"Transneft" (MCX: TRNFP) operates the world's largest oil trunk pipeline system with a length of over 50 thousand kilometers, acts as a monopolist in Russia in terms of oil transportation volumes and controls one of the largest port operators in terms of cargo turnover - NCSP.
13 January, the company published preliminary financial results for 2021 and plans for 2022, and 14 January, issued a press release with the results of work on the supply of oil and petroleum products in the past year.
In 2021, the company transported about 83% of all oil produced and about 29% light oil products, made in Russia.
Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Market situation
The main income of Transneft comes from pumping oil and oil products through its own pipelines in Russia and for export, as well as shipping oil through seaports. Therefore, the company's revenue mainly consists of two factors.: volumes of transportation of hydrocarbons and tariffs for the provision of services.
Demand and prices have recovered in the oil market in 2021 after the 2020 crisis. The largest oil producing countries gradually increased production limits as part of the OPEC + deal. Since August 2021, oil production has increased by 400 thousand barrels per day every month. Expected, that the OPEC+ deal will be valid until the end of 2022.
Due to the increase in limits, in 2021 Russia increased production volumes by 2,2% - up to 524.1 million tons. The main reason for the low dynamics is the high base of January-April 2020, when the new restrictions have not yet come into force.
A new factor will appear in 2022, restricting oil production in Russia, – lack of available reserves due to lack of investment in the industry in previous years. Back in November 2021, the largest Russian oil companies reported a decrease in available spare capacity. It is unlikely that it will be possible to quickly increase production volumes, even if OPEC+ removes all restrictions.
At the same time, world oil prices continued to rise amid strong demand due to the crisis in the gas market.. 19 January, the price of Russian Urals oil exceeded 90 $ per barrel - for the first time since 2 October 2014.
Transneft annually publishes forecasts regarding the volumes of pumping for the current year based on the requests of shippers. I suggest that you familiarize yourself with the plans for 2022 and evaluate, to what extent the forecasts of the last year coincided with the actual data.
Oil supplies
Transneft increased the total volume of oil supplies by 2% — up to 449.7 million tons — in 2021. At first sight, dynamics are not impressive, but the prognosis was even worse: it was assumed that the flow rate would be reduced by about 1%. The stable situation on the oil market made it possible to avoid negative dynamics, thanks to which OPEC + gradually eased restrictive measures. In 2022, the company plans to repeat the success of last year and increase pumping by another 2% - up to 458.4 million tons.
Most of the oil is supplied to Russian refineries for further processing. Demand from the processing sector has increased in 2021, which led to an increase in the volume of deliveries in Russia by 6% - up to 247.9 million tons. In 2022, according to the plan, Transneft will increase pumping to Russian refineries by another 2% — up to 253.8 million tons — and will reach a new historical maximum.
In recent years, Russia has been actively modernizing old and building new processing facilities. Transneft data reflects this trend, while domestic consumption is growing, among other things, by reducing the supply of crude oil for export.
At the end of 2021, oil supplies for export to near and far abroad decreased by 3% - up to 201.8 million tons.
In the near abroad in 2021, Transneft put on 18% less oil, than a year earlier, — only 11.7 million tons. It's almost in 2 times less than the planned 21 million tons. According to the plan, deliveries to Belarus accounted for 20 million tons, in reality, 10.7 million tons came out.
Deliveries to non-CIS countries decreased by 2% - up to 190.1 million tons, - but turned out to be significantly higher than the forecasted 175.5 million tons against the backdrop of a rapid recovery of the global economy from the consequences of the coronavirus and adaptation to new conditions.
In 2021, the volume of cross-border supplies through Transneft pipelines decreased by 11%, and exports through seaports increased by 5% — mainly due to an increase in oil cargo turnover through the ports of Primorsk, Kozmino and Ust-Luga with a simultaneous drop in oil exports through the port of Novorossiysk.
Structure of oil exports to non-CIS countries in 2021 and year-on-year dynamics, million tons
| Druzhba pipeline | 35,9 | −20,9% |
| Port of Novorossiysk | 19,7 | −4,4% |
| Port of Primorsk | 36,3 | +9,3% |
| Port of Kuzmino | 35,1 | +6,7% |
| Port of Ust-Luga | 23,2 | +5,9% |
| China | 40 | 0% |
35,9 (−20,9%)
Deliveries through the Druzhba oil pipeline dropped significantly 21% due to weak demand from Europe. Poland became the leaders in the drop in oil pumping through Druzhba (−41%), Germany (−18%) and Hungary (−11%).
