INSIGHT: Russia must aim for coastal ventures

09 July 2007 16:22  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Strong Russian chemicals demand, albeit from a relatively low base, is attractive but the question of who will service that growth, and how, still remains.

This year, polypropylene (PP) exports to Europe for instance have climbed, backed by new production capacities. But exporting to the west is costly.

Russia’s producers want to make chemicals and plastics primarily for the local market although by necessity some of the projects need to be big to capitalise on economies of scale.

Russia's significant chemicals demand growth is driven by a resurgent construction sector and stronger consumer demand. For the global chemicals producers, the country sounds like one of the places to do business, alongside the ever-present China, India and Brazil.

But tapping into the Russian market can never be easy.  This is a vast country and it pays to recognise that fact. The costs of grappling with Russian logistics have to be factored in to every equation.

Currently per capita primary polyolefins consumption is something like 8kg/year compared with 40kg/year in the US and 24-30kg/year a head in western Europe. Given the resurgent Russian economy, plastics and petrochemicals demand has been rising strongly.

Polyethylene (PE) and PP demand has grown at double digit rates over the past five years. Speaking in London recently, Dmitry Konov, CEO of the petrochemicals major Sibur, stressed that there was a huge base for further growth.

Companies such as Sibur are tapping into growing plastics demand by adding new polyolefins capacity. The projects, some with western partners, are aiming primarily to capitalise on local growth opportunities. Look too far afield even within Russia itself for potential markets, and project economics start to look less sound.

Sibur has major polyolefins projects planned for Tobolsk and Orenburg, with second-stage plans reliant on the success of stage one in both. The same approach has been followed with the big Solvay/BASF polyvinyl chloride (PVC) joint venture Solvin. Product and feedstock capacity will be built up step-wise to serve largely local demand and consumption.

It must be encouraging for Sibur currently to have its plants running flat out. But these units are sub-optimal in size. The company has to make the steps up in feedstock and polymers production capacities.

These new units can serve local demand growth and capitalise on export opportunities. Konov told ICIS news that he wants to see his company as the number two petrochemicals supplier to Europe after the Middle East.

Driving costs down and capacities up across the board has to be the name of the game. But the mega-project, for Sibur or for other domestic players with foreign assistance, has still to materialise.

Unlike the Middle East, Russia has other local uses for petrochemicals feedstocks. Its producing and consuming areas also are not necessarily near the coast.

The location of the potential big petrochemical play in Russia involving one or other of the global chemical majors will be critical.

It is Konov’s view that it will not materialise anywhere other than on the coast. Look to the Baltic, therefore, for the big Russian petrochemicals project – if the feedstock logistics and supply arrangements work.

By the same token, over the longer term look to the east and the potential of serving the China market more easily from a gas-based unit on the Pacific.

By: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly