Era of changes in Russian petrochemistry
Coping with consequences of the coronacrisis, adoption of Russia’s energy strategy, the merger of TAIF and SIBUR businesses — what future awaits the country’s gas and petrochemical sector?
The global epidemic of the novel coronavirus infection, which caused colossal losses for economies of all countries of the world, a temporary shutdown of enterprises, complexes and entire sectors, closure of borders because of quarantine, greater sanction pressure from Western countries and, as strange as it might sound amid these negative factors, launches of large-scale projects in Russia, development and adoption of an energy strategy, construction and start of modern oil and gas processing and petrochemical plants, merger for further development of businesses and capacities of the country’s leading companies and preparation for big entrances into new markets. Read in Realnoe Vremya’s report what Russia’s gas and petrochemical sector went through and is preparing for and the role of Tatarstan, TAIF Group in these processes and its scheduled merger with SIBUR Holding PJSC.
Gas and petrochemistry in Russia and the world
Polymer products — a result of the performance of the gas and petrochemical industry — surround us everywhere: household items and appliances, personal and public transport, medical equipment and personal protective equipment, packaging, textiles, various equipment, construction materials, sports equipment. All the sectors use polymers, and demand for all this diversity of reliable materials that have necessary (moreover, constantly improved) features increase year after year. PlasticsEurope Market Research Group estimated the growth of plastic production in the world from 348 million tonnes to 360 million tonnes from 2017 to 2018 alone. Some large projects around the world are now being implemented.
Asia is the largest market providing about half of the world’s demand for polymers today. China alone consumes about a quarter of all polyethylene and more than a third of polypropylene and polyvinylchloride in the world. The US and Europe’s markets are second and third respectively. Moreover, more than half of polymer production capacities are also located in the Asian region where China is the most active production developer. A large-scale import substitution programme is fulfilled in the Celestial Kingdom.
India’s contribution to the world’s polymer production has increased in recent years: big petrochemical capacities have been put into operation in the country. Serious investments in developing their petrochemical sectors attract Near East countries. In the last more than ten years, big export-oriented capacities have been launched there thanks to their cheap natural gas. One of the key factors determining the change in the world polymer market’s architecture nowadays is the active construction of new plants in the USA with the Shale Revolution as a catalyst.
Nowadays 25 complexes making polymers on a large scale operate in Russia. Eight of them produce ethylene polymers. High-density polyethylene (HDPE) is manufactured at such plants as Kazanorgsintez, Tomskneftekhim, Ufaorgsintez, Angarsk Polymer Plant, Gazprom Neftekhim Salavat. Low-density polyethylene (LDPE) production is set up at such plants as Kazanorgsintez, Nizhnekamskneftekhim, Gazprom Neftekhim Salavat, Stavrolen. A new large producer — ZapSibNeftekhim built by SIBUR Holding PJSC — appeared in the polymer and linear polyethylene (LPE) market in 2019.
In December 2020, RBC agency’s experts calculated that depending on polymer types, enterprises of SIBUR Holding and TAIF account for about 74-77% of Russian polyethylene and polypropylene. Other plants are concentrated in enterprises (including joint ventures with SIBUR Holding) of the largest Russian gas and oil companies: Rosneft Oil Company, Gazprom PJSC and Gazprom Neft PJSC, LUKOIL PJSC. All the Russian low-density linear polyethylene is made in enterprises of SIBUR Holding and TAIF Group.
Russia’s share of the total amount of polymers produced in the world is comparably small but has demonstrated confident growth of production volumes in the last decades. After an economic depression in the 1990-1996s due to geopolitical changes, current plants started to be modernised and new capacities began to be built in 1998.
Petrochemical assets of leading Russian companies — SIBUR Holding PJSC and TAIF Group — played and continue playing a considerable role in these processes. So TAIF Group has been implementing the third Strategic Development Programme since the late 20th century. The ongoing programme designed from 2015 to 2030 includes 36 large-scale projects and is assessed at over 2,2 trillion rubles, of which more than 1,5 trillion are petrochemical enterprises. Actively mastering new areas and types of products, TAIF Group, first of all, focuses on import substitution — filling the Russian market with Russian high-quality products.
