FROM OIL TO CHEMISTRY

New technologies change traditional perspectives on energy. Alternative fuel types are getting increasingly popular (even coffee residuals can now be used to refuel public buses in London). We are slowly but steadily stepping into the era of electric-driven cars. These new trends make discussions about the future of oil and gas markets quite relevant such as the recently held forum of leading oil companies in Abu Dhabi, where the State Oil Company of Azerbaijan (SOCAR) was also present.

SOCAR's participation in the event is an unconditional recognition of the policy pursued by the leadership of Azerbaijan in the oil and gas sector and SOCAR as a prestigious international oil and gas company. SOCAR President, Rovnag Abdullayev, noted that new technologies promote the renewable energy sources and, with the development of electromobiles, reduce the consumption of oil products.

According to Abdullayev, the role of oil and natural gas as energy carriers will be inversely proportional to their significance as raw material used in chemical industry. Hence the transfer of Azerkimya Production Association (the leading manufacturer of chemical products in Azerbaijan) to SOCAR in 2010 allowing the company to consolidate the operations under a single production chain: from the extraction of raw materials to the finished products.

Expensive development routine

New trend in SOCAR's scope of operations to increase the output of petrochemical sector is promising in terms of the creation of additional jobs and significant income in foreign currencies.

The organization of oil and natural gas processing is instrumental, as the added value of final products will provide for tax contributions that will be transferred directly to the national budget.

In addition, the launch of large processing enterprises by SOCAR will promote the establishment of industrial clusters: small and medium-sized enterprises around the petrochemical plant ensuring the manufacture of a variety of goods. Currently the main manufacturers of industrial products in Azerbaijani petrochemical complex are SOCAR Polymer, SOCAR Methanol, and SOCAR Carbamide.

The transfer of hydrocarbon resources from energy sources to petrochemical industry in Azerbaijan is expensive: total investment in three enterprises exceeds $2 billion, although they promise to pay off in the coming years.

Increasing the exports

All three processing enterprises are mainly interested in exporting their production. In particular, SOCAR Methanol produced 250 thousand tons of methanol in 2017. 95% of this volume was delivered to foreign markets. It is planned to produce the same volume of methanol in 2018, while in the medium term, the company plans to double the production (700 thousand tons annually).

SOCAR Carbamide will be launched next year. It is also interested in exporting the daily production of 1,200 tons of ammonia and 2,000 tons of carbamide. By the way, the plant will sell only 25% of its output in domestic market. The rest of this volume will be supplied to the markets of Turkey, Georgia and the countries around the Black and Mediterranean seas. The company expects to earn about $150 million of profit annually from the export of carbamide only.

But the maximum profit is promised after the launch of SOCAR Polymer, which is expected to be operational starting from 1H2018.

At the first stage, it is planned to produce 120 thousand tons of polyethylene and 180 thousand tons of polypropylene annually. By 2021, the production capacity of SOCAR Polymer should reach 570 thousand tons.

The polypropylene produced at the plant is used in the production of various utensils, textiles, and office supplies. The Ministry of Economy announced that the first industrial cluster will be created in Sumgayit, where entrepreneurs will start the production of final products.

Rovnag Abdullayev of SOCAR announced that the total export income for the entire period of operation of SOCAR Polymer would be $8 billion.

It is expected that only 30% of final products will be used in Azerbaijan; 70% will be exported to Turkey, Europe, and other markets.

Turkey is an attractive market

As to the petrochemical complex, it is worth mentioning SOCAR’s assets and projects implemented in Turkey such as the petrochemical complex Petkim purchased for $2 billion in 2008. At the same time, during almost ten years of operation, Petkim has provided only 18% of Turkey's petrochemical demand operating at almost full capacity.

To increase SOCAR’s share in this segment of the Turkish market and to expand the list of final chemical products, the company intends to build another petrochemical complex on Aliaaga Peninsula near Izmir, where the Petkim plant is located. The construction works are expected to begin in 2019 and finish in 2023.

Meanwhile, the new oil refinery STAR (construction is nearing completion) will be supplying these complexes with raw materials.

With a processing capacity of ten million tons of oil per year, the refinery will produce raw materials for the chemical industry, as well as aviation kerosene and diesel fuel. According to R. Abdullaev, during the first five years, STAR refinery promises at least $600 million in income annually reaching $800 million in the following ten years.

The implemented projects can turn SOCAR Turkey Enerji to one the largest industrial companies in Turkey.

Azerbaijan has far-reaching goals in Turkey. Today, for instance, the volume of Azerbaijani investments in this country reach $11 billion. Until 2020, this amount will increase to $18 billion.

Adjustment of plans given the new logistics

The ongoing projects implemented in Turkey to connect the Azerbaijani railways with Turkey and Iran can make some changes to SOCAR’s plans regarding the deployment of new production facilities.

In particular, the Baku-Tbilisi-Kars (BTK) railway will significantly reduce transportation costs for petrochemical products. By the way, this could be the main factor that made SOCAR to stop the construction of a $700-million-worth carbamide plant in Georgia. At the same time, Azerbaijan is certainly considering plans to supply petrochemical products not only to the west, but also to the south, which will be facilitated by the launch of the North-South railway route. Logistically, the location of modern plants in Azerbaijan will be more profitable. Depending on the demand and supply of petrochemical products, this will allow SOCAR to flexibly adjust the delivery routes for Azerbaijani goods to the countries around the Black and Mediterranean seas, and the Persian Gulf.

In fact, the leadership of Azerbaijan actively monitors the latest trends in the transformation of hydrocarbon resources from energy carriers directly to the production of non-oil products such as plastics, fertilizers and other goods. And SOCAR continues investing billions of dollars in the creation of modern petrochemical complexes.