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A conversation about bitumens

A conversation about bitumens
Dmitry Orlov

An interview with Dmitry Orlov, CEO, Gazpromneft Bitumen Materials LLC

Gazprom magazine

Above the market

— Dmitry Victorovich, how has the last year been?

— The macro-economic situation, obviously, impacted our business too. Finance available to the road-building sector has been cut back, and several projects postponed. It’s clear the bitumens market is also shrinking. Year-end results for 2015 show a 10-percent decrease in production across the country, with demand decreasing by 14 percent. If we’re talking in absolute figures, then while production in 2015 was close to six million tonnes, in 2015 it was closer to five.

We, have, however, not only managed to retain our market share, but also to consolidate our position, producing close to 1.7 million tonnes of bitumen products — very close to 2014 levels. We are now completely competitive on today’s market, producing high-quality bitumen materials, with an extensive product range, responding quickly to changing market conditions by fine-tuning production strategies and offering unique services. For example, output of premium products last year saw an increase of more than 40 percent, to 60,000 tonnes, with branded transport capacity increasing almost two-fold, to 200,000 tonnes — 81 percent. New fully-automated packaging lines for bitumen binders have been commissioned at the Omsk Refinery and at the Ryazan Bitumens Plant.

— Why were your results above the market average?

— Our competitive advantage lies in an integrated approach — a combination of quality products and a full range of related services. In addition to using cutting-edge technologies, we also offer technological expertise, provide packaging for transportation over long distances, offer direct delivery, and provide convenient banking tools.

I can tell you about one innovation that directly illustrates our approach. We quite often encounter a situation where an end-user adds some low-quality product or other to bitumen materials certified from our plant. In order to guarantee quality, and to avoid such situations in the future, at the beginning of this year we developed and launched a special “Quality Control” service, accessible both on our website and from mobile devices. With the help of this new app a consumer can track which Gazprom Neft plant a product has been manufactured at and shipped from, get information on batch and sample numbers and date of production, and on all technical specifications. This would seem to be a straightforward service, but it’s unique to the Russian bitumens market. We’re the first company to implement such a solution.

We are in constant dialogue with consumers of our products, as well as with road industry regulators. We follow global and domestic market trends, trying to stay one step ahead. September this year will see the end of the transitional period before Technical Regulation of the Customs Union (TR TS 014/2011) comes into force. From which point, bitumen materials compliant with GOST standard 33133 come into active use. The company is currently implementing a range of initiatives directed at modernising capacity, as well as undertaking R&D activities directed at ensuring stable and sustainable production in compliance with this. In addition to this, we continue to expand our range of modified as well as traditional bitumens.

Modernisation of our Ryazan plant — the most important polymer modified bitumens (PMB) facility in Russia, remember — has given us the opportunity to reach record production levels. Maximum production was previously 32,000 tonnes per year — results for 2015 have already reached 43,000.

Importantly, the Ryazan plant has a unique team, and major R&D potential, which we are developing. A new scientific and research (R&D) centre is expected to open this year, whose competencies will include not just investigations into modified bitumens but also asphalt concrete, taking expertise in road coverings to a completely new level. As well as developing new kinds of PMB formulations and conventional bitumens compliant with the European EN-standard, a new product has been obtained at the Ryazan facility — PMB-200 — with performance features that mean it can be used in the Russian Far North.

— And what would you say is the total capacity for this market?

— If we’re talking about the Russian market in innovative bitumen materials, then volumes haven’t changed since 2014, which would be in the order of about 150,000 tonnes.

A new facility

— And how are you developing your production base?

— In 2015 we added just one new plant to our facilities in Moscow, Omsk, Yaroslavl, Ryazan, Kazakhstan and Serbia, in Vyazma, acquiring a 75-percent participating interest in NOVA-Brit LLC, which owns a facility producing innovative bitumens.

