Analysis

Petrochemical industry in Romania

The need for reindustrialisation

Romania ranks 11th in the world hierarchy of regional oil producers with proven reserves of 200 million tons of oil, without taking into consideration the oil potential of the Romanian Black Sea plateau area, under current exploration.

 

Starting with oil, the main raw material and essential energy resource of world economic development since 1850, let us see the world’s reserves and how much we can count on oil, but also how much time we have to develop alternative resources. When it comes to oil resources, three main oil categories must be taken into account: oil in operation, proven oil reserves and oil still undiscovered (Table 1).

 

The world oil reserves to cover needs until the 2030s

Table 1. World oil reserves
Geographic AreaBillion tons%
Middle East92.565.10
Southern America & the Caribbean13.69.57
Africa10.07.04
Russia9.06.35
Asia Pacific6.04.22
Mexico4.02.81
USA3.72.60
Norway1.20.84
Canada0.80.56
UK0.70.49
Romania0.20.14
Other European Countries0.20.14
Denmark0.10.07
Italy0.10.07
Total142.1100.00

 

Pessimistic forecasts of the depletion of oil reserves are numerous, of which we mention only a few, pertaining to important personalities of the time.

In 1923, Svante Arrhenius, a Swedish-born geophysicist and chemist who received the Nobel Prize in Chemistry (1903), said that world oil resources would be exhausted in 1943.

In 1939, Edgar Faure, Prime Minister of France, estimated the end of oil reserves in 16 years, i.e., in 1955.

In 1973, the French economist Jean Marie Chevalier predicted the end of the oil era in 2000.

After 2000, the energy experts predicted a decline in oil production in 2010s and in gas in 2020s, based upon the consistent mathematical theory of geophysicist Marion King Hubbert (1956). According to him the amount of oil extracted from a deposit, region or even whole Earth follows a bell curve that reaches a maximum, after which it starts to go down to depletion.

As late as 2018, such predictions have not yet been fulfilled, confirming the saying: “Toujour malade, jamais mourir”!

Latest estimates warn that after 2040 there will be a decline in oil extraction, anticipating a higher upstream investment and a volatility of the oil barrel prices that will drive alternative research into renewable, less polluting resources.

In February 2017, world oil production amounted to 80.58 million barrels per day (bpd) after a peak of 82.50 million bpd extracted at the end of 2016, according to data released by the US Energy Information Administration. With a production of about 78,000 bpd, Romania is ranked 44th in the world on the list of the 116 oil producing countries, and 4th at European level, after Russia, UK and Norway, but well ahead of some other countries like Italy, Germany, France, Austria, Ukraine, Poland, Hungary, etc.

The world’s proven oil reserves are those in already discovered oilfields that have not yet been exploited and are part of the inventory of large private companies such as ExxonMobil, Shell, BP or petrostates such as Saudi Arabia and the Gulf States, Norway, Venezuela, etc. These reserves amount to 1.7 trillion barrels, of which over half are in the Middle East.

Oil still undiscovered, estimated at 900 billion barrels, is suggested by geological indicators, but not yet confirmed by drilling oil wells, or – what constitutes the captive oil – spread across many geographical areas more difficult to access or present in deeper depths such as Siberia, North Pole Cap, West Africa, South America, the Black Sea, the Caspian Sea, etc.

Consolidating the proven and undiscovered reserves, one gets a total of 2.6 trillion barrels. Assuming that the current world oil consumption of about 80 million bpd will increase by about 2% per year, the above-mentioned reserves would cover world needs until the 2030s.

 

Upcoming gas projects in the region

As far as natural gas is concerned, world reserves are higher than oil reserves, especially after the discoveries of shale deposits and their exploitation in the USA.

European Union (EU) yearly natural gas consumption is 465 billion cubic meters from which 35% from Russia (via Gazprom), 35% from Norway and 12% from Libya and Algeria, for a total price of EUR 20 billion.

Romania has a natural gas reserve of about 100 billion cubic meters (bcm) with high methane content (without taking into account explorations in progress on the Romanian Black Sea continental plateau), a production of 11 bcm/year (Romgaz and OMV Petrom) and a domestic consumption of about 13 bcm/year. Therefore, an import of 2 bcm/year is required in order to cover the current domestic energy portfolio demand.

Due to the opposition of BP, the 2002 Nabucco Pipeline Project (based on Iraq fields) failed. The 2012 Nabucco West Project, also called Nabucchino (based on Azerbaijan’s gas fields) was backed by the European Union and aimed at reducing gas imports from Russia supplied by Gazprom.

