Lukoil Begins Work on New Diesel Unit as Russian Exports Surge

OAO Lukoil, Russia’s second-biggest oil producer, started construction of a $1.4 billion processing unit at its Volgograd refinery to boost ultra-low sulfur diesel output as exports of the fuel jumped.

The project will increase the supply of Euro-5 standard diesel by 1.8 million metric tons a year, Lukoil said today in an e-mailed statement. Exports from the Baltic port of Primorsk may have increased to 240,000 barrels a day in January from 180,000 barrels in December, putting pressure on prices in Europe, according to the International Energy Agency’s monthly oil market report published on Feb. 13.

Russia is pressing oil companies to upgrade their refining capacity in order to boost output of higher-value fuels at the expense of fuel oil. The country’s leading oil companies, including OAO Rosneft, Lukoil and TNK-BP, have signed agreements with the authorities committing them to modernizing the plants.

“With over 100,000 barrels a day of Russian hydrotreating capacity slated to come online in 2013, it is likely that ULSD will become a more important component of Russian exports,” the Paris-based IEA said.

The Lukoil project, which includes a hydrocracker will have the capacity to remove sulfur from refined products, is scheduled to be ready by the end of 2015 and is part of an agreement with the authorities, the company said.

Euro-5 diesel contains no more than 10 parts per million of sulfur and is the main grade used in the European Union.