Canadian engineering company Genoil has announced a $50 billion letter of intent for a modern, integrated oil production, transport and refining system in Chechnya – including hydroconversion equipment to desulfurize and purify crude, which will reduce residuals and improve operating efficiency.
Genoil says that the agreement covers 3.5 million barrels a day of production and six million tonnes of annual refining capacity. The firm will serve as the master contractor in charge of all phases of the project.
The project will be substantially engineered, financed and insured by Chinese partners, and it has the support of the Russian government. It will form a part of a trade agreement between Russia and China, and the refined product will go to China under long-term contracts.
Genoil says that its hydroconversion equipment increases the product yields from heavy crude, bitumen, and refinery residues, at low cost relative to traditional hydrocracking and coking methods. The firm says that it can desulfurize heavy fuel oil fractions and produce a higher ratio of products like diesel and gasoline.
Genoil's announcement follows shortly after the IMO Marine Environment Protection Committee's decision to implement a global ban on high-sulfur residual fuel beginning in 2020. Some observers have expressed skepticism that refiners will choose to make additional investment in desulfurization as the requirement approaches; however, Genoil's agreement is one sign that refiners may elect to use new technology to convert a higher portion of residuals into lighter fractions – at least in new greenfield construction.
Chechnya’s oil refining industry has been a point of political tension between regional leaders and Moscow; after years of lobbying, Russia agreed to transfer Chechen refining company Chechenneftekhimprom to local control in 2015, and Chechen Republic leader Ramzan Kadyrov has called for construction of a new refinery for the firm.
"Construction of a refinery will bring us additional taxes, jobs and development of the oil industry. And, of course, it will be a great success for our region," Kadyrov told Russian outlet Yuga.ru last year.
Oil refining is the main employment option within the province, making it politically important, but Russian analysts say that supplying a new refinery may require reversing the decline of Chechnya’s upstream crude production. As of last year, Chechnya produced about 600,000 tonnes, down from annual output in the millions of tonnes in the Soviet era.