Since 2013, the status of the Nabucco Project became unclear so another opportunity emerged for a new BRUA Project (Bulgaria-Romania-Hungary-Austria) with a total length of 1,318 km from Bulgaria to the Baumgarten terminal connector in Austria.

One of the priority energy projects for the EU is the Southern Gas Corridor (SGC). The strategic importance of this project has been underscored in the European Energy Security and Energy Union Strategies. The SGC is about to offer a new source of competitively priced gas for the European Union market, as well as increasing diversity and security of supply. This is necessary in an environment where the EU’s dependence on gas imports is growing, in particular in Central and South East Europe, a region over-dependent on a single supply of gas.

On the occasion of the 4th Ministerial Meeting of the Southern Gas Corridor Advisory Council (February 15th, Baku) Romania has proposed the BRUA project, together with the interconnector between Romania and Bulgaria, to be included in the SGC.

Also, the Romanian gas carrier Transgaz and the Slovak natural gas transmission system operator Eustream signed (February 9th) a Memorandum of Understanding (MoU) on the Eastring pipeline project. Thus, the parties agreed to cooperate with other TSOs from the Czech Republic, Ukraine, Hungary and Bulgaria to develop this project through the territories of Romania and Slovakia.

Eastring is a new pipeline corridor ready for future gas imports to Europe from well-established and also alternative sources – the Black Sea area, the Caspian region, the Middle East, potential Turkish hub, etc. It allows additional utilization for existing transit and storage assets in Central and Eastern Europe (Czech Republic, Slovakia, Poland, United Arab Emirates, Romania, Bulgaria). The project is currently considered in more variants, deviating in routing options and level of usage of existing infrastructure.

 

Deindustrialisation

In recent decades, on the background of globalization, intense development of transport, communication and information technology, actions like foreign direct investment, capital mobility and labour migration have been encouraged, as well as the deindustrialisation of regions and even entire countries, as a result of the relocation of factories in more cost-effective areas for energy and labour.

Unlike other Eastern European, formerly socialist countries (1945-1990), Romania has experienced an accelerated and uncontrolled process of deindustrialisation in the last 27 years, determined, in particular, by a profound political and systemic crisis. Since 1990, Romanian politicians seem terrified to talk about industrial policy, following the ostrich-like behaviour.

With reference only to the oil and chemical industry, the industrial dismantling disaster led to the demolition of 102 large units out of the 132 existing in 1990 and to the reduction of the oil processing capacity to 13.7 Mt/year as compared to 35 Mt/year in 1990.

Two major oil refineries were shut down: Arpechim Pitesti, closed by the Austrian company OMV Petrom in 2011, and RAFO Onesti, closed by Petrochemical Holding, also from Austria, in 2008. One of the largest oil refineries in Romania and Eastern Europe – Rafo Onesti, was put up for sale this year. The buyer will be obliged to keep the refinery running for at least five years. This is an important measure, because several plants in Romania have been bought only to be fully dismantled, especially in the ‘90s.

Three other smaller refineries: Astra-Ploiesti, Steaua Romana-Campina and Darmanesti have been also closed.

Quoting the late Professor Constantin Ciutacu PhD, former Secretary of state and Director of the Institute of Economics of the Romanian Academy, “Romania produced before 1989: 14 million tons of steel (today 3 million), 400,000 tons of aluminium (today 200,000 tons), 1,600 excavators (today none), 71,000 tractors (today none), 600 passenger railway cars and 14,000 freight wagons (today 800), 144 different tonnage ships, etc. According to official statistics, 50 million tons of scrap metal have been exported after 2000, i.e., the equivalent of about 1,000 oil refineries with a processing capacity of 3.5 million tons per year (using approximately 35,000 tons of equipment according to the IPIP Ploiesti demolition project commissioned by OMV in 2015)”.

In 2016, Romania exported chemicals worth EUR 1.6 billion, while the imports reached EUR 5.6 billion, which led to a deficit of EUR 4 billion in external payments, mainly to Romania’s neighbours, former communist countries that have not destroyed their petroleum industry, petrochemical product facilities for polyolefins, synthetic rubber and fibres, paints, dyes, drugs, etc.

The biggest problem that Romania’s foreign trade is currently facing is linked to petrochemistry, a sector contributing to 86% of the trade deficit, due to the massive imports from the riparian Mediterranean Sea countries of basic chemicals like phenol, acetone, styrene, acrylonitrile, sodium cyanide, polyolefins, polyvinylchloride, polystyrene, styrene copolymers, synthetic rubber, latex, polyurethane foams, etc. All these chemicals were produced in Romania before 1990 and Romania exported a large share of them.

