Fourth International CIS Petrochemicals conference, one of the major professional forums in the petrochemical industry, is going to be held in Moscow on 5-7 April. The event is traditionally organised with the official support of SIBUR Holding, Russian flagship petrochemical company.
As we approach the event, Artem Kim, conference director asked Dmitry Kolobov, Director for Strategic Development at SIBUR, a few questions on the current situation, company plans and Russian petrochemical industry in general.
In the context of global changes in the energy market, many companies are shutting down their investment projects, whereas SIBUR is still actively involved with major capacity increase projects. What fuels strong confidence of the company in this environment?
In 2014, SIBUR completed its major investment cycle by commissioning Tobolsk-Polymer and RusVinyl facilities and expanding its gas fractionation capacities in Tobolsk. Today, our key project is ZapSibNeftekhim polyolefin production facility.
As proven by our success in obtaining project financing last year, we have no difficulty accessing capital markets: the company raised funds through the Russian Direct Investment Fund, including the National Wealth Fund, and borrowed from foreign banks under the coverage provided by European export credit agencies.
SIBUR plans to use both its operating cash flow and loans to finance the project.
The company’s financial stability, by and large, has not been much affected by falling oil prices and the rouble depreciation. While prices of most energy products are linked to oil prices, which no doubt translates into lower revenue, this effect is partially offset by the weakening rouble. Firstly, the bulk of SIBUR’s revenue comes from exports and hence is US/Euro denominated. Secondly, our financial strength is due to our petrochemical business which is less sensitive to volatile oil prices.
Another important factor is that our project offers a substantial upside, considering the growing domestic demand for polymers, the general shift towards import substitution and an overall lack of investment in petrochemicals.
How would you estimate the prospects of petrochemistry as an industry in Russia as of today? What is your assessment on state support of the industry? What challenges and aspects shape the current situation?
The industry has shown robust growth pushed by insufficient domestic supply and consumption two to three times lower than in developed countries. The majority of currently imported commodity products may be substituted with domestically produced ones over 2016–2025. With hydrocarbon processing localised and petrochemical products with high added value exported, the petrochemical industry may act as a new growth driver of the Russian economy.
What technologies seem to be more interesting in the given environment?
We carefully track every innovation in the basic petrochemical industry related to both traditional technologies, such as resource-efficient monomer production and polymerisation, and alternative and breakthrough technologies, including the use of unconventional feedstock (coal, natural gas, biomass, recycling materials) versus naphtha or LPG. Speaking about mainstream technologies, we do not expect any industry-revolutionizing breakthroughs here, with some rare exception, such as KBR’s innovative uses of naphtha à la fluid catalytic cracking. As for alternative technologies, they have obviously become somewhat less attractive, at least in the near term, due to extremely low hydrocarbon prices. In the long run though, recycled feedstock and competitive bio-based feedstock, along with their commercialization methods, will be gaining more and more popularity. The long-expected OCM (oxidative coupling of methane, Siluria Technologies’ C1-to-olefins) may fly – or may not – as well. China has succeeded in commercializing MTO (methanol-to-olefins) / CTO (coal-to-olefins) technologies, though for a number of reasons, and primarily due to subsidised coal prices, those are unlikely to travel outside China.
In the meantime, the industry may experience a technological breakthrough, though in a slightly different way, which is industrial digitalization (Big Data, Internet of Things). Yet, such developments will need more than a couple of years to materialize: many industry players are speaking of goal-setting horizon of 2020–2030.
Mass media has very little information regarding SIBUR joint project on the construction of butyl rubber production facility in India. How is it going? What are the functions and tasks of SIBUR in the framework of the project? Are there planned similar overseas JV projects?
The plant is now under construction. Its commissioning depends on the completion of Reliance Jamnagar-3 (J3) project, as power and feedstock will be sourced from complementary operations (pyrolysis and production of isobutylene). We will be able to set a more specific time frame as soon as the Reliance J3 project is launched.
As part of the project, SIBUR will provide the JV with its butyl rubber production technology similar to the one used by Togliattikauchuk. We have already pre-marketed our products in India and received positive feedback from consumers.
Speaking of our new projects, we have a long-established relationship with another partner, Chinese Sinopec Group. In 2013, we launched a JV to produce nitrile butadiene rubbers using the capacities of Krasnoyarsk Synthetic Rubbers Plant (KZSK). Together with Sinopec, we are completing the design of production capacities for our prospective JV in Shanghai. The project is yet to be decided on after we receive approval from Chinese regulatory authorities.
At the moment, SIBUR does not plan to set up any new JVs abroad, but we always welcome new proposals from foreign investors.