Russia ready to import premium fuel

The Russian market is now open to foreign fuel producers after the abolition of 5% import duties on petrol. Currently there is little imported fuel on the market, but that may change, although analysts say there are other factors to watch out for.

Sales of foreign cars in Russia are booming – flooding roads with Nissans, Toyotas and BMWs. But several months after buying expensive cars happy owners face the verdict of their car mechanics – low quality fuel damages the engine. For them imported fuel – of a higher price but better quality – may be a solution.

“Russia produces a very small amount of premium fuel. Oil companies simply do not invest in refineries. It’s more profitable for them to produce fuel oil for example and export it. It requires 1 billion dollars to build a refinery and  it takes a long time before the  project pays back,” Mikhail Armyakov, the Chief analyst of the Arbat Capital Group, said.

Russian producers often refine their oil abroad and then bring back the fuel to the domestic market. Now, after the government abolished the 5% import duty, it will be even cheaper to do. Market watchers say Russian refiners will be under pressure to raise the quality of their output.

“Domestic oil producers will reduce the volume they supply to Russian refineries and redirect it to the foreign ones. Thus domestic plants will face a deficit in crude oil. To bring volumes back they will have to improve the quality of the refining,”  Mr Armyakov said.

Now there are only two companies that export fuel to Russia – Finnish Neste Oil and Norwegian Statoil. But new regulations and growing demand for premium fuel may bring new players on the market and force the existing ones to invest in order to compete.