26 July 2013 11:51 [Source: ICB]
SIBUR's unique feedstock position has helped secure its place among the leading producers in Russia, CIS and eastern Europe
It is testament to the strength of SIBUR's business model that the Russian producer has seen such significant growth in its relatively brief history. Besides being a leading petrochemical producer, SIBUR has positioned itself as Russia's largest gas processor with unique facilities and infrastructure.
Its feedstock & energy segment has seven production sites, gathering and processing associated petroleum gas (APG): transporting, fractionation and other processing of natural gas liquids (NGLs), and marketing and sales of energy products, such as natural gas, liquefied petroleum gases (LPG), naphtha, raw NGL, methyl tertiary butyl ether (MTBE) and other fuels and fuel additives.
SIBUR has more than doubled its gas processing capacities over the past few years
This advantaged feedstock position has cushioned SIBUR from the global economic downturn and allowed the business to remain highly competitive despite extreme pricing volatility, adds Belkin.
"Prices for the majority of the company's feedstock and processed goods are linked to oil or oil derivative values. As SIBUR is using its own feedstock, the fall of oil prices decreases the revenue from external sales of feedstock products but at the same time makes producing our petrochemicals cheaper. A decrease in oil and oil derivatives prices may affect SIBUR's results of operations; an increase in feedstock prices may result in increased operating expenses," he says.
"Growth in prices for oil or oil derivatives generally has a net positive effect on our financial results because our position as a net seller of energy products allows us to mitigate the negative effect that growth in oil and oil derivative prices has on our cost base," adds Belkin.
Crude oil prices can affect the price of raw NGL, LPG and naphtha bought from third parties as feedstock but SIBUR also produces these to sell or process into petrochemical products. External sales of raw NGL, LPG and naphtha accounted for 31.1% and 30.5% of total revenue in 2012 and 2011, respectively.
SIBUR is the owner and operator of the largest gas processing business in terms of APG processing volumes and boasts the most extensive integrated infrastructure for processing and transportation of APG and NGLs in the country.
By tapping into the rich resources of Western Siberia - the largest oil- and gas-producing region with 48bn bbl of proven oil reserves and 22tr cubic metres of gas reserves - it has developed seven of the nine Russian gas processing plants (GPPs), as well as five compressor stations and three gas fractionation units (GFUs).
Not only has the company been able to double its gas processing capacities in recent years but it has also been able to expand its pipeline infrastructure and invest in numerous projects to improve capacity utilisation and efficiency, says Belkin.
He notes that the division's core strategy is to secure access to feedstock through the expansion of existing APG and NGL processing and transportation infrastructure, as well as arranging long-term contracts with oil and gas companies. Another priority, he says, is to monetise stranded feedstock through the construction of large-scale petrochemicals facilities.
SIBUR's unique position along the value chain provides many distinct advantages over its competitors, he says. Despite the challenging market conditions, SIBUR continues to make good progress with its key objectives and securing its primary hydrocarbon feedstock streams. For both APG and NGL feedstocks, over 70% of supplies are now guaranteed through long-term contract arrangements with oil and gas companies. The average maturity for these arrangements now exceeds 11 years for APG and 12.5 years for NGLs.
According to information service, CDU TEK, the total Russian output of APG reached 71.81bn cubic metres in 2012, up from 68.52bn in 2011 with an annual growth rate of 5% - above the 2.9% average annual growth rate during the period between 2005 and 2011.
The oil fields in Western Siberia are mature and unlikely to see any significant increase in APG volumes, while it is anticipated that the concentration of liquid fractions in APG may fall in the future. Nevertheless, SIBUR expects this trend to be partly offset by increased efforts to reduce flaring to comply with new government regulations. This stipulates that both the utilization rate of APG and volumes flared should be significantly lower.
According to official statistics, the total volume of flared APG in Russia totalled 17.08bn cubic metres in 2012 - 44% of which was seen in Western Siberia, in fact double this figure at 37.4bn cubic metres.
As the new rules are introduced, higher volumes of APG will become available creating the potential for sustained growth of APG volumes available for processing. IHS CERA estimates total flared volumes will be reduced to 10.4bn cubic metres by 2015 and to 3.2bn cubic metres by 2020. This poses significant opportunities for SIBUR, says Belkin.
A key growth driver in the feedstock & energy division is increasing efficiency - either through improving utilisation rates or NGL extraction, he adds. The modernisation of the Gubkinskiy gas processing plant, for example, saw NGL extraction rates climb from 67% in 2007 to almost 99% in 2012. Currently, six of the seven GPPs extract over 90% of NGLs from associated gas, excluding ethane.
Belkin points out that SIBUR continues to invest heavily in capacity and infrastructure and by the end of 2012, several major projects had been completed.
These included the addition of a third compressor station at its Nizhnevartoskiy facility to increase capacity utilisation, and a recovery unit at its Yuzhno-Balykskiy gas processing plant - bringing its total APG capacity up to 3bn cubic metres/year.
In September 2012, work was also completed on upgrading the Vyngapurovskaya compressor station - a brown-field initiative that resulted in increased processing capacity of 750m cubic metres/year and raised the recovery rate to 99% from 56%.
In addition, SIBUR has invested in a new main NGL pipeline from the Purovsky gas condensate processing plant to Tobolsk-Neftekhim to transfer light hydrocarbons produced in Western Siberia.
The 1,100km pipeline consists of three parts, one stretching from the Purovskiy GCP owned by NOVATEK to the SIBUR's loading rack in Noyabrsk, the second segment continuing to Yuzhno-Balykskaya main pumping station, and the third connecting to Tobolsk production site.
Another key project for the feedstock & energy business includes the Ust-Luga LPG transshipment facility near St Petersburg, which will provide access to northwest European markets.
The world is yet to see the full impact of the shale gas revolution and the effects of cheaper ethane supply - a trend that has already contributed to a general decline in the price of natural gas in the US and may drive down prices globally in the future. Although this could reduce prices for gas-based feedstock and intensify competition among producers because of oversupply, Belkin is confident SIBUR will remain robust in the face of market pressure.
The company's performance in recent years has not only helped the group to increase revenues and profitability, but has also allowed it to raise capital expenditure and retain its place at the top of the league tables for EBITDA margins.
There may be challenges ahead for the business but SIBUR's unique and highly advantaged position as an integrated gas processing and petrochemicals company will ensure continued growth and success, he insists.
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