Petrochemistry and oil refining
Experts from the Eurasian Development Bank Suggest Focusing on Small-Scale Chemistry
The Eurasian region can improve its position in the international division of labor. Currently, Eurasia produces only 2.1% of the world's petrochemicals, positioning the region as a supplier of raw materials (primarily crude oil and gas). However, there are all the prerequisites for transforming the region into a major global center for polymer production. This is the key conclusion of the report "Petrochemical Industry of Eurasia: Prospects for Deep Processing," presented in April 2024 by the Eurasian Development Bank in Almaty. More details on the development prospects of the petrochemical industry in Eurasia, as forecasted by the bank's experts for the next decade, can be found in the material.
As noted in the report, the petrochemical industry in the Eurasian region is developing rapidly. Over the past six years, the total production level of major polymers (polyethylene, polypropylene, polyvinyl chloride, polystyrene, polyethylene terephthalate, synthetic rubbers) has increased by 1.5 times, from 5.8 mln tons in 2017 to 8.4 mln tons in 2022.
Looking ahead to 2035, unlocking the potential of petrochemicals in Eurasia carries significant economic benefits. The industry can provide:
- Up to 5.8% annual growth in the output of basic polymers and synthetic rubbers. Overall, the production of polymer products in physical terms could double to more than 20 mln tons.
- Up to 0.44 percentage points of annual GDP growth in the Eurasian region (the ratio of the average annual total effect of investments and production growth on GDP to the GDP volume in 2022). This figure is 0.32 percentage points for the Russian Federation, and for the Republic of Kazakhstan, it is 1.38 percentage points. By 2035, the region's GDP could gain an additional $153.5 bln.
- A 3.2-fold increase in petrochemical product exports to 10.4 mln tons per year.
Petrochemicals is a high-tech industry on par with computer equipment manufacturing, mechanical engineering, and pharmaceuticals. It has a high multiplier effect and can accelerate the transformation of economies towards an innovative development model (an increase in output in the industry by $1 can lead to an increase in gross output in the economy by $2.62).
The industry is characterized by a rapid increase in added value in the technological chain (Fig. 1). Advancing production up the value chain can significantly increase the added value created. The price difference between basic raw materials and final polymer products can exceed 20 times. The attractiveness of deep hydrocarbon processing lies in its high profitability and the business stability it offers to extraction and processing companies.
The Eurasian Development Bank (EDB) is an international financial organization conducting investment activities across the region. For over 18 years, EDB has been promoting the strengthening and expansion of economic ties and the comprehensive development of its member countries. EDB's authorized capital amounts to $7 bln. The majority of EDB's portfolio consists of projects that have an integrative effect on transport infrastructure, digital systems, green energy, agriculture, industry, and mechanical engineering. The bank is guided by the UN's Sustainable Development Goals and ESG principles in its activities.
Figure 1. Cost per Ton of Product from Raw Materials to Finished Goods
Source: EDB
The establishment of a strong petrochemical industry is a natural priority for the economic policies of Eurasian region states. There are several prerequisites for this:
- Powerful raw material potential. The combined proven oil reserves are 115 bln barrels (over 7% of global reserves), and gas reserves are 62.8 trillion m³ (about 30% of global reserves).
- Historical experience in petrochemical development, including production and the creation of a scientific and technological foundation for the industry.
- Active government policies aimed at developing petrochemical projects. More than 20 large petrochemical projects worth over $200 bln are currently being implemented.
- Geographical proximity to promising markets, such as the Asia-Pacific region and India. By 2035, these countries will account for over 40% of the global petrochemical market.
Structural changes in the global petrochemical industry create long-term advantages for the countries of the Eurasian region. The global economy is undergoing a new energy transition closely linked to increasing the depth of petrochemical processing. Polymer raw materials are required for a qualitative technological leap (for example, ethylene is used to produce solar panel photoelements). The global petrochemical market is expected to grow at a compound annual growth rate of 3-6% annually until 2035.
Additionally, 50% of the increase in global demand for crude oil by 2050 will be driven by the development of the petrochemical industry. Consequently, the importance of petrochemical regions with significant raw material potential will grow.
The Eurasian region can improve its position in the international division of labor. Currently, the region accounts for only 2.1% of the world's petrochemicals and is primarily positioned as a supplier of raw materials (mainly oil and gas). However, there are all the prerequisites for transforming the region into a major global center for polymer production. Considering the high level of technological advancement in petrochemicals and its significant multiplier effects, its development can help overcome the path dependence formed over the last 30 years.