How to solve raw materials issue for chemical giant Kazanorgsintez

Shortage of raw materials leads to a decrease in production

At the recent meeting of Tatneftekhiminvest Holding, the issue of raw material supply of one of the flagships of the chemical industry, Kazanorgsintez, was again mentioned.

Kazanorgsintez shows good financial results and has no credit debt. It would be possible to expand investment plans. However, without a raw material base, any project will be risky, it was said at the last meeting of the board of directors of Tatneftekhiminvest Holding.

“Due to the shortage of raw materials for polyethylene plants, Kazanorgsintez reduced the total production by 4,4% in January-September. At the same time, the company was forced to reorient itself to the maximum production of more expensive high-pressure polyethylene," Rafinat Yarullin, the director general of Tatneftekhiminvest-Holding JSC, gave an example.

He suggested discussing a solution to this problem through the creation of own gas processing plant. “It is necessary to return to the evaluation of the project for the construction of a gas processing plant in Zelenodolsk district," Rafinat Yarullin believes.

The idea of building a GPP in Tatarstan is not new. But how uncontested is it?

Where to get an additional 200,000 tonnes of ethane a year

First about the raw materials. To date, Kazanorgsintez is provided with raw materials via the ethan pipeline, it comes mainly from Orenburg. This scheme was established back in the early 1970s. Kazanorgsintez remains the only processor of ethane raw materials in Russia. Even with the existing capacities, Kazanorgsintez is ready to accept an additional 200,000 tonnes of ethane a year.

Kazanorgsintez CEO Farid Minigulov has repeatedly said that “Kazanorgsintez's raw material processing capacity is higher than the volume of raw materials that comes in”.

A promising horizon for providing raw materials is the reconstruction of the Orenburg-Kazan ethan pipeline and the Orenburg Gas Processing Plant in order to increase capacity. Moreover, there are opportunities for the reconstruction of the Orenburg plant. Taking into account that Kazanorgsintez has now become one of SIBUR's anchor enterprises, the partnership between SIBUR and Gazprom can increase the chances of implementing this project.

Also, we should not forget about the ongoing construction of the new EP-600 unit at Nizhnekamskneftekhim, which will not only correct the current situation, but also give an opportunity to increase capacity. The first is the maximum developemnt of the possibilities of the ethylene pipeline between Nizhnekamsk and Kazan (Volga Ethylene Loop is a system of pipelines for the transportation of ethylene between the enterprises of Nizhnekamskneftekhim PJSC (Nizhnekamsk), Ufaorgsintez JSC (Ufa), Bashkir Soda Company JSC (Sterlitamak), Gazprom Neftekhim Salavat JSC (Salavat), Kazanorgsintez JSC (Kazan) — editor's note).

“Gas factor”

Andrey Kostin, the director general of the Centre for Industry Research, reminded that the idea of building a GPP for the needs of Kazanorgsintez is far from new and has been discussed for several years. And there are still many variables. “The probable parameters of the project are still not called: the required volume of gas processing. For this reason, it is difficult to estimate the cost of the project, but it is clear that we are talking about several tens of billions of rubles," Andrey Kostin comments on the situation.

Of course, this project has strengths and weaknesses that make it necessary to return to it against the backdrop of changing world prices. Certainly, the presence of a source of raw materials supply close to Kazanorgsintez is a strong argument when assessing the feasibility of the project. But there is also a downside: technical and economic assessments of the GPP. Here, big costs are associated not so much with the construction of the GPP, but with its infrastructure. For example, the main gas pipeline for pumping gas is not an export pipeline of Gazprom. Therefore, it is necessary to re-bind the transportation of “wet” gas, which is not suitable for the main consumers. And there are many such moments in the preparation of infrastructure.

It should be noted that SIBUR has extensive experience in the construction and operation of GPP, which allows for an objective assessment of future projects. SiburTyumenGaz has eight gas processing plants located at the oil and gas production sites of large fields in the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs of Russia. These are Belozerny GPP, Vyngapurovsky GPP, Gubkinsky GPP, Nizhnevartovsk GPP, Nyagangazpererabotka, Yuzhno-Balyksky GPP, Yuzhno-Priobsky GPP (joint venture with Gazpromneft — Khantos PLC). More than 20 billion cubic metres of gas are processed annually, 6 million tonnes of own NGLs are produced, 1,5 million tonnes of stable natural gasoline BGS (naphtha analogue). Currently, the construction project of the Amur Gas Processing plant of Gazprom is at the final stage, which is implemented by NIPIGAZ, which left SIBUR only a month ago.

Solution of raw material issue is one of the motives of the SIBUR and TAIF deal

So. Calculations on the GPP project have been carried out for many years. A feasibility study has been developed, which is being carefully studied by specialists. But there will be logic in such a solution only when it becomes complex. For example, new chemical capacities of Kazanorgsintez appear, which will allow creating a solid bundle of “GPP — complete processing”, by analogy with the Amur GPP and GCC.

This idea was expressed by many analysts. According to Vasily Tanurkov, the director of ACRA rating agency, in the case of the construction of the GPP, its production volumes may allow Kazanorgsintez in the future to build a new complex for processing ethane and NGLs and producing ethylene and propylene with subsequent processing and the creation of new capacities for their processing into final products.

The idea of increasing the capacities of Kazanorgsintez is new prospects for both the market and the republic, according to Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts. “There have been very large investments in Tatarstan in recent years, this has greatly strengthened the republic's position both in Russia and in the world. Everything related to raw materials and processed products is getting more expensive very well," Alexander Razuvaev appreciated, expressing his opinion about the launch of the GPP in Tatarstan. “The idea is correct. Marginality is high.”

At the moment, the issue of infrastructure and raw materials for the GPP itself has not been clarified. In the meantime, other more reasonable options are being considered to address the shortage of raw materials for Kazanorgsintez, such as supplies from Nizhnekamskneftekhim and Orenburg Gas Processing Plant.

The increase in the raw material supply of Tatarstan enterprises has become one of the motives of the SIBUR and TAIF deal, so we can expect a fairly rapid dynamics here.

The overall progress of work on Nizhnekamskneftekhim ethylene complex project is currently 34%. The production will allow processing straight-run gasoline with a volume of 1,800,000 tonnes a year to produce 600,000 tonnes of ethylene and main products such as propylene (273,000 tonnes), benzene (249,000 tonnes) and butadiene (88,000 tonnes). Construction and installation works will be completed in December 2022, and in June 2023, it is planned to receive the first products.