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Bulgaria Petrochemicals Report 2012
Business Monitor International, Nov 2011, Pages: 44
Business Monitor International's Bulgaria Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Bulgaria's petrochemicals industry.
The future of downstream petrochemicals operations is dependent on continuing operations at Lukoil’s Burgas refinery, which is the subject of a dispute with the government over taxation and anti-trust issues, according to BMI’s latest Bulgaria Petrochemicals Report.
In 2011, Bulgaria had olefins capacities of 450,000 tonnes per annum (tpa) ethylene, 80,000tpa propylene and 50,000tpa butadiene. In terms of aromatics and intermediates, it had capacities of 35,000tpa benzene, 40,000tpa styrene and 35,000tpa paraxylene. It also had capacities of 120,000tpa low density polyethylene, 80,000tpa polypropylene, 70,000tpa polystyrene and 35,000tpa styrene butadiene rubber. Bulgaria has one operational refinery, Neftochim Burgas, with capacity of 195,000 barrels per day.
The refinery’s future is uncertain due to Russian owner Lukoil’s conflict with the authorities over tax and alleged abuse of its monopoly position. Following the cancellation of two operational licences by the Bulgarian customs agency in late July 2011, Lukoil’s oil refinery in Burgas, announced that it was shutting down production. In August, the courts allowed a restart pending the outcome of a Lukoil appeal against the customs office decision. Lukoil said it was aiming to meet customs rules and install proper metering. Any permanent closure would close off any chance of using it as a source of feedstock for downstream operations. The company's resistance to the changes suggests, however, that Lukoil may feel that the measures would seriously damage the profitability of its local unit. This would suggest a much longer shutdown while the company waits for market conditions to improve, which would increase pressure on the Bulgarian government to reverse course. BMI sees this as being unlikely, making Lukoil's future in Bulgaria unclear.
Any further disruption to the refinery’s operations directly impacts on feedstock supplies throughout the value chain, forcing downstream operations to choose between closure or relying on naphtha imports. Although Lukoil has previously indicated that it may close some of its petrochemicals units, reports suggest that propylene and PP capacities will remain in place at least over the medium term. However, doubts linger over the future of PE production, which will come under intense pressure in a global market that faces saturation.
Expansion of domestic demand will be crucial to help offset the softening of exports to the EU over 2012. BMI forecasts private consumption to recover in 2012 in line with its expectation for a slow but steady recovery in the labour market – it forecasts unemployment to fall to 10.0% in 2012 from 11.2% in Q211 – pencilling in a meagre 1.8% improvement in this component of real GDP. With BMI's forecast for only weak loan growth and with unemployment still well above pre-crisis levels, petrochemicals demand in the domestic market is unlikely to ramp up significantly and will rather experience a steady strengthening.
Any contraction in demand could lead to a complete shut-down of facilities as happened in 2010. Bulgaria’s petrochemicals industry is a minor player and the country will remain dependent on imports, with recovery likely to benefit imports, although these will still be slow to return to pre-crisis levels.
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