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  • This year The CEE & Turkey Refining & Petrochemicals Summit will be co-located with the CIS Downstream Summit!

Interview with Kenan Yavuz, CEO at SOCAR Turkey(2015)

kenanyavuz

 

“The most significant advantage of the Turkish petrochemical industry, despite the close proximity of feedstock rich countries with big petrochemical producers, is the level of domestic demand, which allows the establishment of production facilities in world scale capacities.”
Kenan Yavuz, CEO, SOCAR, Turkey

Can you tell us about the future opportunities for integration within SOCAR?

SOCAR Turkey is the most important representative of ever-growing economic cooperation between Azerbaijan and Turkey. SOCAR (State Owned Oil and Natural Gas Company of Azerbaijan) has been operating in Turkey under STEAŞ since the privatization of Petkim on 30 May 2008. SOCAR Turkey has been realizing its strategic plans and new investments on the Petkim Peninsula within the frame of the Petkim “Value-Site” project, the first petrochemical industrial park project in Turkey.

Petkim is the sole petrochemical producer in Turkey which has approximately 20% domestic market share. SOCAR Turkey targets to decrease Turkey’s external dependence in manufacture and export fields and to make Petkim Peninsula one of the biggest manufacturing centers in Europe, by enabling Refinery-Petrochemical-Energy-Logistics integration, and launching the value added chain cluster model.
STAR Refinery is the biggest private sector investment and localization project to be carried out in a single point in Turkey.

The first phase of the of the Petkim container port project, with a starting capacity of 1.5 million TEU’s, is scheduled to be completed this year. Back in March 2013, an agreement was signed for the long term operation of the port, with APM Terminals – globally renowned container port operator.

We are investing in energy in order to meet our Group’s short and mid-term electricity and steam needs. SOCAR Turkey, via SOCAR Gaz Ticareti, offers Azerbaijan gas as an alternative source in the Turkish Natural Gas market. With its completed and future projects, SOCAR will be the biggest direct investor in the Turkish industry. The Trans-Anatolian Natural Gas Pipeline (TANAP) project is one of the most important strategic steps for making Turkey a global energy corridor. TANAP is targeted to be completed in the end of 2018.

Can you comment on SOCAR petrochemicals’ competitive position within the region?

PETKİM is the sole producer sole producer of basic petrochemicals’ in Turkey, which is an attractive market in terms of petrochemicals as being the second biggest importer after China. The annual growth rate for petrochemical consumption is doubling the Turkish GDP growth rate. Also, Turkish thermoplastics consumption per capita is still below developed countries.

The Turkish petrochemical industry has big potential for growth, with factors such as the level of industrialization in Turkey, rapid population growth and developments in various industrial sectors attributing to this growth.

The most significant advantage of the Turkish petrochemical industry, despite the close proximity of feedstock rich countries with big petrochemical producers, is the level of domestic demand, which allows production facilities to operate in world scale capacities. Commitment by SOCAR for further investments is positioning Petkim as a leading regional player.

Even Turkey is dependent on imported energy; it acts as a bridge between the world’s crucial supply and demand regions. Turkey is a natural transit country for maritime and pipeline transportation of gas and oil. Turkey’s position is critical for the export and import of petroleum as it straddles the demand-rich west to supply-rich west. As an energy transit country, Turkey currently has the capacity to transport 121 million tons of oil to the world’s markets per annum. Once the ongoing projects are completed, the annual transit capacity will increase to 221 million tons of oil and 43 billion m3 of natural gas.

In today’s competitive and volatile business environment, SOCAR Turkey’s integration projects offer considerable opportunities for creating value, enhanced operational efficiencies and higher return on existing and new assets through increased integration level and flexibility in feedstock and operations.

What are the key trends that you see on both a regional and global level and how are SOCAR responding to them?

Some of the key trends are: supporting and leveraging clusters, integrating refinery and petrochemical assets, benefitting from advantaged feedstock, investing in new technologies and world scale plant for reaching right sizing and critical mass. To maximize the value of existing assets, companies should enhance operational efficiencies through improved integration and optimize commercial strategies. The energy and chemical sector will continue to play a key role for industrialization and in securing sustainable future on a global and regional level.

In parallel to the global contraction in world trade, we see contraction in the petrochemical market as well. Feedstock cost advantage is gaining more importance for producers. Also regional competitiveness is getting more dependent on increases in regional demand. In this context, local producers in net importer countries such as China, India and Turkey, which have high growth potential, are faced with more challenging competitive conditions.

North America and Middle East producers, which have cost advantage and lower fixed costs, head towards becoming net importer countries with this cost competitive environment. SOCAR Turkey responds to this environment through maximizing the value of existing assets, enhancing operational efficiencies through improved integration and optimizing commercial strategies, increasing feedstock flexibility, decreasing feedstock cost with effective purchasing decisions, increasing sales of higher value-added products, applying competitive pricing and customer oriented Sales Marketing policies.

What is the priority for SOCAR in terms of future investments?

Our priority is completing vertical integration by developing Refinery-Petrochemicals-Energy-Logistics integration by 2018 as planned. As SOCAR, we will make 10.5 billion dollars investment with the acquisition of Petkim, in the frame of ‘Value-Site’ vision. We will make over 20 billion dollars investment between 2008 and 2018 with TANAP which is one of the most important infrastructure projects for Turkey.

With our projects in the Petkim peninsula, we will provide 17,000 temporary jobs during construction and approximately 2,500 fixed term jobs until 2018. SOCAR is the biggest direct investor of the Turkish economy history ever. Our aim is being one of the two major Holding Companies of Turkey and the biggest Industrial Corporation in Turkey in 2018. The fraternity between Turkey and Azerbaijan is strengthened with Petkim, STAR Refinery, and Container terminal and energy projects and consolidated with TANAP.

The CEE region has struggled through a number of challenges over the past years, in your opinion what needs to be done to ensure competitiveness on a global scale?

Increasing the level of integration is one of the main global competitiveness opportunities, saving 5-10% of costs depending on the configuration. Also new production plants have greater capacities, and so they have low fixed cost advantages. In addition to scale, newer plants are more efficient in unit consumptions in terms of feedstock and energy.

In general, producers in the CEE region have limited production capacities and low quality product types compared to the new high capacity plants in North America and the Middle East. Supply chain operations, which are critical in a globally competitive environment, should be improved for customer satisfaction.

However there is a big potential, since countries in this region are developing, investing and consuming Access to multiple types of feedstock resources, proximity to markets and integration into pipeline networks, creates important flexibility and cost advantage to producers. In addition, countries in the region have strong cooperation and understanding of each other, which creates more opportunities for producers.

What impact has there been on Turkey due to the recent decline in oil prices?

In general, lower oil prices will boost petrochemical demand over the long term, and the fall in oil prices has narrowed the gap between the high cost naphtha based producers and low-gas-ethane based producers.
Naturally, the fall in oil prices positively affects Turkey’s economy, but because of the strength of the US Dollar, this dampens the effect on the price of fuel oil and oil products.

As a result, it seems the decline in oil prices does not provide benefits to countries both at middle-income levels and those dependent on imported energy such as Turkey. Countries that will reap the most from lower oil prices are Germany, Japan and China. As Turkey oil prices are out of our control, we need to increase our domestic production to decrease our current account deficit. In Summary, we need employment and export-oriented economy based on high technology local production.

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