This autumn Transneft will obtain the status of commodity operator at St Petersburg International Mercantile Exchange (SPIMEX). The pipeline company as well plans to increase significantly the amount of fuel pumping, invests in reconstruction of the existing facilities and construction of new pipelines. Vladimir Nazarov, Deputy Vice President – Director of the Petroleum Products Transportation, Metering and Quality Department of Transneft, spoke on the prospects for development of petroleum products projects in his interview to Interfax.
- What is the main point of Transneft’s status of commodity operator at SPIMEX? And what is your assessment of its influence on development of Russian fuel market?
- Speaking about official terminology, Commodity Operator (CO) is an organization which obtained accreditation of the CB (Central Bank) of the RF (Russian Federation) for rendering services of conducting, control and registration of commodity supplies under commitments, arising as the result of exchange transactions and admitted to clearing.
Explaining in simple language: contractors during stock trading make arrangements on sale and purchase of fuel, Transneft receives a notification on that, generates accompanying documents for the transaction, secures storage of the specified amount of the goods in its infrastructure, and after payment it guarantees transfer of the goods to the customer.
That is, as a commodity operator Transneft will render the service of petroleum products storage with the guarantee of transfer of the goods’ ownership according to the results of the exchange transaction.
The participants of the transaction gain an advantage in speed of the transaction completing - the goods are transferred as quickly as the money. One more significant advantage is that a customer can buy fuel at a concrete, the nearest exchange trade basis. At the present time Transneft system in Russia joins 16 refineries, 46 different oil depots, 5 airports, the company’s system has 11 own loading depots. Transneft plans to secure work as a commodity operator at its own motor loading depots.
CO for the market is first of all one of the instruments of exchange trade development. According to SPIMEX itself, the more instruments it will provide for the market participants, the higher its liquidity is. Besides, Transneft as CO will contribute to expanding the possibilities of goods purchasing for independent companies and traders. So, the work of a commodity operator will have a very positive impact on internal market, both from the point of view of increasing the amount of stock tradings, and from the point of view of reducing exclusive influence of fuel producers.
- When will you obtain the CO status and start performing the corresponding functions?
- According to the project implementation schedule, in the first decade of November Transneft will obtain the commodity operator status; then the company will be able to start rendering the service officially. Now we are keeping on schedule: finishing preparatory measures, first of all legal ones. Transneft developed standard documents for the new services rendering. As well, a set of document regarding relations of Transneft and SPIMEX from the point of view of clearing has been generated; at the same time SPIMEX prepared its corrections to the clearing rules using CO.
The last step will be filing an application to the CB for obtaining accreditation for CO activities. We will do it in the beginning of September. We expect that by November the CB will give the corresponding permission and Transneft will be able to perform the functions of CO at the exchange. Now we are dealing with the problem of who will render clearing services at the exchange - SDCO (Settlement depository company) as before or the SPIMEX itself. Initially we prepared a set of documents where trilateral work rules were prescribed (Transneft, SDCO and SPIMEX). But at a certain point it turned out that the relations will be bilateral (Transneft and SPIMEX); the documents had to be rearranged, but it is not crucial.
The most important is the fact that Transneft has developed a special software, on the basis of which the company will cooperate with clearing, exchange, transaction participants. The functioning operation scheme supposes the necessity of signing a number of paper documents in response to the fact of ownership transfer from one contractor to another, and the transaction participants, Transneft and exchange are located in different places. Our software unit will become an important connecting instrument securing quick electronic document management under transactions.
This week we started testing in order to check our software unit’s cooperation with exchange. Testing of systems integration will last till the end of August. We are sure that by the moment when the CB issues accreditation for rendering CO services, we will be fully ready to work according to this status in full.
- By how much are you expecting to increase the number of exchange transactions at Transneft bases after obtaining the CO status?
- The total amount of transactions with petroleum products at SPIMEX in 2016 was increased in comparison with 2015 by 14% - up to 5.8 million tons; increasing of this index at exchange is forecast as well for 2017.
Increase of exchange transactions with diesel fuel at Transneft’s bases in 2016 was equal to 53%, reaching the amount of 460 thousand tons. We expect increasing the number of exchange transactions more than by 20% following this year results. The share of exchange transactions with diesel fuel among the total number of transactions at Transneft’s bases in 2016 was equal to 8%; for 7 months of 2017 it is almost 10%.
Supposing that in 2017 the rates of growth will be the same, after start of the project “Commodity Operator” we expect doubling the amount of exchange transactions at Transneft’s bases. Of course, it does not mean that the exchange transactions market itself will be increased, but we hope to shift the emphasis to transactions with pipeline system. Transneft intends to occupy a significant share here; in the long view the company’s work as CO will contribute to increasing the amount of exchange transactions at the company’s bases up to 30% in the total amount of transactions in the section “Petroleum Products” of SPIMEX.
