Siberia will lead Russia to economic breakthrough
Over the past 20 years, the global petrochemical industry has seen steady growth - up to 7% per year. According to the forecasts of the International Energy Agency, the same dynamics will continue at least until 2050. The major reason is the rise in living standards in the countries of the Asia-Pacific region and, consecutively, the increased consumption of thermoplastics (polyethylene, polypropylene and others). The volumes of their production are expected to have increased by about 70% in the next 30 years, which will constitute to 590 million tons.
The main growth drivers of petrochemical sector are presumably trade and construction industries which will ensure high demand for packaging, synthetic textiles, toys, dishware, tires, plastic windows and furniture, alcohols, utility lines and finish materials. The primary raw materials used to manufacture these products, as well as many others, are either oil or natural gas, whereas polymers act as the next link in the value chain.
It has been talked a lot about that Russia, as the country in possession of huge hydrocarbon reserves and also one of the top-three countries-producers, must increase its own share on the global petrochemical market. However, we are still mainly exporting unprocessed natural resources. If we process them though, we mostly process them into fuel.
The money received from exporting minerals make up a significant part of the Russian budget. By contrast, most of the developed world relies on manufacturing high value added products (methanol, ethylene, propylene) and the products for direct consumption made on their basis. There is also no doubt that if at least some part of those raw materials which are currently exported would be processed inside the country, it would result in new jobs, increased tax revenues and more rapid GDP increase.
What is the reality though? Before 1991, the petrochemical sector in our country (actually in the USSR, a predecessor to the Russian Federation) was on a par with the global leaders, whereas right now Russia is somewhere in the bottom twenty of the list, next to the Thailand. Even more, five years ago Russia imported one million tons of large-capacity polymers more than exported. In other words, we were unable to meet the domestic demand, which in fact remains at a very low level. Therefore, how can we even stand the competition with the countries as Saudi Arabia, the US and the others who invest billions of dollars in the industry?..
Fortunately, there are some positive news. According to the Analytical Center for the Government of the Russian Federation, the production of large-capacity polymers in 2010-17 increased by 58% and reached 5.4 million tons. Among the reasons cited are increased investments and commissioning of new plants.
It is possible that in the next year Russia will become a net exporter of petrochemicals. The reason behind this is the launch of ZapSibNeftekhim plant on the basis of the Tobolsk Production Site. The plant will annually produce 1.5 million tons of ethylene, 500 thousand tons of propylene and 240 thousand tons of high-margin secondary products. Most importantly, this June a new agreement has been signed between SIBUR and Sinopec, according to which the latter becomes its distributor in China, and thus the company gains access to the market.
According to Dmitry Konov, Chairman of the Management Board of PAO SIBUR Holding,”We expect a significant increase in sales after completing the construction of ZapSibNeftekhim and launching the project. In connection with this, it is an important matter that we have reached agreement with our Chinese partners regarding distribution of our products to the world’s largest market”.
According to BusinesStat, last year the production volume of polyethylene in Russia increased to 2.1 million tons compared to the year before that. It is expected that by 2023 this figure will have increased to 3.77 million, whilst most of the growth will be ensured by ZapSibNeftekhim plant. Once the plant will start working at full capacity, production of polypropylene is also expected to rise by at least a third. In case SIBUR and Sinopec manage to commission the Amur Gas Chemical Complex project, which is planned to have happened in 2024, then in six to seven years after the project has been implemented production of ethylene will have reached over 5 million tons, which is an increase by 2.5 times.
As mentioned by Igor Klimov, Chief Executive Officer of ZapSibNeftekhim, ”Currently, we are decommissioning the construction workers who had been earlier working in this area. We expect the process to be completed by the end of the year, then we start manufacturing”.
This new project is a big event for SIBUR, which will open up wide prospects for expanding the company’s presence on the global arena. In the short term though, the demand for petrochemicals may be growing slightly slower in comparison to the recent years. The reason is the trade war between China and the United States, which can slow the global economy and, notably, the consumption of polymers.
Perhaps, the predictions are right. One of the world’s most profitable corporations Sinopec Group reported an increase in net profit in 2018 by 22.04%, corresponding to 9.18 billion dollars. In contrast, the German BASF reported a decrease - by 22.6%, to 4.707 billion euros. Moreover, the company did not manage to reverse the negative trend. Therefore, it plans to reduce the staff - approximately 6 thousand people will loose their jobs by 2021.
However, as the analysts say, a significant part of manufactured in Europe petrochemicals is targeted on the local auto industry which has been facing difficult times. The consumption in the Asia-Pacific region, in contrast, is only going upwards. Thus, the prospect of Russia getting a better place at the global petrochemical market seems quite possible.