How the petrochemicals industry is taking shape in Abu Dhabi

24 July 2009

Abu Dhabi will have spent about $100bn on developing its petrochemicals sector by the time it completes its plans in 2030, with much of the infrastructure having to be built from scratch.

The realisation of Abu Dhabi’s petrochemicals vision will require an army of engineers, construction workers and project managers, and an investment of about $100bn in the industry by 2030.

The emirate’s upstream oil and gas projects market is heating up, with more than $27bn worth of construction contracts to be awarded by March 2010.

Another $32.5bn of petrochemicals-related projects will be under way by the end of 2010, with construction of the 12 phases of the Abu Dhabi National Chemicals Company (Chemaweyaat) Chemicals Industrial City complex at Taweelah due to continue until 2030.

After taking into account the development of Abu Dhabi National Polymers Company’s (Borouge) production facilities, and strategic investments made by state-owned International Petroleum Investment Company (Ipic) to underpin the development of the sector, the state’s spending on developing the industry approaches an estimated $100bn.

“When you take into account the investments Abu Dhabi has made to date, what it might do in the future, upstream and downstream, and think about the cost of Chemaweyaat over the next 15 years, the amount of capital it has given over to developing the industry is huge,” says one London-based industry analyst. “We are talking about something like $100bn. That is no small change.”

Because of the ‘verbund’ method - the integration of different petrochemicals processes - under which Abu Dhabi’s petrochemicals industry is being developed, the timing of each project is crucial. Like a giant jigsaw, the bigger picture will only be visible when every piece is in place.

The first part of the puzzle is the raw materials for the petrochemicals plants, in the form of increased refining capacity. A refinery processes and breaks down raw crude oil and gas into more useful, and saleable, products such as petroleum for the automotive sector, liquefied petroleum gas for general household use, and jet fuel, along with polyethylene and polypropylene, the basic building blocks used in the petrochemicals industry.

State refiner Abu Dhabi Oil Refining Company (Takreer) currently has two plants in operation: a 68,000-barrel-a day (b/d) unit at Um al-Nar, and a 417,000-b/d plant at Ruwais, 240 kilometres west of the capital.

In February 2008, Takreer announced that it was planning to expand its capabilities at Ruwais by adding a second refinery with a further 400,000 b/d of capacity.

The estimated $8bn Ruwais expansion reflects Abu Dhabi’s desire to capture rising demand for products such as petroleum domestically and internationally, and to feed downstream industries with naphtha and the liquefied petroleum gas propane, of which it will produce 1.1 million tonnes a year (t/y) solely for the use of Abu Dhabi National Polymers Company (Borouge) from 2014 onwards.

Borouge, a joint venture of Austria’s Borealis and state energy firm Abu Dhabi National Oil Company (Adnoc), is a prototype for the development of the emirate’s petrochemicals sector in more ways than one. The first company to step into the petrochemicals arena outside of fertilisers in Abu Dhabi, and a test case for the industry, the company has also shown how a well-thought out investment strategy can be used as a development tool.

With Ipic’s 1997 purchase of a 50 per cent stake in Borealis came the company’s proprietary polyethylene and low-density polyethylene technology, which is used in cable coverings, and an assured long-term partner with wide-ranging expertise in the industry. Accordingly, it was not long before Borouge was set up, in 1998, and the company’s first production facility, Borouge 1, also located at Ruwais, was started up in 2001 producing 450,000 t/y of polyethylene.

This trend of Abu Dhabi government bodies investing in industrial manufacturing has continued, says an executive at one international firm who has worked with Borouge since its inception. “The line between government and business is very blurred in Abu Dhabi,” he says. “Once you start looking at the companies involved in Chemaweyaat and Borouge, you see that Ipic is that blurred line. That is where the government seeps into the industry.”

International agreements

In 2005, Ipic and Austrian refiner and oil-marketing services company OMV, in which Ipic had held a stake since 1994, consolidated their hold over Borealis, paying Norway’s Statoil $1.1bn for its 50 per cent stake in the company, leaving OMV with a 35 per cent stake and Ipic 65 per cent. Ipic currently has a 19.6 per cent stake in OMV, with strategic alliances in place for refining and marketing oil products from the Takreer plants.

In 2005, Borouge expanded the capacity of its Borouge 1 facility at Ruwais from 450,000 t/y to 600,000 t/y through an engineering process known as debottlenecking. With all parties satisfied of the success of the first phase of the project, in 2003 Adnoc and Borealis signed a memorandum of understanding to develop a new $2bn complex at Ruwais, Borouge 2, that would include a 540,000-t/y polyethylene plant and two 400,000-t/y polypropylene plants fed by a 1.4 million-t/y ethylene cracker.

Engineering, procurement and construction (EPC) contracts were awarded in 2007, and the new capacities are scheduled to start up in the first quarter of 2010.

The additional refining capacity being developed by Takreer at Ruwais will service a third-phase expansion, which will more than double Borouge’s output, adding a further 2.5 million t/y of polypropylene and polyethylene alongside low-density polyethylene, which is used in cable coatings. The project will be completed by 2014, in time to take on Takreer’s new propane output, which will come from the 400,000 b/d additional capacity announced in February.