- Is Transneft’s infrastructure ready for start of the CO project?
- The existing infrastructure allows fully satisfying the demand for services on storage and loading of petroleum products for internal market consumers in accordance with the long-range plans of petroleum products transportation through the petroleum products trunk pipelines (PPTP) system.
We have made everything for the customers’ comfort at our loading depots, modernized and optimized them. Now reconstruction is continued at some facilities, in particular, at loading stations of Moscow Region, where three stations are functioning - Volodarskaya, Solnechnogorskaya and Nagornaya. We want to increase their capacities, because we see the potential of transportation and loading in the capital.
Due to the commodity operator project we hope to activate use of our final terminals for petroleum products storage and loading. Because the process of petroleum products storage and loading is preceded by their transportation, we are sure that Transneft’s participation in implementation of exchange transactions will indirectly allow us to increase the amount of transportation at internal market as well.
- By how much petroleum products transportation through Transneft system to internal market can be increased due to the CO project?
- There is one illustrative example: 2 years ago, when oil companies mostly used railway stations and not our points as exchange trade bases, the amount of exchange transactions at our system was significantly reduced. During the last one and a half years Transneft together with SPIMEX and FAS (Federal Antimonopoly Service) worked in order to provide the companies with a shipment option under “free in pipeline” conditions besides the railway supplies option. It resulted in doubling the amount of loading to tank vehicles under exchange transactions.
The company’s maximum objective is doubling the total amount of fuel transportation through the PPTP system in Russia. It is difficult to say, how much of this will be achieved due to CO services, because now it’s difficult to assess this process technically. But the planned increase of fuel transportation at Russian market and corresponding increase of sale at our final points forces us to activate reconstruction of loading depots.
Actually, in 2016 petroleum products transportation through Transneft system to internal market was equal to 9.3 million tons. In 2017 we expect increasing up to 9.6 million tons, preliminary forecast for 2018 is 13.4 million tons. After finishing the activities of reconstruction of loading stations of Moscow ring petroleum products pipeline (MRPPP) and Sokur Loading Depot, the future amounts of petroleum products transportation to Russian internal market will be able to be equal to about 16 million tons.
- Do you think that exponential growth of the amounts of fuel pumping in Russia will be in demand taking into account stabilization of light petroleum products production in the country?
- The main product of Transneft’s pumping at the refineries connected to the system is diesel fuel. Indeed, diesel fuel production in the first semester was reduced by 0.4 million tons in comparison with the corresponding period of 2016. Meanwhile, according to Transneft’s forecast, following this year results, increase of the amount of diesel fuel transportation through the PPTP system by 2.7% or 0.8 million tons is expected.
I would like to highlight that the petroleum products trunk pipelines system of Transneft in Russia is 100% loaded now. Often we have to limit our customers in petroleum products acceptance. So we exactly think that development is necessary.
Oil companies continue modernizing refineries, increase refining depth. We see a potential tendency to increase of light petroleum products issuing. And hope that Transneft is on trend with increasing transportation capacities. We expect that if we provide the oil companies with new free transportation capacities, they will be indeed in demand.
- Did Increasing internal transportation capacities demanded significant capital investments?
- In general the company intends to invest more than 160 billion Russian rubles by 2020 into development of the petroleum products trunk pipelines system. All our key products are included: increasing diesel fuel supplies to Primorsk port (Leningrad Region) up to 25 million tons, implementation of Yug project with transportation of 6 million tons to Novorossiysk, increasing the amount of auto-petrol and aviation fuel supply to Moscow Region. As well important projects include reconstruction of Sokur loading station in Novosibirsk, modernizing delivery pipelines for securing the increasing acceptance from TANECO (part of Tatneft) (MOEX: TATN)) and from Antipinsky Refinery.
- How petroleum products pumping through Transneft system will be increased in general?
- The amount of petroleum products pumping through Transneft PPTP system in 2016 was increased by about 2.5-3% - up to 33.1 million tons. In 2017 we forecast to preserve this increase by 2-3% and pump a bit less than 34 million tons. One of Transneft’s strategic targets is increasing light petroleum products transportation through the PPTP system in 2021 up to 50 million tons. We are purposefully moving to this target.
In the nearest future increasing fuel transportation will be secured due to the company’s implementation of a number of important projects. First of all, it is finishing the activities as part of Sever-15 project in 2016, which allowed increasing the amounts of pumping to Primorsk port up to 15.2 million tons (increase in 2016 by 0.7 million tons in comparison with 2015). In 2017 transportation of 16.7 million tons of petroleum products is planned in this direction.