In 2007, 12,000 employees were working in the chemical industry. In 2016, their number was reduced to 3,800, the rest had added to the number of unemployed or currently work abroad, mainly in Italy, Spain, England and Germany, as fruit pickers, elderly carers, waiters, vehicle drivers, in positions rarely equivalent to their background training, in the case of those with higher education: engineers, programmers, doctors, etc.

The largest producer of chemicals in Romania, and one of the most important in Central and Eastern Europe, Oltchim Ramnicu Valcea, had 4,800 employees in 2007, of which only 1,900 employees were employed in 2016 following insolvency.

In the last 27 years, Romania has given up its industrial policy although the European Union, of which we are part of, promotes it through the Europe 2020 Strategy.

An industrial policy dedicated to the reindustrialization is absolutely necessary for Romania, especially since, with the accession to the EU, our country has abandoned a number of macroeconomic policy levers, for example: single-tax fiscal policy, trade policy and is preparing to give up currency and monetary policy by entering the Euro area.

It must be emphasized that the reindustrialisation that we try to promote in Romania does not mean an excess of production, commodity stock, renationalization, as it have been wrongfully done after 1945 and before 1989, but the capitalization of production potential based on country’s raw material resources, of the energy available to us and of the imported goods currently marketed on the free market (as is the case with large amounts of oil available on the market), policies similar to our neighbour countries after 1990, also socialist before 1990.

The economic development model of Romania, based essentially on the consumption of imported goods that has led to the major economic crisis of the previous years, and the increase in productivity based mainly on staff reduction is not sustainable. Four out of ten able-bodied Romanians do not work in a fiscalized area, which makes the budget unsustainable until some of them find work.

Small Romanian businesses cannot survive without integration with the big companies they should serve, especially since the foreign investors active in our country since 1990 prefer to collaborate with the small enterprises in their home country, even if this alternative is more expensive. Public services and small businesses, in particular, cannot hire all of the mass of layoffs because banks usually offer only consumer credit loans and not investment loans, while the retail sector mainly sells import goods. As a preliminary conclusion, it must be emphasized that the Romanian services are complementary to the import industry, and the indigenous industry, with some notable exceptions, is not competitive.

The issue of Romania’s reindustrialisation is an urgent one, important not only for the long term economic development, but also for the very existence of the state, despite the fact that the state itself has little leverage because state aid is limited, trade policies come from the EU’s competence, the monetary and the foreign currency policies are restrictive, and the fiscal and budgetary policies must obey IMF constraints.

In addition, after 2010, Romania faces a budget deficit and an increase in the public debt that has reached astronomical sums relative to the reimbursement potential. Economic growth, the reduction of unemployment and the increase in labour productivity are contradictory to the objective of reducing the budget deficit.

Reduced R&D spending at a level of mere survival led to a lack of innovation, and competition is centred on price and not on product quality and performance.

Considering a consolidated reindustrialisation of Romania, one cannot ignore that over 80% of the manufacturing industry is dominated by foreign capital and therefore this should be made a partner of the reindustrialisation strategy.

Another drawback of the Romanian economy is the precarious state of the road, rail, river and air transport infrastructure, areas that have not experienced a significant progress after 1990. Investment targeting these modes of transport are vital for the planned reindustrialisation of Romania.

At national level, the role of central governments should be limited to predictable and stable fiscal policies, improving the business environment by linking SMEs with large industrial facilities owned over 80% by foreign investors and with Romanian investors that still exist and were able to survive to the unpredictable and ever-changing economic and especially fiscal policies practiced by all post-1990 governments in Romania. Also, the government should develop the transport networks, support innovative projects, reduce bureaucracy and improve the legislation on mineral resources, royalties and their valorisation, revitalize vocational education, the harmonization of the funding of vocational and university education, with the objective of employing graduates in the fields in which they have been trained.

 

Next steps

The volume ‘Restructuring and reindustrialisation of the petroleum, petrochemistry and chemistry sector’, published by AGIR Publishing House and the Romanian Academy of Technical Sciences (ASTR) in November 2016, contains suggestions for new industrial developments in organic chemistry, inorganic chemistry, chemical fertilizers, natural and synthetic fibres, elastomers, drugs, coal chemistry, elastomer processing and plastics, biotechnologies, catalysts, research and development, topics summarized in the subsequent paragraphs.

