Page 7 - FSUOGM Week 40 2019

FSUOGM COMMENTARY FSUOGM
– a sector still in its early stages in the country – such as infrastructure constraints and long dis- tances required for the transport of raw mate- rials and finished products. In FEPCO’s case, Rosneft was unable to find a workable means of supplying the plant on the Pacific Ocean shore with the necessary feedstock. There have also traditionally been limited incentives for petro- chemical manufacturing in Russia, although this is set to change with the government introducing extra support under a roadmap plan approved in March.
Many of the more successful petrochemical projects underway in Russia use ethane, which is produced as a by-product of gas processing, as a feedstock. But Rosneft produces far more oil than gas and chose instead naphtha, which is primarily derived from crude. Ethane has been cheaper than naphtha in Russia in recent years because of a growth in Western Siberian gas production, creating ample supply. The gov- ernment’s March roadmap plan also introduced subsidies for domestic consumption of ethane but not naphtha.
Rosneft is banking on having better success using naphtha in India, given that it does not face the same infrastructure issues that plagued FEPCO and local demand is projected to climb in the coming years.
Indian incentives
In August, Indian Chemicals and Petrochem- icals Secretary P Raghavendra Rao said the government wanted to turn India into petro- chemical “manufacturing hub” and reduce the country’s import bill.
The official told the Indian Chamber of Com- merce (ICC) that the country spent INR1.21tn ($25.25bn) on net chemical and petrochemical imports in financial year 2018-2019 and warned that this figure could rise to INR3tn ($62.59bn) within five years.
Rao said the government would provide
specific codes for petrochemical imports to stop some shipments being logged under the “other” category. In order to promote investment in domestic production capacity, Rao also said the ministry intended to introduce mandatory Bureau of Indian Standards (BIS) criteria for cer- tain petrochemicals.
India’s ongoing economic development is driving demand for petrochemicals, with S&P Global Platts Analytics projecting that contin- ued combined polyethylene and polypropyl- ene demand would climb from 10mn tonnes to 21.5mn tonnes by 2026.
The Asian Development Bank predicted in late September that the country’s economy would expand by 6.5% in 2019-2020, with growth speeding up to 7.2% in the next fiscal year.
Rao said the government wanted to locate industrial users close to one another in order to cut minimise infrastructure challenges.
What next
Indian refiners have been talking for years about diversifying their revenue streams in anticipa- tion of a decline in oil demand as the government pushes for the uptake of cleaner transportation alternatives, such as compressed natural gas (CNG) and electric vehicles.
Adding petrochemical units is a logical step for refiners to take, given an ongoing economic growth that will underpin local demand for years to come. Combine that with the govern- ment’s desire for local capacity to meet domes- tic demand and Rosneft appears well placed to make a success of the Vadinar refinery’s expansion.
While the refinery is already located in one of India’s most industrialised states, New Delhi’s focus on reducing the infrastructure barriers that have plagued such projects in Russia should make it easier for Rosneft to reach an FID on the project in the coming months. ™
The 400,000 bpd Vadinar refinery, India’s second-biggest oil processing plant. Source: Nayara Energy.
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