Russian Government to Invest in Petrochemicals Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia is the world's leading oil producer, accounting for 13% of global oil production. Despite this, the country represents only 2% of global petrochemical production. However, through a combination of state funding and protectionist measures, Russia intends to increase its share in the global petrochemicals sector.

Russian Energy Minister Sergei Smatko plans for the petrochemical industry to raise production levels and become the fifth-largest contributor to the country's gross domestic product (GDP). One of the ways in which the state hopes to achieve this goal is to provide guarantees on loans to petrochemical companies.

In July this year, state-owned development bank Vnesheconombank (VEB) (Moscow, Russia) signed agreements worth $1.44 billion in long-term credits with LLC Tobolsk-Neftekhim (Tobolsk, Russia), a subsidiary of JSC Sibur Holding (Sibur) (Moscow), for the construction of a new 500,000-ton-per-year polypropylene plant in the Siberian city of Tobolsk.

In the latest move to support the petrochemical sector in Russia, the country's largest bank, state-controlled Sberbank Rossii OAO (MCX:SBER03) (Moscow) issued a $841.4 million loan to petrochemical company Kazanorgsintez OAO (RTC:KZOS) (Kazan, Russia).

Kazanorgsintez operates a petrochemical complex covering more than 4 square kilometers on the Volga River in Kazan, about 800 kilometers east of Moscow. The complex includes a high-density polyethylene (HDPE) production and processing plant, an ethylene plant, an organic product plant, a low-density polyethylene (LDPE) plant and auxiliary facilities. The company produces more than 1 million tons of general products each year, of which more than 20% is exported.

The results from the Russian petrochemicals industry appear to back up the energy minister's confidence. Ethylene production rose 22% in the first half of 2010, compared with the same period in 2009. Similarly, polyethylene, polypropylene and polyvinyl chloride (PVC) showed year-over-year increases of 25%, 21% and 16%, respectively. Although certain areas, such as fertilizers and fibers, reported declining production, overall chemical production was up 10%.

In another positive sign, plans for a joint petrochemical complex to be developed by Sibur, Gazprom (OTC:OGZPY) (Moscow) and The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) have recently been revived. The project, which will produce ethylene and propylene from mixed feedstock, initially was announced in 2007, but was delayed by the global financial crisis.

In another Sibur connection, in July, RusVinyl (Kstovo, Russia), a 50:50 joint venture of Sibur and Solvin, the subsidiary of Solvay SA (EBR:SOLB) (Brussels, Belgium) (50%), began construction of what will become Russia's largest fully integrated PVC plant at Kstovo in the Nizhnii Novgorod region. The complex is scheduled to begin operations in 2013.

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