RUSSIA'S PETROCHEMICAL INDUSTRY: CARTING A PATH FOR GROWTH - A REPORT BY EY
Posted on 08-02-2018 by GBC
As the Russian petrochemical industry remains battered by ongoing developments across the national energy sector, key fundamentals reflecting its role and place in the country’s economy leave much to be desired. The petrochemical sector contributes a modest 1.5% to the Russian GDP.
Accounting for approximately 1% of global petrochemical output, Russia ranks last among the top 20 producers, falling behind not only the US and Europe but also Thailand, Taiwan, Brazil, Iran and mainland China. A large number of products with higher added value (such as specialty composites and additives) are not produced in Russia. China and Europe, for example, produce about 25% and 20% of the world’s primary plastics, respectively, while Russia produces only 2%.
Global oil majors play as important a role in the world’s petrochemical landscape as specialized producers. The petrochemical business generates roughly 13% of total revenues for ExxonMobil, 10% for Shell and Total and 5% for Eni. Together, oil companies produce more than 50% of the world’s olefins and aromatics, around one-third of its polystyrene and up to 25% of its polyolefins.
There have been positive shifts in Russia’s petrochemical landscape over the past few years, as the Government has paid more attention to the industry’s needs. For example, the final version of the “big tax maneuver” legislation takes into account a number of proposals put forward by industry players. This is important to Russia, as a simple analysis suggests petrochemical companies generate significant added value. In 2014, for example, sales proceeds ranged from US$715/ton for crude to US$860/ ton and US$900/ton for oil products sold wholesale and via own retail networks, respectively. This is very low compared with both primary and secondary petrochemicals (US$1,200/ton and US$1,700/ton, respectively).
While the Government is obviously interested in monetizing the existing resource base to the greatest extent possible, this requires setting the right priorities and taking the right paths. Considering that the Government’s petrochemical sector development plan for the period until 2030 is largely outdated, a multi-scenario road map may now be regarded as a priority. This document is expected to improve the effectiveness of decision-making and become an important benchmark for industry players. The success of this effort will be largely dependent on the active engagement of highly qualified experts and the collaborative work of all stakeholders, including executive authorities, vertically integrated oil companies (VIOCs) and consultants.