Despite all the efforts and accomplishments of Russian petrochemistry, only about 2,3% of world polymer capacities were situated in Russia in the early 21st century. While by 2018, after the launch of big enterprises in China, Saudi Arabia, Iran and the USA, the Russian share shrank and was just 2,0% in 2019. In some types, especially special (small-scale) brands, the Russian polymer consumption market, which was evaluated at about 6,8 million tonnes in total in 2019, turned to be considerably dependent on imports, while exports in 2019 amounted to some 1,4 million tonnes, or nearly 20% of total consumption.
The necessity of changing the situation was repeatedly tabled at federal level promising public support to those who were ready to invest in the sector and meet certain conditions in volumes and the type of investments as well as areas the state was especially interested in.
Time for trials
Active polymer production development with lagging demand is one of the reasons why the revenue of foreign and Russian petrochemical companies had been reducing before the pandemic. Excess supply in key petrochemical markets forced producers to lower prices and stop ineffective plants. Head of RUPEC information and analytic centre Andrey Kostin talked about this as early as 2019. In 2019, ruble prices for low-density polyethylene fell by 17%, while prices for high-density polyethylene did by 21%. The tendency, which, by the way, was common for the global market in general, persisted in the first half of 2021 too.
The spread of the novel coronavirus infection provoked a greater fall in demand, not only in the polymer market but also almost in all the spheres of the economy. Countries declared quarantines, lockdowns, suspended plants and entire sectors, closed borders one by one. Globally, the damage of COVID-19, temporary shutdowns of plants and restrictions imposed including on commerce between countries, a collapse in prices for products of oil processing and petrochemistry are assessed at trillions of US dollars. In 2020, TAIF Group had a net loss for the first time in its history. The management of Group’s parent company — TAIF JSC — said this at a session on the results of general annual meetings of Group’s companies. At the same time, TAIF’s petrochemical enterprises didn’t suspend plants even for a day providing the highest protection of the staff from the spread of the new coronavirus infection.
The coronavirus pandemic aggravated existing problems related to an imbalance between demand and supply in the global large-scale polymer market. A temporary shutdown of construction projects, enterprises of the automotive industry, including the tyre industry, a fall in the production of consumer commodities and so on inevitably entailed a sudden fall in demand for polymers. In January 2020, the decline was 0,8% compared to the previous month. In February, the decrease was 2,1%. In March, the world chemical industry reduced production output by as much as 4,2%.
“The biggest fall (by 10,3% in March) was registered in China where plants operated at the lowest capacities or stood idle during February and March,” notes a review of Higher School of Economics’s Large-Scale Polymer Market. The utilisation of gas and petrochemical capacities reduced to 76,9% around the world, a record low in the last 11 years due to logistic problems. And it was hard to deliver the remaining production to the consumer who is ready to receive a product.
Course for import substitution
Import substitution, expansion of industrial capabilities of Russian polymer manufacturers and processors, support for demand in the domestic market and finding a new niche on a global scale — these are the tasks the country’s management sets to the petrochemical sector. This was discussed in Tobolsk in early December 2020 where a meeting on the strategic development of Russia’s gas and petrochemical sector took place at ZapSibNeftekhim.
It should be noted that the launch and then reaching the full capacity of ZapSibNeftekhim had a significant impact on both the Russian and world markets: the installed capacity of the plant is 1,5 million tonnes of polyethylene, 500,000 tonnes of polypropylene of more than 30 brands (with a prospect of expanding the production line to 100 brands by 2025) and over 240,000 tonnes of by-products. Another 500,000 tonnes of polypropylene is produced in a plant launched as early as 2013, which was built as part of Tobolsk Petrochemical Complex and later joined ZapSibNeftekhim.
