Operations at Damaged Russian Fuel Complex Seen Resuming Within Weeks, Say Analysts

Russian energy company Novatek is expected to resume significant operations at its Ust-Luga processing complex and Baltic Sea terminal within weeks, following a suspected drone attack that disrupted naphtha flows to Asia, according to analysts. The disruption in supply from Russia, coupled with concerns about disruptions in European naphtha exports to Asia due to Houthi attacks in the Red Sea, is causing an increase in naphtha prices and refining margins in Asia.

Novatek, in response to a fire believed to be caused by a drone attack, announced the suspension of some operations at its Baltic Sea fuel export terminal and the "technological process" at the complex. The incident reportedly damaged two storage tanks and a pumping station, as per local authorities.

Analysts from Moscow-based BCS brokerage believe the plant is likely to return to significant capacity within weeks or, at worst, months. The complex, which processes gas condensate for the production of oil products like naphtha, jet fuel, and gasoil, receives around 7 million metric tons per year from Novatek's Purovsky plant in Western Siberia.

Novatek, however, may now be compelled to export more gas condensate instead of high-margin fuel through other terminals. Sinara Investbank estimates that a quarter of Novatek's revenues could be affected by the incident. Novatek also exports gas condensate from the Arctic port of Sabetta, with exports growing by approximately 20% last year.

The disruption in operations at Ust-Luga, a major port for Russian naphtha exports to Asia, could impact global naphtha supply chains. Novatek has been a significant exporter of naphtha to Asia, particularly to Singapore, Taiwan, and China. The port of Ust-Luga shipped 5.2 million tons of naphtha to Asia in 2023

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