US sanctions hamper Russian oil refineries repair efforts

[oil&gas]

4 APRIL 2024

Russian oil companies are experiencing difficulties repairing refineries due to Western sanctions, and attacks by Ukrainian drones may exacerbate their problems.

As reported by Reuters, when engineers at Russian oil company Lukoil discovered a turbine failure at its largest refinery on 4 January, they quickly realised that the problem was far from trivial, Reuters says.

Only one company knew how to repair the gasoline production unit at the Lukoil-Nizhegorodnefteorgsintez oil refinery (NORSI), located on the Volga River. The problem was that the company was an American one, according to five sources familiar with the incident.

The company, engaged in oil engineering and part of the multinational concern UOP, left Russia after its invasion of Ukraine.

"They (the engineers) rushed around to find spare parts and they couldn't find anything. Then the whole unit just stopped," a source close to Lukoil said.

Four other sources said the catalytic cracker, which is used to convert heavy hydrocarbons into gasoline, has not been operational since January, and it is unclear when it could be repaired due to a lack of experience in Russia.

The KK-1 unit is one of two catalytic crackers at the plant.

As a result, the NORSI oil refinery, Russia's fourth-largest oil refinery, has cut gasoline production by 40%, according to two sources. Lukoil did not respond to requests for comment.

The Lukoil oil refinery is an example of broader problems in Russia's energy sector, where some oil companies are trying to repair their plants, built with the help of American and European engineering companies, in the face of Western sanctions.

Difficulties have been exacerbated by attacks by Ukrainian drones that have hit at least a dozen Russian refineries this year, industry sources say. Reuters estimates that these attacks forced Russian oil refineries to close about 14% of their capacity in the first quarter.

"If the stream of drones continues at this rate and Russian air defences don't improve, Ukraine will be able to cut Russian refining runs quicker than Russian firms will be able to repair them," said Sergey Vakulenko, a Russian energy expert and non-resident fellow at the Carnegie Endowment for International Peace, a think tank on international relations.

Earlier, the State Department declined to comment on whether the United States called on Ukraine not to attack Russian oil refineries but noted that Washington does not support attacks on objects on the territory of the Russian Federation.

Before that, the Financial Times, citing sources, reported that the United
States allegedly called on Kyiv not to attack Russian refineries and other energy infrastructure, as they fear that this could lead to an even greater escalation and lead to a global increase in energy prices.

Commenting on this publication, Olha Stefanishyna, Deputy Prime Minister for European and Euro-Atlantic integration of Ukraine, said that the approach associated with attacks on Russian refineries would be considered correct by NATO standards.

US sanctions hamper Russian oil refineries repair efforts – Reuters

Russian oil companies are experiencing difficulties repairing refineries due to Western sanctions, and attacks by Ukrainian drones may exacerbate their problems.

www.eurointegration.com.ua

 

[oil&gas]

Ukraine’s allies divided over drone campaign targeting Russian refineries
Apr 03, 2024
Giorgi Revishvili

Ukraine carried out one of the longest range drone strikes of the war so far on April 2, hitting an oil refinery in Russia’s Tatarstan region approximately 1300 kilometers from the Ukrainian border. The attack was the latest in an expanding campaign of drone strikes that have inflicted significant damage on Russia’s oil and gas industry, while also revealing divisions among Ukraine’s international partners.

The first signs of international unease over Ukraine’s air offensive emerged in late March, with the Financial Times reporting US officials had urged Ukraine to halt drone strikes on Russian refineries amid concerns about global oil prices and possible retaliation. Days later, Ukrainian President Volodymyr Zelenskyy confirmed the US reaction to Ukraine’s airstrikes was “not positive,” but stressed Ukraine would not accept limitations on the use of domestically-produced weapons. “We used our drones. Nobody can say to us you can’t,” he commented.

Ukraine’s other key allies have yet to voice similar concerns over drone strikes inside Russia. This apparent split was on display during US Secretary of State Antony Blinken’s April 2 visit to Paris. While Blinken reiterated that the US has “neither supported nor enabled strikes by Ukraine outside its territory,” French Foreign Minister Stéphane Séjourné struck a different note. “The Ukrainian people are acting in self-defense and we consider that Russia is the aggressor,” he commented. “In such circumstances, there is hardly anything else to say. I think you understood me.”

