Russia's gasoline and naphtha exports rose in January, as the cheaper ruble versus the US dollar made export netbacks more attractive, trading sources said.
According to Energy Ministry figures, 384,370 mt of gasoline were exported in January, based on preliminary data. But traders have said the final numbers will amount to more than 500,000 mt.
"This is the biggest monthly volume" since 2011, said a trader.
Gasoline exports have been lured by the higher export netback, which represents the export value of Russian products and which was pushed up by the weak ruble.
Even as Russian domestic prices were tracking the firmer netbacks on the way up, most gasoline grades remained at a discount versus the export netback, said traders.
"There is a premium only on Euro 5," said one trader.
The lower spec Euro 3 and 4, which are part of the export pool, are trading at a discount versus the netback, making their exports even more attractive, sources said.
Likewise, naphtha, which is primarily an export-oriented product anyway, has seen increased export pull due to the ruble depreciation.
"Refineries are switching from gasoline production to naphtha because of the rapid devaluation of the ruble," said a trader.
"In January, some extra flows were linked to upgrading equipment being offline and flows definitely seem to be increasing," said a naphtha trader.
An extra 100,000-150,000 mt per month is likely to head to Europe, partly due to ongoing and upcoming works on refinery gasoline units, trading sources said.
"The Baltics still have quite heavy volumes -- it's been quite heavy the last two months...and it continues," said a naphtha trader.
NAPHTHA FLOWS INCREASE
But while naphtha flows have been boosted recently by the weaker ruble, delayed upgrades at a number of refineries may result in significant naphtha flows in the future, traders said.
As part of a downstream modernization agreement that Russian oil companies and federal authorities signed in October 2011, the companies committed to building or upgrading 116-124 secondary processing units by 2020.
The aim of the upgrades is to allow refineries to produce higher spec fuel and if the modernization goes according to plan, domestic distribution of Euro 3 will be banned from 2015.
Euro 3 has a sulfur content of 150 ppm, while Euro 4 standard requires a 50 ppm sulfur limit and Euro 5 has a 10 ppm sulfur cap.
But many doubt that all refineries will be able to meet the higher Euro 4 and Euro 5 standards.
"More than 30% of the refineries will not be able to," said one market player, adding that if the ban on Euro 3 is enforced this "may result in a strong increase of naphtha production" by those refineries that cannot meet the higher standards.
Russia's annual naphtha production is around 22 million mt, according to industry data. Of that figure, annual exports amount to around 15-16 million mt, with domestic petrochemical demand providing an outlet for the rest.
But recently exports have been growing, with 2013 exports estimated at 17 million mt, up from 15 million mt the year before.
"We see an [annual] increase of exports of around 15%," said a trader, adding that this is a result of increased throughput at refineries.
Even though the upgrades are aimed at increased conversion, and not throughput, refinery runs have been rising, as up to now it is mostly primary distillation capacity that has been expanded, sources said. Refining margins have also been strong in Russia, resulting in higher output of both naphtha and fuel oil, most of which subsequently is exported, according to sources.
"There is rising throughout at the refineries," said a source, adding that at the same time "secondary units have not been launched."
FLOWS REDIRECT
And while naphtha export flows in general have been rising, they are increasingly consolidating out of fewer ports, especially in the Baltic region.
Exports have been growing at the recently launched Baltic port of Ust-Luga, with volumes elsewhere diminishing, traders said.
"Some of it is redirection of oil that used to come out of Vitino and Archangelsk," said a trader.
Exports from the White Sea have all but come to a halt, traders said, citing poor winter conditions and lack of facilities for larger cargoes.
Europe used to receive naphtha deliveries from Archangelsk, Murmansk, Svetly, Kaliningrad, Vysotsk, Ventspils in the north as well as Tuapse on the Black Sea.
Some naphtha is still exported out of Murmansk, but flows are diminishing, due to the high costs of ice breaking, said sources.
And while Ventspils continues to see good flows, Ust-Luga is becoming the focal point of naphtha exports, after launching them in June 2013. It is estimated to handle nearly half of the total monthly export volumes, according to sources. Both Gunvor and Novatek handle naphtha exports out of Ust-Luga.
There are several naphtha terminals that accommodate larger vessels and are hence suitable for long-haul arbitrage movements.
In June, Novatek sent an "inaugural tanker carrying 80,000 mt of naphtha" to Brazil. Novatek signed an agreement with Brazilian petrochemical company Braskem for delivery of 1 million mt of naphtha in 2013.
Last year, trader Gunvor estimated its Ust-Luga naphtha exports at around 250,000 mt/month.