The volume deals with 10 main subdomains of the chemical industry, starting from petroleum refineries, petrochemical and chemical plants that were in operation before 1990, units that were demolished after 1990 and units that survived demolition and which can be restarted and modernized.

 

Petroleum refining

Tables 2 and 3 depict the situation in the field of petroleum refining.

Table 2 Petroleum refining units in Romania and their corresponding processing capacities
Platform and Ownership Status1990-Mt/yr2017-Mt/yr
Petrobrazi (OMV Petrom)7.505.0
Petrotel-Lukoil (Lukoil)4.702.5
Petromidia (KMG International)3.505.0
Arpechim (OMV Petrom)6.500
Rafo Onesti (Put up for sale)5.250
Astra Romana (Interagro)1.800
Vega Ploiesti (KMG International)0.800.80
Steaua Romana (Omnimpex Chemicals)0.400
Darmanesti (Petrochemical Holding)1.500
Petrolsub Suplacu de Barcau (Ecodiesel)0.400.40
Total, Mt/yr32.3513.7
%100%42%

 

Table 3 Refining capacities in other former socialist countries
Country1990-Mt/yr2017-Mt/yr
Hungary816
Poland1126
Czech Republic610.5
Bulgaria411
Slovakia35.50
Albania12

 

The refineries in Romania have reduced their processing capacity by 58% after the closure of the two large refineries, Arpechim Pitesti and Rafo Onesti and the two smaller refineries, Steaua Romana and Darmanesti, while Hungary, Poland, Czechia, Bulgaria and Slovakia doubled their petroleum and petrochemical processing capacity in integrated systems.

 

Petrochemistry

Table 4 shows the situation of the demolished, closed and still in operation petrochemical facilities units in Romania after privatization between 1990-2016.

 

Table 4 Former integrated petrochemical processing platforms – Present status of their components
CompanyDemolished unitsClosed downIn operationTotal
OMV Petrom: Petrobrazi, Arpechim, Doljchim59463
Lukoil: Petrotel-Lukoil77
KazMunayGas: Petromidia4138
Energy Bio Chemicals: Carom Onesti99
Chimcomplex6410
Solventul Timisoara55
Carbosin Copsa Mica1212
TOTAL10257114
Oltchim (State-owned)81018
GENERAL TOTAL1021317132
%77,279,8612,87100

Of the 6 integrated petrochemical platforms in 1990 with the above-mentioned petroleum refineries and presented in the chronological order of their construction and start-up: Rafo Onesti-Carom, Petrobrazi, Arpechim, Oltchim, Lukoil-Petrotel, Petromidia and Timisoara (Solventul) – Pancevo, only one alone fulfils the restart conditions: the complex Arpechim (Pitesti) – Oltchim (Ramnicu Valcea).

The Petromidia (Navodari) refinery is semi-integrated because it imports ethylene from the Mediterranean countries using 5,000 t ships and processes it in the HDPE-LDPE Plant. Propene may come from its own refinery, it can be concentrated in the propylene column in the pyrolysis plant but the unit was stopped since the 1990s.

In the short term, the reindustrialization of the petrochemical sector in Romania means the restarting of the Pitesti Petrochemistry Platform in an integrated system including: the Arpechim Refinery, the Bradu Petrochemical Division (DPB), Oltchim Ramnicu Valcea. In order to achieve this, Romania should buy back the Arpechim Refinery from OMV Petrom, shut down by the Austrian Company since 2011. OMV has explicitly stated in the very Contract of buying Petrom in 2004 that it does not want to keep the Romanian petrochemistry facilities at Brazi, Pitesti and Doljchim. At that time, OMV divided the capacities in two categories: basic and eligible. The above assertion was again strengthened as early as 2012 when the OMV CEO at that time, Gherhard Roiss, said: “The European petrochemical market has growth potential over the current decade. That’s why we want to improve our good position with our integrated refineries in Schwechat and Burghausen. In Romania, we focus only on refining oil produced internally.”

So, ab initio, OMV did not intend at all to preserve and develop integrated petrochemical and petroleum refineries in Romania and Romanian politicians tell us that this was a condition to enter the European Union. But how did Poland, Hungary, Czechia manage to preserve and not demolish their petrochemical industry?!

Putting Oltchim into operation in the integrated system, as it has been operating for more than 50 years, will make it more attractive for privatization, when compared to the Oltchim’s current sale of assets.

