Petrochemical Industry Needs a Road Map, Not the Projects
Nariman Ahmetzhanov, Director of SEVERKHIM LLP
Evgeny Puschik, Deputy Director of SEVERKHIM LLP
Petrochemical industry is one of the most important branches of the processing industry. We use its products nearly all the time. Four out of five items, surrounding us at any time, are created due to the petrochemical industry.
Petrochemistry is a branch of chemistry that studies the process of hydrocarbon refining and creation of petrochemical products: ethylene, propylene, butylene, alcohols, ethers, benzene and etc. Polymers are organic substances with high molecular weight, which form the basis for plastic masses. Polymer is unique class of chemicals, which is named as the crown of the evolution of inanimate world. It is a class of substances that resulted in creation of the life.
Unfortunately, even with a good raw material base for the development of petrochemical industry, Kazakhstan actually missed an excellent opportunity to develop a large-scale production of petrochemical products.
Analysis of global and CIS markets
Currently, the leading countries, producing petrochemical products are the United States, Germany, China, Japan, Saudi Arabia, France, Brazil, and the United Kingdom. Focus of global imports of basic petrochemical products is gradually shifting from the EU countries towards the emerging economies. According to ICIS Consulting, the volume of international trade of petrochemical products has increased over the last 20 years from 86 to 314 billion US dollars. The global volume of polymers is estimated to be at 220-230 million tonnes, of which the polyethylene market amounts to about 37% (80 million tonnes), and polypropylene – to 25% (55 million tonnes).
Production of polymers in the CIS counties amounted to 5.31 million tonnes at the end of 2015, and according to Creon group, this figure increased by 31.5%, compared to 2010. It was possible due to commissioning of new polymer capacities: polyethylene, polypropylene, PVC, polystyrene and PETF. However, even the growing production is not able to meet the demand for these products: the last year it amounted to 6.65 million tonnes, which is 25% higher than its production level.
Russia occupies 19th place in the world (1% of the world total) in terms of production of petrochemical products but in terms of production per capita in 11th place. Russia holds the 4th place in worldwide production of synthetic rubber (about 10%), and share of Russia is less than 1% for all other polymeric items.
How is Kazakhstan doing in the CIS market?
As reported during the Central Asia Polymers forum by Lola Ogrel, Head of the Analytical Department of CREON Group, Kazakhstan's strong dependence on foreign supplies of polymers remains one of the most pressing economic problems. Consuming up to 300 thousand tonnes of polymers for various purposes, the country has only a small polypropylene production with capacity of 70 thousand tonnes (the PETROCHEM LLP Company); it is an export-oriented, which products are supplied to Russia, Turkey, Ukraine, China and Western Europe.
However, in 2015 consumption of polyethylene terephthalate (PETF) in Kazakhstan amounted to about 48 thousand tonnes, which is 9 thousand tonnes less than the maximum level of consumption registered in 2012. Underutilization of processing capacities is at 30% level: bottling beer in PET is still banned; the market is entirely dependent on the imports.
China is the main supplier of polyvinyl chloride (PVC) and the its derivatives. PVC demand peaked in 2014 when 78.5 thousand tonnes of PVC and its derivatives were delivered to Kazakhstan. In 2015, the imports declined by 25% and amounted to 59 thousand tonnes due to lower refining.
In 2011-2013 consumption of polyethylene (PE) in Kazakhstan had increased by 2 times – up to 145 tonnes. The main reason was an increased pipe production. However, PE demand fell in the last two years. Domestic needs in this polymer are fully met through the imports. Volume of polystyrene processing in Kazakhstan is lower than of other polymers, equalling to 20 thousand tonnes. The main supplier is Russia, which sent 16.5 thousand tonnes to Kazakhstan (74% of deliveries) in 2015, that is 31% higher compared to previous year.
Why Kazakhstan petrochemical projects are suspended
In recent years, when oil prices were high, they have often said from the high tribunes about the prospects of petrochemical projects in the country. However, so far the ambitious projects remained only on paper. The commodity export sector stagnates in Kazakhstan.
Oil sector in Kazakhstan accounts for about 20% of GDP and 50% of tax revenue. Oil production supplies more than one third of total industrial production. Therefore, the export takes more than 80% of crude oil production. So, if in 2013 the export of Kazakhstan’s oil was equal to 68 million tonnes ($55.2 billion in monetary terms), then 61.3 million tonnes of oil were exported by the end of 2015 and was a two-fold, to $26.2 billion, drop in dollar terms. It was all due to the failures of programs on industrialization and diversification policy of the resource-based economy. Unfortunately, even with a good raw material base for the development of petrochemical industry, Kazakhstan actually missed an excellent opportunity to develop a large-scale production of petrochemical products.
For example, Iran has increased capacity of its petrochemical plants by 7 times during the same period (by the way, in recent years, Iran has become a world leader in terms of growth of petrochemical products, and this despite the economic sanctions!), Qatar - by 5 times. In May 2016, authors of this article have witnessed the presentation of Ustyurt Gas Chemical Complex with astonishment during the "Oil and Gas Uzbekistan 2016" exhibition. The complex will annually process 4.5 billion cubic meters of natural gas, producing commercial-grade gas (up to 4 billion m3), polyethylene (387 thousand tonnes), polypropylene (83 thousand tonnes) and other chemical products. In addition, in 2001Shurtan Gas Chemical Complex was put into operation in the country, designed to produce 150 kinds of polyethylene of high, medium and low-pressure line. Uzbekistan today is one of the leaders in the petrochemical industry in Central Asia.
What do we have in Kazakhstan?
