Presentation from:

Vladimir Kapustin
General Director

VNIPINEFT
www.wraconferences.com/rrr
2011 Sponsors Organised by

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

KEY PROBLEMS OF OIL-REFINING DEVELOPMENT IN RUSSIA

V.M. Kapustin
OAO VNIPIneft General Director, Gubkin Russian State Oil & Gas University, Head of the Oil Refining Technology Department, Dr.Eng.Sci., Professor

Geneva, November 2011

TECHNICAL LEVEL OF RUSSIN REFINERIES

Indicator 1991 Conversion rate Nelson complexity index 68 4,2

Russia 2011 71 4,4

Global

~90 6,7*

* Average for industrially developed countries

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

2011
Total capacity: 271 MTA Throughput: 250 MTA Average load: 92% 2

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

3. Problems with introducing new customs duties

4. Prolonged construction periods and high finance expenditure

5. Low share of implemented Russian technologies

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CONVERSION RATE PER COMPANY, %

86,2 76,7 74,6 74,1 68,0 66,7 64,5 62,0 56,7 43,2 0,0 20,0 40,0 60,0 80,0 100,0

Bashneft LUKOIL Gazprom Gazprom Neft TAIF-NK TNK-BP Rosneft Alliance Russneft Surgutneftegaz

PREDICTED INCREASE IN CRUDE OIL CONVERSION RATE TILL 2020

Conversion rate, %

90
At least

85 80 75 70 65 60 2010 71,1

85

80,2

2015

2020

CONSTRUCTION OF NEW DEEP CONVERSION COMPLEXES AS THE WAY OF IMPROVING THE CONVERSION RATE
OAO NK ROSNEFT
Syzran Samara Tuapse Komsomolsk Novokuibyshevsk Achinsk
Catalytic cracking, 1.2 MTA Catalytic cracking, 1.2 MTA Hydrocracking, 4.0 MTA Flexicoking, 2.6 MTA Hydrocracking, 2.0 MTA Delayed coking,1.0 MTA Hydrocracking, 2.0 MTA Hydrocracking complex, 3.2 MTA Hydrocracking complex, 3,5 MTA 2nd catalytic cracking complex, 2.0 MTA Delayed coking, 2.1 MTA 2014 2014 2016 2014 2012 2014 2014

OAO LUKOIL

Volgograd Kstovo Perm

2015 2016

2016 6

CONSTRUCTION OF NEW DEEP CONVERSION COMPLEXES AS THE WAY OF IMPROVING THE CONVERSION RATE (continued)
OAO TNK-BP OAO BASHNEFT OAO SURGUTNEFTEGAZ OAO TATNEFT OAO TAIF OAO GAZPROM NEFT OAO ALLIANCE ANTIPINO REFINERY
Ryazan Ufa Kirishi Nizhnekamsk Nizhnekamsk Omsk Khabarovsk Hydrocracking, 3.0 MTA
Hydrocracking, 2.0 MTA Hydrocracking, 2.0 MTA Hydrocracking, 4.7 MTA Hydrocracking, 2.0 MTA Hydrocracking, 3.3 MTA Hydrocracking, 0.5 MTA 2015 2017 2012 2013 ? 2017 2013 2017 2017 7

Delayed coking, 1.2 MTA Hydrocracking, 1.5 MTA

TARGET DATES FOR INTRODUCTION OF NEW PETROLEUM PRODUCT REGULATIONS

Euro 3

2013

New regulations

Euro 4

2015

Euro 5

2016

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
Rosneft(6) LUKOIL (4) Gazprom Neft (3) LUKOIL (4) Gazprom Neft (3) Bashneft (3)

Alkylation

Rosneft (1) Bashneft (1) Surgutneftegaz (1) Russneft (1)

Hydrotreating

TNK-BP (2) Surgutneftegaz (1) Russneft (1) SalavatNOS (1)

Rosneft (5) Gazprom Neft (3) TNK-BP (2)

Tatneft (1) TAIF-NK (1) Rosneft (3) Gazprom Neft (1)

Isomerization

LUKOIL (1) SalavatNOS (1) Tatneft (1) Surgutneftegaz (1) Russneft (1)

Reforming

TNK-BP (1) Surgutneftegaz (1) Tatneft (1) Alliance(1) 9

WINTER DIESEL FUEL SHORTAGE IN DOMESTIC MARKET

Problem

Ways of problem solving

Commissioning of two-stage hydrocrackers in Tuapse

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 by 2013.

