22 Oct 2020
Posted in Oil & Gas
Russian petrochemical producers are well-positioned for market recovery post-COVID-19
The COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19, says GlobalData, a leading data and analytics company.
Dayanand Kharade, Oil and Gas Analyst at GlobalData, comments: “Oil and gas majors in the country are reducing spend in response to a substantial drop in crude prices and disruptions caused by the COVID-19 outbreak. Sibur Holding, one of the largest petrochemical producers in Russia, has lowered its capital expenditure (capex) outlook for 2020, which is approximately 30% lower in comparison to its initial budget. However, companies continue to evaluate their capital structure and focus on key projects ensuring sustainable growth.”
The majority of the upcoming projects in Russia are in the early stages of development, for example, pre-construction phase. Changes in supply/demand patterns, due to reduced economic activity across the globe, is likely to affect the pace of progress of these projects. Major announced projects such as Baltic Chemical project and EuroChem- Northwest Kingisepp project in Leningrad Oblast, and Gazprom and Novatek projects in Yamalo-Nenets Autonomous Okrug could face delays in startup. However, companies should continue to assess the impact based on prospective developments.
Kharade concludes: “With economic growth correlated to petrochemicals growth, the short-term outlook is expected to result in lowered petrochemical demand in the country. However, with an improving market environment, Russian producers are well-positioned to derive full benefit with the country’s access to low-cost feedstock.”