That facility is unique. Its range runs to more than 30 branded products. They produce road, bridge and airfield mastics, cements, emulsions and bitumen bridging tapes. It has a potential capacity of up to 80,000 tonnes per year. What’s particularly valuable to us is not just the fact that the plant has all the infrastructure necessary for the production, storage and distribution of premium products, but also its testing facilities. Innovative developments are being implemented here, and high-technology bitumen materials being produced, in high demand for the construction, repair and maintenance of highways, airfields and other transport infrastructure.

— Is the bitumen-derivatives market a big one?

— It was estimated at around 122,000 tonnes in 2015. It’s expected to increase to 220,000 over the next five years. But the issue isn’t just moving into this market with the right product. The decision to acquire the Vyazma plant marks an important component in our company’s long-term development strategy. It’s obvious that as Russia’s refineries modernise, the availability of raw materials will decrease. For us, that’s a challenge that has to be addressed — you’ve got to move forward and develop, so any limitation on growth has to be compensated for, above all, by improvements in quality, as well as alternative offerings to traditional bitumens.

— “A conversation on bitumens — a ‘bitumen dialectic’”?

— Yes. Accordingly, our main task is — technological leadership of the Russian market. And there’s one more important point. The market in traditional and modified binders is quite clear to us. Our range includes road, construction and roofing bitumens, as well as polymer-modified bitumens and binders (specifically G-Way Styrelf), and a range of emulsions and mastic compounds. But there are certain gaps: for example, aerodrome construction uses more bitumen-derivatives (bitumen tape, mastics, sealants) than directly-applied bitumens, than is the case in the road-building industry. The integration of NOVA-Brita allows us to extend our range of bitumen materials for various industries, to separate out the provision of premium products, and to develop a comprehensive offering.

—Where do airports stand in terms of your customer base?

— There are certain specifics to this industry but, overall, the same principles apply as for road construction. Entering this market is logical in terms of a holistic approach to the business. Under the current government programme, about 100 airfields are to be rebuilt by 2020. This is a major project, demanding close attention in the selection of materials and suppliers, particularly in view of the fact that a major part of the work is to be undertaken in Russia’s eastern regions. Our bitumen materials have already proved themselves in terms of quality, and we plan to increase supplies of bitumen products. The longstanding experience of specialists at the Vyazma plant will be if immediate relevance here: as professionals in their own market sector, they know precisely what products are needed for what traffic volumes, and for what climatic loads.

— How difficult is it, generally speaking, to take specific climatic conditions into account in producing products for various regions? It’s a big country, with many climatic zones, and different operating conditions.

— We often have to adapt brands to specific needs. And it’s for precisely that reason that we pay so much attention to the development of our R&D potential — first and foremost, at the Ryazan and Vyazma plants. Our R&D activities mean we can offer materials with the performance qualities needed in one region or another.

With the commissioning of the R&D centre at the Ryazan plant we will have the opportunity of offering customers data on how bitumen materials behave as part of their end-product — road coverings. That means we can develop still more reliable and more popular binders, still more appropriate for specific operating conditions.

From Russia to Latin America

— What are your plans domestically?

— Quality and effectiveness — those are our underlying priorities. We will continue to extend our offerings for road-building companies using high-technology products. There’s no question, we’re going to be expanding supplies for building aerodrome infrastructure. A new area is insulation for pipeline transportation, which we’re starting to develop at the Vyazma plant. New formulations are being developed at the Ryazan plant, as well as expansion of storage capacity. And a project for the production of new lines of improved-quality bitumens is under development at the Omsk plant.

Generally, we plan to continue modernising production facilities, to continue to improve the quality of bitumen products, and to continue opening up new markets. This will allow us to extend our geographic scope, establish a major competitive advantage, and revitalise the market.

— And what might act as a driver for business development in-country?

— Major regional, federal and national projects. And, for example, the football World Cup. Road infrastructure is developing not just in Moscow and St Petersburg, but in all those cities getting ready for the championship.

In addition to which, a unique transport project in St Petersburg is now in its final stages — the Western High-speed Diameter, expected to open in mid-2016. Under our cooperation agreement with the North Capital Highway (the consortium put together to build the Western High-speed Diameter) we plan to start deliveries of modified bitumens, specially formulated for this project, in the second quarter of this year.

