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. Last Updated: 07/27/2016

Firms Try to Stop Influx of Foreign Oil

Top executives of Russia's largest oil companies this week stepped up a campaign to counteract the influx of the latest foreign product to take over Russian markets: cheap gasoline, mostly imported from Finland.

Sergei Muravlenko, head of oil giant Yukos, and Gazprom boss Rem Vyakhirev on Tuesday signed agreements with St. Petersburg Mayor Anatoly Sobchak, while LUKoil's president, Vagit Alekperov, also visited the city for talks.

Under the agreement with Yukos, the company will receive tax breaks allowing it to step up its activities in the city, Muravlenko said.

LUKoil signed a similar agreement last month.

The issue of support for domestic gasoline suppliers in competition with Finnish companies, primarily the Neste concern, were high on the agenda at talks between the businessmen and Sobchak, Interfax reported.

The Russian oil companies are worried about the strong showing of foreign gasoline suppliers, particularly in St. Petersburg and northwestern Russia, but also in Moscow, where imports account for up to 70 percent of the market for high-octane gasoline, according to some sources.

Neste owns two filling stations of its own in Russia and has a share in another nine through a joint venture with Surgutneftegaz called Petroservis. But it mostly sells direct to local Russian-owned service stations spread throughout St. Petersburg and Moscow.

"We switched to Finnish gas a year ago, because it is less expensive and cleaner," said an attendant at a gas station of the Bikom company on Ulitsa Pyataya Yamskogo in northern Moscow. A liter of Finnish 92-octane gasoline retailed for 2,000 rubles (about 40 cents) at Bikom this week, slightly cheaper than Russian gasoline sold at state outlets.

One Moscow oil industry analyst explained that foreign gas had taken over in Russia because prices for Russian gasoline have risen to near world market levels in recent years. The reason is that production from outdated and monopolistic refineries has fallen but demand has increased dramatically, particularly in the Moscow-St. Petersburg corridor, where the number of cars has grown.

In fact, Russian refineries are so inefficient that it can make sense for Russia to export crude oil to Finnish refineries and re-import it into Russia.

"Russian refineries give only an average of 65 percent of late products on a liter of fuel, while a Western refinery can give upwards of 90 percent," said the analyst, who asked not to be named.

While the fight against foreign competition is the official reason for the mission by the oil industry heavies, the visit is also a step in a territorial war between Russian oil companies.

LUKoil and Yukos are challenging the traditional dominance of Surgutneftegaz in St. Petersburg in a sign of increasing competition in the oil market, one industry source said.

According to the newspaper Kommersant Daily, LUKoil plans to build a string of gas stations in St. Petersburg with the aim of winning 30 percent of the city's retail gas market.

In any case, the boom for foreign gas may already be drawing to an end because of skyrocketing world gasoline prices.

Gas prices on international markets are close to their historic highs, prompting price controls in the United States.

This may soon squeeze Western suppliers out of the market, said one senior European oil executive.

"Today, market prices for gasoline in Russia do not correspond to the European level," said the executive, who asked not to be named.

"A few months ago we bought petrol on the Rotterdam market at $180 a ton, but now it costs $230 a ton," he said.

With high costs on transportation, 45 percent in tariffs and a 20 percent value-added tax, it is becoming unprofitable to sell imported gasoline in Moscow, and the firm is re-orienting toward other European markets, he said.

According to Ilya Kolerov, the head of Moscow's largest private chain of filling stations, Ilya Kolerov and Co., the prices offered at the Moscow refinery are now "very competitive."

A liter of 92-octane gas from the refinery now costs 1,200 to 1,300 rubles (25 cents), Kolerov said last month.