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A Sleeping Bear Stirs

Russia’s Petchem Industry Ready to Grow

10:00 AM MDT | July 23, 2012

Page: Value-added export potential.

Russia, with its vast oil and gas reserves, forecasts annual GDP growth of 3.7% through 2020 and, as a favorable geographic location between China and Europe, is expected to see a major boom in its petrochemicals industry. The industry, since the collapse of the Soviet Union, has not witnessed major expansion and has failed to attract much investment from overseas companies. Lately, however, the government of the Russian Federation has been paying more attention to adding value to Russia’s natural resources and has come up with a road map to create a number of petrochemical hubs across the country operated. The actual investments will be made by individual companies in Russia.

IHS Chemical has just published its first edition of Russian Petrochemicals: A Market Analysis & Competitiveness Review, which includes an outlook to 2020. The review provides up-to-date, comprehensive analysis and insight into the Russian market for more than 20 petrochemical products. The study was authored by John Page, v.p./IHS Chemical Consulting, Europe/CIS/Africa, and includes inputs from IHS Chemical Consulting, product experts at IHS Chemical Research and Analysis, IHS Global Insight for economic forecasts, and IHS Purvin & Gertz for energy forecasts.

“There is little doubt that with an attractive investment environment, Russia should be capable of developing a much larger downstream petrochemicals industry enabling the country to export added value chemicals, rather than simply exporting oil and gas,” Page says. Following the breakup of the Soviet Union the chemical sector suffered a severe recession but in the last few years it has bounced back and is expected to record 3.5%-4% annual growth or higher over the next several years, Page says.

For years, Russian planners have been torn between whether to develop petrochemical complexes in close proximity to resources, mainly in Siberia and the Far East—each with inhospitable climates—or to transport oil and gas to locations where downstream petrochemicals can be produced closer to markets. The key advantage of Russia’s petrochemicals industry is its feedstock costs, which are lowest at locations farther from markets.

Russia’s established petrochemicals industry is dominated by a few major players, with assets that are typically not as large as their counterparts in other producing regions. The country’s combined ethylene capacity is just 3 million metric tons per year. Russian petrochemical producers include Sibur (Moscow), Nizhnekamskneftekhim (Nizhnekamsk, Russia), Rosneft (Moscow), Lukoil (Moscow), and Gazprom (Moscow).

Several world-scale steam crackers are in the planning phase in Russia. Most of the units would be located in Siberia and the Far East, “meaning that the delivered costs of derivative products can be significantly higher than the ex-works cash cost,” the review says. The remote locations also mean that construction costs are likely to be higher than for similar facilities built in China or the Mideast.

In 2010, Russia’s Ministry of Industry and Energy produced a plan that proposes the creation of six clusters across the Caspian, Northwest, Volga, Western Siberia, Eastern Siberia, and Far East regions. Some of these are expected to be extensions of existing complexes while others are likely to be developed at greenfields by individual companies. The planned clusters are in close proximity to existing sources of raw materials; have efficient logistics for delivery, including product pipelines; or are in close proximity to markets. Each of the clusters would be competitive and include world-scale plants, typically a steam cracker with 1 million m.t./year or more of ethylene capacity.

The Caspian cluster is based on Lukoil’s Stavrolen complex at Budyonnovsk and will process ethane and liquefied petroleum gas (LPG) from a gas-processing plant using Lukoil’s associated gas from the Caspian shelf. The complex will be based on a cracker with capacity for 600,000 m.t./year of ethylene.

The Northwest project is more tentative. It focuses on the Baltic region and involves Sibur and, possibly, other partners. The plan includes two possible options for the supply of ethane, propane, and butane fractions: via a new gas-processing plant at Cherepovets or by pipeline directly from Western Siberia.

The Volga petrochemical cluster would be, by far, the largest petrochemical complex in Russia. It includes production in the Tatarstan, Bashkortostan, Samara, and Nizhniy Novgorod regions. It offers synergies with existing refineries and proximity to major markets, including both the European part of Russia and the European Union. The cluster represents a large proportion of the regions’ existing petrochemical capacity, including the Nizhnekamskneftekhim complex. The review provides a detailed list of the proposed facilities.

Western Siberia cluster, located in the Tyumen region, envisages processing local raw materials, including natural gas liquids, naphtha and ethane. It is being developed by Sibur, which is building a propane dehydrogenation and polypropylene plants at Tobolsk and planning a 1.5-million m.t./year ethylene plant with downstream facilities.

Eastern Siberia is a cluster covering the Kranoyarsk and Irkutsk regions and involves projects by Rosneft, Sibur, and Gazprom. Rosneft is expected to expand the Angarsk petrochemical complex, as part of the plan, while Gazprom and Sibur would potentially build a new petrochemical complex at Sayansk.

The Far East cluster, located in Primorsk, is expected to be developed by Gazprom and Sibur. These plans, however, are less defined than Rosneft’s investment planned at Nakhodka. The Rosneft project is looking at a large naphtha cracker.

IHS Chemical expects Russia’s total ethylene capacity to increase to 5 million metric tons per year by 2020 with per capita polyolefins demand rising 40% to 25.7 kg by that date from 18 kg in 2011.

The 370-page review can be purchased from ChemicalSalesEMEA@ihs.com.

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