The French position was welcomed by Ukrainians, who view the war with Russia as existential for their country and believe they should have the freedom to fight without artificial constraints. This means leveraging Russian vulnerabilities and capitalizing on emerging opportunities, both within occupied Ukrainian territory and inside Russia itself.

Ukraine has bombed more than a dozen Russian oil refineries since the air offensive began in early January 2024, including some of the biggest plants in the country. Many of the attacks have taken place far from the Ukrainian border, highlighting the increasingly long-range capabilities of Ukraine’s drone fleet.

Since Ukraine is restricted from employing Western-provided weapons against targets inside Russia, the production of long-range drones has become a top priority for Kyiv. This has led to a surge in investment and a spike in output. Drones are significantly cheaper to produce in large quantities than long-range missiles and require less infrastructure.

Ukraine’s partners have also backed Kyiv’s focus on drone warfare. In January 2024, the United Kingdom pledged to spend at least $250 million to rapidly procure, produce, and deliver 1000 one-way attack drones to Ukraine. Although precise details regarding Ukraine’s drone stockpile remain undisclosed, the rhetoric of Ukrainian senior officials and the ongoing strikes suggest the current bombing campaign inside Russia is likely to continue gaining momentum.

Ukraine has defended its attacks on Russian refineries by noting that oil revenues are at the heart of the Russian war economy, making oil facilities legitimate targets. Ukrainian military planners expect their expanding drone offensive to have military, economic, and political repercussions for the Kremlin.

In the military sphere, the past three months of attacks have confirmed that Russia’s oil facilities are inadequately defended. Russian demand for air defense systems already appears to be growing in response, with indications including delays in delivering promised systems to India. Further Ukrainian drone attacks might compel Moscow to redeploy existing air defense systems to safeguard refineries. This could potentially create opportunities for Ukraine to strike other high-value targets inside Russia and in occupied Ukrainian regions.

Ukrainian commanders hope drone strikes can undermine Putin’s ability to wage war. The Russian military relies heavily on refined oil products such as gasoline, diesel and jet fuel. Reducing Russian oil refining capacity might have implications for military fuel supplies in the long run, creating logistical challenges for the Russian army in Ukraine and hampering preparations for a major new offensive in summer 2024.

Ukraine’s strategy is also economic and aims to reduce Russian oil revenues. Drone strikes have already disrupted at least 10% of Russian oil refinery capacity, according to Britain’s Ministry of Defense. The process of repairing damage from drone strikes is further complicated by the fact that Russian refineries are heavily reliant of Western technologies. With sanctions limiting Russian access to critical parts and equipment, resuming operations at targeted refineries is likely to be a costly and time-consuming process.

There are already some signs Ukraine’s drone strikes are impacting Russia’s energy industry. On March 1, the Kremlin imposed a six-month ban on gasoline exports in an effort to avoid shortages and prevent price spikes on the domestic market. Nevertheless, gasoline prices have gone up in Russia.

Rising fuel prices could lead to mounting discontent within Russian society. Since the onset of the full-scale invasion, the Kremlin has maintained an unspoken agreement with the Russian public to keep any war-related disruption to an absolute minimum. Indeed, this is one of the main reasons why the invasion was officially termed a “Special Military Operation” rather than a war. The impact of higher fuel prices would be felt throughout Russia, particularly in regions with struggling economies, potentially creating instability.

The economic consequences of Ukraine’s drone strikes are also evident beyond Russia, with Brent crude up nearly 13% this year. With the US currently in election mode, this appears to have alarmed many in Washington DC. For now, Ukraine’s leaders are unmoved by such concerns. On the contrary, they are unwilling to rule out anything that might help secure national survival and believe attacks on Russia’s oil and gas industry are fully justified.

Ukraine’s allies divided over drone campaign targeting Russian refineries

Ukraine's expanding campaign of drone strikes on Russian refineries has inflicted significant damage on Putin’s oil and gas industry while also revealing divisions among Ukraine’s allies, writes Giorgi Revishvili.

www.atlanticcouncil.org

 

[oil&gas]