Export volumes to China remain stable at 40 million tons per year. Exactly the same amount should be sent this year..
Transneft plans to increase supplies to non-CIS countries in 2022 to 194.5 million tons, and more than half of this volume will be sent through seaports.
Dynamics of oil supplies by Transneft by main directions, million tons
| refinery in Russia | Near Abroad | Far Abroad | Total | |
|---|---|---|---|---|
| 2017 | 243,7 | 18,61 | 215,20 | 477,6 |
| 2018 | 249,3 | 19,00 | 211,48 | 480,4 |
| 2019 | 245,9 | 18,6 | 220,3 | 485 |
| 2020 | 233,6 | 14,3 | 194,1 | 442,3 |
| 2021 | 247,9 | 11,7 | 190,1 | 449,7 |
| 2022 | 253,8 | 10 | 194,5 | 458,4 |
Supplies of petroleum products
Transneft increased the volume of supplies of petroleum products by 3% - up to 38.9 million tons, - although she predicted a drop to 36.3 million tons. Actual results were better than forecast due to the rapid recovery of oil refining volumes in Russia against the backdrop of a significant easing of restrictive measures.
The main growth driver was an increase in the supply of motor gasoline by 16% - up to 2.2 million tons - and aviation kerosene for 35% - up to 2.3 million tons. At the same time, the volume of transportation of diesel fuel, which occupies a key place in the supply, remained almost at the level of 2020 and amounted to 34.4 million tons.
It is planned to transport about 36.3 million oil products in 2022, What's on 7% less, than delivered in 2021. When planning the volume of deliveries for the coming year, Transneft management proceeds from the current requests of shippers, that's why, as we see, plans may differ markedly from actual results and are only rough guidelines for evaluating.
Oil products transportation dynamics, million tons
| 2017 | 33,1 |
| 2018 | 39,2 |
| 2019 | 37,8 |
| 2020 | 37,8 |
| 2021 | 38,9 |
| 2022 | 36,3 |
33,1
Tariffs
Transneft's activities are regulated by the state in the pipeline segment, where tariff indexation is tied to forecast inflation for the next year. If forecast inflation is lower than actual inflation, this will have a negative impact on the profitability of the business., because operating expenses are growing faster than revenues.
In 2021, tariffs for oil transportation services through the Transneft system were indexed only by 3,59%, while official inflation in Russia was 8,4% at the end of 2021. With 1 January 2022, Transneft's pumping tariffs increased by another 4,3%, which seems to be an insufficient level of indexation given the high level of inflation in Russia.
Probably, this is what affects the reduction in the volume of pumping through pipes in favor of shipment through the port infrastructure, where there is no strict regulation by the state.
Indexation of tariffs for oil transportation services through the Transneft system from 1 January
| 2017 | 3,6% |
| 2018 | 3,77% |
| 2019 | 3,87% |
| 2020 | 3,42% |
| 2021 | 3,6% |
| 2022 | 4,3% |
3,6%
Revenue
According to preliminary data, consolidated revenue of Transneft in 2021 increased by 12% — up to 1,077.5 billion rubles — from the low base of 2020, including 688.5 billion rubles from transportation of oil and 75.7 billion rubles from transportation of petroleum products. I will note, that the company's revenue not only exceeded pre-crisis figures, but it turned out to be a record.
For 2022, the holding predicts revenue growth of 3,5% — up to 1114.8 billion rubles, - which indicates a low potential for growth in financial indicators at the end of the current year.
Transneft's revenue dynamics, billion rubles
| 2017 | 884,3 |
| 2018 | 980 |
| 2019 | 1063,8 |
| 2020 | 962,4 |
| 2021 | 1077,5 |
| 2022 | 1114,8 |
884,3
What's the bottom line?
Real production results of Transneft in 2022 turned out to be noticeably better than its own forecasts at the beginning of last year, although the dynamics leave much to be desired. The main driver of growth is the domestic market, where it was possible to significantly increase the volume of deliveries to Russian refineries against the backdrop of the development of the oil refining industry and the recovery of demand after the crisis year of 2020.
In the structure of exports, attention should be paid to the increase in the share of deliveries through seaports due to the modernization of port infrastructure. Management plans to allocate another 23 billion rubles in 2022 to develop the infrastructure of the Novorossiysk Commercial Sea Port. This will reduce the company's dependence on pipeline exports., where the recent increase in tariffs does not beat off even the level of official inflation.
For 2022, the company sets a conservative forecast for the dynamics of export volumes and final revenue, but actual data may differ markedly from forecasts.
