Refinery Overhauls May Further Boost Fuel Prices

Halychyna refinery (HANZ) has been stopped for 30-day overhauls. Halychyna’s nameplate capacity is around 3.5 mln mt of crude oil a year. In 2006 it produced 187 ths mt of gasoline and 282 ths mt of diesel fuel. Vladimir Nesterenko: Earlier another refinery in western Ukraine, Naftokhimik Prykarpattya (NAFP), was taken off line for upgrades until mid-June. We estimate that the stoppages may result in a temporary shortage of around 60 ths mt of gasoline and 90 ths mt of diesel, which we expect to be covered by imports. More importantly, the temporary deficit is likely to spur further domestic retail fuel prices, which have been lagging oil prices since January and recently started to catch up. The effect will be reduced if Lukoil’s Odesa Refinery starts operating in August, as planned, after 1.5 years of modernization. We also do not expect the Lisychansk refinery, the second largest refinery in Ukraine, to stop for overhauls this year, as last year it shifted to the 2-year overhaul cycle. This news can be both positive than negative for fuel retailers, of which only Galnaftogaz (GLNG) and Ukrnafta (UNAF) have traded stock. From one side retailers can benefit from higher end-user prices, from the other their gain can be limited by the markups capped by the government and possible negative price effects on the quantity demanded.