Kirishi

Delayed coking, 1.2 MTAHydrocracking, 1.5 MTA

OAO BASHNEFT

OAO SURGUTNEFTEGAZ

Nizhnekamsk

Nizhnekamsk

OAO TATNEFT

OAO TAIF

Omsk

Khabarovsk

OAO GAZPROM NEFT

OAO ALLIANCE

ANTIPINO REFINERY

2015

2017

2012

2013

2017

2013

20172017

?

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TARGET DATES FOR INTRODUCTION OF NEW PETROLEUM PRODUCT REGULATIONS

New regulations

2013Euro 3

2015Euro 4

2016Euro 5

Protraction of introducing new standards for motor fuels will result in delay with the construction of new deep conversion complexes

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UNITS DESIGNED FOR IMPROVING PETROLEUM PRODUCT QUALITY TO BE COMMISSIONED TILL 2020

Alkylation

Russneft (1)

Gazprom Neft (3)

LUKOIL (4)

Rosneft (1)

Bashneft (1)

Surgutneftegaz (1)

Hydrotreating

Russneft (1)

Gazprom Neft (3)

LUKOIL (4)

TNK-BP (2)

Bashneft (3)

Surgutneftegaz (1)

Rosneft(6)

SalavatNOS (1)

Tatneft (1)

TAIF-NK (1)

Isomerization

Russneft (1)

Gazprom Neft (3)

LUKOIL (1)

TNK-BP (2)

Surgutneftegaz (1)

Rosneft (5)

SalavatNOS (1)

Tatneft (1) Reforming

Alliance(1)

Gazprom Neft (1)

TNK-BP (1)

Surgutneftegaz (1)

Rosneft (3)

Tatneft (1)

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WINTER DIESEL FUEL SHORTAGE IN DOMESTIC MARKET

Problem Ways of problem solving

Winter diesel fuel demand is 14.7 million t annually and will increase by ~ 40% for 10 years.In 2010 the output was 10.6 million t. The output could reduce by 3.8 million t by2013.

Commissioning of two-stage hydrocrackers in Tuapse(OAO NK Rosneft) and Kirishi (OAO Surgutneftegaz) producing winter diesel fuel keeping the volume in winter

Construction of state-of-the-art hydrotreatment / hydroisomerization unit at Angarsk NKhK

Conversion of diesel hydrotreatment units into dewaxing uits in Yaroslavl, Kstovo, Ryazan, Kirishi, Perm, Samara, Omsk, Ufa and Nizhnekamsk

Construction of 1.0-MTA kerosene hydrotreatment units at Kirishi Refinery,Angarsk NKhK, Omsk Refinery and Yaroslavl Refinery

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HIGH-OCTANE MOTOR GASOLINE SHORTAGE IN DOMESTIC MARKET

Problem Ways of problem solving

The main cause of high-octane Class 3 (octane numbers 92 and 95) gasoline shortage was increasing the export of straight-run gasoline and high-octane gasoline components due to high prices in foreign markets

To reduce gasoline shortage in the domestic market the RF Government raised customs duties for gasoline

To eliminate the shortage it is necessary to increase high-octane gasoline capacity, including capacities of isomerization and alkylation units, unitsof hydrotreating of gasoline from catalytic cracking and catalytic reforming

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MEASURES REQUIRED TO SWITCH OVER TO TECHNICAL REGULATIONS FOR MOTOR GASOLINES

Reduce sulfur content to 10 ppmIt is necessary to build catalytic cracking gasoline hydrotreatment units at Moscow, Omsk and Angarsk refineries

Increase an average octane number of motor gasolines at simultaneous reduction of the aromatics content.To this end, the following measures are to be taken for the units below:

Light gasoline cut isomerization:– Revamp 9 of 13 existing isomerization units to increase

the octane umber from 82 up to 88-90– Build 8 state-of-the-art isomerization units

Reforming to achieve the higher octane number− Revamp some of the units by a UOP hybryd design and build at least 5 new

continuous catalytic reformers

Isobutane alkylation– Build at least 5 alkylation units

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RF GOVERNMENT MEASURES

Reached an agreement between Federal Antimonopoly Service, Rostekhnadzor and oil companies on acceleration of Russian oil refineries modernization program

Changed rates of export duties on light and heavy oil products

Permitted import of unique equipment without charging duties

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NEW CUSTOMS DUTY RATES FOR LIGHT AND HEAVY PETROLEUM PRODUCTS

In October 2011 new tax regulations (so-called “60-66” formula) became valid.