Given Borealis’s experience, and the similarity of the Borouge 1 and Borouge 2 projects,  their development has been a relatively painless experience, says the executive.

“Borouge 3, even though it is larger than Borouge 2 by 40-50 per cent, is to a large degree almost a cut and paste of Borouge 2, only on a larger scale,” he says. “Having done two projects, each one successfully larger than the last, it is not a huge stretch for Borouge to go from the current level to that next step.”

However, Chemaweyaat is a different story. “It is an ambitious series of projects,” says the executive. “Depending on who is talking, either the [Saudi Aramco and US’ Dow Chemical Company joint venture] Ras Tanura integrated petrochemicals complex or the first Chemaweyaat project, Tacaamol, is going to be the largest petrochemicals complex in the world.

“Borouge is already a well-integrated plastics company. All the components that form an integrated supply chain are already there. [Whereas] Chemaweyaat is only at the beginning of its journey.”

“There are 12 different complexes each with different configurations,” says Connie Evans, sales director at US automation consultant Honeywell, which worked on the first two phases of the Borouge scheme and on the development of Chemicals Industrial City. “They have got it all laid out, starting with Tacaamol and then straight after with Al-Chemeya, after which they will go on to build two more cracker complexes. It is nine crackers, two propane dehydrogenation units and two aromatics complexes within 15 years - a cracker complex every 20 months.”

Chemaweyaat has so far only announced plans for two of the 12 petrochemicals facilities it has planned at Chemicals Industrial City, but the first, Tacaamol, is a strong statement of intent. Investment in the project was originally estimated at about $11bn, but Chemaweyaat has not revealed the cost of the scheme.

However, sources with knowledge of projects of this magnitude say it could be “anything from $10-20bn”, and that the joint venture partners behind the 12 schemes could spend “anything upwards of $70bn” on the development in its entirety.

Upon completion in 2014, the Tacaamol complex will produce more than 6.2 million t/y of petrochemicals, generating revenues of more than $6bn, said Ali al-Dhaheri, project co-ordination manager of Chemaweyaat, at the MEED Abu Dhabi Megaprojects 2009 conference in May. Because it will use naphtha as a feedstock, the plant will also generate a slate of products well beyond the range of its Middle East competitors.

The plant will be allocated 6 million t/y of naphtha from Takreer’s existing Ruwais refinery, which currently exports about 8 million t/y of the oil derivative.

But this is just the start. Later complexes will boost Chemaweyaat’s production to include an even wider variety of chemicals, while the company will move into further downstream activities, such as the production of plexiglass and formica, through strategic joint ventures.

Indeed, joint ventures are planned to form the backbone of the Chemaweyaat project.

In the case of Tacaamol, Chemaweyaat’s joint venture partner is Ipic, a 40 per cent stakeholder in the parent company. The fund, which has stakes in companies including German industrial services firm Man Ferrostaal and Canadian petrochemicals producer Nova Chemicals, will be able to call on their experience in the latter stages of the development of the Chemaweyaat plant.

Ipic completed the purchase of a 70 per cent controlling stake in Man Ferrostaal for about $950m in March, and completed the acquisition of Nova for $2.3bn, including debt, in early July.

These purchases are strategic acquisitions. Man Ferrostaal has technology and experience in the construction of petrochemicals plants, while Nova has advanced low-density polyethylene technology. But they are also good buys outright, says Paul Hodges, chairman of UK-based petrochemicals consultant International Echem.

“Nova, from an operational point of view, is an excellent company and an excellent fit, especially with Ipic, which I am sure is going to make it more focused and play to its strengths,” he says.

Further purchases are likely as the Chemaweyaat project continues, says the business development manager of one international petrochemicals construction firm.

“It [Chemaweyaat] needs a few more technologies, and of course the expertise, so I am sure it will push ahead to find people who can provide these things in the long term,” he says.

Beyond the production of petrochemicals, Abu Dhabi is investing to bring international firms into the emirate. A polymers conversion complex, Abu Dhabi Polymers Park (ADPP), set up by Abu Dhabi Basic Industries Company (Adbic) under the emirate’s 2030 redevelopment vision, aims to attract downstream industries and expertise, and create demand for Borouge’s output, says Mohamed Hamad al-Qamzi, senior vice-president of Borouge.

He plans to bring in 60-65 firms to fill up ADPP’s 4.5-square-kilometre industrial plot at Abu Dhabi Industrial City by 2015, and with them, the majority of the estimated $4bn in investment that the city aims to attract.

Borouge, Chemaweyaat and ADPP’s output will then be exported via Khalifa Port, a $2.1bn scheme at Taweelah, phase one of which will be completed in 2010.

Borouge, which is already a well-established exporter, is also setting up an 80,000-t/y plastics conversion unit in China in anticipation of new demand from Asian markets.

From an offshore oil field in Abu Dhabi to providing plastic components for a car in Guangzhou, Abu Dhabi’s 2030 vision brings every element of the petrochemicals industry together. And the investment is worth it, says Evans. “Petrochemicals as an industry is one piece of the engine that is going to drive everything else,” he says. “Abu Dhabi needs a big engine for this kind of development, so it is thinking big.”

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