Rosneft to Build $14 Billion Refinery in Far East to Process Crude Oil from ESPO Pipeline

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Researched by Industrial Info Resources (Sugar Land, Texas)--Rosneft Oil Company OJSC (MCX:ROSN) (Moscow, Russia), an integrated petrochemical company, recently announced plans to develop a $14 billion petrochemical refinery in the Primorye region of Russia off the Pacific Coast. Crude oil for the project will be supplied from the new East Siberia-Pacific Ocean (ESPO) oil pipeline.

The refinery will be built in two phases, with the first phase scheduled for commissioning in 2012 and the second by 2017. The first phase will have a capacity to process 47 million barrels per year of oil, equivalent to 20 million tons per year. Construction is likely to start by September. The company plans to approach the board for project approval within the next six months after the ongoing feasibility study is complete. A market analysis for insights into trends, demand and sales projections, and growth opportunities is currently under way. In addition, after the completion of the ongoing front-end engineering and design activities, the company will ascertain the refinery's configuration and estimate the total cost of the project.

The refinery, the first of its kind in 40 years to be based on modern technology, is of strategic importance to the territory and Russia's Far East for increasing oil sales from Asia. The Primorye territory is located in the Russian Far East, with the Sea of Japan to its east and China to the west.

The proposed site is located near the end of Phase II of the upcoming ESPO pipeline. Russia is building the 4,700-kilometer pipeline to transport oil from fields in east Siberia to China. Transneft AK OAO (Moscow), a state-owned oil transportation firm, is building the pipeline, which stretches from Taishet in East Siberia to Kozmino Bay in the Pacific Ocean through China. The Taishet-Skovorodino link, the first stage of the project, is scheduled for commissioning later this year. The second leg of the pipeline, the Skovorodino-Kozmino Bay section, is slated for completion in 2013-14. The ESPO pipeline will transport 320,000 barrels per day (BBL/d) of crude oil from Russia to the Daqing oil field in China through a 67-kilometer spur line under a 20-year supply agreement signed between the nations in February this year. The pipeline, with a total transportation capacity of 640,000 BBL/d of oil, will also export crude oil to other Asian markets, such as Japan and Korea.

The ESPO project is an initiative by the Russian government to reduce its dependence on European demand for crude oil and explore new Asian markets. The China Development Bank (Beijing) has provided a $15 billion loan to Rosneft and Transneft to execute the project. The refinery's location is attractive from a sales perspective because of its proximity to emerging Asian markets.

Rosneft intends to start commercial operation at the refinery simultaneously with the launch of the second phase of ESPO.

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