Crude oil export duties are reduced from 65% to 60% of the difference between market price and standard price and export duties for heavy and light petroleum products will be 66% of the crude oil export duty.

Petroleum product export duty unification will make the export of heavy petroleum products less profitable and the export of light petroleum products more profitable.

As part of the new tax regulations, higher export duty for gasoline was established at 90% of the crude export duty rate from May 2011.

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COMPENSATION FOR LOSSES CAUSED BY INTRODUCTION OF NEW TAX REGULATIONS

OAO Tatneft

7,6 billion Rbls per yearduring 5 years

OAO Bashneft

2,3 billion Rbls per yearduring 4 years

Preferential royalty rates for 5 yearsto the amount of 47 billion Rbls

In November, 2011 the RF State Duma adopted the law introducing amendments to the Tax Code.

Preferential royalty rates are applied to fields located in Tatarstan andBashkiria and having a volume more than 200 million t.

These preferential royalty rates may be used only if the company does not enjoy any crude oil export duty preference.

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CRUDE OIL DEEP CONVERSION COMPLEX PROJECTS

Project implementation period

8 years

3.5 years

Catalytic cracking complex, RyazanOAO TNK-BP

14 yearsVGO hydrotreating complex, KirishiOAO Surgutneftegaz

OAO Tatneft VGO hydrotreating complex, Nizhnekamsk

8 yearsCatalytic cracking complex, KstovoOAO Lukoil

VGO hydrotreating complex, Yaroslavl

OAO Slavneft-YaroslavNOS 6 years

10 yearsVGO hydrotreating complex, PermOAO Lukoil

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IMPLEMENTED RUSSIAN OIL-REFINING TECHNOLOGIES

Crude vacuum distillation

VGO catalytic cracking

Catalytic cracker gasoline hydrotreatment

Furl hydrotreatment catalysts

Isomerization

Demercaptanization

Delayed coking

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VACUUM DISTILLATION TECHNOLOGY OF OAO VNIPINEFT

Production of VGO with high end boiling points

up to 580оС – heavy fractions

up to 600оС – light fractions

Low metal content

Deep evaporation of diesel fuel (up to 99% of feedstock potential)

Key benefits of technology:

Implemented at: OJSC TANECO, ОАО TAIF-NK, ООО LUKOIL-Permnefteorgsintez, ОАО Salavatnefteorgsintez and a number of other refineries

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VGO CATALYTIC CRACKINGОАО TAIF

Key benefits of technology:

Flexible VGO refiningRefining based on gasoline variant:

Gasoline output with end boiling point of 205оС – 56% wt. Total output of propane-propylene and butane-butylene

fractions, gasoline and light gas-oil – 87,5% wt. RON – 94,2 Fresh catalyst consumption – less than 0,5 kg/t of

feedstock Start-up date: 2006

Developers: TIPS RAS, ОАО VNIPIneft, ОАО VNIINP

The project received RF Government’s Science and Technology Award for 2008.

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MEA Treatment Unit

Caustic Treatment Unit

Stabilizer

Heater

Reactors

С3 – С4fractionator

Stabilizer

HYDROTREATMENT OF CATALYTIC CRACKING GASOLINE

Key benefits of technology:

Improvement of finished product quality:

Production of hydrotreated catalytic cracking gasoline fractionwith sulfur content of up to 100 ppm

Decrease of hydrogen sulfide content to 30 ppm and sour sulfur to 0,002 % wt. for production of propane-propylene and butane-butylene fractoins in compliance with technical specifications

Reduction of harmful environmental impact

Getting a possibility to increase plant capacity

Developers: TIPS RAS, ОАО VNIPIneft, ОАО VNIINP

Implemented at: ОАО TAIF NK

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Developer: Institute of Catalysis, RAS Syberian Branch

