15 февраля 2011

`LРG 2011: еvеnt rероrt`

The promised abundance of gas feedstock for petrochemical industry in Russia is myth. Liquefied petroleum gases instead of deep processing readily move into foreign markets. The urgent intervention of the Ministry of energy and the change in the ideology of running business in this industry may improve the situation.
On Wednesday, April 19, at the hotel "Baltschug Kempinski Moscow" the Creon`s conference "LPG 2011" was held. "SG-Trans" and Quest International Trading were the partners of the conference, the event was held with the support of the IAC "Kortes" and public organization "Business Russia". Energy, transport and petrochemicals are the main sectors of the consumption of LPG (liquefied petroleum gases). However all market participants, including the representatives of oil and petrochemical companies recognize that LPG is the best petrochemical feedstock. This opinion is also shared by the representatives of the expert community, so the discussion on problems of the use of LPG in petrochemicals and other sectors of consumption is extremely important problem. CEO of Creon Sandjar Turgunov told about it in his welcome note to the participants of the conference.
The Head of the Department of petrochemicals` markets of RG "Petromarket" Alexandra Zubachyova presented review report about the LPG market in Russia. According to the data, the consumption of LPG in Russia significantly decreased in 2009-2010; however, in 2011 it has recovered and almost reached the pre-crisis level. The export of liquefied gases has steadily grown for the past years, according to the results of 2011, 3.4 million tons of almost 12 million tons of commodity LPG will be supplied overseas. In the structure of marketable LPG`s production propane-butane is the most noticeable, it accounts for 40% of the production, other volumes are distributed mainly among the individual propane, butane and isobutene. However gas processing plants, oil refineries and centralized gas fractional units of petrochemical plants play an equal role in the production of liquefied gas in Russia. The share of petrochemical industry is more than 50% of consumption of commodity LPG in the country; however, individual hydrocarbons (mainly isobutane and butane) are generally consumed, whereas the role of the propane-butane mixes in the feedstock balance of petrochemical industry is small. Motor transport, mainly light trucks, consume about 2 million tons of LPG annually, up to 2 million tons of gas per year go for housing needs, however, the first market is gradually increasing, while the second is reduced due to the main line of gasification with natural gas.

Until 2020, the increase of LPG`s production in the country will be ensured by the projects of associated petroleum gas utilization, development of oil and gas fields of the Caspian Sea, Eastern Siberia and Sakhalin. According to Mrs. Zubachyova`s estimates, petrochemical complexes in Tobolsk, Nakhodka, and Salavat with capacity of 1 million tons of ethylene each will become new large consumers of LPG. Car park for the same years will be able to extend the consumption of LPG by no more than 1.5 times. Export of LPG, with their abundance within the country, may increase, and its geography will change significantly. Poland, Turkey and Finland are the main consumers of Russian LPG now, marine transport forms only 30% of export volumes. New export terminals in Ust-Luga and Temryuk will be able to increase the volumes of sea export in 2.5 million tons annually.
Mrs. Zubachyova`s presentation caused a mixed reaction of the audience and active discussion, mainly related to the growth of export volumes of liquefied gases. From the point of view of Mrs. Zubachyova, export growth is connected with the slump in internal demand and insufficient efforts of the state on its stimulation. Deputy CEO of "SG-Trans", Dmitri Kalashnikov, and other conference participants disagreed with this statement, as the Russian petrochemical industry is now experiencing a permanent deficit of raw materials and liquefied gases in its balance are replaced by oil feedstock. Only raw materials for rubber monomers and ether fuel additives are "irreplaceable", this explains the disparity of production and consumption of LPG in Russia. In regard to the use of LPG for fuel needs, it is difficult to clearly distinguish the consumption by motor transport and housing sector due to the existence of "grey" market of car gas, which is originally intended for household consumers. Chief engineer of "SG-Trans" Alexander Skuratov reminded the audience that the current system of state regulation of the LPG market, including the "balance task" (delivery of fixed volumes of housing gas to the population within the country at reduced prices by exporters), is partly inherited from the times of centralized planning and management of the industry development, which no longer exists.
Head of the LPG`s sector of IAC Kortes, Maria Kuzina told about the market of C4 fractions (normal butane and isobutane), which have important meaning for the manufacturers of petrochemical industry in the capacity of a raw material. The natural ratio of production of butane fractions is two to one in favor of n-butane and it remains the same constantly with relatively minor deviations in one way or another. Production of n-butane has increased since 2006, with the most significant leap occurred in 2010-2011. The key contribution to the growth of production has been made by Tobolsk petrochemical complex and Sibur`s Uralorgsintez, as well as the Gazprom Neft`s Omsk refinery. The total volume of production of butanes in 2010 was 3.3 mln tons (27% of the gross production of all liquefied gases). Consumption of n-butane in the Russian domestic market stagnates, and in the current year some decrease is outlined. However, export steadily increases. Among the producers of n-butane the products of Surgutneftegaz and Gazprom Neft are completely oriented to the export; Sibur exports abroad more than half of produced n-butane. Totally, one-third of this raw material leaves the country, for five years, volumes of export have grown in 2,6 times, at the same time the production for the same period increased by only 18%. The prices for n-butane in Russia follow the world ones and with their growth in this year volumes of export supplies have sharply increased, moreover, this product is not subject to export duties. The increase of export, together with the growing importance of internal processing, leads to a strong contraction of the "free market" of n-butane in Russia (for five years it has reduced almost by half). This further aggravates the shortage of raw materials for petrochemical enterprises. Borealis in Finland and the Karpatneftekhim in Ukraine, which, respectively, are the major suppliers to the country of polyethylene and PVC, are the significant buyers of Russian butane. Thus, according to Mrs. Kuzina, exported butane "returns" to Russia in form of imported polymers.

