Five instructions from Vladimir Putin: from creation of gas and chemical cluster to support for polymers industry

Putin: “We have things to work on”

“We are holding a meeting in Tobolsk with you that has turned into the world centre of oil and gas chemistry in the last years without exaggeration. Two large enterprises have been built, which, undoubtedly, makes this region and our country in general one of the leaders”, the president of Russia opened the meeting with these words.

Vladimir Putin was in this city last time in 2013 when he launched a plant at Tobolsk-Polymer factory. During this trip, Russia’s president visited Russia’s biggest petrochemical complex ZapSibNeftekhim, which (belongs to SIBUR) reached full capacity in advance, and held a meeting on the sector’s development.

The COVID-19 pandemic added some nuances to the discussion of the issue that is so important for the country’s economy: the meeting had to be held via teleconference that connected a series of Russian ministries and the country’s biggest gas and petrochemical companies with the Tobolsk administration online. Director General of TAIF JSC Ruslan Shigabutdinov and Director General of Tatneft PJSC Nail Maganov represented Tatarstan at the meeting.

As Russia’s president noted as early as 7 years ago, expansion of capacities of petrochemical enterprises and support for Russian manufacturers working in this sector are one of Russia’s key state industrial policies. A lot has been done over this time: the import substitution programme is almost complete in large-tonnage petrochemicals. Moreover, imports account for just 0,3m tonnes with 5,3m tonnes of products manufactured a year.

“While the picture in small-tonnage petrochemicals is different: we still import 1,4m tonnes of products but make 3,7m tonnes. It is absolutely obvious we have things to work on. By the way, small-tonnage petrochemicals hold around 30-40% of all chemical products in European countries, in European economies. We have just 15%,” the president indicated a promising area of developing the sector.

“Of course, domestic demand here considerably exceeds what we produce now, and the deficit is covered by imports. The dependence on foreign suppliers in some areas reaches a hundred per cent. Of course, such a situation must change,” Vladimir Putin added.

14 projects at 5 trillion rubles

Russian gas and petrochemistry have huge potential for growth, Russia’s president noted. We have everything to realise it: big feedstock reserves, state-of-the-art technology, qualified staff. The development of the gas and petrochemical sector is a very profitable business, Vladimir Putin stressed and explained why:

“The growth pace of world demand (Editor’s Note: for gas and petrochemical products) is around 4%. While demand for oil in the last five years is just 1%. Then it will reduce to 0,1%. I will repeat that it is necessary to more actively promote Russian petrochemicals inside the country and abroad, increase the efficacy and volumes of production. For this purpose, large-scale projects with total investments of around 5tr rubles should be implemented in this sector.”

He means 14 big projects in which 17,000 highly qualified jobs will be created. However, the multiplied effect promises to be much bigger and entail explosive development of related sectors. During the meeting, Russia’s Vice Premier Aleksandr Novak announced another big project: the Ministry of Energy has already created a task force on the construction of a gas refinery and gas and chemical complexes on Yamal. The Arctic cluster will cost 2tr rubles by preliminary estimated, moreover, it will create more than 22,000 new jobs and provide non-resource exports for 125bn rubles a year.

On behalf of the country’s administration, Vladimir Putin promised such undertakings full support. Particularly this October the State Duma of Russia adopted a law signed by the president fixing a reverse excise on ethane and LPG in exchange for investments in developing plants that refine this feedstock. Taking advantage of the occasion, Vagit Alekperov — president of LUKOIL oil company — took the floor on behalf of petrochemical companies:

“We are talking about gas and chemistry, but petrochemistry is left outside brackets. There is a unique feedstock — propylene — that today we need to use to make polymer materials. To implement investments projects on production of petrochemicals, the possibility of stimulating propylenes that go to oil refineries as petrochemical feedstock in line with LPG should be considered,” he emphasised.

