US sanctions hamper Russian efforts to repair refineries

FE Team | Published: April 05, 2024 22:23:53

MOSCOW/LONDON, Apr 5 (Reuters): When engineers at Russian oil firm Lukoil discovered a turbine had broken at their largest refinery on January 4, they quickly realised the problem was far from trivial.
There was only one company that knew how to repair the gasoline-producing unit at the NORSI refinery, located on the Volga River, some 430 km (270 miles) east of Moscow. The problem was that the company is American, according to five sources familiar with the incident.
The firm, petroleum engineering multinational UOP, had withdrawn from Russia after the country invaded Ukraine in February 2022.
"They (the engineers) rushed around to find spare parts and they couldn't find anything," said a source close to Lukoil, who asked not to be named because he is not allowed to speak to the media. "Then the whole unit just stopped."
Four other sources said the unit - a catalytic cracker used to convert heavier hydrocarbons into gasoline - has been out of production since January and it was not clear when it could be repaired due to a lack of expertise inside Russia. The KK-1 unit is one of only two catalytic crackers at the plant.
As a result, the NORSI refinery - the fourth-biggest in Russia - has cut gasoline production by 40 per cent, according to two of the sources. Lukoil did not respond to requests for comment for this story.
The Lukoil refinery is an example of wider problems in Russia's energy sector where some oil firms are struggling in the face of Western sanctions to repair their refineries, built with the help of US and European engineering firms, according to at least 10 Russian industry sources.
The difficulties have been exacerbated by Ukrainian drone attacks that have struck at least a dozen Russian refineries this year, the industry sources said. The attacks forced Russian refineries to shut in some 14% of capacity in the first quarter, according to Reuters calculations.
"If the stream of drones continues at this rate and Russian air defences don't improve, Ukraine will be able to cut Russian refining runs quicker than Russian firms will be able to repair them," said Sergey Vakulenko, an expert on Russia's energy industry and non-resident fellow at the Carnegie Endowment for International Peace, an international affairs think tank.
Russia's top energy official, Deputy Prime Minister Alexander Novak, said last week that the damaged NORSI facilities should resume operations within a month or two, as Russian firms were working to produce the spare parts needed. read more
He also said other Russian refineries have boosted production after the drone attacks and there was no shortage on the local fuel market.
Russia's energy ministry did not respond to a request for comment. Minister Nikolai Shulginov said on Wednesday all refineries would be fixed by June, without providing further details.
The NORSI refinery, near the city of Nizhny Novgorod, has a capacity of 405,000 metric tons a month of gasoline or 11% of Russia's total.
The current outage would cost Lukoil nearly $100 million in lost revenues a month, based on an average Russian gasoline price of $587 per metric ton, according to Reuters' calculations.
Honeywell International Inc , the parent company for UOP, said in a statement to Reuters it had not provided any equipment, parts, products or services to the refinery at Nizhny Novgorod since February 2022, nor to the independently-managed Slavyansk ECO refinery.
"We are actively working to identify and interrupt any possible diversion of our products into Russia via third parties," Honeywell told Reuters by email. The company said it complies with all applicable export license requirements, sanctions laws and regulations.