No. 1, 2010

The biggest refinery in the southern part of Russia is currently LUKOIL-Volgogradneftepererabotka. The plant's output is of a steadily high quality and enjoys substantial demand among consumers in the region. The Volgograd Refinery's plans include a further increase in productive capacity and higher quality of the petroleum products. Serious prospects for development of the company are linked to receipt of oil from fields in the Northern Caspian, production at the first of these being due for launch in 2010.

The history of the Volgograd Refinery

The decision on building a refinery in Volgograd was made by the USSR Council of Ministers on April 26, 1951. It was dictated by the need to supply the developing industry and transport of the Lower Volga area with petroleum products and fuel produced from the crude oil obtained from the Zhirnovskoye and Korobovskoye fields in the Volgograd Region.

The refinery's construction began in 1951 and the first refining facilities were started up and produced the first batch of gasoline in 1957. From 1960 to 1970, the Volgograd Refinery was continually expanding to produce new types of products. Until the early 1990s, the refinery's development was quite slow. The Soviet administrative command system failed to take account of the new demands of the times with respect to modern refining facilities. Many reasonable proposals for technical upgrading of the refinery failed to gain approval from on high, so when the Soviet Union collapsed the refinery found itself in a quite difficult situation. It was short of circulating assets, and in need of serious rehabilitation and fundamentally new approaches to management.

The Volgograd Refinery's most recent history began on April 5, 1993, when the Russian Government passed a resolution to transform the refinery into open joint-stock company LUKOIL-Volgogradneftepererabotka. From that time, large-scale and intensive work began under a refinery upgrade project. Given the fierce competition on the world petroleum product market, the refinery took urgent steps to improve its production processes, enhance the quality of goods and extend range of products.

Rebirth

LUKOIL-Volgogradneftepererabotka is currently the biggest refinery in the Southern Federal District of Russia, accounting for about 60% of the oil refined in the region. The share of the Volgograd Refinery in the total industrial output of the Volgograd Region is 30%.

The refinery produces over 100 different high-quality petroleum products: diesel fuel and high octane EURO standard gasolines, lubes, including ready-packaged, bitumen, liquefied gases, the isoparaffin basis for manufacturing synthetic oils, oil cokes and so on. "In 2008-2009, LUKOIL-Volgogradneftepererabotka maintained the dynamics of increasing the volume of refining. Last year, for instance, we reached a record crude refining volume since the refinery's startup - 10.7 million tons, and in 2009 we have managed to increase this by 5%," says LUKOIL-Volgogradneftepererabotka General Director Vladimir Zyazin.

He goes on to say that the rise in the volume of refining is primarily a result of the current market situation, with a growing demand for the high-quality petroleum products produced by the refinery.

"Beginning in 2008, for example, when the isomerization unit was started up, we have been producing motor gasolines complying with the EURO-3 international standard. High-octane gasolines are nowadays produced only according to this standard and accounts for 87% of all the gasoline produced. Modern technology has made it possible to manufacture EURO-4 standard diesel fuel," Vladimir Zyazin continues.

It should be noted that, last year, two products of this class - Premium EURO-95 gasoline and EURO diesel fuel - were put on the best Russian product list.

The Company exports a substantial amount of its petroleum products, this being facilitated by its location on the banks of the great Volga River and close to the Volga-Don canal, providing access to five seas: the White, Black, Baltic, Mediterranean and Caspian seas.

Environmental safety at the forefront

The Volgograd Refinery carries out its nature protection activities in compliance with the Environmental Safety Policy of LUKOIL.

For this purpose, environmental safety programs are developed at the refinery for four-year periods. They envisage implementation and financing of measures in the following main spheres: clean air, clean water and waste disposal.

Within the scope of the first such program, back in 2000-2003, a system of gas processing units was built to provide for production of liquefied propane, butane and mixtures of these. Petroleum gas used to be burnt in the refinery's flares, causing air pollution. The gas processing units have cut in half the emissions of pollutants into the atmosphere.

