FACTBOX: Russian fuels exports under fire as drone attacks escalate

Rosneft's export-oriented Tuapse refinery on the Black Sea was damaged by a major fire early Jan. 25, marking the latest in a spate of suspected drone attacks by Ukraine designed to damage Russia's ability to fund its war in Ukraine from oil exports. Although Ukraine has targeted Russia's fuel production and distribution networks previously, the scale and distance of the attacks inside Russian territory have raised the risk profile for Moscow's key crude and product exports flows.

Infrastructure

Russia exports about 4.8 million b/d of crude and products from its main Western oil terminals of Primorsk and Ust-Luga on the Baltic Sea and from Novorossiisk and Tuapse on the Black Sea.

• Russia's biggest refinery on its Black Sea coast, the 240,000 b/d Tuapse plant, is the second largest of Rosneft's 11 Russian refineries.
• Tuapse is roughly 300 miles from the nearest Ukrainian-held territory. The previous drone attack on Novatek's Ust-Luga gas condensate processing plant was about 700 miles from Ukrainian territory.
• Tuapse was scheduled to be shut down for general maintenance work in February, with market sources suggesting that this may now be brought forward to repair the facility.
• Damage sustained to the VDU could suspend vacuum gasoil production from the site while secondary unit capacity is down.
• Tankers resumed loading at Novatek's Ust-Luga condensate processing terminal on the Baltic Sea Jan. 24, according to tanker tracking data, three days after the complex was partially shut due to a fire from a suspected Ukrainian drone attack.
• The Ust-Luga attack followed reported strikes targeting an oil product depot in Bryansk and an attempted drone attack on the St. Petersburg Oil Terminal in recent days, as infrastructure in Western Russia appears to have increasingly become a target of the war effort.

Trade flows

Russia exports around 80% of its crude and oil product exports from the Black Sea and Baltic Sea, which a roughly equal split across both regions, though Black Sea flows account for a higher share of refined product flows.

• Tuapse is a major export hub for refinery feedstocks, including high sulfur gasoil, naphtha, straight run fuel oil and vacuum gasoil, which can be blended as bunker fuel or processed to produce diesel and gasoil. Previously a primary supplier to Mediterranean markets, the refinery's production has increasingly been directed to Asia since the implementation of European sanctions.
• The Tuapse oil terminal has been exporting some 150,000 b/d of gasoil and naphtha in recent months, mostly headed to buyers in Greece, Turkey and China.
• Since 2022, the port has had major offtakes in China, Malaysia and Saudi Arabia, in addition to regular flows into Greece and Turkey.
• Novatek's Ust-Luga processing plant produces naphtha, jet and other fuel types from gas condensate transported by rail from Novatek's Purovsky plant in western Siberia. According to CAS, Novatek exports about 110,000 b/d of oil products from the terminal, most of which is naphtha, with refiners in Singapore, Turkey, Taiwan and China among the biggest buyers.
• Novatek expects to be able to continue loadings of condensate at Ust-Luga in the Gulf of Finland after a suspected Ukrainian drone attack, but damaged processing facilities that produce a range of products could take up to two months to repair, Kommersant newspaper reported Jan. 25 citing an anonymous source.

Prices

Asian naphtha cracks have remained firm this week supported by fears of potential Russian naphtha supply disruptions from drone attacks.

• Japanese naphtha cargoes were up strongly Jan. 25, rising 1.74% on the day to $688.75/mt, up $24.75/mt on the week, as assessed by Platts, part of S&P Global Commodity Insights.
• Platts assessed naphtha loaded in Singapore overnight Jan. 24-25 up $1.22/b at $73.33/b.
• Platts assessed vacuum gasoil loading on an FOB basis in the Black Sea at $595/mt on Jan 24, up 20 from Jan. 8.
• "It's hard to say whether the market will remain bullish for long, it's unpredictable," one Asia-based trader said Jan. 25. "But with supply disruptions, [naphtha] can become strong again. There are not many bearish factors [as well]."
• Russia's main Urals export-grade crude was assessed at $62.475/b on an FOB basis from Primorsk Jan. 24, up 3% on the week.