Deputy Head of Department of coordination of gas and energy activities and products of the petrochemical and gas processing sales of Lukoil Kirill Popov told about the prospects of the production and use of LPG by enterprises of the company. According to him, the high share of LPG, which is sent to the needs of the petrochemical industry, is typical for the USA, while in Europe this figure is only 16%. It is related with traditionally high, due to historical reasons, share of LPG usage for household needs, especially in Poland. However, in the coming years, Poland intends to replace the system of LPG gasification with the gasification with shale gas, for the production of which the favorable economic conditions are created. Mr. Popov called the program of utilization of associated petroleum gas, measures of state support for development of oil- and gas chemicals up to 2030 and stimulation of LPG usage by motor transport the key factors of development of LPG market in Russia. However, utilization of the associated petroleum gas is also possible via its use for energy needs, the majority of petrochemical projects still don`t go beyond the declarations, and only Gazprom carries on the systematic work on development of the consumption of the fuel gas by motor transport, however, it stakes on compressed natural gas instead of LPG.
Lukoil`s plans imply not only creation of the Caspian gas and chemical complex, but also the extension of Perm plants. Within the bounds of works on creation of the Caspian gas and chemical complex up to 2016, the Stavrolen`s capacities will be substantially increased, and gas raw matherials (including ethane) will make up three-quarters of its feedstock balance. At the same time, the plant already receives gas feedstock in particular, LPG, from Lukoil. This fact provoked discussion among the participants of conference, as the undivided LPG contains valuable fractions of individual hydrocarbons for production of rubbers and fuel additives, which are needed by the oil company. However, any idea of deep processing of raw materials should be based on economic calculation, and the usage of LPG directly as raw materials for ethylene cracking, according to Mr. Popov, today is more advantageous than the usage of products of deeper processing.
Head of Department of Industry Programs of Gazprom Gazenergoset Anatoly Kim told about the prospects of the usage of LPG as a fuel for automotive vehicles and for the autonomous gasification. According to him, in the nearest future the consumption of LPG may significantly fall behind the production of these products. Currently the volumes of consumption of liquefied gases by motor vehicles as motor fuel are in 10 times below, than gasoline, only 3% of the vehicle fleet uses this fuel. Basically these are cars and, especially, light trucks, while the number of gas buses declines, in spite of the authorities` efforts of "greening" of public transport. A number of legislative initiatives designed to open new markets for LPG, the inclusion of the LPG use in the regional program of energy saving and energy efficiency, as well as the part of implementation of measures of support for agricultural producers, who are ready to use LPG. In Nizhniy Novgorod region the project of transfer of municipal buses to LPG usage is being implemented jointly with Sibur, while at the regional level transport tax is halved for vehicles, which use natural gas. A similar project is being implemented in the Belgorod region. At the same time, both municipal authorities and Gazprom are interested not only in LPG, but also in CNG. In the southern regions of Russia operation of a great number of buses running on natural gas will begin the next year, a network of the automobile natural gas filling stations is being created. Meanwhile, from 1.4 million gas vehicles in Russia only 100 thousand work on methane.
Mr. Kim paid special attention to the problems of LPG usage for energy and housing needs. Gazprom Gazenergoset is the operator on the implementation of the so-called "balance tasks", however, Mr. Kim has called on the government either to bring order in this sphere, or to cancel this system due to lack of transparency. He acknowledged the mass presence of "gray" schemes of commercial realization of "balance gas", in which the gas carrier is sent to the nearest gas station instead of going to the settlement. At the same time, as noted the participants of the conference, such actions are often related with the fact that the tanks for storage of LPG are available only in the petrol stations. In a number of regions of Eastern Siberia and the Far East projects of Gazprom Gazenergoset on autonomous gasification relate mainly to the gasification of the boiler stations, which previously used coal and fuel oil. This, according to Mr. Kim, allows improving the ecological situation in such settlements significantly.
The joint report of specialists of Morstroytechnologiya: Director for Development Sergei Semenov and the Head of Projects Sophia Katkova was devoted to the infrastructure of the export of LPG. In 2010, the export of LPG from Russia has grown by 22% and now it continues to increase steadily. At the same time, the infrastructural support of export now remains poor. More than 70% of liquefied gas is supplied abroad by rail; one tank for the transport of LPG costs about 100 thousand dollars, which is more expensive than oil tanks. The specificity of the market of LPG rail transportation is in the fact that tanks mainly belong to the companies themselves, not to the rail operators. And two-thirds of the park belongs only to six operating companies. Capacities of three plants, manufacturers of tanks in the CIS are not fully utilized due to shortage of components for the car bogies. Over the past 10 years the model range of the gas tanks has changed (their capacity increased from 25 to 33 and more tons), and thanks to this fact the same volume of goods is exported with fewer number of tanks.