Since 2003, the refinery has been producing so-called ecologically clean diesel fuel, with only 10% of the sulphur content it had back in 2000. Moreover, there is a new unit for producing liquefied and granulated sulphur from the refinery gases containing sulphur compounds.

It is not surprising therefore that in 2004, LUKOIL-Volgogradneftepererabotka was certified to comply with the ISO-14001 international environmental standard and this assessment is confirmed every year by an independent audit.

As a result of implementation of the 2004-2008 program, pollutant emissions from oil sludge collectors were cut by 700 tons, consumption of fresh water decreased, discharge of waste water into the collector pond and accumulation of new oil sludge were reduced. Despite an increase in the refining volume in 2008, there was a 2.1-fold reduction in pollutant emissions compared to 2004. In addition, 1300 hectares of recultivated lands were put back into commercial use.

The environmental safety program for 2009-2013 has now been adopted and is being implemented. It envisages further emission reductions, decreased clean water consumption from the Volga, recultivation of land and its return to commercial use, and disposal of newly formed oil sludges.

The company and its production divisions adopt their environmental safety programs based on extensive consultation with the controlling bodies and public environmental organizations of the region, and with the public at large, LUKOIL-Volgogradneftepererabotka General Director Vladimir Zyazin stresses.

In addition, the refinery organizes, on its own initiative, public hearings on various aspects of environmental safety to receive support and approval from the public, civil society and the authorities.

Energy saving policy

LUKOIL-Volgogradneftepererabotka is constantly increasing its refining volumes because the demand for energy resources is growing. Under these conditions, use of energy-saving technologies, constituting a new approach to energy consumption, is a major contribution to the corporate energy saving and environmental protection policy. For the purpose of implementing the corporate energy efficiency program, modern energy-saving equipment and technologies are being introduced at the refinery.

As far as future plans are concerned, the objectives of the energy-saving programs of LUKOIL-Volgogradneftepererabotka remain the same - to cut the specific energy consumption rates, reduce the energy intensity of the refinery, and also losses in the heat and power systems.

An important step toward reducing the energy intensity of the refinery is to create an effective system for registering and standardizing consumption of energy resources. That is why there is now an acute need to create and deploy an automated electricity consumption metering and dispatching system, and modern automated thermal energy and fuel consumption metering and control systems.

Projects for the future

The prospects for further development and expansion of the capacity of the Volgograd Refinery are primarily linked with a whole series of unique fields that LUKOIL has discovered in the Northern Caspian: production at the first of these, the Yury Korchagin field, is due to be launched in March 2010. Also worth noting is the beneficial location of the refinery - it is only a few hundred km from Volgograd to the oil-rich regions of the Caspian. This opens up broad opportunities not only for providing for the growing needs of the region itself, but also for exporting petroleum products, since Volgograd is located at the hub of lucrative transport flows.

"We are optimistic about achieving this goal," LUKOIL-Volgogradneftepererabotka General Director Vladimir Zyazin notes. "The refinery has been set the task of being ready for the new operating mode by 2012. There is a program in place for development of the refinery, as well as investment projects designed for this purpose, including such a large-scale project as construction of a hydroskimming unit with an annual capacity of 6 million tons of crude. We will thus achieve the set goal of increasing refining to 12 million tons a year and, in parallel, we will retire the worn-out fixed primary refining assets that we have today. Or rather, some of the most worn out."

"Design is under way and construction has now been launched of large diesel oil hydrotreaters and delayed cokers. When these units are brought on line, mass production will be possible of high-quality diesel fuel meeting the future demands of both the domestic and the foreign market. The delayed coking process provides for heavy still bottoms treatment and deeper crude refining in general," LUKOIL-Volgogradneftepererabotka General Director Vladimir Zyazin stresses.

The strategic development programs of LUKOIL-Volgogradneftepererabotka covers the period up to 2017 and its implementation will increase the refinery's productivity, bring refining depth up to 93%, and make possible production of EURO-5 quality motor fuels and Group III oils. And it may be stated with confidence that this goal will be successfully achieved.