A SECOND WIND

In recent years, the State Oil Company of the Azerbaijani Republic (SOCAR) has spread its operations far beyond the traditional spheres of mining and transporting raw materials.  Today, foreign subsidiaries of the huge state-owned holding corporation operate oil terminals, chemical combines and networks of filling stations and gas distribution grids in a number of neighbouring countries.  And, after the April directive by Azerbaijani President Ilham Aliyev to transfer the Azerkimya state company to the SOCAR, the chemical sector in our economy will get a second wind.

Pivotal changes

From the moment of its foundation in the mid-20th century, most of Azerkimya's business has been tied into an integrated technological chain with the operations of SOCAR, its main supplier of raw materials and buyer of some of the products processed by the local chemical industry.  However, the chemical enterprises which SOCAR inherited and which are mainly situated in the Sumqayit industrial zone, are in large part worn out and effectively obsolete.  The problem is exacerbated by the fact that most of these facilities were designed for the processing of oil and heavy hydrocarbon fractions.  Modern chemical facilities, on the other hand, are designed exclusively for natural gas as the raw material, which partly accounts for the difficulty of converging old and new technologies.

Nonetheless, after the merger of the country's oil producing and chemical complexes and their integration into Socar's administrative system, favourable opportunities arose for attracting major investors to re-equip technologically the entire processing chain and bring it in line with the environmental norms and standards of the EU; this will make the products competitive.  This will also ultimately increase the output of final products with high added value, making the sector more profitable and largely export-oriented.  It is no less important for Azerkimya that SOCAR endeavours to introduce effective market mechanisms of technological and corporate management.  "Despite the fact that these two giant organizations merged relatively recently, essential changes have taken place in the work of the chemical sector, both in terms of its industrial output and modern technologies and in searching for new areas of export.  Today Azerkimya achieves record-high results with production output at 42%, although previously it had not exceeded 26-27%," said SOCAR President Rovnaq Abdullayev recently.  He added that work had already begun on dismantling obsolete facilities and preparing a site for construction of the region's largest chemical technology cluster in the Sumqayit industrial zone.  Talks are underway with the European and US companies which own the necessary advanced chemical sector technology.

For a number of reasons, some of Azerkimya's enterprises which remain from the Soviet era will not be rehabilitated:  in recent years, some of them stopped completely and others ran at only a fraction of their true capacity.  Some of these facilities, for example, the Sumqayitsuperfosfat OAO (Joint Stock Company), for which an investment tender was organized recently, have no supplier of raw materials in our country and are therefore of no great interest to SOCAR.  However, it is quite possible to resume production at a number of other facilities without extensive rehabilitation.  Azerkimya specialists recently resumed operations at the electrolysis facility at the surfactant manufacturing plant; they were suspended last year.  So, alongside liquid chlorine and caustic soda, a supply of chlorine oxide was also established, and these raw materials will soon be supplied once again to the oil and gas producing departments of SOCAR and other enterprises in the country.

However, SOCAR's main efforts in the modernization of Azerkimya's production chain will be focused on developing the ethylene-polyethylene plant and associated industries.  Some eight years ago, thanks to an upgrading of some equipment and the launching of the Japanese-made EP-300 steam generating station here, the plant's export potential increased considerably, and the leader of the Azerbaijani chemical sector has kept the entire chemical industry of Sumqayit afloat for many years.  After the recently completed capital remodelling at the plant, the operation of the whole technological chain - the EP-300 system and its extension Polimir-120 - has been resumed.  The development of a new liquid cooling system and construction of a nitrogen-oxygen plant is in the offing:  a few days ago, SOCAR invited select contractors to tender for these projects.  As the new assemblies and lines are put into operation, there are plans to start processing fundamentally different types of raw materials here, in particular, oil fractions which were not used in the past.  In addition, there are plans to build a new production facility - a polypropylene and gas separation plant system.  Using the gas separation plant, after the full hydrogenation of the butane-butylene fraction it will be possible to process it together with naphtha in the EP-300 system, which will not only extend the range of manufactured products, but will also increase production capacity by reducing waste and processing the raw materials fully.  "The modernization programme for the ethylene-polyethylene plant will be carried out in two phases:  in the first phase, polyethylene production will be increased to 350,000 tons a year, including 120,000 tons of polypropylene.  Then, after the new equipment is put into operation, polyethylene production will increase by a further 150,000 tons, and polypropylene production will reach 200,000 tons a year.  95% of the products will be for export, in particular, to Europe, Turkey, China and the CIS countries," said Azerkimya chief engineer Firudin Mustafayev.

