Drone attacks on Russian refineries intensify

The last couple of days have seen Ukraine intensify its drone attacks against Russian refineries, expanding the list of affected setups by about three. While there have been attacks at about fourteen setups already over the past months, tangible damage forcing reduced operational rates so far has been seen at Ust-Luga, Ilsky (repaired by now), alongside Tuapse, Nizhny Novgorod, Ryazan, and Syzran. We estimate a net loss of about 100 kbd of Russian gasoil supply over the near term due to the attacks, with runs now stuck close to the 5.2 Mbd mark until June, some 200 kbd below the levels seen prior to the latest round of drone attacks.

Tuapse has been offline for more than a month now, following late-January drone strikes, damaging the VDU tower on site, forcing it to go into full closure until at least May, according to most recent reports, erasing 240 kbd of Russian processing capacity for now. It is worth highlighting that Rosneft’s Tuapse refinery also has a scheduled launch of an 85 kbd hydrocracking unit that will commence operations about the time the refinery restarts processing, i.e., June-July, hence the pre-attacks export stream (30 kbd) of VGO is unlikely to return to the market. The lost gasoil production due to drone attacks is estimated at 85 kbd, basis observed product yields.  

Elsewhere, the Nizhny Novgorod refinery has also been hit last week following previous, unsuccessful drone strikes. This time, the refinery will have to reduce run rates quite sizably, with about half of the setup’s processing capacity, its CDU-4, AVT-6 unit out of order. Considering that the refinery had not been scheduled to go into maintenance prior to the attacks, the loss to Russian crude processing capacity is about 180 kbd, with the direct impact on runs at around 100 kbd in March, 180 kbd in April, and about 120 kbd (20 days) in May, according to preliminary company estimates for the duration of repair works, as well as initial IIR reports. Last year, the refinery’s ULSD (Ultra Low Sulfur Diesel) and winter gasoil yields in March stood at 32% and 6%, respectively, so the direct impact from the strikes should be about 40 kbd of gasoil output lost. Assuming output is similar to last year’s ULSD yields of about 35% over April and May (winter gasoil season ends in March), output here should fall by 65 kbd in April and at least 40 kbd in May. More importantly, with this being one of the major gasoline suppliers for southern Russia, the impact on the regional gasoline market will be material, with about 50-60 kbd of gasoline output not seen hitting the domestic supply network, just weeks before the beginning of the high demand season. In this sense, the impact on gasoline export markets will not be visible over the next months, considering that Russia has about 2 million barrels of gasoline stocks, according to media reports, whilst also imports from Belarus will pick up looking ahead.

Ryazan saw two of its CDU towers being struck by drones at the beginning of last week, the 170 kbd AT-6 and the 83 kbd AVT-4 (about 70% of operational capacity), the two units had not been scheduled for maintenance prior to the attacks. For now, repairing the damage will take at least a couple of weeks, due to less severe fire damage than at the Nizhny Novgorod refinery. In addition, IIR reports that shut-in there will last for another couple of days, with scheduled maintenance then beginning at the 60 kbd ABT-1 CDU unit from early April until mid-May. Assuming a drop in processing of about 120 kbd this month (going by the IIR estimate of the duration of repair works), should see a little less than 40 kbd of gasoil output from the refinery. It is also worth highlighting that Rosneft officials have already alluded that in case repair works take longer than initially estimated, they will try to secure feedstock from other setups, controlled by the company, so a direct drop in clean product output beyond the next weeks remains unlikely.

The 180 kbd Syzran refinery is the last one on the list of setups forced to undergo repair works due to Ukrainian drone attacks, having been hit over the weekend. Initial reports suggest that the larger, 125 kbd CDU tower on site has been on fire for a number of hours on Saturday night, meaning that this unit will probably need at least five-six weeks until it can be fully restored. What this means is that the de facto run rate of 120 kbd, seen over 2023 and January this year (see chart), will at most be reduced by more than half, (the second CDU’s capacity is only about 50 kbd). We estimate that the lost capacity here will be about 60 kbd in March, 125 in April and 50 kbd in May (assuming a restart by the middle of said month). This would translate into a drop in ULSD and winter gasoil output of about 20 kbd in March, 45 kbd of ULSD in April, and 20 kbd of ULSD in May, based on the observed yields from last year.

Overall, the effect on primary runs solely stemming from Ukrainian drone attacks is seen at about 530 kbd over March and April and falling to 400 kbd in May with a knock-on effect to gasoil supply in the region of 180 kbd over March and April and 140 in May. While it is true that primary runs will probably not fall to the full extent of these estimates, as the government technically can instruct some idled capacity to come back (especially among Rosneft’s Bashneft capacity) whereas some of the scheduled maintenance may get postponed, we still see the domestic refinery system struggling to reach 5.3 Mbd before June, some 200 kbd below our previous estimates. In addition, the loss of gasoline production capacity weeks before the start of the high demand season may also force some yield switching at the margin, away from middle distillates, so that some regions (particularly in the south and central provinces) avoid physical shortages of gasoline. Moreover, the recent attacks have shown that Russia’s initial plans to install anti-air launchers by each refinery have not proven fruitful, so further attacks should not be ruled out, going forward. In short, just when the dust started to settle after the heating season, the bullish sentiment for gasoil cracks in the Atlantic Basin was brought back.

Tuapse refinery output and crude intake (kbd)

Source: Kpler calculations based on Argus Media data
Nizhniy Novgorod refinery output and crude intake (kbd)

Source: Kpler calculations based on Argus Media data

Ryazan refinery output and crude intake (kbd)

Source: Kpler calculations based on Argus Media data

Syzran refinery output and crude intake (kbd)

Source: Kpler calculations based on Argus Media data

Russian gasoil output before and after drone attacks (kbd)

Source: Kpler estimates

Gasoil supply loss by refinery due to drone strikes (kbd)

Russian refinery crude intake (Mbd)

Source: Kpler estimates based on Ministry of Energy data

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