According to data provided by UPECO consulting company, last year the balance of Ukrainian diesel fuel increased by 7.1%, to 5.86 million tons. The increase was due to imported resource and Ukrainian processing at the Kremenchug Refinery and Shebelynka GTP. It should be noted that 2016 became the time when the Ukrainian fuel met the quality standards of imported analogues.
As is the case with the gasoline production, domestic refiners gave the gift of diesel fuel production. Due to the import of additional oil volumes from Kazakhstan and condensate from Iran, diesel fuel production at the Kremenchug Refinery increased by 12.7%, to 582 thousand tons. It is worth noting that in March 2016 the refinery completely shifted to Euro-5 standard production (sulphur content below 10 ppm).
Shebelynka GTP also increased its diesel fuel production by 7.5%, from 108.7 thousand to 116.8 thousand tons. I should be noted that to fully load its capacity GTP had to acquire additional volumes of Kazakh crude. On the whole, 2016 was a landmark for Ukrgazvydobuvannya processing. Along with the change in the quality of gasoline modernization also affected DF production. Due to the modernization of the hydrotreatment unit, starting the fall the plant began to produce Euro-5 diesel fuel.
Thus, due to the additional volumes and modernization, the production of diesel fuel in Ukraine increased by 11.8%, from 625 thousand tons to almost 700 thousand tons. However, in the content of resource supplies to Ukrainian market domestic plants still occupy the modest 12% (10% - Kremenchug Refinery and 2% - Shebelynka GTP).
Import accounts for the remaining 88%. Here the supply volumes increased by 7.1%, from 4.82 MMt to more than 5.16 MMt. Ukrainian diesel fuel market, as indeed all the other fuel segments, is still premium for exporters, which is confirmed by the number of proposals. During the specified period, Ukraine imported diesel from two dozen oil refineries located in Belarus, Russia, Lithuania, Greece, Israel, Poland, Hungary, Romania, Bulgaria, Turkmenistan and even India. In general, in 2016 due to the domestic processing and increased import, Ukrainian diesel fuel market showed an increase from 5.45 MMt to 5.86 MMt.
Against the background of stagnating retail, which the third year in a row cannot recover from the economic shock of 2014-2015, the main consumption of diesel fuel in Ukraine falls on industry and agriculture. The agricultural sector is the main driver of the ailing domestic economy.
We should not also forget that due to the continued military actions in the East the army became one of the main diesel fuel consumers.
In 2016, due to changes in the market, which were related primarily to the appearance of the Russian pipeline resource, DF supply structure by type of transport means has changed a bit. If in 2015 about 86.5% of the diesel fuel has been supplied to Ukraine in the rail cars, in 2016 the volume of railway shipments dropped to 76%. In its turn, import of diesel fuel via pipeline has reached 13.7%, tanker volumes consistently accounted for about 10%, with remaining 0.4% falling on motor vehicles import. It shall be noted that in 2016 not a single ton of diesel fuel delivered by the river has been registered, although previously some Ukrainian players actively tested the mentioned type of supply.
Last year, mainly the resource corresponding to Euro-5 quality has been imported to Ukraine. Diesel favourites
As in 2015, the main suppliers of diesel fuel to Ukraine were Belarus and Russia. Totally, these countries accounted for 76% of import. In comparison with 2015, Belarus increased its diesel fuel shipments to the Ukrainian market by 26%, from 2.16 MMt to about 27.3 MMt. This was primarily due to disruptions in diesel import from Russia in the first half of the year. For several years in a row, the undisputed market leader in feeding the resource is Mozyr Oil Refinery, which diesel fuel accounts for about 66% of shipments from Belarus. Novopolotsk Refinery’s share (Naftan) approached 34%. By the way, as compared to 2015 shipments from Novopolotsk have increased more than threefold, from 220 thousand tons to almost 700 thousand tons. If earlier "naftan" fuel accounted for about 10% of all Belarusian volumes in the Ukrainian market, due to the reduction of Russian oil supply to Belarus, Novopolotsk Refinery backed up Mozyr in the export to the Ukrainian premium market. Thus, today Belarusian diesel accounts for 48% in the Ukrainian diesel balance.
The pipeline flows
Undoubtedly, the highlight of the year was the resumption of the flow in Prikarpatzapadtrans pipeline, which was suspended in 2014. Prior to the military events of 2014 Ukrainian market received cheap Russian Euro-3 resource (350 ppm) via this pipeline. It “fed” the regions of Central and partially the Western part of Ukraine, and was the main alternative channel for Belarusian diesel fuel.
In 2016, after the change of the pipeline ownership shipments of the higher quality Euro-5 diesel fuel from Rosneft facilities to Ukraine have been started. It shall be remembered that in March 2016 Transneft has sold the stake of Southwest Transnaftoprodukt, which includes Prikarpatzapadtrans to Swiss International Trading Partners AG, which is associated with Proton Energy companies and the structures related to Viktor Medvedchyuk. As a result, the emergence of competitive in price Russian Euro-5 diesel fuel has allowed Russia to regain its market share lost after turbulent supplies at the end of 2015.
