Reuters: US sanctions force Lukoil refinery to cut production by 40%

Russian oil refineries are reeling under Ukrainian drone strikes and sanctions limiting access to repairs

Apr 5, 2024 - 09:48

Reuters: US sanctions force Lukoil refinery to cut production by 40%

Russian oil firms are struggling to repair their refineries, which were built with the help of US and European engineering companies, due to Western sanctions imposed after Russia’s invasion of Ukraine in February 2022, Reuters reported, citing sources.

This offers evidence that Western sanctions combined with Ukraine’s ongoing campaign to strike Russian oil facilities, having the aim of disrupting the Russian war machine, are reaping results.

According to five sources familiar with the situation, Lukoil’s NORSI refinery, the fourth-largest in Russia, has been facing difficulties repairing a broken gasoline-producing unit since 4 January, Reuters wrote.

The sources revealed that the only company capable of repairing the catalytic cracker, a crucial component for converting heavier hydrocarbons into gasoline, is the American firm UOP. However, UOP withdrew from Russia following the Ukraine invasion.

“They (the engineers) rushed around to find spare parts and they couldn’t find anything,” a source close to Lukoil told Reuters. “Then the whole unit just stopped.”

As a result of the unresolved issue, the NORSI refinery has cut gasoline production by 40%, according to two sources. The refinery’s current outage is estimated to cost Lukoil nearly $100 million in lost revenues per month, based on Reuters’ calculations.

The difficulties faced by Russian refineries have been further exacerbated by Ukrainian drone attacks, which have struck at least a dozen facilities this year, forcing them to shut down some 14% of capacity in the first quarter, industry sources said.

“If the stream of drones continues at this rate and Russian air defenses don’t improve, Ukraine will be able to cut Russian refining runs quicker than Russian firms will be able to repair them,” Sergey Vakulenko, an expert on Russia’s energy industry, told Reuters.

Russia’s Deputy Prime Minister Alexander Novak stated last week that the damaged NORSI facilities should resume operations within a month or two, as Russian firms are working to produce the necessary spare parts. However, Honeywell International Inc, the parent company of UOP, confirmed to Reuters that it had not provided any equipment, parts, products, or services to the Nizhny Novgorod refinery since February 2022.

Reuters reports that Western companies such as UOP and Swiss engineering group ABB have supplied technology and software to all 40 of Russia’s largest refineries over the past two decades. Each refinery has a combination of Russian and foreign equipment, making repairs and maintenance challenging in the face of sanctions.

Earlier, Reuters reported that western sanctions and a tanker shortage had forced Russia’s Arctic-2 LNG project to suspend operations, dealing a blow to its LNG ambitions.

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