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Home / Issue Archive / 2008 / January #1 / Editor's Letter

№ 1 (January 2008)

Editor's Letter

Petrochemicals Draw a New Set of Investors to the Russian Heartland

Pat Davis Szymczak

As we near the end of 2007 and look toward a new start in 2008, Oil&Gas Eurasia will be taking a look at Russia’s petrochemicals industry through the eyes of one of its main players, LUKOIL-Neftekhim. OGE also looks at the process controls industry after having visited with Emerson Process Management for two major product announcements in Vienna.

Emerson is yet another foreign company that is finding its hard work and long term perspective on Russia is paying off. And those payoffs will extend far beyond the Russian market in coming years.

Though it hasn’t been widely publicized, Russia’s Metran instrumentation plant in Chelyabinsk is now a 100 percent Emerson-owned company. The plant makes instrumentation and is a final assembly point for some Rosemont instrumentation products.

But most importantly, what Emerson bought when it bought Metran was brainpower. There is hardly a sector of engineering today that is not talking about the crisis in filling jobs that are normally handled by mid-career engineers aged in their 30s and 40s. As engineers in their 50s near retirement, there are fewer and fewer coming up in the ranks behind them. The result is a worldwide shortage of qualified specialists.

Recruiting in Russia is tough for some. Saudi Aramco two years ago was actively recruiting engineers in the Russian market but the company has since backed off. The reason is that they found a lack of foreign language skills among engineers with the 10 to 15 year experience level. Saudi Aramco was recruiting Russian engineers to work in Saudi Arabia where English is the common business language. Aramco found language skills among Russia’s youngest engineers but these recruits were largely inexperienced in the oilfield.

Globalization to Boost R&D Reserves

Acquisitions such as Emerson’s however, move right past these problems. Emerson has a different business model. It isn’t recruiting engineers to work at R&D centers in the United States. Rather, it has acquired a business in Russia where it doesn’t matter what language the engineering brainpower speaks. And Emerson is thus positioned to run global R&D simply out of Russia, developing new products and solutions in process management and instrumentation that benefit Emerson as a company and Russia in that whatever is exported out of Metran, is a Russian export.

Last month, OGE profiled another U.S. company – ceramic proppant maker Carbo Ceramics. They also have located in Chelyabinsk, an industrial city in the Southern Urals region. I know I’ve bored you many times with tales of my hometown of Chicago but honestly, the first time I flew into Chelyabinsk across one of the larger of the area’s many lakes, I looked out the left side window and could have sworn I was flying into Chicago across Lake Michigan. Off in the distance, the shoreline was lined with factories and towering smoke stacks creating a scene identical to that of Gary, Indiana and Southeast Chicago. Growing up as I did in the Midwestern United States I can’t help but get a familiar feeling when I visit places like Chelyabinsk. (But no, there are no skyscrapers.)

Companies like Carbo and Emerson are proving the point that you can make good business if you get out of Moscow. In fact even Moscow companies these days look to hire people from the regions. I’ll throw in another US-ism. In the 1980s companies in California actively recruited from the Midwest because it was discovered that people from the heartland seemed to have a greater work ethic.
Now what about the petrochemical industry? The Moscow Times reported last week that another U.S. company, Dow Chemical Co., is studying opportunities to create joint ventures for processing gas in Germany and in Siberia. The intention was stated in a memorandum signed by Sibur, Gazprom’s petrochemical subsidiary.

Dow Chemical Now Also in the Mix

Sibur, Dow and Gazprom will produce a feasibility study in 2008. Also there is talk of a joint venture in which Dow would be a partner in processing gas from Gazprom’s fields in Yamal-Nenets at plants that have yet to be built. The idea would be to expand Sibur’s ability to build up its resource base and to expand its ability to produce plastics. Russia’s LUKOIL, about which OGE writes this month, has two petrochemical plants and plans also to produce a feasibility study by yearend with regard to building a third.

In late November, the Russian cabinet discussed a program they intend to adopt by next year which will make available major government investment in the petrochemical sector. The goal is to make higher margin, value added products for export and to feed Russia’s growing domestic economy. Look around you – what in your life doesn’t have some form of plastic in it?
And guess where these companies will come shopping to find the newest and the best technologies? You, dear readers! So, stay with us for 2008 and keep visiting our website where we post the latest news as it occurs,

And by the way, this morning I received a news release from Weatherford about its acquisition of the Russian company Aquatic. We at OGE know both companies well and we’d like to be among the first to congratulate both Aquatic’s Chief Executive Officer,  Mikhail Gelfgat, a regular editorial contributor to OGE on drilling matters, and Weatherford’s Kamil Zakirov, Regional Vice President for Russia, whom we interviewed for OGE’s October cover. With this sort of a start, 2008 is guaranteed to be a very good year for doing business in Russia!

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