Sales, trading and logistics

Downstream	Oil refining	Marketing
Wholesale B2B trading of oil products	Sales, trading and logistics

The strategic role of Sales, Trading and Logistics lies in optimising the integrated value of downstream. In 2010, TNK-BP’s Sales, Trading & Logistics (STL) division completed a series of innovative projects aimed at improving the efficiency of sales of oil and oil products. Constructive cooperation with Transneft – the national pipeline operator – helped to remove bottlenecks from oil pipelines running between the company’s producing assets and refineries. As a result, we achieved record high oil supplies to the Ryazan refinery. The advantageous distribution of TNKBP’s crude oil production and use of efficient logistics enabled the company to send increasing volumes of crude to the Yaroslavl refinery, as well as to organise light crude deliveries, needed for the production of higher quality oil products, to the Ryazan and Saratov refineries.
Trading efficiency was enhanced by the implementation of a risk management system (Value at Risk) and a practice of upgrading international trading expertise through partnerships and other beneficial relationships.

Sales of oil and oil products in 2010

In 2010, domestic sales were generally more attractive than exports. As a result, some crude oil export allocations were redirected to the domestic market to maximise efficiency. The resulting growth in domestic sales amounted to approx. 2 mln tons, an increase of 26% on 2009 levels.

Crude sales volumes	th. tons 46,493	mln bbl 339
Crude exports	33,114	241
Pipeline	29,296	213
Rail	3,818	28
CIS	3,569	26
Domestic sales	9,809	72
Deliveries of own crude to refineries*	35,440	259

Oil product sales volumes	th. tons 36,012	mln bbl 263
Exports of oil products	20,372	149
CIS exports	2,749	20
Domestic sales	12,891	94
Large wholesale	2,541	18
Retail sales	10,350	76

2010 oil distribution

Achievements in 2010

1. The export of LPG in tankers: In a first for Russia, processed associated gas from the company’s Orenburg fields was exported in containers to gas terminals with varying throughput capacities. Argus-based pricing was used and two contracts were signed with terminal owners as end customers. The company obtained HSE approval for the tankers in accordance with the Marine Register.
   
   
2. The first floating storage facility in Kerch for the segregation of light and heavy oil products: The company used to operate 1 or 2 storage depots for heavy oil products at Kerch seaport. In 2010, the company discovered an opportunity to optimise logistics costs by participating in a joint programme to create a floating storage platform for heavy products (fuel oil and VGO) and light products (gas oil). The vessel used for storage (with a displacement of about 100 th. tons) is vetted in accordance with BP’s internationally accepted safety standards, and has coated tanks and segregated pumping/storage systems to prevent contamination.
   
   
3. A new tender system for purchasing transportation services: For the first time, the company held tenders for long-term rail transportation contracts with a view to reducing transportation costs.
   
   
4. Profitable joint ventures with international traders: The counterparties in these JVs provide TNK-BP with guidance on new trading/logistics decisions with respect to selling and hedging equity. Profit-sharing agreements provide for the allocation of additional margins earned above the stated prices between partners in the project. The projects also add value by generating knowledge about new market environments and end customers in new regions.
   
   
5. Continued practice of signing formula-based contracts: In a first for Russia, the company signed a formula-based contract for the sale of diesel on the domestic market. In Q4 2010, TNK-BP signed a sale and purchase agreement to supply gas condensate and purchase the naphtha produced from it.

Reshaping and optimising STL activities in 2010

Like other aspects of the company’s Downstream business, STL activities in 2010 were aimed at maximising the value of the business as a whole. The company increased supplies to its own refineries and deliveries of oil products to marketing subsidiaries. Supplies to the company’s Russian refineries amounted to 33.134 mln tons (241.879 mln bbl) – a 13% increase on 2009. Deliveries to TNK-BP marketing companies totalled 10.35 mln tons, as the company focused on maximising the benefits of the improved economic situation and ensuing higher demand for high-quality fuel. Meanwhile, wholesale sales on the domestic market exceeded 2.5 mln tons.

TNK-BP's sales of light oil products via exchanges/auctions in 2010

The company continued to diversify its export channels, primarily by increasing volumes transported via the East Siberia-Pacific Ocean pipeline (ESPO) and sold through the port of Kozmino in Russia’s Far East. In 2010, we transported approximately 2.45 mln tons of crude via the ESPO, around 80% of which was produced at the Verkhnechonskoye oil field in Eastern Siberia, with the remainder originating from the company’s Western Siberian fields.

In 2010, the company established joint ventures with the international traders Vitol and Trafigura, to sell diesel and naphtha to end users in Northern Europe. These joint ventures add incremental value to TNK-BP’s existing business and provides our people with an opportunity to broaden their experience in international trade.

Risk management

In 2010, the company’s STL division upgraded and improved its risk management framework to incorporate international best practices and more sophisticated real-time methods of measuring trading risk. This reinforced the controls, measures, and systems in place to manage risks associated with trading, including ensuring transparent reporting of the market and price exposure created by trading (Value at Risk). New features include advanced reporting of exposure and Value at Risk calculations, along with upgraded daily mark-to-market P&L reporting.

Risk management will form an integral part of the future TNK-BP’s trading activities, as the complexities of the market require a firm understanding and competent management of the risks inherent to trading activities.

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