Rosneft may restart strategic project: Eastern Petrochemical Plant

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【Global Times—comprehensive report】 Recently, the proposal to build a large-scale oil refining and petrochemical integrated complex in the Primorsky Krai region—an initiative of the kind that the Russian Oil Company’s earlier Eastern Petrochemical Company project put forward—has again been brought up at the Russian national level. Initial estimates suggest the project’s total investment could reach 1.5 trillion rubles, making it one of the largest industrial projects in recent decades. At present, relevant parties are discussing the resumption of work on the project in connection with the tasks of ensuring energy security in the Far East, developing in-depth processing of hydrocarbon resources, and creating new growth drivers in the eastern national border regions.

**Actively preparing the project **

According to sources, after attending a meeting on the development of fuel and energy complexes in the Far East, Russian President Vladimir Putin issued instructions requiring that the relevant parameters of the project be studied carefully. Pursuant to the instruction, the Russian government should coordinate with relevant ministries and enterprise representatives to assess various options for long-termly ensuring the supply of refined fuel products to the Far East region, including whether and how national support should be provided for construction in the Nakhodka region, where the project is located. In other words, a project that had been effectively shelved years ago is now, due to changes in the economic situation, being turned into a subject for special analysis.

The Eastern Petrochemical project concept began in 2009. At the time, the idea was to build an integrated advanced complex combining refining and petrochemicals, systematically addressing the problem of fuel shortages in the Far East and laying the groundwork for export-oriented petrochemical industries close to the Asian market. However, in 2019, Rosneft removed it from its investment plan, citing that it could not be profitable under the existing tax conditions. At that point, what played an important role was the so-called “tax maneuver” in the oil industry—i.e., while abolishing export duties on oil, mineral extraction taxes are gradually increased. This policy change altered the profit structure of oil refining and exports, causing the project’s profitability to drop significantly in the absence of supporting measures.

The Eastern Petrochemical project is planned in two phases: Phase one is a refinery with annual processing capacity of 12 million tons of crude oil; Phase two is a petrochemical complex producing about 3.5 million tons per year. The plan calls for a wide range of product types, including gasoline for vehicles, diesel, aviation kerosene, naphtha (one of the petroleum products—Editor’s note), liquefied petroleum gas, and so on; the petrochemicals segment will produce polyethylene, polypropylene, monoethylene glycol, and other basic polymers. Such a product mix not only can meet internal demand in the Far East region, but also can form a stable export stream to Asia-Pacific countries. In addition to crude oil, the complex will also require about 2.3 billion cubic meters of natural gas every year, giving the project’s resource保障 features a cross-industry character.

During the actively preparing phase, Rosneft had positioned the project as an international cooperation initiative and held talks with other potential partners, including ExxonMobil. However, changes in the international political landscape and shifts in investment priorities meant these plans could not be realized. At present, the possible forms of cooperation remain an open topic and may be decided based on new geopolitical-economic conditions.

**The Far East’s fuel supply faces difficulties **

The Far East region’s fuel supply still has no shortage of challenges. The region’s refining capacity is limited, and localized shortages of gasoline and diesel occur frequently. If fuel is dispatched from the Siberian region by rail, there are huge logistics costs and delays. The economic efficiency of such transport is often on the edge between profit and loss, especially during periods when prices and freight rates fluctuate. Previously, relevant authorities had discussed the idea of building a pipeline of about 7,000 kilometers from the Omsk refinery, but the project faces high construction costs (about 1 trillion rubles) and the question of whether sufficient resources are available. Against this backdrop, building a large refining and processing base in the Far East is clearly a more systematic solution.

National support has always been a focal point in discussions about the Eastern Petrochemical project. One of the basic tools in the refining industry is the “reverse excise tax” mechanism. Earlier, Rosneft’s CEO Sechin proposed increasing support efforts, especially by raising the crude oil logistics coefficient and adjusting the formula used to calculate the naphtha compensation. He proposed setting long-term fixed related parameters, such as up to 30 years, to ensure investment predictability. In 2022, Deputy Minister of Finance of Russia Sazanov said that adjusting the naphtha and crude oil negative excise taxes could be considered, and emphasized that such measures can secure the necessary target rate of return. But since then, macroeconomic conditions have changed, including increased volatility in global markets and higher budget spending. This means that any potential support measures need to be analyzed further.

Potentially creating thousands of jobs

Russia’s Energy Minister Zivilev said that the project design documents have been completed and the process方案 has been determined. Even so, due to a high level of uncertainty, the project implementation has been delayed. At the current stage, it is essentially about considering the latest price forecasts, tax policies, and national strategic priorities, and re-evaluating the investment model. The assessment focus will be the payback period, the financing structure, and the government–investor risk-sharing mechanisms. If the project moves ahead, the Eastern Petrochemical company could become the largest industrial hub in the Far East region. During the construction and operations phases, the project would create thousands of jobs, promote the development of supporting infrastructure, and increase tax revenue.

This article is published in the “Perspective on Russia” special issue of the Global Times; the content is provided by Rossiyskaya Gazeta.