Enables producing diesel fuel with a sulfur content not exceeding 10 ppm

Suitable for processing of straightforward diesel and kerosene cuts as well as secondary feedstock

Adapted to standard process units of Russian refineries

Commercial production of the catalyst is implemented at ZAO Promyshlennye Katalizatory

NEW CATALYST FOR DEEP HYDROTREATMENT OF DIESEL CUTS

Catalyst IK-GO-1

Main advantages of the catalyst:

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LIGHT NAPHTHA ISOMERIZATION TECHNOLOGY

Key benefits:

High catalyst activity rating at S, N, Н2О resistance

It is not required to supply acid component

Low chemical consumption of hydrogen

Complete restorability of the catalyst after regeneration

Catalyst service life is 10 years

Interregeneration period is 3 years

Developer: OAO NPP NeftekhimCatalysts: SI-2; Pt + ZrO2 + SO4

-2

Implemented at: OAO Gazprom neft – Omsk Refinery, OOO LUKOIL-Volgogradneftepererabotka, OOO LUKOIL-Permefteorgsintez, OAO LUKOIL-Ukhtaneftepererabotka, AO PETROTEL-LUKOIL, OAO Achinsk Refinery, OAO NOVOYL, OAO Ufaneftekhim, OAO Ufa Refinery, ZAO LINIK, ZAO RNPK, OOO KINEF

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DELAYED COKING TECHNOLOGY

Minimizing of utility consumption (25-30% reduction against existing units)

Full automation of the unit, including opening and closing of coke drum manholes

Mean time before failure: over 2 years

Reduction of environmental emission due to implementation of an open system of coke drum blowdown

Developers: UGNTU, GUP Institut Neftekhimpererabotki

The technology was implemented at OAO LUKOIL-Permnefteorgsintez, OAO Novoiland Turkmenbashi Refinery.

The process unit was put into operation at OAO Ufaneftekhim in 2009.

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Production of efficient & environmentally sound

motor fuels and petrochemical feedstock

Processing of associated and

natural gasTechnologies

DEEP CONVERSION OF HYDROCARBON RESOURCES TECHNOLOGY PLATFORM

Deep conversion of heavy petroleum

residues

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ОАО VNIPINEFT: LEADING RUSSIAN ENGINEERING COMPANY IN OIL REFINING

82 years on the market of engineering services

Largest oil refining projects over the past 5 years:

Crude Distillation Units, Catalytic Cracking and Gasoline Hydrotreating Units(OJSC TANECO, ОАО TAIF-NK)

Vacuum Distillation Unit and Visbreaking Unit(ООО PO Kirishinefteorgsintez)

VGO Hydrotreating Complex (ZAO Ryazan Refinery) VGO Hydrocracking Complex (ООО Slavneft-Yaroslavnefteorgsintez) Hydrocracking Complex (ООО LUKOIL-Permnefteorgsintez).

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2010

2009

2008

2006

2004

OAO TANECO• Atmospheric Vacuum Distillation• Vacuum Residue Visbreaking

OOO PO Kirishinefteorgsintez• Atmospheric Residue Vacuum Distillation• Vacuum Residue Visbreaking

ZAO Ryazan NPK• VGO Catalytic Cracking Complex

OOO LUKOIL-Permnefteorgsintez• VGO Hydrocracking Complex

OAO TANECO• VGO Hydrocracking Complex• Oil Plant

2003ExxonMobil• Sakhalin 1 Onshore Processing Facilities

OAO VNIPINEFT EXPERIENCEIN EQUIPMENT PROCUREMENT

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CONCLUSION

Key problems of the Russian oil-refining industry are as follows:

Low crude conversion rate and Nelson Complexity index Delayed introduction of technical regulations for petroleum product quality Problems with introduction of new customs duties Prolonged construction periods and high finance expenditure

General industry development program foresees an increase in the crude conversion rate up to at least 85% . New deep conversion complexes should be built to achieve this objective

OAO VNIPineft, being a leading Russian engineering company, is ready to provide a full set of engineering services related to refinery modernization and construction.

New tax regulations based on the so-called “60-66-90” formula have been introduced.

Competitive oil-refining technologies have been developed in Russia. These technologies should be used more actively when revamping Russian refineries

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Thank you for your kind attention!