Outside the sector, few have heard of Borealis. Yet over the last 40 years it has become one of the main producers of plastics, focusing primarily on polyethylene (PE) and polypropylene (PP). Now, however, with most of its production based in high-cost and legislation-heavy Europe, the company is having to rethink its strategy in an attempt to improve the competitiveness of its products.
‘We still need to have a strong home base,’ says Taylor. ‘There will be for many years to come a requirement for plastics in Europe. So what we are doing is a combination of scrap and build, whereby we shut down old plants to be replaced with new investments.’
The decision in mid-March to close the high-density polyethylene (HDPE) plant in Bamble in Norway is a case in point. Costs have been slashed across the European continent, with the number of sales offices, for instance, dropping to six from 26. At the same time, Borealis is making selective investments on the continent. Its new 350,000-tonne-a-year (t/y) PE plant in Austria, which uses its proprietary Borstar technology, started up at the end of 2005. Huge opportunitiesHowever, the big push is in the Middle East. ‘There are huge opportunities there,’ says Taylor. ‘The desire to grow and the availability of funds and feedstock have turned the Middle East into a major supplier in the world of petrochemicals.’
Borealis’ own turnaround coincided with its decision to join forces with Abu Dhabi National Oil Company (ADNOC) to establish Abu Dhabi Polymers Company (Borouge). In its first phase, the company built a worldscale high and linear low-density polyethylene (LLDPE) complex at Ruwais with capacity of 450,000 t/y. It came on stream in 2003 and was subsequently expanded last year to 580,000 t/y.
Borealis enjoys a reciprocal relationship with the emirate. In mid-2005, Abu Dhabi’s International Petroleum Investment Company (IPIC) became Borealis’ main shareholder, increasing its stake to 65 per cent, with the remaining 35 per cent held by Austria’s OMV. ‘We are the same management team,’ says Taylor. ‘We’ve known the people in ADNOC, IPIC and OMV for years and I would say the biggest impact this change on ownership has had is to make us move forward with Borouge 2.’ This project, valued at about $2,500 million, will triple the complex’s capacity to 2 million t/y and includes the construction of a new 1.4 million-t/y ethane cracker and downstream PE and PP units.
With demand growing fast in the Far East, a base in the Gulf provides Borealis with the perfect platform for further expansion into Asia. Besides finding new markets for its products, it is also considering licensing its Borstar technology to a wider audience. ‘We haven’t licensed to third parties in the region,’ says Taylor. ‘But we have got a proprietary technology and we will look to do some very selective licensing if it fits us and our needs.’
A rapid build-up of petrochemicals production in the region raises serious questions. According to UK consultant Nexant, the Gulf countries will see annual ethylene production climb to 23 million tonnes in the next five years, accounting for about 20 per cent of global capacity. Historically, the petrochemicals industry goes through peaks and troughs, and with so much new output predicted analysts are urging caution. ‘I’ve been in the industry for a long time and I’ve seen the ups and downs,’ says Taylor. ‘The most important thing is to have a business model and approach that will be robust enough to help you through the bad times, because there will be bad times, we know that.’
Quite when the next downturn will come is not certain, however. ‘What we see now is a lot more volatility on a year-to-year basis, so we have to cope with it. But when it comes to the planned increases, I would say the jury is still out on that.’
ChallengesWhere Taylor does see greater challenges in the immediate term is in the economics of building large-scale plants. He points to the rising cost of engineering, procurement and construction (EPC) contractors and of raw materials such as steel and specific alloys, which are becoming increasingly difficult to source.
However, one area that is likely to see an upturn is the downstream sector. Taylor believes that local markets will absorb a growing proportion of the plastics produced in the region. ‘If you look at the whole of the region, the population will double over the next 20 years,’ says Taylor. ‘I read a forecast that 18 of the Arab nations will have water scarcity issues by 2025, as opposed to three in 1950. This sector alone will need investment in the pipe industry to cater to those needs.’
And the market for plastics is not going to dry up any time soon. ‘We have the football World Cup coming up,’ says Taylor. ‘Could we play it without plastics? The ball, the kit, the tickets, the transportation, it’s all plastic. If there is something I would say, it is to look at the broader contribution in people’s lives rather than just capacity rises and projects.’