Board Chairman of Rosneft OC JSC Igor Sechin supported his colleague:

“We’re asking to expand this support to the projects whose feedstock is naphtha,” he addressed the president.

The management of TAIF Group recently talked about the necessity of such support for petrochemical companies too.

It is necessary to develop Russian consumer market

Such an active growth of the gas and petrochemical sector requires a bigger outlet, of course. Recognising the necessity of reaching the global scale here Vladimir Putin recommends shifting the priority towards developing the Russian domestic consumer market.

A hot-button issue is to create a steady demand for Russian petrochemicals. It is necessary to create the market, to create our own market, domestic market, first of all. Polymer products are in high demand in Russia as well as in the whole world. It is in demand in construction, medicine, housing utilities, food industry and a number of other sectors. Their use opens new big opportunities, allows reducing operational and maintenance costs, moreover, many times, thanks to a longer life of polymer products. The benefit of its introduction compared to obsolete materials is plain to see. For instance, in housing utilities: polymer pipes allow saving up to 50% of costs to maintain water conducts and sewerage. At the same time, our share of polymer solutions in housing utilities is 35%. While in same Europe I have mentioned it is 85%,” Vladimir Putin addressed the participants in the meeting.

Vagit Alekperov offered to expand the area of use of polyethylene pipes with another sphere:

“Today we have building rules to use polyethylene pipes both in housing utilities and gas, but unfortunately, we don’t have building regulations to use polymer solutions in oil and gas production and the construction of oil pipelines,” he noted.

Meanwhile, Saudi Arabia has already appreciated the opportunities this material provides. Over 400 km of pipelines are replaced and laid during oil pipeline repairs a year. LUKOIL also laid its first test section of polyethylene pipes in Samara Oblast. There are no complaints.

Instructions to the government

Summing up the meeting, Vladimir Putin gave Russia’s government five instructions.

Firstly, the amount of small- and medium-tonnage chemicals should increase by 70% compared to this year by 2030. For this purpose, it is necessary to prepare a set of measures to develop the area, determine a list of priority projects that can largely influence the development of production chains and have a big multiplicative effect.

“Secondly, I am tasking the government with developing a complex of measures, including tax measures, to stimulate the production of synthetic rubbers. Demand for them is really high now, and a forecast shows that it will unlikely go down. We need them for the automotive industry’s dynamic development (the automotive industry will also rise without doubt when the pandemic is over), aircraft engineering, to make some military machinery, in many other sectors,” the president stressed.

“We are ready to allocate up to 3bn rubles for synthetic rubbers in these tough times,” Minister of Finance Anton Siluanov expressed the readiness of the federal centre to support the production the country needs.

The president’s third instruction is to expand the areas and amounts of use of polymers in water supply networks.

“Without this, it will be very hard for us to launch production if we don’t have our own market. And we see how effectively this is used in a number of countries and economies. This will lead to higher demand for innovative products of the petrochemical industry. Moreover, the life will extend, costs on network maintenance will reduce,” Vladimir Putin stressed.

The fourth instruction of the president was integrated inspection of regulation in industrial construction. This also includes the introduction of codes and rules to launch innovative materials and technology made by the petrochemical sector.

“I support the vice premier’s proposal (Editor’s Note: Marat Khusnullin) that directors of enterprises of the sector should also actively join this work, not wait for manna from heaven — they should join this work, offered these solutions, indicated problems that impede us from working, so working together we will get the regulation we need.”

Finally, the fifth instruction is to develop tax and non-tax incentives in the use of recycled polymers in production to minimise a negative impact on climate and the environment as well as to increase competitive advantages of Russian gas and petrochemical goods. At the same time, Vladimir Putin stressed that he had already repeatedly said that plastic production was 13 times cleaner than black and non-ferrous metallurgy from a perspective of the environmental impact.

“I hope all these decisions will positively influence the situation in the sector and provide an additional stimulus to the whole Russian economy,” the Russian president added at the end of the meeting.