OUTLOOK '08: Russia set to expand petchems

28 December 2007 10:27  [Source: ICIS news]

By Sergei Blagov

 

MOSCOW (ICIS news)--Russia has emerged as one of the world's leading oil and gas producers but still imports more than half its plastics and petrochemical products, and plans to develop the sectors have been slow to materialise.

 

From 2008, however, the government is set to pursue a mid-term programme for petrochemicals development.

 

Its recently approved strategy to develop Russian chemical and petrochemical industries till 2015 stipulates raising overall production by 40% between 2007 and 2015 at an estimated cost of roubles (Rs) 4,000bn ($163bn/€111bn).

 

The chemical and petrochemical sectors now include some 800 plants and employ about 750,000 people, according to the Russian government.

 

It accounts for 10.4% of the country's total industrial output, 4.5% of all industrial assets and 5.4% of export revenues, but these capacities amount to just 1.1% of the world's total.

 

Russia's overall chemical and petrochemical output growth was expected to reach 3.3% for 2007, well below the country's economic growth rates.

 

Moscow has repeatedly suggested processing more of the country's hydrocarbon riches domestically, and there have been recent indications Russia is casting its net wider to achieve that goal.

 

Dow Chemical has signed a memorandum of intentions (MoI) with Gazprom and its petrochemicals offshoot Sibur to study the possibilities of joint gas processing projects in Russia's Yamalo-Nenets Autonomous Region, western Siberia, and a possible joint venture based at its petrochemical production units in Germany.

 

Gazprom and BASF offshoot Wintershall have also formed a joint gas trading firm, Russian-registered Gazprom YRGM Trading, to buy gas from the Yuzhno-Russky gas deposit in the Yamalo-Nenets Region.

 

The project is expected to produce 25bn cubic metres/year of gas from 2009. Gazprom has indicated plans to raise its natural gas market share in Europe from 27% in 2006 to 33% in 2015.

 

Dmitry Medvedev, Russia's first deputy prime minister, leading presidential candidate and Gazprom board chairman, pledged to sustain the "energy security of Europe" as the project was launched.

 

President Vladimir Putin has urged development of the country's refining and petrochemical sectors instead of importing petrochemical products. The country's energy majors have repeatedly pledged to invest in petrochemicals but have proved slow to deliver.

 

Gazprom and its affiliated companies said they would raise ethylene production up to 7.66m tonnes/year, up three-and-a-half times from now, while plastics production would rise from 470,000 tonnes/year up to 1.7m tonnes/year by 2015.

 

Gazprom has long eyed ambitious petrochemical projects but most still remain on the drawing board.

 

In June 2005, its subsidiary Astrakhangazprom (AGP) announced plans to build a gas-chemical complex, including 300,000 tonne/year of PP and 150,000 tonne/year of polyethylene (PE) facilities. The project, however, has yet to materialise.

 

The following year Gazprom's petrochemical subsidiary Sibur renewed plans to build facilities with nameplate capacity of up to 900,000 tonnes/year of polypropylene (PP) and up to 500,000 tonnes/year of PE in Tobolsk.

 

New $1.3bn production facilities are expected to be built at Sibur's subsidiary, Tobolsk-Neftekhim. The construction is tentatively expected to start in May 2008 and be completed by 2010-2011, well behind the original target date of 2001.

 

In June, Sibur formed a joint venture, RusVinyl, to build a new 330,000 tonne/year PVC plant in the Nizhny Novgorod region at a cost of $900m. It is due on stream in 2010.

 

Russian oil companies have been also eyeing petrochemical projects. LUKoil subsidiary LUKoil-Neftekhim in May 2007 reiterated plans to build a $3.5bn petrochemical hub in Southern Russia.

 

This would include a new 600,000 tonne/year PE plant in Budyennovsk in the Stavropol region, near its existing PE/PP plant.

 

Meanwhile, the Russian government has suggested amending regulation of the industry to bring it in line with international standards, including the EU's Reach legislation.

 

But despite pledges to embrace EU standards, the Russia’s petrochemical sector is yet to develop sufficient capacities to become an increasingly important supplier to the international markets, as investment plans are still slow to materialise.

 

($1 = Rb24.52/€1 = Rb36.03)

By: Sergei Blagov
+44 20 8652 3214

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