Russian energy majors focus on petrochemicals

Russian energy majors focus on petrochemicals

Most of Russian oil is currently exported as crude, and the country's high dependence on oil and gas revenues hit the national budget when global world oil prices weakened in 2014. Meanwhile, at least three key players of the Russian energy market are developing big petrochemical projects, as the sector is expected to show double growth compared to the global economy.

Russian energy companies are increasingly shifting their focus to petrochemicals in a drive to capitalise on the fast-growing sector and offset the volatile crude oil market, says Reuters. Petrochemicals are the fastest-growing segment of crude oil consumption, believes Vadim Drujina from McKinsey & Co consultancy in Moscow. ''Growing petrochemicals demand is partly explained by substitution of traditional materials, e.g. steel, in such segments as construction and automotive,'' he said. Petrochemical products are used in construction, medicine, aviation, car making, clothes, bottling, packaging and many other sectors.

At the moment, Russia accounts for about 1% of the global petrochemical output, outpaced by the United States, Europe and many other countries, such as Thailand, Taiwan, Brazil, Iran and China, says EY consultancy. However, the situation is set to change: Sibur Holding is currently building a giant petrochemical complex near Tobolsk, Gazprom plans to invest $5 billion in a petrochemical plant on the Baltic Sea, and Rosneft intends to ramp up its petrochemical capacity in Russia's Far East.

President Vladimir Putin at meeting on petrochemical sector development in Tobolsk. Photo:

Sibur's new facility, known as ZapSibNefteKhim, will become one of the world's five biggest petrochemical plants. It is supposed that the complex will have an annual production capacity of 1,5 million tonnes of ethylene and 500,000 tonnes of propylene. The plant's location allows Sibur to obtain the feedstock, such as associated petroleum gas and naphtha, from nearby oil fields and thus cut transportation costs. The company believes that the domestic market has huge potential for growth. According to Director of EY's Moscow Oil and Gas Centre Denis Borisov, demand for petrochemicals in Russia will grow by 2% to 3% a year to 2025.

Grigory Vygon of Vygon Consultancy in Moscow expects the global petrochemical growth to double the growth of the global economy adding that the oil petrochemical industry is the only area of oil products consumption that will grow in the long term. This is partly due to an increase in prosperity of emerging economies, claims the Paris-based International Energy Agency in a report. ''Global economic growth is lifting more people into the middle class in developing countries'', and higher incomes entail rising demand for consumer goods, which are often derived from petrochemicals.

''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,'' said McKinsey's Drujina.

By Anna Litvina