Russia’s Heavy Fuel Oil Exports: Challenges and Changing Rules Abroad and at Home

The key aim of this paper is to explore whether Russian refining sector has the flexibility to deal with the problem by lowering Heavy Fuel Oil output and exports before the mismatch between supply and demand becomes excessive. This paper builds on the research conducted by OIES in 2012. At that time the Russian government and the Russian oil companies announced an ambitious program of modernization of the Russian refining sector and planned a radical overhaul of the tax incentives that artificially supported HFO production.  According to these plans, by 2020 Russia would have implemented the investments in conversion refining processes that drastically reduce production of residual fuel oil.  This, in turn, would cut the levels of the Russian fuel oil exports to very low levels. As we approach 2020, however, Russia appears to need several more years to reduce its still large volumes of HFO output.  Moreover, the systemic and social issues with regards to shutting down some inefficient refineries have emerged suggesting that some die-hard Russia’s simple refining is not going to go quietly and will continue its operations.  This calls for re-examination of some of the conclusions of the earlier research and the review of the new circumstances.

By: Vitaly Yermakov , James Henderson , Bassam Fattouh

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