Most of the announced projects of construction of sea port terminals for LPG transshipment are still far from realization; they remain in the phase of declarations. In Russia the only terminal for LPG transshipment is located in Temryuk, but, it is not used at full capacity, because of the limitations of siding rails and the size of accepted vessels. The terminal in Ust-Luga will start its operation not earlier than 2013. At the same time, now the traditional consumers of Russian liquefied gases, Turkey and Poland, which accounts for two thirds of imports, actively develop projects for the use of LNG. At the same time, the overall growth of consumption of Russian LPG in Europe may reach 4 million tons, owing to reduction of local production.
The technical manager of the department of foreign and special construction of Stroytransgaz Valery Plotnikov told about the stance of affairs of the gas processing in Russia and prospects for the creation of gas processing and petrochemical facilities in the Irkutsk region. According to him, in case of scenario of full development of gas processing and gas and chemical industries in the Irkutsk region, the creation of a complex of production facilities with the annual revenue of 1.5-2 billion dollars is possible. 5 billion cubic meters of gas and 362 thousand tons of gas condensate from the fields in the region could serve as feedstock for them. In general, by the year 2030, in Russia, according to the forecasts of the company, up to 30 million tons of liquefied petroleum gases will be made, 18 million tons of which have to go for the needs of the petrochemical industry, while the consumption of oil feedstock will be slightly reduced. Stroytransgaz has experience of designing "turn-key" gas processing plant in Syria with a capacity of 2.5 bn cubic meters; however the further separation of LPG to individual gases has not been operated there, propane-butane mixture being supplied to consumers in Iraq and Iran.
Vice-president of NP MBNK Anton Karpov told about experience of stock trade in liquefied gases. The first auction, the idea of which belonged to MBNK, Sibur and Rosneft, was held 2 years ago. Their goal was the emergence of a public market indicator of price for this resource. Since then, the number of trading participants has grown, in the last quarter the volume of trades reached 30 thousand tons. The main suppliers of LPG to the exchange trade are now Surgutneftegaz, Sibur, Lukoil and Novatek. Now there are 780 buyers, traders, major wholesalers, small operators of the filling stations and petrochemical enterprises who registered at the stock trade.
Head of XPS business direction of Technonikol Vasily Tkachev told about the use of LPG as a foaming agent in the production of XPS-boards. The main reason for the demand on liquefied petroleum gases in this area is the growth of prices for chlorofluorocarbons, which are traditionally used for these purposes. The volume of demand is low - all Russian producers of XPS need no more than 2.5 thousand tons of isobutane annually. The problem is in the high combustibility of isobutane, which increases the risk of accidents during the production as well during the storage of ready boards, until isobutane is not blown away from them. Several accidents, accompanied by large fires, have already taken place in the enterprises of the industry, which then began to think about cheaper foaming agent with greater caution.
CEO of Transkhimeksport Alexander Sharov told about prospects of development of foreign trade in liquefied petroleum gases between Russia and Iran. In Iran, in contrast to Russia, petrochemical industry is developing rapidly as only for the last five years 4 million tons of cracking capacities have been put into operation. Liquefied gases are produced mainly on the coast of the Persian Gulf and being exported to Asian countries. Despite the high cost of transportation with the gas carriers (430-450 dollars per ton, for transportation from Bandar Imam to the Korean Pusan), the Iranian raw materials are in demand. At the same time in the north of the country due to transport restrictions there is a shortage of liquefied gases, which are now imported from Kazakhstan and Turkmenistan. Russia could become an active player on this market, and also sell helium to Iran. Owing to the development of gas processing and petrochemical industry in Iran there is a surplus of some hydrocarbons which are deficit in Russia, such as isopentane, isobutilene and butadiene, which are already imported into the country according to long-term contracts. In particular, many Russian producers of synthetic rubbers became the consumers of the Iranian butadiene.
The head of Creon Fares Kilzie believes that all efforts have to be done to reduce the export of liquefied gas from Russia, moreover the stable demand for them is created only by petrochemical plants, direct competitors of Russian companies, and the prospects of consumption in other sectors are doubtful. Mr. Kilzie together with other participants of the market hopes greatly on Sibur, the key operator of the market of liquefied gases. It is the processing of large resources of LPG which allows the company to claim the leadership in the Russian petrochemical industry. The majority of the market participants looks at Sibur when forming their strategies of development, they consider Sibur as the main supplier and processor of LPG for the petrochemical industry. The Ministry of energy should stimulate the processing of liquefied gases inside the country at any costs. Export of LPG from Russia should be complicated with the custom duties and a system of measures of unprecedented stimulation of LPG`s chemical processing must be developed, and these measures should not be limited just by tax benefits.

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