A recent report from GlobalData forecasted that the Former Soviet Union (FSU) will spend about $9.8 billion on new refining capacity between 2014 and 2020 to add more than 400,000 barrels per day.

The additional capacity will be added primarily in Russia and Turkmenistan, as well as an expansion project in Kazakhstan, the report said. GlobalData’s managing analyst covering downstream oil and gas, Carmine Rositano, said that Russia’s projects will be geared towards upgrading its existing facilities and meeting lower sulfur specifications mandated for domestic use, instead of increasing its capacity.

“Russia’s refining sector manufactures a significant amount of heavy fuel oil, having exported around 1.6 million barrels per day in 2013,” Rositano said. “Demand for this product is expected to decline steadily, due to regulations calling for lower sulfur levels in fuel oil used by tankers on international waters. As a result, Russia’s tax and export duty regulations have been adjusted to provide incentives for refiners looking to build upgrade units to manufacture cleaner, low-sulfur products and reduce their fuel oil output.”

Other projects in the region include an expansion project in Estonia and at the Pavlodar refinery in Kazakhstan. The Kazakhstan expansion will contribute about $1 billion toward the region’s total capex during the forecast period.

“Russia is likely to construct upgrade units at its existing refineries to crack fuel oil into gasoline and ultra-low-sulfur diesel, aimed at both the domestic market and for exporting to Europe,” Rositano continued. “Additional lower-priced diesel imports entering Europe from FSU and U.S. projects, alongside new reefing capacity in the Middle East, could force a number of Europe’s smaller facilities to close over the next few years.”