BMI's Executive Summary

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The Azerbaijan petrochemical industry is unlikely to expand over the next five years unless the government tackles the country's poor business environment, according to BMI's latest Azerbaijan Petrochemicals Report.

In BMI's revised Emerging Europe Petrochemicals Business Environment matrix, Azerbaijan remains in last place, with a score of 28.9 points, well below the regional average of 52.2 points and 14.2 points behind Ukraine. Azerbaijan's considerable energy reserves and rising gas output have not led to any improvement in its petrochemicals capacity, largely due to the poor business environment which has deterred investors. Despite its significant oil and gas reserves, Azerbaijan's capacity in the petrochemicals industry, ranging from feedstock availability to downstream units, is the lowest of the countries under review. Its sole cracker facility had a capacity of 250,000tpa in 2007, with an extra 50,000tpa to be added by 2009. The government believes that for Azerbaijan's industry to compete on the global market, it would require US$1bn over the next five years. BMI believes the country will struggle to achieve any significant investment over the period. The slow pace of current feasibility studies into new plants in the country means that a substantial increase in ethylene and propylene capacity is not expected any time in the next five years. This will lead to a further slip in the country's score in this category as other countries in the region see a rapid growth in production.

Corruption is a significant deterrent to investment in Azerbaijan, with a lack of enforcement of laws and regulations designed to combat corruption. The ability to invest in the country is severely constrained by poor contract enforcement and a lack of transparency. Azerbaijan's petrochemicals industry is dominated by a state-owned monopoly, Azerkimya. However, the market is relatively open and the government is keen to entice foreign investors. That said, delays in upstream projects are now becoming commonplace as costs spiral and capacity bottlenecks slow down the pace of upstream development activity.

While domestic petrochemical production shows little sign of expansion, state-owned oil company Socar is showing interest in expanding its foreign operations. Socar managed to secure an equity investment in Turkey's privatised petrochemical company Petkim, following the Turkish government's decision to award an Azerbaijani-Saudi-Turkish consortium, including Socar, Turkey's Turcas and Saudi Arabia's Injaz, a 51% stake in the firm. Control over Petkim could be handed over to the consortium by the end of January 2008. All three firms are eager to establish a regional force in the petrochemicals sector, with proximity to Europe and Central Asian gasfields. With the Turkish petrochemicals market set to be worth US$12bn by 2015, up from US$6.5bn in 2007, Petkim also has a large domestic market. Consortium members have indicated that they are prepared to begin investing as soon as they gain control, with Azerbaijan's state oil company Socar's access to significant feedstock for the petrochemical sector and a pipeline network linking Turkey. The Injaz-Turcas-Socar consortium therefore has a solid base in terms of financial, marketing and infrastructural support for Petkim's future expansion. However, the privatisation of the firm could still be upset by industrial action, with the Turkish oil sector workers union Petrol-Is lodging a lawsuit to block the sale.

Contents

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Chapter 1 - Executive Summary

Market Overview

Recent Developments

Business Outlook

Advantage Petrochemicals: Rising Oil And Gas Production

Azerbaijan Petrochemicals Industry SWOT

Chapter 2 - Market Overview

Table: Azerbaijan: Petrochemical Sector-Cracker Capacity Data and Forecasts (000 tpa)

Table: Manufacture of Petrochemicals Products

Market Structure

Chapter 3 - Industry Trends and Developments

Foreign Investment Outlook

Business Outlook

Chapter 4 - Industry Forecast Scenario

Table: Azerbaijan: Sector Forecasts

Chapter 5 - Economic Outlook

Table: Economic Activity – Historical Data And Forecasts

Table: Azerbaijan Macroeconomic Data & Forecasts

Chapter 6 - Company Monitor

Azerikimya

Chapter 7 - BMI Forecast Modelling

How we generate our industry forecasts

Chemicals & Petrochemicals Industry

Cross checks

Competitive Landscape for Emerging Europe Petrochemicals Reports: Sample of Companies Ranked

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Comparative company analyses and rankings by US$ sales, % market share, employee size, registration date and ownership structure. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) on all leading international and national operators in each market, including competitive intelligence in the following: Overall geographic presence, competitive positioning against local companies; production capacity, sales and market share; joint ventures, foreign direct investment, projects and acquisitions strategy.