The State Oil Company of Azerbaijan Republic (SOCAR) is seeking to add value to domestic oil production through developing downstream industries, but its attention is focused primarily on developing its Turkish assets over the expansion of domestic petrochemicals facilities, according to BMI’s latest Azerbaijan Petrochemicals Report.
SOCAR is now the largest private shareholder in the privatised Turkish petrochemicals producer Petkim, which it acquired as part of a consortium in 2008. In July 2011, it was announced that SOCAR raised its stake in the joint venture (JV) to 75% from a previous 51%. SOCAR acquired 23.98% from Aksoy Holding, which owns 0.02% in the JV after the deal. Turkas owns the remaining 25%. The increase in SOCAR’s stake indicates the enthusiasm the Azerbaijani company has in expanding Petkim’s operations with a view to adding value to its own hydrocarbons output.
Turkey’s petrochemicals industry only fulfils a fraction of the country’s burgeoning domestic demand. This potential is driving investment by SOCAR in Petkim. Around US$3.0-3.5bn will be invested in the construction of a 200,000b/d refinery, due to be completed by 2015, with a significant proportion of the rest invested in downstream activities as well as infrastructure. SOCAR is committed to transforming Petkim into an export-oriented company, with better access to European markets. It plans to invest a total of US$10bn in Petkim’s operations over the next seven to eight years.
Meanwhile, production back home is unimpressive. In the first five months of 2011, SOCAR increased chemicals exports 62.6% y-o-y, to US$32.75mn, representing 0.5% of the country’s overall exports.
Much of this increase was related to improved prices. Export volumes were not disclosed nor were the data on growth in overall output. Despite strong export growth, the level of exports is relatively small and does not indicate the wider performance of Azerbaijan’s petrochemical industry. However, BMI believes that production rose by at least 10% y-o-y over H111, with around two-thirds of volumes exported, mostly to Turkey. The value and volume of Azerbaijan’s chemicals output is miniscule, but is set to grow over coming years. In 2010, investments in the chemicals sector fell 67.2% y-o-y to just AZN1.3mn (US$1.63mn), although compared with 2008 investment grew 42.4%.
Azerbaijan is in 11th and last place in BMI’s proprietary Central And Eastern Europe Petrochemicals Business Environment Ratings, with a score of 33.3, unchanged since the previous quarter. Azerbaijan lies 6.7 points behind Ukraine in the regional ranking. The score could rise if plans for a new petrochemicals complex come to fruition. Azerbaijan’s considerable energy reserves and rising gas output have been hampered from improving the petrochemicals capacity, largely due to the poor business environment which has deterred investors. However, there are signs that this is changing for the better as the government makes a concerted effort at restructuring the sector.
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