It should be remembered that during 2015 Russian producers due to the lower prices were pushing back Belarusians from Ukrainian market. However, due to the ban on the fuel export to Ukraine in October 2015 diesel supplies from Russia have virtually stopped. However, the traders have found a way to circumvent the Russian prohibitions and at the end of the year began to supply fuel to Ukraine across neighbouring Belarus. There a Russian resource became an export diesel fuel (EDF) and acquired a new passport. In the first half of 2016 more than 85 thousand tons of EDF were shipped to domestic players. About 80% of the shipments fall over the first half of 2016, when DF has not yet been pumped through the pipeline.
In turn, the railway supplies directly from Russian refineries started only in March 2016, when the Russian Federation Service for Technical and Export Control has scaled back the requirements for the diesel fuel export to Ukraine. After RFSTEC approval diesel from Lukoil’s Volgograd Refinery, and Orsk Refinery (Orsknefteorgsintez), delivered to domestic counterparties by rail, appeared on the market.
In June already the stable supplies of Euro-5 diesel fuel started via the Prikarpatzapadtrans pipeline. Due to logistics, cheaper than railway shipments, the pipe has become more attractive for the traders, especially for those actively participating in the state tenders. Accounting for the substitution of the process Euro-3 diesel fuel (about 46 thousand tons; the question “who bled off the rest” is still open) in 2016 the pipeline import of diesel fuel to Ukraine has reached 706 thousand tons. During this period, a pool of companies (about 10) which became the standing customers for Russian diesel fuel, formed, and the Rosneft’s average monthly supplies increased to 150 thousand tons per month.
Thus, if there is no force majeure on the market, in 2017 the cheaper diesel fuel from Russia will continue to fight it back. The pipe volumes will become larger due to lower volumes of Belarusian and Lithuanian supplies. Orlen already loses the Ukrainian market. In 2016 in the structure of import the share of Lithuanian DF (Mazheikiai Oil Refinery) and Poland (Plock refinery) has reduced. The volume of diesel fuel from Orlen refineries dropped by 12.5%, to 658 thousand tons. First of all the decline was due to the reduction of Plock refinery export. In January-December supplies from Poland reduced by more than 60%, down to 108.5 thousand tons, while Mazheikiai Refinery increased its shipments to Ukraine by almost 19%, from 463 thousand to 550 thousand tons. Thus, Lithuania became the third in the list of countries supplying diesel fuel to Ukrainian market. Ukraine prefers to remember the Baltic states only in winter when there is a risk to buy off-season DF.
To join the leaders
Last year, the volume from Greece increased. In 2016 diesel fuel import from Greece increased by 6.3%, to 293 thousand tons. Attention should be paid to the fact bypassed by domestic processing: Ukrainian market consumed Euro-5 diesel fuel from all four Greek refineries, three belonging to Hellenic Petroleum Corporation (Elefsinsky, Thessaloniki and Aspropyrgos), and Corinth Refinery owned by Motor Oil Hellas. The main buyers of Greek resource were WOG structures.
Unlike the Greek, DF import from Israel, from Haifa refineries (included in Bazan Group. For more details about the company read the next issue of the OilMarket) dropped by 27%, down to 95 thousand tons. However, not only Mediterranean petroleum products, but also Russian DF, came in by sea. For example, about 18 thousand tons of diesel fuel from Russia were imported to Nikolayev, Kherson and Yuzhny in tankers. In addition, Bulgarian Lukoil fuel from the plant in Burgas Ukraine has returned to Ukraine.
Privat, the structures of which switched to the crude supplies, not end products, has made its changes in marine import. It shall be remembered that in 2015 Privat companies received about 74 thousand tons of Russian tanker diesel fuel. But in 2016 the Group imported diesel fuel only in December, when the Odessa terminal received about 15 thousand tons of Bulgarian resource produced at Lukoil’s Neftoshim Burgas.
In 2016, the domestic market continued to diversify, mainly due to marine supplies. For example, at the beginning of June import of Indian diesel fuel produced at Jamnagar refinery, owned by Reliance Industries Ltd, has started. That is the largest refinery in the world (design capacity of about 62 MMt/year.)
Indian fuel has been delivered to Ukraine through the Turkish terminals where an overload of large tankers coming from Jamnagar into the smaller ones, able to go to domestic ports, has been performed. Volumes of supplies of exotic diesel fuel in January-December amounted to approximately 44.6 thousand tons. Import of Reliance Industries Ltd. resource has been carried out by the three companies, including Nafta Element, Alliance Energy Trade and Orange Oil. In addition, in the same month the route of Euro-5 diesel fuel delivery to Ukraine from Turkmenistan, produced at the Turkmenbashi Refinery, has been renewed via the Volga-Don canal. It shall be remembered that the first Turkmen diesel fuel to Ukraine was delivered seven years ago by Emex structures owned by Murat Seitnepesov. There the future co-owner of Rosneft assets in Ukraine, Nisan Moses, worked at that time.
