FACTBOX: Russian refining outages mount under surge of Ukrainian drone attacks

Refining facilities and fuel storage infrastructure in western Russia have become the target of a major escalation in long-range drone attacks by Ukraine. In less than a week, three major refineries and a number of fuel depots deep inside Russian territory have been damaged by drones, taking more than 600,000 b/d of processing capacity offline. The attacks, with drones now able to strike assets more than 1,000 km within Russia, have sharply raised the risk profile for Moscow's ability to maintain its oil exports in the near term.

"What remains to be seen is whether downstream capacity outages in Russia will result in crude shut-ins -- playing to their incremental voluntary cut [under the OPEC+ agreement] of 471,000 b/d by June -- or shuffled into more crude exports at the expense of diesel and fuel oil flows," S&P Global Commodity Insights oil analysts said.

Infrastructure

• The main crude distillation unit at Rosneft's 178,300 b/d Syzran refinery is offline following a drone strike March 16, according to Russian daily Kommersant. The second CDU at the refinery has been idle and is not expected to be brought online soon. Syzran supplies gasoline and diesel to the domestic market.
• The crude and vacuum distillation units have been damaged at the 60,000 b/d, export-oriented Slavyansk refinery in southern Russia, according to TASS.
• Drone attacks took out crude distillation units at two of the country's largest refineries, the 342,000 b/d Ryazan and 340,000 b/d Norsi plants, on March 12 and 13.
• Operations were suspended at the 112,000 b/d Novoshakhtinsky refinery after an attack on March 13.
• The unplanned outages from these refineries total 500,000 b/d -- or some 10% of total Russian capacity -- resulting in production losses in gasoline and diesel of approximately 120,000 b/d and 130,000 b/d, respectively, according to S&P Global analysts.
• An oil depot in Russia's Kursk region caught fire on March 10 following a drone attack.
• Previous attacks took out vacuum distillation units at the export-oriented 240,000 b/d Tuapse plant on the Black Sea in January, and Lukoil's 314,000 b/d Volgograd refinery in February, with the return of the two units still unconfirmed.
• Tankers resumed loading at Novatek's Ust-Luga condensate processing terminal on the Baltic Sea Jan. 24, three days after the complex was partially shut due to a fire from a suspected Ukrainian drone attack. Ust-Luga has reportedly now fully restarted.
• 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.

Trade flows

Global refinery outages have been elevated this year, surpassing pre-pandemic averages from 2015-19. Downtime is expected to rise through April, with an average of up to 9 million b/d offline, partly raised by the surge in unplanned outages due to drone strikes in Russia.

• Rising seasonal domestic gasoline demand and plant outages have led to the Russian government imposing a temporary gasoline export ban beginning March 1.
• Russia exported around 200,000 b/d of gasoline in the first two months of 2024, according to tanker tracking data from S&P Global Commodities at Sea.
• For the week ending March 15 before that latest strikes, total refining outages had increased by 290,000 b/d to a level of 800,000 b/d, according to S&P Global analysts. This is the highest level since last autumn.
• Russian refinery throughputs had already fallen 7% by Feb. 21 compared with the start of the year, energy minister Nikolay Shulginov said.
• Russian domestic gasoline demand typically surges in the spring months and then peaks in the summer. Summer demand has been especially active since the Russia's invasion of Ukraine due to sanctions preventing tourism to international destinations.
• Russia exports about 40% of its domestic oil products, or about around 2.5 million b/d in recent years, despite Western sanctions and a ban on EU imports.
• Russian oil product exports slipped sharply in the first two weeks of March to average around 2 million b/d, according to S&P Global Commodities at Sea. The biggest falls were seen at Russia's Baltic export terminals with fuel oil and naphtha flows to India and China the most affected, the data shows.
• Russian diesel and gasoil exports in February fell by around 150,000 b/d while naphtha flows recovered to average 473,000 b/d, the highest since June 2023, according to CAS tanker tracking data.
• Overall, 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.

Prices

The Russian government has asserted that given ample inventories there is "no risk" of fuel supply problems, although domestic spot prices for oil products have climbed amid panic buying after the strikes. The spike in Ukrainian drone attacks on Russian refineries is also weighing on the supply outlook for Russian crude, according to Morgan Stanley.

• "When refinery runs are curtailed, more crude is made available for exports," the bank said. "However, this is unlikely to be the case for all of it. Therefore, these attacks probably mean that some oil production may still need to be reduced," the investment bank's oil analysts said in a March 18 note.
• Domestic gasoline has been recording daily gains of around Rb1,000/mt ($11/mt) on the St. Petersburg exchange after the main CDU at Lukoil's Nizhny Novgorod, or Norsi, refinery was taken offline March 12 after a drone strike.
• Platts, a unit of S&P Global Commodity Insights, assessed Russia's main Urals export-grade crude at $68.3/b on an FOB basis from Primorsk on March 15, up from a recent low of $56.64/b on Dec. 12.
• With Western sanctions aimed at controlling seaborne Russian crude exports bought above $60/b, the discount for Urals vs Dated Brent crude has hovered at around $17/b since mid-December.