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"Window of opportunity" for the cluster

The development of the petrochemical industry in the Far East was one of the topics of the WEF-2018

Today, the best time for the development of oil and gas processing and petrochemistry in the Far East is sure that the participants in the session “Oil and Gas Processing: We are Creating a New Industry Cluster”, which took place within the framework of WEF-2018. The largest petrochemical and chemical projects are already being implemented or are being prepared for implementation in the Far East: Amur GPP, Amur Gas Chemical Plant, methanol production plant in Skovorodino, Nakhodka Mineral Fertilizers Plant and a number of others, investments in which are estimated at 50 billion dollars. An additional advantage of the project is the close proximity to the premium market in China and other countries of the Asia-Pacific Region. According to the participants of the session, the regional industry today is facing a “window of opportunity” for the development of the largest petrochemical cluster, which is important to use in the best way.

"Window of opportunity" for the cluster
Photo: Tass / VEF Photobank
Special project TORA and Free Port
Many of the enterprises and industry clusters created in the Far East today are focused on the countries of the Asia-Pacific region. The petrochemical industry in Russia was no exception, having demonstrated high growth rates in 2011 – 2017, largely due to China and other Asia-Pacific countries, where the growth in demand for the industry’s products was stimulated by rapid economic development and an increase in the use of plastic in construction.

According to forecasts, the growth in demand for petrochemical products in the countries will continue, but at the same time competition for the main sales markets will increase. “This is due to the fact that both traditional players of this market and oil companies are beginning to invest in the petrochemical industry, and in 10 years, electric vehicles will be equal in number to cars with an internal combustion engine, so whether oil will remain in the road transport sector a big question, ”says Anton Poryadin, head of strategy in the CIS countries at EY. At the same time, he is confident that now is the time for the development of the petrochemical cluster in the Far East, to which a “window of opportunity” has opened.

Pavel Sorokin, Deputy Minister of Energy of the Russian Federation, agrees that the competitive struggle in the oil refining and petrochemical market will be tightening over 15 – 20 years. In his opinion, cheap financing and the availability of credit resources will lead to this, and therefore certain measures will have to be taken to protect the manufacturer.

“There is great potential for the production of petrochemistry in our country. We have a lot of cheap raw materials, but because of the large distances, there are problems with logistics, so we need cooperation between government agencies, companies and manufacturers of petrochemical products in order to level the "logistics leverage." This can be done, for example, by introducing tax subsidies or by charging negative excise taxes, ”he believes.

There are all prerequisites for the development of petrochemistry in the Far East, as it has unique advantages, including:
- availability of reserves of raw materials (1,3 billion tons of oil and condensate, 4,6 trillion cubic meters of natural gas), as well as support measures through regional electricity cost premiums with a base rate of 4,3 rubles / kWh;
- proximity to the sales markets of the APR countries (China, Japan, South Korea), where the annual volume of imports of chemical products is 200 billion dollars;
- transport accessibility: Power of Siberia pipelines - 38 exports billion cubic meters of natural gas and ESPO - 50 million tons of oil with the prospect of expansion to 80 million tons, 15 sea terminals and two railways - BAM and Transsib;
- government support, including the Free Port of Vladivostok and the TOR "Neftekhimichesky", as well as the creation of infrastructure at the expense of budget funds.

Currently, 14 large-scale projects are being implemented in five regions of the Far East within the framework of the petrochemical cluster, investments in which are estimated at more than $ 50 billion, producing more than 38 million tons of finished products. These include Novatek's LNG terminal (20 million tons per year), Gazprom's Amur GPP (42 billion cubic meters of gas) and other production facilities. The project of the Amur GCC of the SIBUR company (1,5 million tons of ethylene per year and the same amount of polyethylene) is under development.

According to Sergei Komyshan, executive director of SIBUR, the company is very interested in the Far East cluster, primarily due to the region's proximity to the main centers of demand for petrochemical products. “The flows of polymers that will go from Siberia over the next two years through the region to the export markets of China and other Asian countries from the Amur Gas Chemical Complex, from the Irkutsk Oil Company project, will create favorable conditions for the development of export-oriented polymer processing,” he said. Komyshan also noted that SIBUR plans to create a logistics hub near one of the ports of the Far East by a specialized logistics operator - investor, ensuring the loading of the hub with commercial products.

According to Yury Korsun, deputy chairman of the State Corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)”, finding money for implementing large-scale industry projects is not a question, but the question of how long this funding will be calculated and what its cost will be. He noted that funds for projects of the petrochemical cluster need to be raised in the order of project financing. “Oil and gas chemistry is an industry that allows you to properly structure project financing, which is very important for a banker to understand the expenditure and revenue parts,” he said.

According to forecasts, in 2025, the amount of investment in key petrochemical projects in the Far East should amount to 1 trillion rubles, export revenues - 230 billion rubles, and new production capacity - 5 million tons.

The export of low-tonnage liquefied natural gas (LNG) to the APR countries represents great prospects - the average annual growth rate of this market is about 10% and has a potential of more than 100 mln tons per year after 2020. However, this industry is promising not only for external, but also for domestic consumers and is an important direction for the development of the industry along with the export of petrochemical products.

“In most cases, small generation facilities in the Far East are only effective using LNG, and much less time is needed to implement such projects,” says Igor Dubovsky, director of the investment department of the Far East Agency for Investment Promotion and Export. He recalled that in September 2018 of the year a LNG mini-plant was launched on Sakhalin (where a large-scale LNG plant has been operating since 2009), the products of which will first be exported and then delivered to the domestic market.

One of the next stages in the development of the Far East may be the cooperation of its border areas with the northern and northeast regions of China. Such cooperation can be carried out through the creation of joint companies that mutually complement each other and use the resource bases and already established production facilities in the work of both parties. This opinion was expressed by Boris Krasnovsky, General Director of ESN LLC. “Such joint ventures, subject to state support, will be able to receive an additional incentive for development,” he said. “For example, 5 projects per year for ten years are already 50, and these are tens of billions of dollars of“ living ”Asian money, which we all really need.”

Published in the journal "Economics of the Far East"
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Photo: Photobank VEF, TASS
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