14 July 2009

Global perspectives: Petrochem plant going up on Russia's Pacific coast

By Cris Whetton

In Russia's far east, Rosneft plans to start building a $14 billion petrochemicals plant near the Pacific Ocean coast this year as Russia's largest oil producer aims to export more to Asia.

Sergei Darkin, Primorye region governor, said the initial phase of the complex, planned to process 20 million metric tons of oil a year, should be ready in 2012, and the second stage should be ready in 2017. Rosneft has plans to build a refinery at the end point of the planned East Siberia-Pacific Ocean pipeline (ESPO), the country’s first eastern-flowing pipeline to the Pacific Rim. The link’s first phase, under construction, aims to deliver to a point near the Chinese border by the end of this year. Rosneft and Transneft, Russia’s oil pipeline operator, plan to start delivering crude to China in 2011 via a spur from the ESPO after China Development Bank provided the two companies with $15 billion in loans this year. A proposed three-year exemption from Russia’s export duty for eastern Siberian oil producers may give Rosneft additional money it would need for the refinery project. Rosneft plans to begin production at its eastern Siberian Vankor field in the third quarter, and production will reach 3 million metric tons in 2009, increasing to 11 million metric tons in 2010. Without export duties, Vankor, projected to produce 25 million tons a year at peak, may bring an additional $4 billion a year for the company. Rosneft may use this money to build the far eastern refinery, so by the time the tax holiday is over they can switch from crude exports to products.

Russia’s Khabarovsk Oil Refinery secured a long-term, $650 million loan from Vneshekonombank that will allow it to maintain its investment plans through 2012.

Refinery Chief Executive Viktor Lemekh said the bulk of the loan will go toward the construction of a hydroprocessing complex, which Spanish contractor Tecnicas Reunidas is building. It should be ready by 2012. The refinery decided to spend $186 million (6 billion rubles) a year on the project under an investment program approved in 2007, but a failure by West Siberian Resources, its parent company, to hold a share issue worth $150 million, and tight access to credit last year, left it with only $93 million (3 billion rubles) to invest in 2009, the refinery’s Chief Financial Officer Olga Chepurnaya said. The VEB loan will cover the investment shortfall for next year and help finance the construction costs through 2012. Overall investment in the project should total $806.7 million. VEB and Spanish insurance agency CESCE signed a memorandum of understanding in early March to co-finance $990 million in upgrades at the Khabarovsk Oil Refinery. The refinery expects to produce 3.3 million tons of oil this year, up from 2.8 million tons previously forecast. Lemekh said. The plant exports 43% of its products to Southeast Asia, selling the rest in Russia’s Far East.

Petroplus, Europe’s largest independent oil refiner, said its 117,000 bpd Teesside refinery in Britain shut down ahead of its possible sale or conversion into a storage depot. “At the end of March, we stopped buying crude,” said Bob Lavinia, Petroplus’s chief executive. “It’s closed for Q2, and we are looking at alternatives. It’s in a safe, shutdown mode and could be restored.”

Cris Whetton is InTech’s European correspondent.