Where will the petrochemical market go under the Russia-Ukraine conflict?

On February 24, the conflict between Russia and Ukraine escalated again
.

Russia conducts special military operations in the Donbas region
.
On the afternoon of February 24, Ukrainian President Volodymyr Zelensky announced the severance of diplomatic relations with Russia
.
EU leaders held a special summit to hold urgent consultations on the situation in Ukraine and agreed to a further package of "significant" sanctions against Russia
.
U.
S.
President Biden delivered a speech at the White House on the situation in Ukraine on the 24th, announcing a new round of economic sanctions against Russia and increasing military deployment to Europe
.

Russia is the third largest oil producer in the world, an important importer of natural gas in Europe, and occupies a pivotal position in the world fertilizer market
.
After the conflict, the prices of energy and other products have skyrocketed, and the global petrochemical industry has been surging
.

The pattern of international energy trade will be rewritten

Russia has abundant reserves of natural resources, and because of its relatively mature technology, rich experience in industrial workers, and perfect domestic infrastructure, Russia has always been at the forefront of the world in the development and utilization of resources
.
As of the end of 2021, according to relevant data, Russia's crude oil exports accounted for about 12.
1% of the global crude oil export supply, with crude oil production exceeding 10 million barrels per day; Russia is currently the world's second largest dry natural gas country, producing more than 22.
5 trillion Tcf per year of dry natural gas
.

Therefore, Russia's economic and social development is also very dependent on its own energy exports.
The abundant energy resources provide a large supply to Russia's economy.
Every year, energy exports and related service exports account for more than 25% of Russia's GDP, and energy and oil and gas-related fiscal and tax revenues contribute.
two-thirds of Russia's fiscal revenue
.

Russia's economic and social development is also very dependent on its own energy exports.
Energy exports and related service exports account for more than 25% of Russia's GDP
.

Europe is highly dependent on Russia's energy supply
.
In 2021, Russia's pipeline gas to Europe will account for about 35% of Europe's total natural gas imports, of which about 21% will need to be transferred to Europe via Ukraine
.
In addition, Russia's crude oil supply in 2021 accounts for 29% of Europe's total crude oil imports
.
Russian gas exports to Europe have declined in 2021, causing European gas prices to surge by around 167% in the last two months of 2021
.
Tensions in Russia and Ukraine further stimulate energy tensions and are expected to further push up oil and gas prices
.
At present, the approval of Beixi No.
2 is temporarily suspended.
There is a small peak in demand this summer, and there may be a risk of natural gas shortage in Europe
.
According to data, on February 23, the price of LNG was 9,327 yuan/ton, while in early February, the price was only about 5,200 yuan/ton.
Influenced by the situation in Russia and Ukraine, the price of LNG has nearly doubled recently
.

According to foreign media reports, in January 2022, the flow of natural gas pipelines from Russia to Europe dropped to 240 million cubic meters per day, a year-on-year decrease of 44%
.
Among them, Beixi pipeline gas is about 150 million cubic meters per day, a year-on-year decrease of about 10 million cubic meters per day; Ukraine's transit pipeline gas has dropped to freezing point, only 50 million cubic meters per day, less than half of the same period last year, and far It is lower than Gazprom's commitment to pipeline transmission; almost all of the Polish pipelines are idle, and the gas transmission volume has dropped from 100 million cubic meters per day in the same period last year to 6 million cubic meters per day
.

Europe has significantly increased its LNG imports to make up for the shortfall in Russian supplies
.
In January 2022, U.
S.
LNG exports to Europe rose to 245 million cubic meters per day, accounting for nearly 60% of the total, reaching a historical peak
.

At present, Russia's pipeline gas transit through Ukraine is far below the historical average
.
If the supply of gas passing through Ukraine is completely interrupted, the impact on European gas will be relatively limited
.
Europe can increase spot LNG imports by enabling excess regasification capacity, or it can fill the supply gap
.
With the increasingly fierce conflict between Russia and Ukraine, the structure of natural gas imports in Europe may change, and US exports to Europe will further increase
.

At the same time, during the Winter Olympics this year, after China and Russia signed another 10 billion cubic meters of gas supply contract, the total amount of pipeline natural gas supplied by Russia to China will increase from 38 billion cubic meters to 48 billion cubic meters per year, which is more than the existing one.
Supply scale increased by about 26%
.
The pattern of Russian gas exports will also be reshaped
.

In terms of crude oil, with the end of supply disturbances such as extreme weather and the risk of production cuts, the situation in Russia and Ukraine has become the key to determining the direction of crude oil prices
.
If the situation in Russia and Ukraine affects Russia's crude oil exports, supply expectations cannot be fulfilled, which will further lead to a shortage of the current crude oil market
.

Soaring oil prices have dented profit margins for chemical producers, and higher oil prices have dented consumer confidence and demand, but chemical companies will struggle to pass on higher costs, hurting profit margins
.

Will it affect China's energy imports?

China is a big energy consumer, but its external dependence on energy has always been at a high level
.
Data show that from January to December 2021, China's natural gas imports amounted to 360.
10 billion yuan, an increase of 6.
3% compared with the same period in 2020
.