This year we plan to finish necessary activities on Sever-25 project in order technical capability of diesel fuel transportation to Primorsk port will be increased up to 25 million tons a year in 2018. Such increase in export direction with supply through a Russian port reflects Transneft’s performance of the task on increasing transshipment in Russian ports.
Besides, approximately in the middle of November we plan to start filling of the linear portion of the PPTP of Yug project at the section Volgograd - Tikhoretsk - Novorossiysk. In December we will start receiving and pumping diesel fuel EURO-5 produced by LUKOIL-Volgograd Refinery to Novorossiysk port.
- Yug project means introducing absolutely new transportation capacities. Is it already known what amounts of pumping through Yug will be, and which companies will be the main suppliers to this pipeline.
- Yug with total capacity of 6 million tons of pumping will be implemented in two stages. The first one is connection of Volgograd refinery with the amount of 4 million tons a year. This resource base has been confirmed by LUKOIL (MOEX: LKOH), and we are planning to achieve this amount in January 2018. The second stage takes into account implementation of a railroad unloading facility at Tinguta pipe-end pump station (PEPS) near Volgograd with the capacity of 2 million tons a year in the end of 2018. After commissioning of this railroad unloading facility we will be able to receive diesel fuel additionally through railroad from refineries not connected to Transneft system. Yug provides a possibility to implement a combined scheme: to receive 4 million tons from Volgograd refinery to the pipe and to receive 2 more million tons through the railroad with further transportation through the pipe.
By now among the main suppliers not connected to the system and interested in supplies though Tinguta we see resources up to 1 million tons of Orsk refinery (capital asset of Forteinvest) and about 0.7 million tons of Saratov refinery (Rosneft). We can consider resources of Krasnodar refineries group (private owners) and surplus resources of Ufa group (part of Rosneft) often transported by railroad. We as well consider the variant with using Nikolskoe LODS (line operation dispatcher station): from refineries to Nikolskoe by pipelines, then to Tinguta by railroad.
The advantage of the combined transportation scheme (railroad + pipe) of Yug project is the possibility to supply diesel fuel to Novorossiysk port using pipeline transportation for many companies not connected to Transneft system. The problem of the scheme is that it depends on tariff policy of Russian Railways in south direction. But Transneft discusses it with Russian Railways, for example, suggesting to set a through rate. I think, the arising questions can be solved somehow.
- Transneft was performing reorientation of some oil pipelines for petroleum products pumping during the recent years. Is this work planned to be continued?
- Yes, this year we implemented a project on pipeline supply of auto-petrol from NORSI (Nizhny Novgorod, LUKOIL) to Moscow. It is former oil pipeline reoriented for petrol pumping. In July its filling was finished and transportation of trial batches was performed; in August we will finish generating necessary documents and I hope that full pumping of 95th auto-petrol from NORSI to Moscow market will be performed starting from September. According to the agreement with LUKOIL, product supplies through this pipe will be equal to 2 million tons a year.
Further development of the project takes into account, first of all, reconstruction of Ryazan LODS by the IV quarter of 2018 for transportation of petrol from Ryazan plant of Rosneft (MOEX: ROSN) to the capital region - it will add 0.5 million tons more. And secondly it means reconstruction of a railroad unloading facility at NORSI during 2018, to which petrol from other refineries, not connected to the system, will be supplied by railroad, then loaded to Transneft system and supplied to Moscow by pipelines. And this means up to 1 million tons of additional resources. In total, in the long view, the new project will allow transporting 3.5 million tons of petrol by pipelines to the capital.
Besides, we are preparing Gorky - Yaroslavl pipeline, related to Sever-25 project, for fuel pumping. It is an oil pipe, which is now being cleaned from oil residues. By the end of 2017 we plan to commission it for petroleum products pumping.
As well, earlier Tikhoretsk - Novorossiysk-1 and Yaroslavl - Kirishi oil pipelines were reoriented. We think that it is quite sufficient and we do not plan additional reorienting of pipelines up to 2020.
- What does the reconstruction programme for the capacities securing fuel supply to airports of Moscow air hub (MAH) mean?
- Today the amount of pipeline transportation of kerosene to MAH is equal to about 2 million tons. We plan to double this index by 2018. In spring 2018 we will finish the construction and commission a railroad unloading facility at Shilovo-3 PEPS for receiving aviation kerosine to the PPTP system for further transportation to airports of Moscow air hub. The unloading facility’s capacity will be equal to 2.5 million tons a year. We think, that these works of Transneft will in general allow unloading the infrastructure of Moscow railroad and securing quick transportation of aviation kerosine to MAH airports.