"Closure of Inefficient Refineries Could Present an Opportunity for Turkey"

Mammadov said, "As the market shrinks, some players will be forced to exit the market. These are older, inefficient facilities and a significant portion of refineries in Europe fall into this category. All these processes will create an opportunity for Turkey." SOCAR Turkey Refining and Petrochemicals Business Unit Head and Petkim General Manager Anar Mammadov told AA that due to travel restrictions imposed because of the novel coronavirus (COVID-19), jet fuel demand in Turkey, as in the rest of the world, has fallen to nearly zero. Mammadov noted that thanks to STAR Refinery's technological capabilities, they converted 100 percent of jet fuel production to diesel, saying, "As a result of this conversion, we increased our diesel production from 4.6 million tonnes to 6 million tonnes. Thus, we met approximately 25 percent of Turkey's diesel needs from STAR Refinery. In the refinery's total production, we exceeded capacity last year and reached 10.5 million tonnes. This year we are targeting 11 million tonnes of production." Mammadov noted that while there were some disruptions in the supply chain on the petrochemicals side, Petkim was able to continue production without interruption thanks to meeting all its raw material needs from STAR Refinery. Pointing out that demand for petrochemical products increased during the pandemic, Mammadov said, "Since some of our products at Petkim are used in medical equipment production, there is increased demand. Along with the pandemic, we saw a 17 percent increase in demand for thermoplastic products. During this period, we worked hard to meet domestic market needs. Petkim, which is an export champion every year, fell to second place in 2020 because we turned to the domestic market."

Third wave poses major risk for refineries

Mammadov stated that problems arose in naphtha supply due to supply chain disruptions on the petrochemicals side, and naphtha prices have risen significantly in recent months, saying, "Since naphtha is our basic raw material, serious pressure was created on margins, but on the other hand, demand for our products also increased. When oil prices rise, naphtha prices, which are our raw material, also rise and create pressure. For this reason, a healthy price band of 50-60 dollars for oil is necessary for our petrochemical operations." he assessed. Recalling that petrochemical demand shows growth at about 3 percent annually worldwide, Mammadov noted that this demand has increased further because of the pandemic. Mammadov stated that they do not expect a contraction in the petrochemical sector for this reason, but the possibility of a third wave of the pandemic poses a major risk for refineries and could create significant pressure on margins.

Optimistic for second half of the year

On the other hand, noting that a recovery in the world economy is expected in the second half of this year, Mammadov continued as follows: "We may face problems in the coming months, but we are positive about the second half of this year. We expect the petrochemical sector to grow worldwide and in Turkey. In Turkey, we are the only basic petrochemical raw material producer, but our market share is 18 percent. Turkey meets 82 percent of its needs through imports. To meet Turkey's needs, five Petkim-sized companies are necessary. Petkim is operating at full capacity to meet increasing demand and there are some possibilities for capacity expansion but not very large. For this reason, Turkey needs new investments to meet this demand. The petrochemical sector is the one with the greatest potential in Turkey's oil sector. As you know, SOCAR Turkey was working with BP on a second petrochemical investment, but BP decided to exit the petrochemical sector worldwide and sold its assets in this area to Ineos. Our preliminary work on our project is ongoing. I believe the SOCAR Turkey top management will make a statement on this matter in the coming period."

Competition will increase

Mammadov explained that they expect serious changes in the refinery market in the future. Noting that they forecast refinery product demand will decline from 2030 onwards, Mammadov said, "As the market shrinks, there will be changes in the number of players and competition will increase. Some players will be forced to exit the market. These are older, inefficient facilities without modern technology and a significant portion of refineries in Europe fall into this category. No new refineries have been built in Europe in recent years. All these processes will create an opportunity for Turkey. For this reason, I believe the efficiency and modernization work we are carrying out at STAR Refinery and Petkim are critically important. Our presence in the Turkey market is a major opportunity for us." he said.

Mammadov, on the other hand, noted that a short-term reduction in demand in the petrochemical and refinery sectors is not realistic, and stated the following:

"For this reason, how and what we produce now is more important. Climate change is the biggest crisis we are experiencing and the share of renewable energy sources is constantly increasing. However, I believe that the refinery and petrochemical sectors will continue in the medium and even long term. Our goal is to reduce our waste at STAR and Petkim by 1 percent annually until 2035. This is an ambitious goal, but we achieved it in 2020 and we are very confident about our future plan. On the other hand, this year STAR Refinery entered the Global Lighthouse Network assessment by the World Economic Forum that recognizes facilities that best use Industry 4.0 technologies in production, and it became the first refinery in the world to receive this award."   Source: AA