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«SIBUR» LLC is the managing organization of PJSC «SIBUR Holding».

117218, Moscow, Krzhizhanovsky st., 16/1

SIBUR's ethylene ambitions

Russian chemical group Sibur is in expansion mode. It has an im­pressive list of existing projects and is now planning the construction of a gas pyrolysis cracker producing more than tm tonnes/year ethylene at Tobolsk, western Siberia, which will use natural gas liquids (NGLs) con­taining propane, butane and ethane as its main feedstock.

Sibur president Dmitry Konov has just turned 40 years old and has led the company through this ambitious phase of growth since 2006. He told ICIS that a decision about the project - to be located at the existing Tobolsk-Neftekhim site - would be made late in 2011 and that the project, if approved, would be operational by 2015-2016.

After Sibur's current slate of projects is completed, fr om 2013, the company will show «healthy, positive cash flow,» which will help fund the project, said Konov

Importance of location

Russia's feedstock supplies tend to be located far from domestic or export markets, leaving chemical producers the dilemma of locat­ing either near to markets or feed­stocks, but not both.

Konov explained: «The project site is located in western Siberia, wh ere the climate is not overly severe. While it's not ideally situ­ated in terms of either domestic or export markets, this is a very good position in terms of obtain­ing its feedstocks. We would transport the production by either train or truck. Our NGL process­ing plant is at this same site.»

He added: «A major challenge for Russian chemical producers is the fact that there are a lot of different feedstocks, such as LPG [liquified petroleum gas, which contains propane and butane] and ethane, now available on the market. However, they tend to not be located in a suitable place. The logistics in this respect are not good for the company and neither is the climate.»

Konov said Sibur could either wait for government-sponsored infrastructure to be put in place, or go ahead on its own: «We have the option of waiting for the gov­ernment lo supply logistical in­frastructure such as pipelines for NGL transportation.»

«Negotiations are underway, but no decisions have been made yet. Otherwise, we can try to per­form a balancing act between high logistics costs against low feedstocks and strive to bring as much production as possible to the domestic market.»

Konov said Russia had huge po­tential reserves of LPG, of 7m-12m tonnes/year for petrochemical pro­duction, adding that this could rise to 20m tonnes/year by 2016-2017.

The expansion in use of LPG as a feedstock has implications for the product slate available for fur­ther processing. As proportion­ately less naphtha is used, there will be less availability of feed­stocks for rubber production for tires. For this reason, Sibur will shut down plants or introduce new grades while focusing on ex­pansion outside Russia.

«One major product we're inter­ested in developing is rubber. But because Russia does not have a big supply of monomers for rubber, we're interested in expanding in India and China, which both have feedstocks. [Chinese energy and chemical company] Sinopec is No. 2 globally in rubber, so competition is more intense than in India.»

Butyl Rubber JV

In May, Sibur signed a joint ven­ture deal to produce butyl rubber in Jamnagar, India. Reliance industries will supply feedstocks, while Sibur will provide proprietary technology for producing butyl rubber at the Indian company's in­tegrated petrochemical site in Gu­jarat state.

Konov insists that Sibur is more interested in organic growth than acquisitions, because of the company's advantaged feedstock position. It is potentially interest­ed in purchasing several of its peers: petrochemicals and rubber company Nizhnekamskneftekhim and chemical group Kazanorgsintez. However, the companies «are not for sale» or at least they are not interested in accepting what Sibur is willing to pay for them.

Sibur expects to emerge strongly from the downturn. There was a strong improvement in the first half of 2010, though it is ‘‘ques­tionable’‘ how strongly this can be sustained in the second half.

First-half revenues were 70% higher than the same period a year ago, and earnings before tax, depreciation and amortization (EBITDA) grew by 250%. For the full year, Konov expects revenues to increase by 30% to around $7bn (?5bn) while EBITDA should improve by 40-50%.

He added: «Prices in 2010 are, on average, lower than in 2009 prior to the crisis especially in domestic markets but volumes have increased strongly for many polymers.»

«The crisis hit the liquidity of our customers. We held a strong position so were able to support the value chain, allowing custom­ers relaxed payment terms.»

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