Siberian Maleic Anhydride A Chilly Prospect for European Producers

Not many expected the Russians to announce they would be building a new 45 ktpa maleic anhydride plant in Siberia, primarily for export to Europe and the Middle East, but low cost gas and an expansion of existing NGL capacity in Tobolsk mean that this is exactly what Russian gas processing and petrochemical giant, SIBUR, has done.  The company made the announcement on 12 October that it has signed an agreement with Conser, an Italian engineering company, to acquire a license for maleic anhydride production technology for its Tobolsk facility.

What is the reason for this? Cheap feedstock, is the short answer.  It is understood that the cost of n-butane available to SIBUR’s  Plastics, Elastomers and Organic Synthesis Products Division for the production of maleic anhydride is significantly lower than the global market price; possibly as little as one third of the current Saudi Arabian or US price.

The low cost of feedstock for SIBUR and the fact that the company is upstream integrated with an expansion of its natural gas liquids (NGLs) fractionation capacity announced in July 2015 make the production of materials like maleic, derived from butane look very attractive.   The company has said that processing capacity for NGLs at the Tobolsk production site is expected to increase the site’s capacity from 6.6 mtpa to 8 mtpa.  SIBUR has access to cheap West Siberian feedstock through long-term contracts with major Russian gas companies, officials said.

Upstream integration and good feedstock arrangements will certainly serve Sibur in good stead.  Margins for maleic anhydride will be quite attractive at current price levels.

At the same time, it must be noted that the cost of shipping maleic anhydride and re-heating it on arrival at the customer, is quite high.

Many questions remain therefore for SIBUR:

Will the company be looking at integrating further downstream with the construction of UPR or malic acid or other downstream units?

Will the company be looking at building a plant to make briquettes or pastilles: Solid forms of maleic that can be more easily transported?

How reliable and economical will transportation be in the winter with very long distances to be traversed under sometimes very adverse weather conditions? From Tobolsk to Poland is almost 4000 kilometres.  To Turkey, another possible destination for this product, the distance is over 4000 kilometres.

To give this some context, the volumes traded between regions annually on a global basis are very small, compared to a commodity chemical.  For example, imports to Europe (EU28) for 2015 were around 27kt. The total consumption for Europe this year was around 240kt. Thus only around 11% of the total volume of product traded in 2015 in Europe was imported.  If we take China, total consumption was 735kt in 2015.  Total exports were 35kt.  Therefore only around 5% of the maleic market in China was represented by exports in 2015.  This is very much a regional market.

Russia is expecting that its domestic market will grow at a very high rate in future, absorbing a lot of this new maleic anhydride, and this is probably true.  But this high rate of growth is coming from a very low base: consumption of maleic anhydride in Russia in 2015 is estimated at around 5.5 kt.  This is based on imports, mainly from China.  Even if the annual growth rate is 10%, it will take more than ten years for demand to catch up with supply at 45ktpa.

Unless, that is, SIBUR or someone else builds a downstream plant in 2018 or so when the new maleic plant might be completed to absorb this new capacity.  If new downstream capacity is built, producers of these downstream products may well expect a challenge from the icy depths of Siberia as at that point there will be both cheap feedstock and a product that can more readily (and less expensively) be transported to markets in Europe and the Middle East.  Until then, European producers of maleic anhydride will probably breathe easy…at least in the winter.

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