28 Nov 2019 10:51

Lukoil planning to halve production of high-sulfur fuel oil abroad in 2020

MOSCOW. Nov 28 (Interfax) - Lukoil has prepared for the new International Convention for the Prevention of Pollution from Ships (MARPOL) requirements and elaborated various programs of action, CFO Alexander Matytsyn said during a teleconference.

"I'd like to note that there's still a great deal of uncertainty with regard to MARPOL's influence on price spreads. To be precise, we're currently observing a worsening of spreads for high-sulfur fuel oil without an improvement of spreads for average distillates. We're following the situation very attentively and taking the necessary steps to manage the production basket closely and subsequently decrease production of high-sulfur fuel oil," Matytsyn said.

"We're well prepared, we've prepared plans of actions for various scenarios of changes in spreads. We've already begun to implement measures," Vice-President for Corporate Development and Investor Relations Pavel Zhdanov said.

"If the situation remains as unfavorable as it is now, in Q4, compared with Q3, we're expecting a preliminary decrease of about 30% in the production of high-sulfur fuel oil at European refineries, and about 20% at Russian refineries. As for 2020, we think it's possible that the output of high-sulfur fuel oil at our Russian refineries will decrease by at least a quarter compared to the level we'll have for 2019, and by practically half abroad," Zhdanov said.

"A preliminary assessment of what we can achieve in terms of decreasing fuel oil production in the basket is that, if we take 9M 2019 as the point of comparison, this number is about 10%, and we see potential for this indicator to decrease to 7-8%," he said.

In 2018, Lukoil produced 4.8 million tonnes of fuel oil at Russian refineries and 2.7 million tonnes abroad.

In 2015, an annex to the main MARPOL convention regulating the amount of sulfur allowable in fuel in ships passing through Sulfur Emission Control Areas (which include the Baltic Sea, the North Sea, and the English Channel) took force. On January 1, 2020, the maximum allowable sulfur concentration in fuel used by ships operating in any international shipping zone will be set at 0.5%.