Operations commence at Russia's largest vacuum gasoil facility
VOLGOGRAD, Russia, May 31 (Reuters) - Lukoil, Russia's No. 2 oil producer, opened the country's largest vacuum gasoil (VGO) hydrocracking facility at its Volgograd refinery on Tuesday, built as part of a sweeping modernization of the country's refineries.
The $2.2 B VGO complex, which also includes hydrogen and sulfur production, can process up to 3.5 MMtpy of VGO. It will help Lukoil improve overall fuel quality and increase output of ultra-low sulphur diesel by 1.8 MMtpy, from nearly 4 MMtpy presently, the company said.
Russian oil companies and the government agreed on plans to modernize refineries in 2011 after gasoline supplies almost ran dry due to a lack of modern refining capacity.
The companies pledged to install 130 new units by 2020 that will enable Russia to increase production of higher-margin lighter products.
VGO is mostly used as feedstock to produce diesel and gasoline. Until now, Lukoil exported all the VGO produced at the Volgograd refinery - around 200,000 tons per month (Mtpm) - via the Black Sea port of Novorossiisk.
Industry sources have said Lukoil will use around 100 Mtpm to 110 Mtpm of VGO for making refined oil products at the plant, and the rest will be exported from Novorossiisk.
"There won't be a sharp increase in diesel exports, as it had been through before. Maybe an additional couple of 30 Mtpm cargoes," a trader said.
"Now, these volumes will be pretty timely in the Mediterranean, taking into account refining throughput cuts in Italy and a strike in France," he said.
France is increasing its imports of refined fuels after a more than week-long strike by oil workers disrupted supply, industry sources said.
Lukoil's Volgograd refinery has a capacity of 14.5 MMtpy, or 290 Mbpd. (Reporting by Olesya Astakhova; additional reporting by Natalia Chumakova; writing by Vladimir Soldatkin; editing by Susan Fenton)
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