Russia Eyes Petrochemicals As Answer To Crude Oil Reliance


TOBOLSK, Russia, May 18 (Reuters) - On a sprawling construction site in Western Siberia, about 20,000 workers are busy building what will be one of the world's five biggest petrochemical plants, part of a play by Russia to capture more of the value from the oil it produces.

Russian energy companies, led by privately owned Sibur, have been increasingly shifting their focus to petrochemicals in a drive to capitalise on the fast-growing sector and offset the volatile market for crude oil exports.

According to the EY consultancy, Russia accounts for about 1 percent of global petrochemical output, trailing not only the United States and Europe but also Thailand, Taiwan, Brazil, Iran and China.

That is set to change, with the Sibur plant due to come on stream, while gas giant Gazprom plans to invest $5 billion in a petrochemical plant on the Baltic Sea, and oil major Rosneft has said it will ramp up its petrochemical capacity in Russia's far eastern region.

The Sibur plant is taking shape near Tobolsk, birthplace of Dmitry Mendeleev, the inventor of the periodic table and one of the founders of modern chemistry.

It is also close to many of the fields that produce crude oil, the raw material for much petrochemical production. Most of Russia's oil is exported as crude, a trade that has delivered diminishing returns as world oil prices have weakened over the past four years.

Sibur is banking on growing domestic consumption of petrochemical products, which are used in construction, medicine, aviation, car making, clothes, bottling, packaging and many other sectors.

"We see quite a huge potential for growth of the Russian market," Dmitry Konov, head of Sibur, said at the construction site of the plant on the outskirts of Tobolsk.

Once in operation, the complex, known as ZapSibNefteKhim, will have an annual production capacity of 1.5 million tonnes of ethylene and 500,000 tonnes of propylene.

Banking On Growth

According to Vadim Drujina, a partner at McKinsey & Co consultancy in Moscow, petrochemicals is the fastest-growing segment of crude oil consumption.

"Growing petrochemicals demand is partly explained by substitution of traditional materials, e.g. steel, in such segments as construction and automotive," Drujina said.

"Given the abundance of petrochemicals feedstock it makes a lot of sense for Russia to think about further growth of petrochemicals in order to create additional value."

Denis Borisov, director of EY's oil and gas centre in Moscow, expects that in Russia alone, demand for petrochemicals - depending on product - will grow by 2 to 3 percent a year to 2025.

The location, the Russian heartland of oil production, allows Sibur to cut transportation costs as it obtains the feedstock, such as associated petroleum gas and naphtha, from nearby fields operated by other companies.


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