However, as the EP-300 enters full operating mode, the manufacturing and export of chemical products, and especially polyethylene, has already been resumed.  The ethylene-polyethylene plant dispatched the first batch of butadiene-butylene fraction to fulfil an order from the Russia-based Nizhnekamskneftekhim OAO.  A batch of propylene raw materials will also be sent to Nizhnekamsk by the end of this year.  SOCAR plans systematic cooperation with the Nizhnekamskneftekhim OAO:  within the framework of agreements made, the range of raw materials and semi-processed products will be extended, and the companies will enter foreign markets together.

In parallel, SOCAR is establishing cooperation with another Russian enterprise, the Sterlitamak Petrochemical Plant (SNKhZ) in Bashkortostan.  Representatives of SNKhZ have expressed their interest in acquiring polyethylene, dehydrated isopropyl alcohol and different tars from Azerbaijan.  These Russian petrochemical plants traditionally purchased raw materials from the Sumqayit enterprises in the Soviet era and SOCAR management worked to re-establish the mutually profitable ties which had been severed in the last two decades.

Among the potential partners of Azerkimya is also the well-known German company BASF, whose specialists recently held talks in Sumqayit to discuss the possibility of BASF support in building new production floors in Azerkimya in the near future; this will employ more efficient, waste-reducing technologies.

New projects

But still, SOCAR specialists see the key direction for the modernization of Azerkimya enterprises in integrating the technological processes of Azerbaijani petrochemical enterprises with the operations of the Turkish chemical combine Petkim Neft-Kimya Holding A.S., in which SOCAR also holds a controlling share.  SOCAR's plans to develop the petrochemical industry in Turkey focus on a project to construct an oil refinery in the town of Alaga near Izmir.  "The State Oil Company is trying to achieve a synergetic effect by managing two of its assets, the Azerkimya enterprises in Sumqayit and the Turkish chemical combine's plants, and we are developing a joint plan of cooperation for the two combines," said SOCAR Vice President Muxtar Babayev, who was appointed coordinator of Azerkimya's operations and its merger with the State Oil Company.  This will not be hard to achieve:  the Petkim holding's plants were built in the 1970s by Soviet specialists; they are technologically compatible with Azerkimya's enterprises and are designed to process oil and its heavy fractions.  Not to mention the fact that Pektim has been buying different kinds of raw materials and semi-processed goods from Sumqayit and supplying a considerable number of finished products to Azerbaijan.  On the other hand, the experience accumulated by Turkish chemists will be put to use in Azerbaijan.  A little over two months ago, a group of automation and power generation specialists from Petkim holding visited the ethylene-polyethylene plant and a number of agreements were reached following the visit.  Soon to arrive from Turkey, a large batch of electronic measuring devices will replace the analogue and mechanical devices in the EP-300's central control panel and power station.  Turkish specialists will help to upgrade the gas separation, air pressure, heat exchange and cooling systems, after which the EP-300 will be able to process not only straight-run gasoline (naphtha), but also use the C-4 fraction as a raw material; this will increase the enterprise's production output considerably.

Another fundamentally new area of operation for SOCAR in developing the country's chemical industry is the creation of a new gas processing plant and oil refinery in the Qaradag district of the capital.  The British consulting company Nexant began developing the design projects for these plants two and a half years ago at the request of the Azerkimya Production Association.  The consultants completed a feasibility study for the petrochemical complex and described the technical parameters of the equipment, likely raw materials supply, the range of chemical products to be manufactured and the possibilities for increasing sales.  It is expected that by the end of 2010 all the documents will be sent to SOCAR for consideration.

The project proposed by Nexant is in three phases and envisages the construction of about twenty chemical facilities.  The new petrochemical combine must have the capacity for deep processing of gas, some 20 billion cubic metres of it a year, with a gradual doubling of capacity.  First and foremost, the gas separation plant is to be brought into operation in the Qaradag District.  The raw materials obtained from the gas processed here, will be supplied by special pipeline to the "heart" of the whole combine, the ethylene-propylene manufacturing plant.  Then, as it is processed, the raw materials will be supplied to other facilities, like facilities for manufacturing polyethylene, polypropylene, benzene, polystyrene and other polymer materials.  Among other things, Nexant's project envisages the possibility of creating an enterprise to manufacture fertilizers, mainly nitrogen fertilizers, building a power station and a seawater desalination facility, and building a modern oil refinery to manufacture car fuel and world-class lubricants.  The first phase is to be completed in four years' time, and the entire combine is to be put into operation in 2018-2019.

Naturally, grand plans like these require considerable investment:  in the pre-crisis year of 2008, Azerkimya was looking for partner investors and planned to implement the project mostly by borrowing from foreign commercial banks and repaying the debt by selling the finished products from the chemical combine through a chain of operations involving the creditor, manufacturers of chemical production and large buyers.  For now, it is difficult to judge if SOCAR will resort to these schemes today or provide most of the funding from its own resources.  At any rate, the task of attracting state or foreign loans to finance the Qaradag chemical combine has become much easier, considering SOCAR's international standing and experience in implementing capital-intensive projects of this type.