The Covid-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, in turn impacting the demand for petrochemicals in the short term. In such a precarious situation, maintaining operational efficiency and strengthening their financial position have become a primary focus for several petrochemical companies in Russia. Though the petrochemicals demand for construction and automotive sector got impacted, the pandemic has triggered an increase in the demand for polymers in the food packaging and cleaning/hygiene products. With Russian petrochemical companies having advantage of access to low-cost feedstock and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, they appear to be well positioned to derive full benefits from an improving market environment and appreciating global economy.
The oil and gas majors in the country are reducing their spend in response to a substantial drop in crude prices and disruptions caused by the outbreak. Sibur Holding, one of the largest petrochemical producers in Russia, has lowered its 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 development projects ensuring sustainable growth.
The majority of the upcoming projects in the country are in the early stages of development, i.e. 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 also could face delays in start up. Companies would continue to assess the impact based on prospective developments.
Russian petrochemical companies intend to take advantage of factors such as secured access to low-cost feedstock and proximity/access to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products. Additionally, factors such as economies of scale, abundant low-cost feedstock, and cheaper energy/labor costs are likely to sustain project developments in the country.