In Russia, small oil refineries are defined as plants with a primary processing capacity of up to 1 million tons of oil per year. Their main advantage lies in their compactness, relatively quick construction time, and comparatively low costs. According to Yuri Stankevich, Deputy Chairman of the State Duma Energy Committee, if there is a ready project along with a suitable plot of land and timely financing, the cycle for creating a modern small refinery can take between one and two years. However, in practice, timelines often stretch to three or four years. Utilizing modular plant solutions can reduce installation time on-site to a few months, but the preliminary design and approval phase still takes around a year.
For our country, mini-NPPs are attractive from a logistics, supply reliability, and safety perspective.
Gasoline does not need to be transported by rail or truck over hundreds or thousands of kilometers. Nearby communities and businesses are not reliant on supplies from other, sometimes even non-adjacent, regions. Moreover, if a mini-refinery fails or is shut down, it does not create significant issues on a national scale. Additionally, there is another compelling argument for mini-NPPs in Russia. The country is vast, making supplies to remote areas far from traditional refineries both expensive for producers and consumers alike. This translates into rising fuel prices and increased inflation, which ultimately impacts the economy of the region and the country as a whole.
This last point is one reason why mini-NPPs are more commonly developed in larger countries. For instance, China is a leader in this regard. Approximately 25% of oil in the Middle Kingdom is processed at small plants, often colloquially referred to as "samovars." In the U.S., mini-NPPs account for 10% of processed oil. Russia has a greater number of operational mini-NPPs (about 80) than the U.S. (65), but we only process around 5% of the country’s oil through them. Here, there is, of course, a statistical nuance: in the U.S., small refineries are defined as those processing up to 3.7 million tons of oil per year, and in China, up to 5 million tons. However, considering that oil consumption in Russia is 5.5 times less than in the U.S. and 4.4 times less than in China, the differences in the classification of mini-NPPs can largely be disregarded.
However, the above does not imply that Russian entrepreneurs should urgently rush to build mini-NPPs. They will not serve as a panacea for all problems. As Stankevich points out, while mini-NPPs will help safeguard the market, their role will be limited. They can effectively mitigate local fuel shortages but cannot protect the country from global pricing shocks or systemic supply crises.
Moreover, there are concerns regarding small refineries related to economic, environmental, logistical, and product quality issues. The devil is in the details, as the saying goes.
Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association and a member of the Expert Council for the "Gas Stations of Russia" competition, believes that the very idea of decentralized oil processing is correct from both energy security and fuel supply perspectives. However, there are numerous other factors that need to be considered. Primarily, economic factors: reducing production costs through scale will not be achievable here, the sources of raw materials are unclear, price formation rules for the internal market are uncertain, and there are issues related to pipeline connectivity, among many other concerns.
Stankevich emphasizes that under the existing tax system, the profitability of such projects is on the brink of break-even without additional support measures. The cost of processing a ton of oil at a small plant is always higher than at a large facility due to the lack of economies of scale. The yield of light petroleum products (gasoline, diesel, jet fuel) from mini-NPPs is lower (about 45-55%) compared to modern giants (80-90%).
Small refineries primarily produce straight-run gasoline (naphtha), low-quality diesel, and fuel oil, explains Stankevich. To produce high-octane gasoline to Euro-5 standards, they require complex secondary processes (catalytic reforming, isomerization), which are economically unfeasible at low volumes. Therefore, only large vertically integrated oil companies (VIOCs) can meet the internal market's demand for quality automotive fuel.
Managing Partner of NEFT Research, Sergey Frolov, notes that hundreds of mini-NPPs are already operational in Russia, some legally and some illegally. However, nearly all are so-called samovars, performing only primary oil processing with the production of straight-run gasoline and diesel fractions, along with fuel oil. The number of mini-NPPs producing commercial fuel can be counted on one hand. Constructing new high-tech mini-NPPs or upgrading existing ones to a level that allows the production of commercial fuel under current tax and economic conditions may only be feasible with budgetary funds—experts agree that there is fundamentally no business interest in this area.
Modern mini-NPPs can indeed be quite technologically advanced, Stankevich agrees. Environmental risks can be minimized through innovative solutions. However, constructing full-fledged deep processing complexes requires significantly larger investments, which brings us back to the economic question. The most substantial barriers exist not so much in the technical realm but in administrative and financial ones. Without adjusting the tax system, a widespread emergence of small NPPs should not be expected. A specialized fiscal model is necessary for their success.
Regarding the current problems in the fuel market, resolving them through small NPPs—even considering their relatively quick construction timeline—is unlikely, given their limited aggregate capacity. According to Sergey Tereshkin, CEO of Open Oil Market, mini-NPPs have never played a significant role in fuel production in Russia. Perhaps things will change once direct-run gasoline is authorized for the production of high-octane fuel; this measure could open the fuel market for technologically simpler mini-NPPs, acknowledges the expert. However, this could pose risks concerning the quality characteristics of the fuel. Generally, increasing imports—potentially through subsidies—might play a more crucial role in saturating the internal market than creating additional opportunities for mini-NPPs. This sector is too small to make a serious impact on the fuel market situation.
Source: RG.RU