Other federal projects will also act as drivers — the construction of the Moscow Oblast Central Ring Road, Moscow—St Petersburg highways, the Scandinavia project, and others.

— Has there been support for export production?

— If we’re talking about the Russian market as a whole, then exports make up a very small proportion of this. Experts estimate an average 230,00 tonnes of bitumen products are exported, and only 30,000 imported. The domestic market is the priority for us, particularly those products that meet international quality standards, for which there is increasing demand abroad too.

Exports saw active growth last year, with polymer-bitumen binders (PBBs) making up an increasing proportion of this.

—Which export markets did supplies go to?

— To our traditional destinations, predominantly: to Mongolia and Kazakhstan. The Ryazan plant has started exporting to Central and Eastern Europe — to the Czech Republic, Turkey, Romania, Italy, Poland, Israel, Bulgaria and Latvia. And some initial trial supplies have been sent to Latin America and Africa.

— Why would people buy your product, when Latin America is a pretty long distance away?

— We have long been working with logistics companies to achieve optimum distribution solutions for our freight. In addition to which, we offer a very convenient technological solution for transportation: our Clovertainers (one-tonne containers) have a fill-factor of 98 percent — they can be transported by road just as easily as by containers. Thanks to multimedia logistics it’s now possible to deliver our products practically anywhere in the world.

As regards quality, at the moment, for example, the Gazprom Neft Ryazan Bitumens Plant is currently producing more than 20 kinds of modified bitumens that meet European (EN) requirements. We’re now investigating the possibility of producing and shipping EN bitumens from our refining facilities. They’ve already completed the necessary certification at the Moscow Refinery and, in the long-term, will do so at Yaroslavnefteorgsintez.

The “Silk Road”

— How is your business developing in Kazakhstan?

— The market in Kazakhstan is highly promising — the total market is estimated at more than 500,000 tonnes. Three years ago Gazprom Neft acquired an asset in southern Kazakhstan, near Shymkent, for production of traditional bitumens, with an annual capacity of up to 180,000 tonnes. We’re practically reached full production capacity in that time — our Kazakh plant sold more than 170,000 tonnes of bitumen products in 2015.

In addition to which, we are in active collaboration with the government of the republic, and have signed a cooperation agreement with the Highways Committee under the Ministry for Investment and Development of the Republic of Kazakhstan. Last year we supplied the republic with an initial consignment of polymer-modified binders (from the Omsk Refinery). Our polymer-modified binders are being used in the reconstruction of road infrastructure at the airport at Petropavlovsk, and we’re also supplying them for construction of two pilot highway sections in northern and southern Kazakhstan. Customers — road-building companies and regulators — rate this product very highly. The question of localising production of polymer-modified binders in Kazakhstan is now on the agenda.

—What impact is China’s “Silk Road” project having on Kazakhstan’s roadbuilding industry?

— Enormous impact. One third of the highways involved in the Silk Road project run alongside Russia, through Kazakh territory: what’s known as the Western Europe — Western China International Transit Corridor. Our facility is located in the immediate vicinity. And we are one of the major suppliers of bitumen materials for the construction of concrete sections.

— And after the completion of this global project, what are the prospects for further development?

— Bitumen materials are needed not just in road construction, but also in reconstruction and repair. Development of the road network has to be supported. There’ll be lots of work for bitumen producers. Apart from which, improvement of the road network is currently a priority in Kazakhstan. And there’s a clear trend towards the use of cutting-edge technologies. We currently sell traditional bitumens there, but we see an opportunity to increase supplies of modified bitumens in 2016.

—What plans do you have for developing foreign markets?

— We’ve identified a list of potentially interesting regions, comprising about 20 countries. We’re following the situation in these markets, and are evaluating logistical possibilities. We’re in negotiations. For example, we’ve already had positive feedback on our projects from China.

In general, the principle on which we run our business — setting in place effective and long-term collaboration with customers — is the same for both the Russian and the international markets. And this — together with our competitive advantages in terms of service standards and technology — will, I have no doubt, ensure the successful development of the company.

Interviewer:Alexander Frolov