Thus, taking into account the Bulgarian shipments, fragmentary Russian, Turkmen and others marine deliveries, Ukraine received about 521.6 thousand tons, which is by 17.8% less than in 2015. Israel and Greece account for nearly 74.5% of the diesel fuel volume that comes in tankers.
It should be noted that interest to the more expensive marine supply arises due to disruption of imports. This has been seen in 2015, when, after the ban on Russian fuel the market traders rushed to search for available volumes, and the same happened in 2016 due to disruptions of Belarusian DF supplies. Moreover, we should not forget the seasonality of marine supplies.
The beaten path
We should add that deliveries of diesel fuel to Ukraine from the other countries were performed. This is the third stable year, at the level of 50-60 thousand tons, for diesel fuel import from Hungary (Danube Refinery, MOL). Volumes from Romania continued dropping. Last year Ukraine imported only about 21 thousand tons from Lukoil’s Petrotel Refinery (in 2015, Romanian import amounted to 45 thousand tons). The buyer was AMIC Ukraine, which shifted to the purchase of Lukoil resource through its foreign assets.
Like last year, the leaders of diesel import are old market players. Comparing volumes we should account for the fact that Belarusian resource against for the majority of the companies is imported by BNK-Ukraine, which crossed the line of around 1.39 MMt, or nearly 27% of total import volumes.
Similar to the gasoline situation the main recipients of Belarusian diesel from BNK were Galnaftogaz and Continuum (jointly accounting for about 720 thousand tons). But these structures independently registered significant volumes. In general, the major players of the gasoline market are still the largest importers of diesel fuel. In the first half of 2016 OKKO and WOG received about 1.7 MMt of imported diesel fuel.
In addition to the above two networks the top five constantly Petrotel Western Oil and Gas Company, supplies of which in the reporting period dropped by 16%, down to 280 thousand tons. Strong growth was observed for Element group of companies. Its structures have registered about 217.6 thousand tons of diesel fuel, and received the first shipment of diesel fuel from India.
The three Alliances continued to grow volumes. Thus, Alliance Oil Ukraine almost tripled its volumes, increasing its market share to nearly 200 thousand tons. Energy Trade Alliance increased its volumes from 114 thousand to 186 thousand tons. It is worth adding that in 2016 the company was actively mastering tanker deliveries. Alliance Oil Trading doubled, as compared to last year, to more than 130 thousand tons, its supplies to Ukrainian market. We should note that this is one of the few large importers, which delivered only Belarusian resource to Ukraine.
SOCAR increased its independent supplies. The structures of the Azerbaijani company have registered 136 thousand tons of fuel, which is by 7% more than in 2015. Despite the fact that SOCAR is a supplier to the refineries in Greece, its Ukrainian subsidiary has imported to Ukraine diesel from Belarus, Bulgaria, Poland and Lithuania.
In addition, Parallel preserved its place the top ten importers and managed to reformat its activities with a focus on wholesale. However, last year the company reduced its imports by a quarter, from 214 thousand to 146 thousand tons.
In 2016 the number of diesel importers reduced from 150 to nearly 140. Some traders become larger, founded the new companies, and some, on the contrary, did withdraw from the market, but these were few. The main loss of the year was the cessation of operations by Intergal (associated with MP, Vladimir Zubik), which in 2015 brought about 165 thousand tons of diesel fuel to Ukraine. In the early spring 2016 the owners decided to redirect investments to other areas (especially, construction sector, Intergal-Bud) and closed the fuel project. Having received the manumission, the company's managers have found the refuge with the recent competitors. By the way, with the advent of the pipeline resource the new importers appeared on the market, including Anvi Trade, E. Connect, and Premium Oil. Among the listed companies, mostly the market veterans have been seen.
Also among the importers the final consumers of diesel fuel should be noted. In 2016 independent purchases were started by ASTARTA agricultural holding, which via a number of its companies registered about 13 thousand tons of Belarusian and Russian DF. In the past year agricultural holding Nibulon, Rise and manufacturers including Ferrexpo and ArcelorMittal, continued import. In general, in 2016 as well as in 2015, the majority of importers increased volumes, while the others showed stable dynamics at the level of 2015.
Thus, in 2016 a few trends were seen in the diesel fuel market, including supply increase by domestic and foreign manufacturers, the resumption of stable DF supplies due to operating oil pipeline, the emergence of the new supplying countries.
There is no doubt that in the coming year to observe the development and market content will be even more interesting since in terms of the uninterrupted supply of diesel fuel from Russia competition for the consumer will grow. In addition, domestic refiners also promise not to trail behind. Of course, retail and retailers’ actions aimed at the sales increase will keep the focus of attention.
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