The petrochemical industry has been one of the star sectors in the Russian economy over the past few years, and has strikingly out-performed GDP which has been stuck mostly in the doldrums. Lower oil prices may have significantly dented the Russian government’s budgetary finances, but the trend has been broadly beneficial to the petrochemical industry. Both in terms of facilitating lower feedstock costs and the devaluation of the rouble Russian petrochemical producers have witnessed sharp rises in revenues and profits in the past 10 quarters.
The devalued rouble has meant that Russian producers have been able to compete against imports on the domestic market and also for exports to be more profitable. The downside of the lower rouble relates to equipment and technology costs where Russia is dependent primarily on imports. Certain types of equipment can be replaced by domestic production, but most of the key plant licenses such as for olefins, polyolefins and organic chemicals are available only from foreign companies.
The major petrochemical project currently under construction in Russia comprises SIBUR’s ZapSibNeftekhim complex at Tobolsk in West Siberia, where the 1.5 million tpa cracker is scheduled for completion by 2019. Aside Tobolsk, the key project ideas are being developed in East Siberia and the Russian Far East. SIBUR is considering the construction of a similar complex to Tobolsk in the Amur region close to the Chinese border where Gazprom is currently constructing the world’s gas processing plant. Rosneft is in the throes of constructing a large refinery and petrochemical complex at Nakhodka in the Russian Far East whilst other petrochemical projects are being evaluated by Rosneft and Chinese partners for East Siberia. Petrochemical and fertiliser plants in the eastern regions of Russia can provide huge export opportunities to China and other parts of Asia and help to monetise feedstock potential.
Smaller but equally important projects are being undertaken in the western parts of Russia which indicate that Russia can expect to see a sharp rise in petrochemical production over the next decade. Low oil and gas prices help to encourage investing downstream and seeking value added opportunities. The main concern for Russian petrochemical companies is the state of the domestic economy which may have come through the worst of its most recent downturn, but offers little more than modest growth rates for the foreseeable future. Economic reform is seen by even by parts of the government as the key to unlocking Russia’s economic potential, but these reforms are largely in conflict with the regime’s primary concern of retaining power. Despite the political stagnation, the Russian chemical industry seems capable of performing strongly on its own and can be expected to become more important globally over the next decade.
Russia’s neighbours seek to add value
Russia’s western neighbours include Ukraine where polymer consumption revived in 2016 after the large falls in 2014 and 2015. Currently Ukraine lacks much of its own chemical production due largely to the political all-out with Russia and impact on feedstock availability. As the country strives to realign its economic strategy away from Russia towards European markets the country may offer opportunities as a chemical consumer and the possibility for jvs in small tonnage chemistry. Belarus operates a stable production regime for chemicals and petrochemicals, and depends on Russia for nearly all its feedstocks. Its main production areas include acrylonitrile, caprolactam, methanol, polyesters and olefins. Russia’s southern neighbours are characterized by large hydrocarbon deposits but low consumption in chemical products. Major projects in the petrochemical industry are underway in the construction stages in Turkmenistan, Azerbaijan and Kazakhstan, all of which are aimed at export activity.
Central European chemical industry, modernisation and innovation
Since Central European countries joined the EU in 2002 the chemical industry in this region has undergone huge changes in terms of technological conformity to EU technical standards. PKN Orlen and MOL have emerged as the dominant companies in the petrochemical industry combining assets in Poland and the Czech Republic, and Hungary and Slovakia respectively, whilst the consolidation and expansion of Grupa Azoty has created one of Europe’s leading fertiliser producers. Polish companies have been prepared to invest outside the country whilst at the same time seeking new products to be introduced to the market. By contrast to Central Europe, South East Europe’s chemical industry has regressed in the past decade but there are some indications of outside investment in Serbia and Romania. The major projects being undertaken in Central Europe include Unipetrol’s new HDPE plant, Grupa Azoty’s PDH propylene plant, Orlen’s new metathesis project for propylene and MOL’s synthetic rubber plant in Hungary.
Our thanks to Andrew Sparshott of CIREC for writing this article.
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