26 July 2013 08:51 [Source: ICB]
Ambitious plans by Russia's largest petrochemicals company should cement its place as one of the leading players in the Russian, CIS and eastern European markets
Konov believes Russia has a lot of hidden potential
Copyright: Rex Features
While many producers continue to face increasing cost pressures, with feedstock volatility and fluctuating demand eroding their bottom line and impacting profitability, the Russian major finds itself in an enviable position. As a vertically integrated gas processing and petrochemicals company, its resilience to the effects of the global financial crisis has not only allowed it to strengthen its portfolio but to achieve significant capex growth and undertake several large-scale investment projects. Total revenues for 2012 were up at rouble (Rb) 271.3bn ($8.63bn, €6.66bn), and only a couple of months ago the company successfully issued its debut Eurobond and raised $1bn.
SIBUR owns and operates Russia's largest gas processing business and consists of two operating segments: feedstock & energy and petrochemicals.
The energy business processes associated petroleum gas (APG) and specialises in the sale of natural gas, liquefied petroleum gases (LPG), raw NGL, naphtha and methyl tertiary butyl ether (MTBE) both domestically and internationally. The focus of its petrochemicals segment, meanwhile, is split between three lines: basic polymers (including polypropylene (PP), polyethylene and polyvinyl chloride (PVC)), synthetic rubbers, and plastics and organic synthesis (such as polyethylene terephthalate (PET), glycols, biaxially-oriented polypropylene (BOPP) films).
As of December 2012, SIBUR operated 27 production sites across Russia, and employed more than 30,000 staff - figures which Konov says will soon rise with several flagship projects nearing completion.
"We've been accelerating efforts to make changes in the company and have invested a lot of resources into creating capacity to run investment projects. It is often the best time to invest at the bottom of the cycle as projects of this scale take many years to complete," adds Konov. "Our strategy is about increasing market coverage, and we believe our major development areas are still in Russia where you can have very competitive production."
"Over the last few years SIBUR has more than doubled its gas processing capacities, expanding its pipeline infrastructure as well. This enables us to build large petrochemical facilities at a competitive cost," he says.
SIBUR's landmark Tobolsk-Polymer project is scheduled to come on stream soon and will see the company double its basic polymers production capacity.
This project is among a series of new domestic capacities coming on stream that are expected to make the country capable of substituting imports of basic PP grades and becoming an exporter of PP.
The plant is costing around RB60bn, while over 70% of this ($1.44bn) has been raised from international financial institutions. The syndicated loan was arranged by the Russian Bank for Development and Foreign Economic Affairs (Vnesheconombank), which is also one of the key creditors.
"It's safe to say that in terms of scale and the parties involved, the Tobolsk-Polymer loan financing scheme is unprecedented for modern Russian industry," says Konov.
Also due for completion next year is RusVinyl, a 50:50 joint venture between SIBUR and Belgium-headquartered SolVin, which will see the construction of a 330,000 tonne/year PVC plant and a 225,000 tonne/year caustic soda unit. SIBUR is keen to capitalise on the thriving PVC market in Russia and CIS.
Among its other developments is the construction of a liquefied petroleum gases (LPG) and light oils transshipment facility at Ust-Luga seaport near St Petersburg. The major greenfield project will have a capacity of 1.5m tonnes/year of LPG and 2.5m tonnes/year of light oils.
By the end of 2013, a decision will be made on the approval of the ZapSibNeftekhim project, which is currently at the front-end engineering design (FEED) phase and will include a 1.5m tonne/year ethylene cracker and 2m tonnes/year of polymers.
Russia's domestic market remains the priority for the business with key bulk commodities expected to see strong growth in the coming years, says Konov.
"We are definitely optimistic in the mid-long term," he says. "There is enough competitively-priced stranded feedstock for petrochemicals in the region and very few alternative methods of monetizing it. This feedstock allows us to be extremely competitive from the cost side. Russia also has very low consumption of major petrochemical products because of a lack of investment in the past so there is a high potential for demand growth.
"In terms of petrochemicals, when we bring this product to the Russian market through some of our projects - RusVinyl and Tobolsk-Polymer - this will spur investment in processing and eventually grow our consumption. Unfortunately, growth markets in terms of consumption are sometimes very different to growth markets in terms of production," adds Konov.
Despite the emphasis on Russian markets, there are also several joint ventures planned where SIBUR will form international partnerships and provide its knowledge and technology. By establishing agreements with major global producers, SIBUR will soon be able to tap into high growth developing regions such as India and China, he says.
With the global financial downturn, greater competition from emerging regions, rising costs and increasing environmental pressures, the industry is clearly in a period of transition, says Konov.
While the US readies for a new era of advantaged feedstock through the discoveries of shale gas, China is seeing developments based on coal to olefins and gas to olefins technologies, which would have been prohibitively expensive in other regions of the world, he says.
The Middle East, meanwhile, looks likely to continue developing petrochemicals from heavier feedstocks and is focusing more on integrated sites such as Sadara and PetroRabigh.
Europe remains one of the most disadvantaged regions on a cost basis and feedstock availability. Not only have financial constraints subdued spending but producers are typically heavy feed-based and integrated with refineries so suffer from two angles, says Konov.
Europe's move towards specialties rather than commodities should however leave it less vulnerable to feedstock costs.
"Compared with all of these regions, we believe that with the type of feedstock allocation and pricing we enjoy in our business we will be competitive," he says. "Fundamentally I believe that Russia has lots of potential.
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