Since 2021, the overall price of imported natural gas in China has shown a substantial increase, the price of imported pipeline gas has been relatively stable, and the price of imported LNG has risen significantly
.
In 2021, China's LNG import source countries will be 27 countries, an increase of 3 countries from 2020
.
Among them, Australia's import volume still ranks first, accounting for 39% of the import volume
.
The United States accounted for 11%, ranking second, followed by Qatar, Malaysia, Indonesia, and the Russian Federation
.
In 2021, China will import pipeline gas from 6 countries, namely Turkmenistan, Russian Federation, Kazakhstan, Uzbekistan, Myanmar, and the United States
.
China's pipeline gas imports from the Russian Federation will increase significantly in 2021, up 154% year-on-year
.
Russia has now become China's second largest supplier of pipeline natural gas
.

In 2021, China's crude oil imports will be 513 million tons, and the foreign dependence on crude oil will be about 72%, which has declined
.
The main imports come from the Middle East and Russia
.
Some analysts said that the conflict between Russia and Ukraine will not have a direct impact on China's crude oil imports, nor will it affect the overall rhythm of China's crude oil imports
.
However, as global crude oil prices rise, the cost of China's crude oil imports will increase
.
At 11:22 on February 24, the price of Brent crude, the international oil benchmark, broke through the high price of $100 a barrel, surpassing $100 a barrel for the first time since September 2014, and climbed above $102 a barrel as the conflict continued.

.
However, as the dispute continues to escalate, once it affects Russia's oil and gas exploration, it may also affect China's imports of crude oil from Russia
.

Some experts also pointed out that if Russia's natural gas delivery to Europe is interrupted, Putin must consider where the next exporting country of these natural gas will be after completely cutting off natural gas to European countries, which is the mainstay of Russia's economy.
The head of the negotiation with China hopes to digest the amount of natural gas transported to Europe, which is very beneficial to China's import of natural gas through pipelines
.

Fertilizers, synthetic rubber may be affected

Russia is one of the most important fertilizer and sulfur suppliers in the world
.
The Russian-Ukrainian conflict could have wide-ranging effects on the supply of fertilizers to the global market
.
Russia is the world's largest exporter of nitrogen fertilizers in 2021
.
Russia is a large potash fertilizer producer and the third largest potash fertilizer exporter, with an export volume of 11.
83 million tons of potassium chloride in 2021
.

Russia is also a major exporter when it comes to phosphates, traditionally dominated by China and Morocco, with total DAP/DAP shipments of 4 million tonnes last year
.

In addition, Russia is also a major exporter of sulphur, with monthly exports reaching US$2 billion at current prices
.
Methanol is also the most exported chemical product from Russia.
In 2021, 1.
4 million tons will be exported to the EU, accounting for about 15% of European methanol demand
.
Russia also exports rubber, mainly polybutadiene rubber, styrene butadiene rubber, and isoprene rubber, to many of the world's major tire manufacturers
.

There are signs that some buyers of Russian chemicals and downstream products such as synthetic rubber and potassium chloride have made some contract purchases as early as possible to avoid tougher sanctions
.

With escalating tensions between Russia and Ukraine, the market has heightened fears of a global fertilizer shortage.
The resulting increase in fertilizer prices will reduce the use of fertilizers, which could lead to lower crop yields and push up global food prices.

.

Russia's oil refining industry

According to BP data, Russia's oil consumption in 2020 is 32.
38 million barrels per day, ranking sixth in the world and comparable to Japan's consumption
.
The growth rate of consumption is relatively stable.
The average annual consumption growth rate in the past 10 years is 0.
52%, while the consumption growth rate in China is 3.
86% and that in India is 3%
.

In terms of refining, according to Oil & Gas, as of January 2021, there are 25 refineries in Russia with a combined refining capacity of 5.
5 million barrels per day
.

Rosneft is the largest refinery operator in its territory, with nine major refineries in Russia with a combined refining capacity of more than 2 million barrels per day
.
According to CDU-TEK data, by the end of 2021, Rosneft's nine refineries will produce 1.
2 million barrels of oil per month, accounting for 30% of Russia's refined oil production
.

LUKOil is Russia's second-largest refinery operator with four major refineries and monthly refined oil production of 800,000 barrels per day in 2021, accounting for 20.
3%
.
In June 2021, Lukoil announced the completion of construction of a new isomerization unit and a delayed coker at its Kstovo refinery in the Nizhny Novgorod region of central Russia
.
In August 2021, Lukoil began upgrading its Perm refinery
.
The new unit is expected to have a capacity of about 36,000 barrels per day and will include a catalytic cracking unit and a high-octane gasoline component unit
.

Lukoil expects the new complex to start production in 2026
.
Gazprom Neft (13.
3% of production) is currently upgrading its Omsk refinery in western Siberia
.
Gazprom expects the second phase of the refinery to be completed by the end of 2022
.
The refinery plans to use a combination of hydrocracking and desulfurization to remove sulfides to produce higher-value petroleum products such as jet fuel that meets international standards and low-sulfur bunker fuel that can meet stricter emission standards
.