Dubai (Platts)--28Jan2011/645 am EST/1145 GMT

Russia's state owned petrochemicals manufacturer Sibur may not be able to meet its target of doubling its sales by boosting olefins production capacity in the next five years as gas producers like Russian major Gazprom have no immediate plans to supply additional gas to it, industry sources said this week at the Russia and CIS executive summit in Dubai.

Russia continues to flare 40 billion cubic meters of ethane-rich associated gas, and though the country's government had plans to reduce this by 95% by 2011, there are hardly any signs of that happening in the next five years, said Philip Leighton, director, Petroleum, Chemicals and Energy at Jacobs Consultancy, a London-based industry advisory group that provides advisory services to companies in Russia.

"Russia could have built up a ethylene and other polyolefins-making capacity equivalent to half of [ethylene and olefins] production capacity of Saudi Arabia had they used the gas they are flaring. But we don't see that happening. There are no such projects, even at the inception stage," Leighton said.

"We supply naphtha from our refineries to Sibur, but we have no plans raise this supply," said Igor N. Barsukov, the head of the refining and petrochemicals manufacturing division at Gazprom Neft, the oil production and refining arm of the gas major Gazprom. Barsukov declined to comment on how much naphtha his company is now supplying Sibur. At the fifth annual forum of the Gulf Petrochemicals and Chemicals Association held in December the last year, Dmitry Konov, the president of Sibur, had said his company planned to double its sales to $12.6 billion over the next five years. Konov said that much of the increase would come from olefins, but did not give details. The company's website says that Sibur produces 15 million mt/year of petrochemicals, but does not provide details on capacities of various products.

However, others with knowledge of the country's petrochemicals industry do not see that happening. "We don't really see new petrochemical capacities coming up in near future in Russia," said a senior official from Gazprombank, one of the largest banks in Russia in which gas producer Gazprom has a majority stake. Gazprombank is known to finance petrochemicals projects in Russia.

According to latest available data, even though Russia holds the largest gas reserves in the world, it has a total ethylene capacity of just 3 million mt/year which is very small compared with the 33 million mt/year ethylene capacity in North America, 34 million mt/year in Northeast Asia, 25 million mt/year in the Middle East and 24 million mt/year in Europe.

While Russia flares most of its ethane-rich associated gas, it sells most of its low ethane non-associated gas.

"In Russia, ethane along with methane is being sent through pipes to Europe," Konov earlier told Platts.

Russia sells gas to Europe at one of the best prices in the world, thus making it less economically attractive to extract ethane for manufacturing polyolefins. The country has the largest natural gas transportation system in the world, and the country distributes gas into Europe through 155,000 km of gas pipelines and through 24 gas storage facilities.

Besides, even the other feedstocks -- naphtha and LPG -- are not being used sufficiently in Russia to produce ethylene because of alternative uses and in the absence of essential infrastructure.

--Shashank Shekhar, shashank_shekhar@platts.com

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