RUSSIA - The Russian Petrochemicals Sector.

The petrochemicals industry in Russia, like most other areas of the country's economy, has faced severe shocks in the aftermath of the Soviet collapse. Steps have been taken to prepare this sector for the era ahead, and the impact has been felt in a significant way in recent years.

The industry has re-emerged after several years of slump. There is ample supply of gas feedstocks, with oil companies flaring much less of their extracted associated gas. Profitability in the Russian petrochemicals business has improved.

This sector has been streamlined and shrinking since the early 1990s, except for a brief spurt of growth in 1995. It was developed rapidly by the Soviets during the 1960s and 1970s. Later there was not much impetus for building new plants, or for upgrading existing ones which are huge but old and inefficient.

Expansion and upgrading of petrochemical plants occurred more recently within the integrated Russian oil companies and the Gazprom group. Having built up a large cash pile and now pursuing diversification, these companies have ventured into the petrochemicals business. LUKoil, for example, has become an important producer of petrochemicals within Russia and abroad.

LUKoil Petrochemicals: Since 1997, LUKoil has been actively developing its petrochemicals sector in line with a strategic development programme it adopted in that year. The company's petrochemicals plants have a combined capacity of almost 3 million tons/year. The following are LUKoil's basic petrochemical-producing subsidiaries:

- OOO Stavrolen, based in the Russian city of Budenovsk.
- OOO Saratovorgsintez, based in the Russian city of Saratov.
- ZAO LUKOR, in Ukraine, based in the city of Kalush.
- AO LUKoil NeftoKhim Burgas AD, in Bulgaria based in the city of Burgas.
- AO Petrotel-Lukoil, in Romania.

LUKoil says it has the biggest petrochemical asset base in Russia and East Europe. The company meets a major part of domestic demand for various chemicals. It is a leading exporter of chemical products to more than 50 countries in Europe, Asia, Africa and America.

LUKoil petrochemicals plants in 2005 produced 2.85 million tons, up from 2.26m tons in 2003 and 1.65m tons in 2002. Its output in 2005 included 1.8m tons of pyrolysis. The company recently said LUKoil was working on substitution of distillate fractions with cheaper gas as raw material for pyrolysis. It said the share of natural gas as petrochemical feedstock in its system last year was almost 20%, up from 18.1% in 2003 and 14.2% in 2002.

LUKoil supplied 77% of total inputs to its petrochemical facilities from its own subsidiaries. "The capacity load utilisation rate at the Company's... petrochemical facilities in 2003 was 80% (up from 74% in 2002)".

LUKoil said in 2003 it produced 1.76m tons of petrochemicals at its Russian and Ukrainian plants. The Bulgarian unit, LUKoil-NeftoKhim Burgas, produced 371,500 tons of petrochemicals, including 147,700 tons of organic synthesis, and 223,800 tons of polymers, of which 71,600 tons were high-density polyethylene (HDPE).

LUKoil said in its report: "At present, the Company is a leader in the petrochemical sector of Russia, the CIS and East Europe being: Major producer of olefins (total production capacities exceed 1 million t/y) in East Europe;

"Major producer of polyethylene (total production capacity 480,000 t/y) in East Europe;

"Major producer in East Europe and in Russia the only producer of acrylonitrile (a feedstock for production of synthetic fibers - production capacities rank 4th in Europe);

"Owner of a vinyl chloride-monomer (VCM) plant - the largest in Europe -(production capacity is 370,000 t/y);

"The only producer of nitron polyacrylic fibers in Russia;

"Major producer of methyl methacrylate in Russia.

"The Company manufactures...pyrolysis, organic synthesis, fuel fractions and polymer materials at its refineries in Russia and the Ukraine".

LUKoil-Neftekhim, a Russia-based unit, in late 1999 entered into a co-operation deal with Fina Research to help LUKoil penetrate the European market for its surplus production of polyethylene. LUKoil is to expand polyethylene capacity with a new plant being under construction. It is planning to have a petrochemicals plant build in one of the Baltic countries.