SIBUR’s ZapSibNeftekhim petrochemicals complex is expected to double the size of the company once it reaches full capacity. The facility will approximately triple the Russia-based petrochemicals producer’s polymers capacity and is expected to reach mechanical completion in mid-2019, coming onstream around nine months later and ramping up gradually from there.
“In terms of size of the company… we believe [it] may double in size after the full ramp-up of ZapSib in revenue terms,” said SIBUR’s executive director Sergey Komyshan on the sidelines of a press briefing.
SIBUR posted full-year 2017 revenues of Russian roubles (Rb) 455bn ($8.02bn at current exchange rates), but is betting on an abundance of cheap gas feedstocks in Russia to pursue a series of investments that could completely transform the company, moving it from 52 in 2017 potentially into the top 25 of global petrochemical players.
The strategy focuses on a potential series of multi-billion dollar investments in remote regions of Russia with abundant sources of cheap feedstocks.
Despite market jitters about the potential for a glut of cheap polyolefins products, demand growth may absorb the new output
The ZapSibNeftekhim project is expected to add 2m tonnes of polymers, 2m tonnes of olefins and 100,000 tonnes/year of C4, and could potentially be followed by a 1.5m tonne/year polyethylene (PE) unit in Amur, in Russia’s Far East.
The logic of the investments is similar to that of the 500,000 tonne/year Tobolsk plant, completed in late 2014, Komyshan said, focused on world-scale production complexes utilising cheap feedstocks in difficult-to-reach regions with substantial barriers to entry.
“It is the same strategy that we started to pursue back in 2007 when we took our decision on Tobolsk Polymer, but just on a larger scale,” Komyshan said.
“The key factor was definitely the availability of the feedstocks in western Siberia, which are very competitively priced. The netback price of polyolefins gives a nice margin that we call a geographical shield, and that allows you enough additional cashflow to pay for very large investments in new capacity such as ZapSib,” he added.
The scale of the bets made in Tobolsk and, potentially, in Amur if the mooted gas chemicals complex goes ahead, are part of a strategic review that dates back a decade, according to Komyshan.
“A decade ago we were running a lot of strategic work internally, looking at the ways a company like SIBUR could grow, and there were two obvious conclusions, [to grow midstream and petrochemicals businesses],” Komyshan said.
“This is the same story as Saudi Arabia and other Middle Eastern countries, it just happened that back during the Soviet Union, Russia failed to use the opportunity to grow in petchems on the back of the growth of their gas and oil production,” he added.
The company significantly expanded its gas processing capacities, leading to substantial growth in its liquefied petroleum gas (LPG) production and sales. This was followed by a series of smaller but still substantial investments in petrochemicals capacity, including Tobolsk PP, the 330,000 tonne/year RusVinyl polyvinyl chloride (PVC) joint venture with Belgium’s Solvay, and some other projects focusing on the styrenics chain.
The latest and most significant phase of the company’s transformation will shift its portfolio further downstream, with around 3m tonnes of LPG previously for external use will be put to work internally at ZapSibNeftekhim.
The total represents a significant chunk of the company’s external LPG sales, which stood at 4.9m tonnes/year in 2017 with LPG comprising over half of its feedstock and energy segment revenues.
The sacrifice is predicated on the belief that increased volumes of petrochemicals will offer higher returns than upstream gas sales, Komyshan said.
GLOBAL PRICING COMPETITION
Once online, product from ZapSibNeftekhim will be aimed first at Russia and the former Soviet countries, then further out to Europe, Turkey and Asia, with a focus on China.
“We will see new PP tonnes coming first out of the plant because we already have propylene on-site and can commission the PP unit first, PE will be started up as soon as the cracker ramps up,” he said.
Competitiveness in commodity chemicals markets is growing and likely to intensify in the latter half of 2018 and beyond as substantial new capacity in the US Gulf Coast, another feedstock-advantaged region, comes on stream.
The price point for US shale-derived oil and gas has continued to fall since the oil crash of late-2014, and the runaway growth in the industry leaves the US potentially on track to eclipse Russia as the world’s largest oil producer.
Despite the increasing competition in the sector, Komyshan believes that ZapSibNeftekhim will be able to produce material at rates that will allow the company to carve a larger niche in the international polymers sector.
“We believe that ethylene and PE production costs together with the cost of feedstock will place ZapSib in the first quarter of the cost curve overall globally. The complex is pretty well positioned regardless of the oil price,” he said.
Despite market jitters, particularly in high-cost western Europe, about the potential for a glut of cheap product to clog markets and decimate polyolefins margins, demand growth may absorb the new output, according to SIBUR chief Dmitry Konov.
“If you look at the numbers on PE and PP, the growth rate has consistently been above GDP, it was at 1.5% and is now at 1.3%, and think it will stay at the same level for the next decade, which equates to polymer demand growth of around 4.5%,” he said.
“This means there will be the need for around 9m tonnes of polymer, and the current US global expansion in ethylene is about 15m tonnes,” he added.
THE NEW SILK ROAD
The company is also looking toward Asia, driven in part by the 10% stakes held in it by state energy and petrochemicals firm Sinopec and state investor the Silk Road Fund.
SIBUR has presented itself as a low-cost producer that can help to fuel China’s industrial growth, and the equity foothold that Sinopec has taken in the business reflects China’s interest in SIBUR playing that role, according to Komyshan.
“From what we understand for Sinopec, it was a strategic investment they made and since they tapped into the capital of the company we have significantly increased our interactions with our new shareholder and have a lot of working streams to find opportunities for both companies… there is a lot to discuss,” he said.
If it goes ahead, the company’s Amur gas chemicals complex will be its first unit to be primarily focused on Asia, and one of its largest. The facility’s remote location, around 4,000km from the bulk of Russian consumption, and its proximity to the Chinese and Mongolian borders, would be a substantial push away from SIBUR’s core industrial strategy.
It would, however, fit well into the Chinese government’s Belt and Road initiative, which will see new production capacities and infrastructure developed across Asia.
“I think from the Chinese perspective we are already part of Belt and Road,” Komyshan said. The Chinese strategy to develop infrastructure along the historic Silk Road paves the way for new demand growth factors in Middle Asia, for example, and countries neighbouring Russia.
That represents a good opportunity for petrochemical products of SIBUR finding their way into those markets, to support infrastructure construction be it roads, railroads and some other kinds of infrastructure such as pipelines, which are often made out of plastics,” he added.
Will Beacham contributed to this article