Constant Search For Feedstock Advantage

By John Richardson

AROUND $6bn worth of proposed petrochemical investments in Kazakhstan – the giant central Asian country with abundant oil and gas reserves – once again confirms the three most important factors for success: Feedstock, feedstock and feedstock.

“The gas that will supply these projects is sufficiently advantaged to overcome major construction and logistics challenges,” an industry source told the blog.

Final investment approval has been received for a propane dehydrogenation (PDH)-to-polypropylene (PP) project which is to built in the western Kazakh city of Atyrau.

Detailed design and engineering work is now underway with Lummus Technology supplying the licence and basic technology for the complex. Capacities of propylene and PP will each be 500,000 tonne/year with start-up slated for 2015.

Sinopec Engineering will construct the complex which will be operated by Kazakhstan Petrochemical Industries.

And last month, South Korean president Lee Myung-Bak was in Kazakhstan to sign contracts for a series of planned investments including an ethane cracker and downstream polyethylene (PE) capacity. Nursultan Nazarbayev, president of the Republic of Kazakhstan, was the joint signature.

Mr Lee put pen to paper because South Korea’s biggest chemicals company, LG Chem, has formed a 50:50 joint venture with KPI to develop the project. Start-up is scheduled for 2016.

The complex, which would again be at Atyrau, would comprise an 840,000 tonne//year cracker and two PE lines with a total capacity of 800,000 tonne/year.

One of the lines would be linear low-density PE (LLDPE) and the other a LLDPE/high-density PE (HDPE) swing plant. However, it is likely that the swing plant would initially only produce HDPE.

“Given that the presidents of the two countries were involved in the signing of the JV it seems inevitable that the project will go ahead,” the industry source added.

Total project costs in Atyrau will be significantly higher because of the remote location of the western Kazakh city, he added.

“A village will, for instance, have to be built to house workers who will operate the complexes and a rail line will have to be laid to connect the site with the existing Kazakhstan Railways network.”

The further issue is the distance from the markets where the product will be sold – China, Southeast Asia, Russia, Turkey, India and Africa.

One transportation option would be to move product by rail into China.

However, this would face the disadvantages of competition for space on China’s railways. Despite heavy investment in new rail capacity, demand for moving goods in general by rail is booming.

LG Chem and KPI might also face competition for freight-car space from PetroChina’s Dushanzi Petrochemical complex in Xinjiang province in north western China. The complex is centred on an ethylene capacity of 1.2m tonne/year,

Re-export-based end-users may not be eligible for rebates on value-added tax and import duties if their raw materials enter by one border crossing and their finished goods exit by another crossing point or port.

This would obviously be the case if rail cars were used as finished goods leave China for export markets via coastal ports.

And so one of many options being evaluated is moving goods by rail to a Black Sea port and on by container ship to China.

“Logistics are so important with this project that the rail and shipping routes to market need to be identified and established much earlier than in other projects. Usually, such details are often not settled until a few months before start-up,” said the source.

But despite all the hurdles, there is the cheap feedstock we mentioned at the beginning – and the lack of further natural gas feedstock availability in the Middle East.

Kazakhstan might not stop at just propane and ethane-based petrochemicals. Projects based on other hydrocarbon streams available in the Republic of Kazakhstan may be added during later phases of investment, the source added.

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