The RF Government urges chemical focus

26 July 2013 08:48  [Source: ICB]

Extracts from speech given by Russian energy minister Aleksandr Novak at a government meeting on the development of the chemical and petrochemical industries, Bashkortostan, 3 July 2013

The Russian petrochemical industry is engaged in processing oil and gas production byproducts, as well as oil refining. The petrochemical industry's output includes polymers, synthetic rubbers, organic alcohols, oxides and glycols.

 

 Copyright: Rex Features

The industry currently has a surplus of hydrocarbon feedstock but makes up just 1.5% of GDP. Meanwhile the amount of investment is growing - roubles (Rb) 225bn ($6.89bn, €5.29bn) last year, which is almost 50% more than the year before.

Considering Russia's position as an exporter of feedstock for the petrochemical industry, it is important for us to understand what external challenges we face. There are three key challenges that I would like to highlight.

The first is the development of non-traditional hydrocarbon fields in North America, by which I mean shale gas and shale oil. As we all know, overall these have had a major impact on lowering the cost of the relevant feedstock in the US and on the competitiveness of the petrochemical industry.

The second challenge is the construction of new facilities in the Middle East, which today hosts the highest concentration of refinement activities. At the same time, the Middle East actually subsidises the production of ethane, a feedstock for the petrochemical industry, and the price of ethane in the Middle East today is about 15% of the cost of alternative sources.

The third challenge is expanding production of petrochemical raw materials and products in the Asia-Pacific region, including through the use of alternative technologies that will produce feedstock from coal.

As for domestic challenges, which we also regard as opportunities, today's most significant issue concerns the lack of cracking and processing facilities in general, to cope with the large quantities of raw materials available. At the same time, we are seeing large volumes of petrochemical imports despite continued increase in demand for polymer production in the domestic market.

We need to boost the sale of finished products on the domestic market. And it is very important that the construction rate of new production facilities continues to outpace the growth in domestic consumption.

We expect the volume of petrochemical feedstock processed by petrochemical plants to double, while the number of cracking facilities will increase, with total capacity growing 4.5 times by 2030. At the same time, average per capita consumption of plastics and rubbers will grow 3.4 times and 2.6 times, respectively. Other countries currently consume around 1.5-3 times more plastic than we do.

Regarding petrochemical products, total production of polyethylene (PE), for example, will increase by 5.9m tonnes by 2020. Importantly, by 2017 we will have stopped importing PE, we will have a surplus on the domestic market, and it will be necessary to export and to develop domestic consumption.

The situation with polypropylene (PP) is similar, with imports of this polymer ceasing at some point between 2014 and 2017. The most effective method of stimulating domestic demand for petrochemical products is to decrease the imports of finished polymer products, which currently stand at close to 1m tonnes/year.

In addition to taking measures to stimulate the development of the domestic market, we suggest that the Ministry of Energy of the Russian Federation, together with other federal authorities, come up with a proposal to improve tax and customs rate policies in the hydrocarbon feedstock processing sector over the long term, in order to help attract investment and level out profits between different productions areas in the industry."

"The Russian petrochemical industry is engaged in processing oil and gas production by-products, as well as oil refining. The petrochemical industry's output includes polymers, synthetic rubbers, organic alcohols, oxides and glycols.

The industry currently has a surplus of hydrocarbon feedstock but makes up just 1.5% of gross domestic product. Meanwhile the amount of investment is growing - RUB 225bn last year, which is almost 50% more than the year before.

Considering Russia's position as an exporter of feedstock for the petrochemical industry, it is important for us to understand which external challenges we face. There are three key challenges that I would like to highlight.

The first is the development of non-traditional hydrocarbon fields in North America, by which I mean shale gas and shale oil. As we all know, overall these have had a major impact on lowering the cost of the relevant feedstock in the United States and on the competitiveness of the petrochemical industry.

The second challenge is the construction of new facilities in the Middle East, which today hosts the highest concentration of refinement activities. At the same time, the Middle East actually subsidises the production of ethane, a feedstock for the petrochemical industry, and the price of ethane in the Middle East today is about 15% of the cost of alternative sources.

The third challenge is expanding production of petrochemical raw materials and products in the Asia-Pacific Region, including through the use of alternative technologies that will produce feedstock from coal.

As for domestic challenges, which we also regard as opportunities, today's most significant issue concerns the lack of cracking and processing facilities in general, to cope with the large quantities of raw materials available. At the same time, we are seeing large volumes of petrochemical imports despite continued increase in demand for polymer production in the domestic market.

We need to boost the sale of finished products on the domestic market. And it is very important that the construction rate of new production facilities continues to outpace the growth in domestic consumption.

We expect the volume of petrochemical feedstock processed by petrochemical plants to double, while the number of cracking facilities will increase with total capacity growing 4.5 times by 2030. At the same time, average per capita consumption of plastics and rubbers will grow 3.4 times and 2.6 times respectively. Other countries currently consume around 1.5-3 times more plastic than we do.

Regarding petrochemical products, total production of polyethylene, for example, will increase by 5.9m tonnes by 2020. Importantly, by 2017 we will have stopped importing polyethylene, we will have a surplus on the domestic market, and it will be necessary to export and to develop domestic consumption.

The situation with polypropylene is similar, with imports of this polymer ceasing at some point between 2014 and 2017. The most effective method of stimulating domestic demand for petrochemical products is to decrease the import of finished polymer products, which currently stands at close to 1m tonnes/year.

In addition to taking measures to stimulate the development of the domestic market, we suggest that the RF Ministry of Energy, together with other federal authorities, come up with a proposal to improve tax and customs rate policies in the hydrocarbon feedstock processing sector over the long term, in order to help attract investment and level out profits between different productions areas in the industry."


By: Andy Brice
+44 20 8652 3214



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