Rosneft may restart strategic project: Eastern Petrochemical Plant

How does the changing economic situation in Russia promote the restart of the Eastern Petrochemical Project?

【Global Times Comprehensive Report】 Recently, the topic of building a large-scale refining and petrochemical complex in the Far East, namely the Eastern Petrochemical Company project proposed by Russian Oil Company in earlier years, has once again been brought to the national level in Russia. Preliminary estimates suggest that the total investment in the project could reach 1.5 trillion rubles, making it one of the largest industrial projects in recent decades. Currently, relevant parties are discussing the resumption of the project in conjunction with ensuring energy security in the Far East, developing deep processing of hydrocarbon resources, and creating new growth points in the eastern border regions of the country.

Active Project Preparations

According to sources, Russian President Putin issued instructions after a development meeting on fuel and energy complexes in the Far East, requiring a serious study of the project parameters. According to the instructions, the Russian government should coordinate with relevant ministries and enterprise representatives to evaluate various long-term plans to ensure the supply of refined oil products to the Far East, including providing state support for the construction in the Nakhodka region where the project is located. In other words, this project, which was shelved years ago, has now become a focus of special analysis due to changes in the economic situation.

The idea of the Eastern Petrochemical project originated in 2009. At that time, the plan was to build an integrated advanced complex combining refining and petrochemicals, systematically solving fuel shortages in the Far East and laying the foundation for developing an export-oriented petrochemical industry close to Asian markets. However, in 2019, Rosneft removed it from its investment plans, citing unprofitability under current tax conditions. A key factor at that time was the so-called “tax maneuver” in the oil industry, which involved canceling oil export duties while gradually increasing mineral extraction taxes. This policy change altered the profit structure of oil processing and exports, significantly reducing the project’s profitability without supportive measures.

The Eastern Petrochemical project is planned to be built in two phases: Phase one is a refinery with an annual processing capacity of 12 million tons of crude oil; Phase two is an integrated petrochemical plant with an annual output of about 3.5 million tons. The planned product range is broad, including gasoline, diesel, jet fuel, naphtha (a petroleum product—editor’s note), liquefied petroleum gas, and others; the petrochemical sector will produce polyethylene, polypropylene, monoethylene glycol, and other basic polymers. This product mix not only meets internal demand in the Far East but also enables stable exports to Asia-Pacific countries. In addition to crude oil, the complex will require about 2.3 billion cubic meters of natural gas annually, making resource security a cross-sectoral concern.

During the active preparation phase, Rosneft initially positioned the project as an international cooperation initiative and engaged in negotiations with potential partners, including ExxonMobil. However, changes in international political circumstances and shifts in investment priorities prevented these plans from materializing. Currently, potential cooperation forms remain open for discussion and may be decided based on new geopolitical and economic conditions.

Challenges in Fuel Security in the Far East

Fuel security in the Far East still faces significant challenges. The region’s refining capacity is limited, often leading to localized shortages of gasoline and diesel. Transport from Siberia by rail involves high logistics costs and delays. The economic benefits of such transportation are often marginal, especially during periods of price and freight fluctuations. Previously, relevant departments discussed building a pipeline from the Omsk refinery about 7,000 kilometers long, but this project faced high costs (around 1 trillion rubles) and resource sufficiency issues. Against this backdrop, establishing a large-scale refining and chemical base in the Far East appears to be a more systematic solution.

State support remains a key focus in discussions about the Eastern Petrochemical project. One of the fundamental tools for the refining industry is the “reverse excise tax” mechanism. Former Rosneft President Sechin proposed strengthening support, especially increasing the logistics coefficient for crude oil and adjusting the calculation formula for naphtha compensation. He suggested fixing relevant parameters long-term, up to 30 years, to ensure investment predictability. In 2022, Deputy Finance Minister Sazanov stated that adjustments to the negative excise tax on naphtha and crude oil could be considered, emphasizing that such measures could ensure necessary profitability. However, macroeconomic changes since then, including increased global market volatility and higher budget expenditures, mean that any potential support measures require further analysis.

Potential to Create Thousands of Jobs

Russian Energy Minister Chiviliev said that the project design documents have been completed, and the process scheme has been finalized. Nevertheless, due to high uncertainty, project implementation has been delayed. The current stage involves reassessing investment models based on the latest price forecasts, tax policies, and national strategic priorities. The evaluation will focus on payback period, financing structure, and risk-sharing mechanisms between the government and investors. If the project proceeds, Eastern Petrochemical could become the largest industrial center in the Far East. During construction and operation, the project is expected to create thousands of jobs, stimulate supporting infrastructure development, and increase tax revenues.

This article is published in the “Insight into Russia” special issue of the Global Times, with content provided by Rossiya Segodnya.