Russia and China May Cooperate on Petrochemical Plant in Primorsky Region of Russian Far East

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russian oil and petrochemical major OAO Rosneft (LSE:ROSN) (Moscow) is reportedly in discussions with China Petroleum & Chemical Corporation (NYSE:SNP) (Sinopec) (Beijing, China) over a possible partnership to establish a jointly funded refining and petrochemical complex to be located in the Russia's eastern region of Primorsky.

The complex is planned to be completed in two stages and, when completed by 2014, will be capable of processing 20 million tons of crude oil per year, with 15 million tons allocated to refining, and the remaining 5 million tons to petrochemical production. The total investment in the plant is expected to be $22 million, but this figure includes the associated infrastructure planned around the complex, such as an oil loading port, a power plant and connecting pipelines.

Rosneft and Sinopec already have a cooperation agreement in place dating back to 2007, when the two companies signed an agreement to jointly develop oil and gas deposits off Sakhalin Island, a large island in the North Pacific off the eastern coast of Russia.

The joint venture is expected to benefit both countries. Russia is the world's largest exporter and is keen to develop its Far East and eastern Siberian regions, which have low population levels. China, which has the world's fastest growing economy, will benefit from Russian resources in the struggle to meet the country's rising energy demand.

Rosneft currently operates seven refineries in Russia, together with three "mini-refineries." The Komsomolsk refinery is the only one located in the Far East of Russia, with the Achinsk and Angarsk refineries located in eastern Siberia. Another refinery is located on the Black Sea coast and the remaining three are in the Volga-Urals region.

The majority of Rosneft's petrochemicals are produced at the Angarsk polymer plant, which is the petrochemical block of the Angarsk refinery complex. The polymer plant specializes in ethylene, propylene and polyethylene, using feedstocks of gasoline and hydrocarbon gases from the refinery. In 2008 the plant produced 401,000 tons of products from a total input of 644,000 tons, consisting of 114,000 tons of ethylene, 62,000 tons of propylene, 58,000 tons of high-pressure polyethylene, 31,000 tons of benzol and 19,000 tons of styrol.

A modernization program for the Angarsk plant was introduced in 2008 in order to increase the capacity of the ethylene and propylene units. The program is also aimed at installing new units for producing high-density and linear low-density polyethylene and propylene, together with new facilities that will enable the use of light hydrocarbon fractions as feedstock in order to reduce operating costs.

The Komsomolsk refinery, the only other refinery operated by Rosneft in the Russian Far East, relies on crude oil transported more than 2,000 kilometers by rail from western Siberia, together with oil piped in from Sakhalin. While the new complex is likely to be built south of the Komsomolsk refinery, the facility will probably use feedstock from the same sources, at least in the short term.

Russia currently produces about 13% of the world's oil, but has a relatively low output of petrochemicals, producing only 2% of the world's output. Consequently, Russia is planning to consolidate its petrochemical industry and would gain significantly from having additional refining and petrochemical capacity in the Far East region, which has a high potential for export growth to Japan, South Korea and Vietnam.

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