(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
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

Ways of problem solving

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 ppm It 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

Changed rates of export duties on light and heavy oil products

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

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 Preferential royalty rates for 5 years to the amount of 47 billion Rbls

OAO Tatneft

OAO Bashneft

7,6 billion Rbls per year during 5 years

2,3 billion Rbls per year during 4 years

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 and Bashkiria and having a volume more than 200 million t. These preferential royalty rates may be used only if the company does 15 not enjoy any crude oil export duty preference.

CRUDE OIL DEEP CONVERSION COMPLEX PROJECTS

Project implementation period Catalytic cracking complex, Ryazan Catalytic cracking complex, Kstovo VGO hydrotreating complex, Kirishi VGO hydrotreating complex, Perm

OAO TNK-BP

8 years

OAO Lukoil

8 years

OAO Surgutneftegaz

14 years

OAO Lukoil

10 years

OAO SlavneftYaroslavNOS

VGO hydrotreating complex, Yaroslavl

6 years

OAO Tatneft

VGO hydrotreating complex, Nizhnekamsk

3.5 years
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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

Key benefits of technology: Production of VGO with high end boiling points up to 580 heavy fractions up to 600 light fractions

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

Implemented at: OJSC TANECO, TAIF-NK, LUKOILPermnefteorgsintez, Salavatnefteorgsintez and a number of other refineries
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VGO CATALYTIC CRACKING TAIF

Developers: TIPS RAS, VNIPIneft, VNIINP Key benefits of technology:

Flexible VGO refining Refining based on gasoline variant:

Gasoline output with end boiling point of 205 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

The project received RF Governments Science and Technology Award for 2008.
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HYDROTREATMENT OF CATALYTIC CRACKING GASOLINE

Developers: TIPS RAS, VNIPIneft, VNIINP Key benefits of technology: Improvement of finished product quality: Production of hydrotreated catalytic cracking gasoline fraction with 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
Stabilizer MEA Treatment Unit Caustic Treatment Unit 3 4 fractionator

Implemented at:

TAIF NK
Reactors Stabilizer

Heater

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NEW CATALYST FOR DEEP HYDROTREATMENT OF DIESEL CUTS Catalyst IK-GO-1 Developer: Institute of Catalysis, RAS Syberian Branch Main advantages of the catalyst: 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

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LIGHT NAPHTHA ISOMERIZATION TECHNOLOGY

Developer: OAO NPP Neftekhim Catalysts: SI-2; Pt + ZrO2 + SO4-2 Key benefits: High catalyst activity rating at S, N, 2 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
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

Developers: UGNTU, GUP Institut Neftekhimpererabotki 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

The technology was implemented at OAO LUKOIL-Permnefteorgsintez, OAO Novoil and Turkmenbashi Refinery. The process unit was put into operation at OAO Ufaneftekhim in 2009.
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DEEP CONVERSION OF HYDROCARBON RESOURCES TECHNOLOGY PLATFORM

Production of efficient & environmentally sound motor fuels and petrochemical feedstock

Technologies

Processing of associated and natural gas

Deep conversion of heavy petroleum residues

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 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, TAIF-NK)

Vacuum Distillation Unit and Visbreaking Unit

( PO Kirishinefteorgsintez)

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

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OAO VNIPINEFT EXPERIENCE IN EQUIPMENT PROCUREMENT

OAO TANECO VGO Hydrocracking Complex Oil Plant OAO TANECO Atmospheric Vacuum Distillation Vacuum Residue Visbreaking OOO PO Kirishinefteorgsintez Atmospheric Residue Vacuum Distillation Vacuum Residue Visbreaking

2010

2009

2008

ZAO Ryazan NPK VGO Catalytic Cracking Complex OOO LUKOIL-Permnefteorgsintez VGO Hydrocracking Complex

2006

2004

ExxonMobil Sakhalin 1 Onshore Processing Facilities

2003

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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

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

OAO VNIPineft, being a leading Russian engineering company, is ready to provide a

full set of engineering services related to refinery modernization and construction.
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Thank you for your kind attention!

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