In the second half of 2020 when the market started to gradually revive amid anti-COVID-19 concessions and demand and prices for demand gained lost positions, Russia’s share of global large-scale polymer production rose from a previous 2% to nearly 3,5%. Moreover, the country became a net polyethylene exporter, while it had already been a net polypropylene exporter.
It was noted at the meeting that further development plans of the sector supported by the government envisage a twofold ramp-up of the production of gas and petrochemical commodities by 2030 and reaching fourth place in ethylene production in the world. Among the largest projects scheduled to be implemented in the next few years besides SIBUR’s Amur Gas Chemical Complex, with a total capacity of 2,7 million tonnes of polymers (polyethylene and propylene) a year, there is a gas and petrochemical and LNG complex in Gazprom’s Ust-Luga and RusChemAlliance, Irkutsk Polymer Plant of Irkutsk Oil Company and the construction of a new olefin complex of Nizhnekamskneftekhim PJSC. Also, the government is developing a project of a gas and chemical complex on the Yamal Peninsula, including gas processing and gas and chemical plants.
Vladimir Putin who chaired the meeting in Tobolsk stressed the importance and necessity of active development of the oil processing and petrochemical sectors — the main driver of the Russian economy where unlike oil production (Editor’s note: with annual demand growth of 1% and a tendency for a fall) demand for products of oil processing and petrochemistry grow 4% a year (according to Statista agency’s data, the growth pace of the global petrochemical sector is twice faster than the world’s GDP, 5,4% against 2,7%) and 8-10% in some products. “It is necessary to promote Russian petrochemicals inside the country and abroad more actively, increase the effectiveness and production volumes. For this purpose, the sector needs to implement large-scale projects with total investments of some 5 trillion rubles,” the Russian president singled out in his speech.
Noting successes of the sector in import substitution in large-scale polymer production, the head of the country noted another vector: “In small-scale petrochemistry, we import 1,4 million tonnes of products with the production of 3,7 million tonnes. There are things to work on, plain to see. By the way, in European countries, in European economies, small-scale chemistry accounts for 30-40% of all chemical products. We have just 15%.” He also stressed: “Of course, domestic demand considerably exceeds what we produce now, and the deficit is covered by imports. In some products, the dependence on foreign suppliers reaches a hundred per cent. Of course, such a situation needs to change.”
Russian producers are already working to master the production of medium- and small-scale petrochemistry while actively increasing the capacity of basic products. The range of TAIF Group’s petrochemical commodities now includes 581 brands, including medium-scale products, premium brands. The development of Group and expansion of the assortment goes on. The investment programme through 2030 includes 36 large-scale projects with a total value of 2,2 trillion rubles, of which 1,7 trillion belong to petrochemical plants.
So within a development programme that is implemented, Kazanorgsintez, which is part of TAIF Group, started to build an ethylene-vinyl acetate plant in early 2021 (the enterprise is the only Russian supplier of this product, the capacity of the current plant is 13,000 tonnes a year). The installed capacity of the new production line will be 100,000 tonnes a year, which will allow completely meeting the needs of Russian consumers and even exporting a part of products. Only Kazanorgsintez set up the production of metallocene linear polyethylene in Russia. A polycarbonate plant is being modernised to increase the capacity from today’s 67,000 to 100,000 tonnes a year.
A large-scale project on the construction of a new EP-600 ethylene complex implemented by Nizhnekamskneftekhim PJSC (part of TAIF Group) will allow making 273,000 tonnes of propylene, nearly 250,000 tonnes of benzene, 88,000 tonnes of butadiene, 64,000 tonnes of butylene-isobutylene fraction, 65,000 tonnes of C5 fraction and 17,000 tonnes of C9 fraction as well as 93,000 tonnes of pyrolysis tar and over 300,000 tonnes of methane-hydrogen fraction besides 600,000 tonnes of ethylene. With the launch of this facility, the total feedstock processing volume made from oil and gas condensate at Nizhnekamskneftekhim PJSC will be over 3,5 million tonnes a year.