The closure of the Arpechim petrochemical plant in Pitesti by OMV Petrom in 2008 has led to the demolition of the all installation producing acrylonitrile, dimethyl terephthalate, ethylene (Pyrolysis 1), nitrobenzene, styrene, polystyrene, sodium cyanide, industrial ethyl alcohol, carbon black. Only 4 installations have survived: Pyrolysis 2, LDPE, HDPE and ethylene oxide, purchased by the Romanian State through Oltchim and forming the current Petrochemical Direction Bradu (subsequently PDB).

 

Synthetic fibres

In the field of synthetic fibres, the production of polyester, polyamide and polyacrylic fibres is unlikely to be restarted in the medium term due to the demolition of their basic raw material manufacturing units by OMV Petrom on the Petrobrazi platform (phenol and dimethyl terephthalate) and Arpechim Pitesti (acrylonitrile), respectively. Any attempt to revive the textile industry in Romania implies the restarting of the petrochemical units that have survived the irrational demolitions of previous years and their development with modern technologies.

In the short term, it is only possible to invest in the recycling of polyester waste (PET) waste by increasing its collection.

 

Organic chemistry

The organic chemistry sector was totally dismantled in Romania after 1990, especially by OMV Petrom, by demolishing Doljchim, Arpechim and Petrobrazi Chemical platforms, so that the Romanian State should offer attractive conditions for domestic and foreign investors interested in the construction of greenfield state-of-the-art units and capacities, to cover Romania’s domestic consumption and generate availability for export.

 

Fertilizers

The chemical fertilizer industry only counts through the Azomures plant in Targu Mures, after 10 units of the Interagro Group have been deliberately become bankrupted and closed to make way for the import of fertilizers from the neighbouring countries.

In the short run, Romgaz should take over these units, in association with the current owner and restart them with the methane gas at their disposal, instead of burning the gas at OMV Petrom Brazi Co-generation Power Plant, commissioned on the basis of Government Decision no. 870/2012, facility that exports Romanian produced power to Austria and Germany, where OMV developed the petrochemistry after destroying it in Romania.

In the long run, investment in a modern chemical fertilizer production by Romgaz can be considered in a public-private partnership system in Dobrogea, close to the Danube-Black Sea Canal, given the already identified, significant natural gas deposits in the Romanian Black Sea plateau.

 

Elastomers

Unfortunately, in the field of elastomers, Romania lost all its advance it had in Central and Eastern Europe before 1990, because of the privatization of Carom in 2003, bankrupted in 2005 and subsequently by Energy Biochemicals in 2008, leading to a second insolvency in 2016. The Carom demolition led to the disappearance of the Romanian production of SBR (styrene butadiene rubber), NR (nitrile rubber), phenol and acetone, bisphenol, ethyl benzene, methyl styrene, styrene, polystyrene and latex, leaving active only the poor man’s solution: recycling of waste for the recovery of monomers.

 

Silicates and oxides

In the field of construction materials (silicates and oxides), only units for the production of concrete and plaster prefabricates can be considered, since the cement and derivatives sector is owned in a proportion of more than 90% by foreign companies which transfer the generated profit to their countries of origin.

 

Coal chemistry

In the field of coal chemistry, after a long period of domination of oil, there is a tendency for some companies in the US, China, India, and other countries to generate chemical products by chemical conversion of coal using less polluting, more selective Fischer-Tropsch technologies. In Romania, although there are significant reserves of bituminous coal and lignite, there are no attempts to chemically valuing them, their only use being burning in thermal power stations for the production of thermal and electric energy, despite the fact that the Ministry of Economy ordered a study in 2014 for the valuing of the coal in Oltenia and the Jiu Valley by industrial processes of gasification and production of fertilizers, methanol and chemicals.

 

Catalysts

The indigenous production of catalysts for chemistry was completely stopped after 1989 (Vega Ploiesti, Onesti and Doljchim units, now shut down), following the same pattern of the entire chemical industry itself. Along with it, the research and development in a top field, where Romania also had notable experience and achievements also stopped. Reprofiling involves institutional, academic and financial measures to reinvigorate the research and production of catalysts.

 

Biotechnologies

In the area of biotechnologies, European researches are concentrated especially in the field of waste use as a source of raw materials for chemical industry. No remarkable research can be mentioned in this field in Romania.

 

R&D and education

The field of R&D and education in chemistry has experienced a marked decline in Romania since 1990, because of the lack of financing even at the level of the basic necessities of science and technology progress in our country. Due to the demolition of the industrial base, there are no real possibilities for educating, training and hiring graduates, who are forced to emigrate or reprofile.

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