In fact, supply chain disruptions and a shortage of chemical plants are hampering production of those materials, including output from the countrys only PAO producer. That plant, operated by Tatneft-Nizhnekamskneftekhim-Oil in the Tatarstan Republic, has been idle for a year, and it is unclear whether it will restart in the foreseeable future.

The plants PAO production is on hold at the moment because we are out of [feedstock], Gabass Ilyasov, the companys deputy director for development, told LubesnGreases.

Meanwhile, a start-up company plans to build a new PAO plant in the western part of the country.

PAO Production

PAOs, which are classified as API Group IV base stocks, are manufactured through a multi-stage process that begins with ethylene. Ethylene is a gas and has the chemical formula C2H4, making it the simplest alkane or olefin. The first step toward production of PAOs is to subject ethylene to an oligomerization process that essentially assembles simple hydrocarbons into linear chains – linear alpha olefins – that are defined by their number of carbon atoms. Certain LAOs – most often decene, which contains 10 carbon atoms – can be further oligomerized to make PAOs. Other LAOs, along with some decene, are used to make other products such as detergents and plastics.

Tatneft-Nizhnekamskneftekhim-Oil is a 70-30 joint venture between Tatneft, an oil major based in the southern Republic of Tatarstan and partly owned by its government, and Nizhnekamskneftekhim, a chemical company owned by investor group TAIF. The PAO plant gets LAO feedstock from Nizhnekamskneftekhim.

Nizhnekamskneftekhim produces ethylene as well as LAOs by pyrolyzing naphtha supplied by its sister company, TAIF-NK. Another TAIF holding, Kazanorgsintez, also produces ethylene but employs a more common process that begins with ethane gas.

Like Tatneft-Nizhnekamskneftekhim-Oil, Nizhnekamskneftekhim and TAIF-NK are both located in Nizhnekamsk, Tatarstans second-largest city and one of Russias biggest petrochemical centers. Kazanorgsintez is based in Kazan, the capital of Tatarstan in the western part of the republic. Another plant for ethylene production is located in the neighboring Republic of Bashkortostan, in the city of Salavat. Kazan, Nizhnekamsk, Salavat and Ufa – another refining and chemical hub, also located in Bashkortostan – are all connected by ethylene pipelines serving the needs of the petrochemical complexes there.

Ethylene Applications

The shortage of feedstock for Tatneft-Nizhnekamskneftekhim-Oil may stem in part from its minority partner finding different uses for its ethylene. In 2009, Nizhnekamskneftekhim invested more than U.S. $300 million to install capacity to make 230,000 metric tons per year of polyethylene, the most common type of plastic.

It might be the higher margin polyethylene gives over selling only ethylene which prompted our provider not to reduce, but to completely stop ethylene supply to our plant, Ilyasov said.

But the ethylene supply chain was in flux even before Nizhnekamskneftekhim started making polyethylene. One of the central players in the changes was Gazprom, the energy giant which is a major supplier of natural gas to the region. In the middle of the last decade, Gazproms refinery in Orenburg gradually reduced the volume of ethane gas it supplied to Kazanorgsintez. In 2007, the supply completely halted for several months.

Two years later, Gazprom made an offer to purchase the Kazan chemical plant. Russian business weekly Expert concluded that those two actions were related.

The energy giant wanted a controlling stake in Kazanorgansintez, a plant which it sees as a dependable [customer], it reported.

TAIF did not agree, but, according to Expert, diverted a third of Nizhekamskneftekhims ethylene production to Kazanorgansintez to help keep the latter in business. It is safe to assume that this contributed to the lack of feedstock available for Tatneft-Nizhnekamskneftekhim-Oil.

Supply Shifts

Gazprom has continued shifting the flows of feedstock to the regions chemicals industry. Last year its complex in Salavat reduced ethylene supplies to Kaustik, a chemicals plant in nearby Sterlitamak, by 30 percent. Since the 2007 halt in ethane gas supplies from Orenburg, Gazprom had resumed sales to Kazanorgsintez, but this year it said it would again reduce that flow – this time by 15 percent – in order to redirect supply to Salavat.

Concerned by Gazproms actions, some of the regions chemical companies have pressured the energy giant to negotiate long term supply contracts. While the talks for Gazproms Kazanorgsintez acquisition are stalled, the Kazan plant still hopes for uninterrupted and reliable ethane gas supply in the future, Vladimir Kapustin, head of the Moscow Research and Design Institute for Oil Refining and Petrochemical Industry, said at the Base Oils and Lubricants in Russia and the CIS conference in April.

The situation with ethylene supply in the country is very complex, Bashkortostans vice-premier Vladimir Balabanov told the Ufatime news portal recently. First, there is a huge ethylene deficit, and the volumes supplied have to be equally balanced. The second problem is transportation, which is one of the reasons why the pricing is so opaque.

Due to the lack of reliable road infrastructure and specialized trucks equipped to carry it, ethylene in Russia must be delivered through pipelines designed specifically to carry the gas.

There is one such pipeline that we can count on, and it connects the chemical plants and refineries of Kaustik, Gazprom, Salavat, Kazanorgsintez and Nizhnekamskneftekhim, Balabanov said. Honestly, there is one more ethylene pipeline in Siberia, between Sayanskkhimplast and Angarsk chemicals plants in Irkutskaya oblast [southern Siberia], but it doesnt make a difference.