Lukoil plans refinery, pipeline on Turkey's Black Sea coast

OAO Lukoil, Russia's biggest oil company, may build a refinery on Turkey's Black Sea coast and a pipeline to carry gasoline to European markets. Lukoil started a feasibility study for a refinery at Zonguldak on the Black Sea and a pipeline from there to Izmit in the sea of Marmara, bypassing the Bosporus straits, the Moscow-based company's press office said yesterday. Lukoil has contacted Turkish energy regulators about building a refinery, Nafiz Kaya, a spokesman for the regulator, said. Refining crude at Zonguldak would give Lukoil, which is expanding outside Russia after President Vladimir Putin raised taxes on oil producers, an advantage as it seeks to enter the Turkey's $22 billion fuel retail market. Lukoil has approval from Turkish energy regulators to set up a chain of gas stations and can start operating next month, Kaya said. “Turkey's a big market and demand is likely to grow higher,” said Oleg Maximov, an analyst at Troika Dialog in Moscow. “Refining margins right now are very high around the world, and with tight capacity they're likely to go higher, so of course Lukoil would want to capitalize.” Lukoil declined to give further details, including possible costs. The company is seeking Kazakh and Turkish partners to form a group for the $2.5 billion project. Turkish Prime Minister Recep Tayyip Erdogan is urging Lukoil to build the refinery at Samsun, about 550 kilometers (340 miles) further east along the Black Sea coast and the main offloading point for crude from Russia and Kazakhstan, Istanbul-based Hurriyet newspaper reported yesterday, without saying where it got the information.

Zonguldak would suit Lukoil better than Samsun in terms of entering the retail market because it's near the Marmara region, which includes Turkey's biggest city Istanbul and has the strongest demand for gasoline, said Ebru Eroglu, an analyst at EFG Istanbul Securities. Lukoil may seek to acquire a local distributor because “it's impossible to establish a wide retail network in a short period of time,” she said. Petrol Ofisi AS, a joint venture of Turkey's Dogan Sirketler Grubu Holding AS and Vienna-based OMV AG, is the market leader in Turkish fuel retailing with a share of about 40%. Tupras Turkiye Petrol Rafinerileri AS, an oil refiner sold by the government to Koc Holding AS this year, supplies about 80% of the domestic market's requirements. Petrol Ofisi is also considering building a refinery at Ceyhan on Turkey's south coast, where oil started arriving in June through a new pipeline built by BP Plc and partners. Indian Oil Corp., India's state-run refiner, also applied to build a refinery at Ceyhan together with Turkey's Calik group.

Those two projects would add about 25 million tons of annual refining capacity. Demand in Turkey was about 29 million tons last year, of which 24 million tons was supplied by Tupras, EFG's Eroglu said. As capacity in Turkey grows, refiners may seek to export some of their products. Linking Zonguldak with the Marmara Sea via a pipeline would allow Lukoil to do that without adding to tanker traffic through the Bosporus straits. Turkey is seeking to cut traffic through the Bosporus, one of the world's busiest waterways which bisects Istanbul. Eni SpA and Turkey's Calik are building a $1.5 billion pipeline to bring Russian and Caspian oil from Samsun to Ceyhan on the Mediterranean. Eni and Calik have approached Lukoil about joining that project, Calik's Chairman Ahmet Calik said in a June 22 interview. (Bloomberg)