Oleh SALMIN: “Today Ukraine has the most expensive oil in the world”
At the end of the week before last OPEC adopted a resolution to increase the amount of oil it extracts and exports. One member, Saudi Arabia, has already increased the amounts of oil export by 250,000 barrels per day. However, in traders’ opinion, it is highly insufficient to maintain prices at the present comparatively low rates. The further dynamics of oil prices will depend on the other OPEC member-countries’ decision whether to support Saudi Arabia’s initiative to increase their own oil exports. If the price of oil does reach $40 per barrel it will have a considerable impact on Ukraine, which can provide only 15% of the needed oil. The Ukrainian oil market is best presented by the main operator, Ukrnafta, which had financial difficulties not so long ago.
The problems of Ukrainian oil extraction and oil processing industry are discussed in the interview with Ukrnafta (Ukrainian Oil State Company) Chairman of the Board Oleh SALMIN:
We regularly receive money for oil sold by auction. However, it is a disappointment that there are two prices for oil in the Western direction amounted to $223 per ton, while in the Eastern direction the price has gone no higher than UAH 750. this can be ascribed to the fact that the oil processing plant in the Western direction, Naftokhimik Prykarpattia (Carpathian Petrochemicals), is working at full capacity, constantly receiving and putting out oil products. The price of oil in the Western direction has been raised by Russia’s Tiumen Oil Company, which works with the Lysychansk Refinery. Tiumen Oil has an interest in huge quantities of oil and presents formidable competition to the Ukrainian companies, which work in the Western direction.
As to the Eastern direction, we are faced with an old problem. Those, who bought oil from us at previous auctions, cannot take the oil products from the plants. And this causes the interest in oil in the Eastern direction to diminish.
Of course, such a disparity in the prices of the same Ukrainian oil, around $70, causes a reduction in budget revenues and hurts Ukrnafta profits. Thus we should seek an alternative supply of oil to other plants like the Kherson or Odesa refineries. This would make it possible to have competition for oil and lower its price. The proceeds from selling oil by auction is just enough to pay the taxes. Ukrnafta pays UAH 100 million in taxes monthly.
As of today, we have paid some UAH 700 million in taxes. Concerning our old debts of UAH 470 million, we have made clearing operations for almost UAH 200 million.
If we manage to settle accounts with Derzhkomrezerv (State Reserve Committee), which has not paid for last year’s supplies of oil, by the end of the year the company could pay off its debt to the state entirely. But this will be possible only if nobody interferes with the sales system we’ve been able to create.
How did the changes in Russia’s policy (the new export duty imposed on crude and black oil) influence the Ukrainian refining and oil extracting industries?
Russia, from its own perspective, is pursuing a correct policy. It has directed the flow of oil back into the country. That is very important, since recently virtually all Russian oil was exported. The price of oil on the world market was rising and it was in Russian oil companies’ interest to carry out contracts abroad. At the same time, having cut the flow of oil to the world market, Russia caused a sharp increase in the price of oil. And there’s one more interesting nuance here. Today Ukraine has the most expensive oil in the world. While the world price of oil is $183, we sell it for $223. This can be ascribed to the lack of oil supplies from abroad which causes strong competition for oil within the country.
The approaching autumn-winter period causes a problem of searching for an alternative fuel. There is a great lack of gas. Earlier, generating plants used coal and black oil. Black oil can be produced during oil refining, but this system should be controlled.
How would you view the government’s innovation of natural gas and oil auctions?
I think oil auctions should be evaluated positively. It’s a transparent way of selling oil. Everybody can take part. Money and taxes are paid quickly. There is quite rigorous position for purchasers: no money — no oil. I can’t really say the same about gas tenders. The inability to sell gas leads to the fact that gas is taken free of charge, and now we have a huge surplus of gas consumption.
