OREANDA-NEWS. October 4, 2012. In order to address increasing demand for oil products and the evolving pattern of the Far Eastern markets, the scope of the Khabarovsk refinery modernization has gradually been expanded to enhance refining capacity, to improve quality of oil products and to facilitate crude oil supplies to the refinery through the East Siberian Pacific Ocean pipeline (ESPO). At completion, the Khabarovsk refining capacity will rise to 100,000 barrels per day (previously planned 90,000 bopd) with improved product yields allowing for significantly better refining margins.

In 2009-2012 the Khabarovsk refinery has launched 7 new units with upgraded utilities, infrastructure and offsites. The capacity has been increased to 90,000 bopd while daily throughput reached 84,809 bopd with refining depth improved to 70.2% as of August 2012.

A new hydrocracker and other hydroprocessing units are expected to be launched into test operations in the third quarter of 2013, marking the finalization of the present modernization phase. Currently, the project progress is estimated at above 95% in engineering and procurement, and 65% in construction works.

The Khabarovsk refinery's throughput and depth of refining has gradually improved since 2009

Indicator

2009

2010

2011

Aug 2012

Throughput, bopd

59,712

64,923

73,650

84,809

Depth of refining

62.0%

62.5%

64.4%

70.2%

The total cost for the expanded refinery modernization is estimated at 1,400 MUSD and includes contracts under negotiation for completing the capacity increase to 100,000 bopd in 2013. To date, approximately 1,000 MUSD has been invested in the modernization out of which approximately 680 MUSD under the EPC (engineering procurement contract) with Tecnicas Reunidas.

The 2012 downstream CAPEX plan has been reduced to 410-440 MUSD as a result of the modified modernization program.

In order to facilitate increased and efficient supplies of crude oil to the refinery, the Company has started construction of a new transfer unit and 28 kilometers pipeline from the designated ESPO connection point to the Khabarovsk refinery. The first crude supplies to the refinery by ESPO-pipeline are expected in the beginning of 2014 with 40,000 bopd switched from railway shipments. The pipeline supplies are scheduled to gradually increase to reach 100,000 bopd by 2015. The transportation costs for crude oil supplied through ESPO are expected to amount to approximately half of the cost for 3,300 kilometers railway shipments.

"We have expanded and adjusted the scope of our modernization program to reflect steadily growing demand for oil products in the Russian Far East and our revised outlook for coming years. The strategic focus of the Russian government in this region, large investments in mining and infrastructural projects, outstanding growth in bunkering operations and other segments, and the agreement with Transneft for a 100,000 bopd -pipeline to the Khabarovsk refinery have stimulated our decision to respond to recent market development and anticipated trends by increasing the capacity of all main units by 15-20%. Under current macroeconomic conditions and official fiscal policy, our investments are expected to return increased volumes and significantly improved margins in the near future", commented Arsen Idrisov, Managing Director of Alliance Oil Company.