The launch of the complex will inevitably lead to the appearance and development of a number of plants in Tatarstan and Russia that will use the whole range of the EP-600’s commodities to make final products that are in demand among consumers. After this stage, Group intends to launch another ethylene plant, an analogous plant with an additional amount of ethylene production of 1,2 million tonnes a year. Also, the second and fourth construction stages of the complex envisage the creation of a series of satellite plants, including medium- and small-scale chemistry.
SIBUR Holding PJSC plans to finish the construction soon and launch Amur Gas Chemical Complex. The Russian market will have another driver of the development of polymer plants, while the country in general will cement its positions as a big global exporter.
Nizhnekamskneftekhim is also making plans to obtain a licence in the foreseeable future and set up the production of methylene diphenyl diisocyanate and toluene diisocyanate to make polyurethane systems. Today Russia doesn’t almost have its own polyurethane production. Components are purchased abroad. The launch of a solution styrene-butadiene rubber production line with a capacity of 60,000 tonnes a year is another area TAIF Group already mastered. The production is necessary to make the so-called green tyres that are famous for environmental friendliness.
There are in general a lot of examples of projects of petrochemical factories that the country’s industry needs. By late 2021, SIBUR particularly will launch a maleic anhydride plant that is needed to produce a wide range of sought-after products, which are imported to Russia now. The capacity of the plant that is under construction is 45,000 tonnes. Tatneft plans to build another plant — for 50,000 tonnes a year.
The demand of the Russian polymer market for plasticisers — special additives to make end products plastic — is about 150,000 tonnes a year today. Lately, this niche has had a serious deficit because requirements for environmental safety of components have been tightened at international level, and phthalate plasticisers have been banned. SIBUR offered a solution by building and launching a phthalate-free plasticiser with a capacity of 100,000 tonnes in 2019.
The Russian market’s demand for flame retardants — special substances that are necessary to prevent the ignition of polymer materials — is just about a thousand tonnes a year. One of the advantages of such small-scale chemistry is high profitability. The product, which is harder to make, and just a small amount of it is needed but it is indispensable, is always expensive. And this is the main problem for the sector: owners of technologies and licensors who sell the technology of large-scale chemical production with a great desire and are more reluctant to sell medium-scale chemical production technology absolutely do not rush to share the small-scale chemistry market with anybody. SIBUR had to complete a cycle of developments on its own. In the second half of 2021, the holding plans to launch the production of the popular product with a capacity of 4,500 tonnes a year. Two-thirds of this amount is potentially designed for exports. At the meeting in Tobolsk, the Russian government was given the task of elaborating measures to increase the small- and medium-scale chemical production by 30% by 2025 and 70% by 2030.
These plans harmonically complement Russia’s Energy Strategy through 2035 that was adopted in June 2020. It was approved and adopted by the Russian government’s order No. 1523-r as of 9 June 2020. Not considering key targets of the sector that were made public as early as December 2019, the document implies the reduction in imports of large-scale polymers in consumption to 20% by 2024 and 15% by 2035.
Reinforcement of Russian gas and petrochemistry
A milestone took place in Russian petrochemistry on 23 April 2021: Russia’s two leading petrochemical groups, TAIF and SIBUR, announced their plans for uniting the businesses and working jointly, implementing large-scale investment programmes.
“The merger of our two largest companies, the creation of one company based on SIBUR and TAIF will be an additional driver of the development of this sector. The growth pace of gas and petrochemistry is up to 1,5 times above the world economy’s growth pace, there are huge prospects. Our country has huge hydrocarbon reserves and must occupy leading positions in world markets. This is why our sector will develop, and the Russian government creates conditions,” claimed Russia’s Vice Premier Alexander Novak immediately after signing the agreement.
“This merger will give a very serious effect. I believe that the volumes at Nizhnekamskneftekhim, Kazanorgsintez are to double. This means jobs, incomes in the budget. We think petrochemistry for the Republic of Tatarstan is a growth point, and we will support these projects,” Tatarstan President Rustam Minnikhanov emphasised immediately after the signing.
