Czech Unipetrol 'must climb up the value chain' - Erste Group Bank

18 February 2013 16:51  [Source: ICIS news]

LONDON (ICIS)--Czech producer Unipetrol will face a tough fight in protecting its naphtha-based petrochemical business from a flood of ethane-based exports from the Middle East and the US, Erste Group Bank said on Monday.

Unipetrol – which has said it will address the issue of how to regain profitability in a delayed five-year strategy due to be published in either the first or second quarter of this year – is under growing pressure to shift up the value chain, Tamas Pletser, an analyst for the bank said.

“With the growing use of ethane such a threat to segments like naphtha-based polyethylene, Unipetrol has to move higher up the ladder by producing more value-added specialty products,” Pletser said.

“Its advantage is that you can produce a wider range of products off naphtha feedstock, including butadiene and aromatics which you cannot make with ethane, so that is where it could look for value,” he added.

Significant capital expenditure would clearly be required to create specialty production installations to counter the loss of business to exports from the Middle East, which benefits from huge cheap gas resources, and the US, which is experiencing a petrochemical renaissance thanks to its shale gas boom, Pletser said.

“There is a question, however, over whether [Polish parent company] PKN Orlen is prepared to commit to invest in petrochemicals at Unipetrol in the Czech Republic. Petrochemicals is not seen as a good business at the moment and it might prefer to make the investments at its own petrochemical sites in Poland, with Poland being a bigger market,” he added.

Orlen was also at odds with the Czech government over the unfairly high prices it claims it has to pay to state-owned companies to import crude oil for Unipetrol via pipeline systems, Pletser noted.

Another drawback for Unipetrol is that the two medium-sized refineries it is dependent upon, Kralupy and Litvinov, are located right at the end of the Druzhba pipeline that transports crude from Russia to central and eastern Europe, meaning it was last in the queue for deliveries, he said.

Unipetrol last year suffered a lack of volumes of Druzhba-transported crude as Russia switched some oil deliveries to more profitable, newly-opened oil export facilities, Pletser said.

The refineries, and possibly even Unipetrol itself, would, Pletser added, have no future if reliable oil supplies could not be secured via Druzhba or another pipeline which has its terminus in the Czech Republic, the Ingolstadt–Kralupy–Litvinov (IKL) pipeline - which brings oil loaded in Italy to the Czech Republic thanks to a connection with the Transalpine (TAL) pipeline in Germany.

By: Will Conroy
+44 20 8652 3214

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