Oil refining industry of Ukraine (2004-2007)

Ukraine’s oil refining and petrochemical industry covers six oil refineries. These have been transformed into joint stock companies: UkrTatNafta CJSC, Linik CJSC, KhersonNeftePererabotka (Kherson Oil Refining) OJSC, LUKOil-Odesa Oil Refinery OJSC, NaftaKhimik Prikarpatya OJSC (Transcarpatian Petrochemist) and Halychina Oil Refinery OJSC. Control stakes in the Lisichansk and Odessa refineries belong to Russian oil companies: Tyumen Oil Company (TNK) and LUKOil.

Reforming the industry via attracting strategic investors for domestic oil refineries (powerful Russian oil companies TNK and LUKOil, as well as Kazakh Kazakhoil) has improved the situation in the sector after abrupt falling of oil processing volumes from 58.5 mn tons in 1990 to 8.5 mn tons in 2000.

Thus, oil refining volumes have risen 2.5 times, from 8.5 mn tons in 2000 to 21.2 mn tons in 2004. Petrol production rose 2.4 times, and the output of diesel fuel went up 2.2 times.

Market saturation with oil products and its stability depend on import supplies of oil itself and oil products – as Ukraine’s own extraction volumes of raw oil are only 20% of the stock the national economy demands.

Starting 2005 and till now there has been a negative trend of reducing imports of oil supplied to Ukrainian oil refineries.

Foreign trade balance for oil and oil products in Ukraine, USD mn.

Estimations show that negative balance can be reduced and become more resistant to changes in the market conjuncture – under conditions of further implementing of modernization projects at Ukrainian oil refineries and/or constructing of new facilities. These projects are also attractive because: price rise on the market of oil and oil products over the last few years has been caused by shortage of these oil products; oil refining facilities in Europe are loaded by more than 90%, and their expansion is very unlikely in the short run. On the other hand, Ukraine owns a well-branched network of oil pipelines and is located at the EU border. There is every reason to encourage modernization of Ukrainian-based oil refineries and/or construction of new ones. Moreover, the cost of such projects can be compared to the value of negative balance adjustment (USD 2-7 bn depending on level of oil prices in the next few years).

By and large, oil refining industry of Ukraine is distinguished with physical depreciation of main production assets; low technical level of most technological equipment; poor capacity of deeper oil processing (isomerization process essential for high-octane benzene production is only available at Lisichansk Oil Refinery); and bad quality of oil products.

Available facilities and technical level of oil refineries are not substantial today to provide the country’s economy with high quality petrol and diesel fuel. However, in 2007 there was no resource shortage on the domestic oil products’ market due to sizable volumes imported. Petrol imports in consumption by Ukraine made 21% in the 12 months of 2007, which was 2% down, diesel fuel supplies accounted for 34.7%, a 4% increase versus 2006.

As compared to 2006, the year 2007 saw further expansion of oil products’ import to the country: petrol – by 9% and diesel fuel – by 15%.

Deepening of oil processing remained low in the industry in 2007 (73%).

Solution to the problem of deeper oil refining (to the level of 75% in 2010 and 85% till 2030) will be defined by exploring of new technologies for deep refining of oil residues – the processes of catalytic cracking, hydrocracking, viscosity breaking, and carbonization.

The application of advanced technologies will improve the economic efficiency of crude oil processing, as the depth of oil refining will grow. Accordingly, the output of oil products, which will then correspond to world standards, will grow. By 2030, Ukraine’s oil refining industry is slated to produce all key oil items with an oil processing depth of 90% as predicted by Strategy of oil and gas industry development.