“The union of our assets and professional teams will allow increasing the productivity of leading gas and petrochemical enterprises and significantly reinforce Russian petrochemistry’s positions in the global market,” Dmitry Konov expressed his hope. He also stressed that “TAIF and SIBUR have very dynamically developed in the last years. We understand that the government the country sees gas and petrochemistry as an important resource in implementing a number of national projects. By uniting our efforts we can do much more to increase non-commodity exports, the hydrocarbon feedstock conversion rate than both companies have done this today.”
“The union will allow TAIF Group to significantly accelerate the implementation of projects that are included in the Development Strategy through 2030 whose amount of investments will be over 1,5 trillion rubles in the next 10 years, boost the productivity of our enterprises, expand the assortment of commodities. By 2030, taxes are expected to significantly rise, including to the budget of the Republic of Tatarstan, to 50 billion rubles a year. And from now on we are certainly provided with target quality resources that we have lacked like the air all our life,” noted Albert Shigabutdinov.
SIBUR Board Chairman, Board Chairman of Novatek PJSC Leonid Mikhelson also stressed the readiness to increase the growth pace of the united company, he emphasised: “We will see the results of the union in 3-4 years, not 10 years.”
As a result of the merger, the largest company is being created in Russia, which promises to enter the top five most powerful petrochemical holdings in the world. The documents on the merger of businesses are under consideration by the regulatory authorities. It is assumed that the deal will be closed in the autumn and the combined company will start working in a new format. In particular, as Dmitry Konov, the chairman of the management board of SIBUR Holding PJSC, said in the interview with Realnoe Vremya, it is planned to provide “more efficient distribution of intermediates and raw materials flows and optimal organisation of production processes”.
Until the completion of the transaction procedure, a deep study of these processes is impossible, but “a set of ideas is being developed from both sides. Their physical implementation will be possible after the creation of the merged company”, Dmitry Konov noted.
The active development of the production of basic, as well as medium- and low-tonnage polymers, requires no less active development of consumer markets. In Russia, per capita production of plastics, polyethylene, rubbers still accounts for several times less than in China, the United States or European countries. We are talking not only and not so much about specific household items, children's toys, packaging, appliances, equipment, etc., but also about consumption in a much broader sense. Russian President Vladimir Putin spoke about this at the same meeting in Tobolsk: “The urgent task is to create a stable demand for Russian petrochemical products. It is necessary to create the market. To create our own market. First of all, domestic. In Russia, as well as all over the world, polymer products are widely in demand. In construction, medicine, housing and communal services, food industry and a number of other industries. Its use opens up new, wide opportunities. It gives the opportuntiy to reduce production and operating costs. By times. In particular, due to the longer service life of polymer products. The benefits of its implementation in comparison with outdated materials are quite obvious. For example, in housing and communal services: polymer pipes can save up to 50% of the cost of servicing water pipelines and sewers. At the same time, the share of polymer solutions in housing and communal services is 35%. For example, in Europe — 85%.”
Wide opportunities are opening up in the use of polymer binders in the construction of roads, and highways. With a relatively small increase in price due to the introduction of the new generation of materials into the asphalt-concrete mixture, the resistance of the roadway to abrasion, formation of ruts, as well as deformations and cracking during temperature cycles significantly increases. This increases the repair interval and ultimately turns out to be beneficial to everyone.
A similar picture is emerging in the construction industry. The petrochemical sector has long been an active participant in the development and introduction of new durable, reliable and lightweight materials for housing construction and the construction of industrial production facilities, protective coatings, insulation, etc. In Russia, the volume of interaction between the petrochemical and construction industries is still insufficient. This was also discussed in Tobolsk. As well as the need for a reasonable state damping tax policy in the segment of the manufacture and sale of synthetic rubbers.
Petrochemistry is a dynamically developing industry that can provide the world community with a wide range of materials that are diverse in characteristics and areas of application.