About 20 large petrochemical enterprises, which produce a wide range of petrochemical products, were operated in the republic in Soviet times. These enterprises practically stopped after collapse of the Soviet Union. For 20 years, the share of chemical and petrochemical products in the economy of Kazakhstan decreased by several times. Import of polymers in Kazakhstan is about 95%.
In December 2015, a complex was launched at the Atyrau Refinery (with a design capacity of benzene - 133 thousand tonnes and paraxylene - 496 thousand tonnes annually). Of course, the production of aromatics is a great advantage for the development of petrochemical industry, however, benzene and paraxylene will be exported, due to impossibility to process this product in Kazakhstan. The Superproject of Kazakhstan Petrochemical Industries Inc LLP worth a $6.178 billion that was supposed to ensure production of basic petrochemical products - 500 thousand tonnes of polypropylene (1st stage) and 800 thousand tonnes of polyethylene (2nd stage) still remains in limbo. Although the mass media had reported that China Development Bank approved a loan of $2.0 billion for these purposes.
It was planned that the complex in Atyrau will cover demands of polymer products throughout Central Asia, but Uzbekistan has already broke forward. Hence the question arises: how feasible is the contracted capacity of the project? In addition, as reported by Askhat Khassenov, Director of the Department of petrochemical industry development at the Ministry of Energy of the RoK at the Central Asia Polymers conference, implementation of two more projects is expected by 2020: one with capacity of 800 thousand and another with 250 thousand tonnes of polyethylene and butadiene respectively. Where will we sell the above-mentioned products, then? The authors believe that the export market research for the said products is not developed sufficiently well.
Problems of Kazakhstan's petrochemical industry are due to the absence of a real road map for the industry development. Creation of special economic zones in Kazakhstan is a good start for investment in petrochemical projects in the country; however, falling oil prices are a deterrent for investors at this stage.
Unfortunately, there is no scientific and technical base, compared, for example, with Baku. A huge amount of money is required for scientific researches and it is something that the country doesn't have now. Given that the situation in Kazakhstan's economy is far from prosperity and the current tax system does not stimulate inflow of raw materials to the downstream processing, we cannot expect a breakthrough in the investment projects of the national petrochemical industry. Although there is a classic axiom: profit from petrochemicals equal the profits from oil multiplied by 4-5. The fall in oil prices was felt not so painful by the large oil companies, having their own petrochemical facilities, because petrochemical industry feels better at lower oil price. That is, everything is pretty balanced, and we can see it on the financial performance of petrochemical companies in the world.
The global technology licensors demand a well-prepared initial feasibility study for petrochemicals project prior to its review; this is an approach to the projects, practiced in the world. In fact, the opposite is true for Kazakhstan, i.e. customers of petrochemical projects want to develop the projects without spending a dollar of their money.
The authors believe that building the large-scale petrochemical projects in Kazakhstan was feasible in the middle of 2005-2008, but an implementation of such projects in 2018-2020 can be a problem for the product marketing. The domestic market cannot consume more than 25% of the production and export to the global markets creates a logistics-related problem, bearing in mind the absence of access to an ocean.
What can we do?
Of course, we should start with writing a real Programme of Petrochemical Industry Development (Roadmap), where the import of petrochemical products to Kazakhstan should be used as a basis. For example, Russian government passed a decree dated 05.18.2016, № 954-p "On approval of the Action Plan for implementation of the Strategy of development of chemical and petrochemical industry for the period up to 2030", which should provide the petrochemical industry with raw material, financial and human resources. There is detailed road map development in the action plan for the processing of plastic materials, reduction of the import dependence in the field of catalysts for oil refining and petrochemical industry, etc. It allocates a separate paragraph: "The development and adoption of an action plan (road map) for development of production of small-scale chemistry in the Russian Federation for the period up to 2030."
It is on the development of small-scale production of certain petrochemical products the authors want to pay particular attention. After the international exhibition "Chemistry 2015", held in Moscow in late 2015, it was decided to return to small-scale production. It so happened that for the past 20 years, global chemical companies were engaged in large projects, and not ready for the small-scale engineering solutions.
Small-scale chemistry has prospects for development in Kazakhstan, however, no expensive engineering solutions required for its implementation.
Our companies (SEVERHIM LLP and ASTARTES LLP) have been studying various petrochemical markets for more than two years, and we confirmed the feasibility of developing APG utilization projects on base of UCARSORB technology (DOW Chemical), and construction of small plants for methanol production, as well as processing APG to LNG\CNG.
Methanol market in Kazakhstan in 2018 will amount to 90-100 thousand tonnes (gas production, production of the fuel ether (a gasoline additive) MTBE [methyl-tret-butyl-ether]). Growth of methanol consumption in Kazakhstan will ensure commissioning of two catalytic cracking units at refineries in Pavlodar and Shymkent. Methanol and fractions containing isobutylene are source of raw materials for the production of fuel ether MTBE, without which it is impossible to produce gasoline that meets Euro-3 and above standards.
Today, Kazakhstan imports methanol from Russia and China at rather high prices. As it is well-known, 80% of methanol cost is the price of gas, so the methanol projects provide a good return.
Associated petroleum gas is the base raw material, which is now being used inefficiently. The law of the Republic of Kazakhstan dated June 24, 2010 of No. 291 "On subsoil and subsoil use" introduces the mandatory rule for processing APG (Associated Petroleum Gas). According to the UN, Kazakhstan is among the top ten countries for incineration of APG, so the project of APG utilization in Kazakhstan has a good prospect.
By developing APG to LNG\CNG processing projects, our country can solve a number of issues with gasification of Kazakhstan regions. Creating new small petrochemical plants in Kazakhstan, in our opinion, is a partial solution to the problem of available hydrocarbon production for the country, resulting in new jobs and the budget revenues.