It is not surprising to find that Saudi Basic Industries Corporation (Sabic) remains the region's largest petrochemicals producer. But what is unexpected is the scale of the gap between the company and the next largest regional producer.
An analysis of total operational regional cap-acity of the GCC's petrochemicals producers, carried out by MEED, shows Sabic has a total production capacity of nearly eight times its nearest rival, Qatar Fertiliser Company (Qafco). It is even higher if Sabic's European base chemical production facilities are taken into account. More still if its newly acquired subsidiary, Sabic Innovative Plastics, formerly known as US company GE Plastics, is included.
Sabic undeniably has a supreme advantage, thanks to the availability of cheap feedstock in Saudi Arabia. However, it is also a testament to its ambitious growth strategy and the strong government support given to the company since it was established in 1976. By the end of 2006, the company had became the world's 11th largest chemical company in terms of sales, and first in terms of profitability and stock market value.
By the end of this year, it will enter the global top 10 following its acquisition in August of GE Plastics. And by the end of 2009, when two petro-chemicals complexes - the Yanbu National Petro-chemical Company (Yansab), in which Sabic owns a 55 per cent stake, and Eastern Petrochemical Company (Sharq), in which it owns 50 per cent - come on stream, it may well enter the top five. Some analysts predict Sabic will become the world's largest petrochemicals company by 2015, if this growth rate continues.
Much has also been made of the company's robust and experienced management structure, which has rewarded performance rather than patronage, as is the case with so many other state-owned companies in the region. Being listed on the Tadawul is a key factor, ensuring that Sabic strives to maximise shareholder returns and improve competitiveness. These factors will be tested in the next decade as the market slows, cheap feedstock allocations dry up and competition in Saudi Arabia increases.
One of Sabic's key challenges is managing the integration of GE Plastics into the group. It is too early to tell what will happen, but the signs so far have been encouraging. The new workforce, located primarily in the US, has appreciated the end of the uncertainty over the sale and the fact that Sabic will be looking to invest in the business.
“The first thing the Sabic executive did was tour the facilities, meeting each and every one of the GE employees, white and blue-collar workers alike,” says a source close to the company. “It went down really well as people were not used to such familiarity. [Sabic chief executive officer] Mohammed al-Mady is spending as much time in the US now as he does in Riyadh.”
Nonetheless, the acquisition will not be without its challenges. Speciality products are still a relatively new area for Sabic, and it will have to adapt to an aspect of the industry that is far more market-facing and customer-focused than the base chemical and polymer commodities it currently produces.
There are also question marks about the $11.6bn Sabic paid for GE's plastics division, with some analysts saying it was far more than the business was worth.
Value for money or not, the acquisition clearly has advantages for Sabic. “Although it was a high price, it is difficult to say if Sabic overpaid,” says Sanjay Sharma, project manager at the Dubai office of consultant CMAI. “It clearly sees a lot of synergies in gaining a foothold in the US market. It also has a lot of polycarbonate production coming out of the Saudi Kayan project, almost 10 per cent of global production, and this is an area GE was strong in.”
On the down side, Sharma says Sabic will have to spend more cash on GE's infrastructure. GE has a lot of ageing assets that will need a substantial amount of investment.
While Sabic's position as the number one regional player will not come under threat any time soon, positions lower down the table will undoubtedly change over the coming five years, as a host of projects come on stream.
Saudi Aramco will enter high on the list when its giant Petro-Rabigh and Ras Tanura integrated refining and petrochemical complexes are completed. The two $20bn-plus projects will add millions of tonnes of capacity and new product ranges.
The introduction of speciality products, such as polycarbonates and phenols, will constitute a major element of all future regional capacity as producers seek to go down the value chain. As it stands, with unallocated ethane feedstock in such short supply, polymer and base chemical production will not increase substantially beyond 2010. Instead, over the next decade the region's plastics sector will come of age.
Saudi International Petrochemical Company (Sipchem) is an example of this new generation of complex. The private sector company's $8bn third-phase olefins and derivatives complex and associated ammonia plant will substantially improve its position in the table, with the addition of a range of speciality products, such as polyacrylonitrile.
62.8 billion tonnes is the petrochemicals production capacity per year in the GCC.
TABLE: GCC annual petrochemical production capacity by producer
('000 tonnes a year)
|Saudi Basic Industries Coporation* (Sabic)||Saudi Arabia||17,650||10,340||5,620||5,920||39,530|
|Qatar Fertiliser Company (Qafco)||Qatar||na||na||na||5,420||5,420|
|Oman India Fertiliser Company (Omifco)||Oman||na||na||na||1,900||1,900|
|Equate Petrochemical Company||Kuwait||800||450||600||na||1,850|
|Petrochemical Industries Company (PIC)||Kuwait||na||na||100||1,650||1,750|
|Qatar Fuel Additives Company (Qafac)||Qatar||1,440||na||na||na||1,440|
|Gulf Petrochemical Industries Company (GPIC)||Bahrain||400||na||na||1,000||1,400|
|Abu Dhabi Polymers Company (Borouge)||UAE||600||na||600||na||1,200|
|Qatar Vinyl Company (QVC)||Qatar||na||1,190||na||na||1,190|
|Ruwais Fertiliser Company (Ferhl)||UAE||na||na||na||1,150||1,150|
|Oman Methanol Company (QMC)||Oman||1,095||na||na||na||1,095|
|Qatar Petrochemical Company (Qapco)||Qatar||720||na||360||na||1,080|
|International Methanol Company (Sipchem affiliate)||Saudi Arabia||1,000||na||na||na||1,000|
|Qatar Chemical Company||Qatar||500||45||450||na||995|
|Tasnee Petrochemicals Company||Saudi Arabia||450||90||450||na||990|
|Saudi ChevronPhillips||Saudi Arabia||480||280||na||na||760|
|Oman Polypropylene (OPP)||Oman||na||na||340||na||340|
Figures comprise currently operational or mechanically completed regional capacity only.
Capacity is stated by company and is not split by shareholders’ equity production.
Capacity is stated in tonnes a year where known.
When capacity is known only in tonnes a day, it has been multiplied by 365. The data consists of the feedstock and end product (total ammonia and urear output).
Sabic’s metals production is not included. Includes all regional Sabic subsidiaries and the equity production of their joint venture partners.
Base chemicals=ethylene, methanol, methyl tertiary-butyl ether (MTBE), propylene, styrene, benzene, paraxylene, pygas, ethanol, butadiene and butane-1
Intermediates=ethylene glycol, purified terephthalic acid, ethylene dichloride, caustic soda, hexane-1, 2-ethylene hexanol, di-octyle phthalate, and vinyl chloride monomer
Polymers=polyethylenes, polypropylenes, polyvinyl chloride, polystyrene, polyethylene terepthalate, polyester fibres, melamine and textile chips.
Fertilisers=ammonia and urea.
Specialty products, formaldehyde, epoxy resin, butanediol and solvents are not included.
The private sector in general will become more prominent in terms of production capa-city. Saudi Arabia's Sahara Petrochemical Company and Tasnee both have large polymer projects set to come on stream by the end of 2009.
Saudi Arabian Mining Company (Maaden), which is expected to list early next year, will enter the fertiliser sector in a major way when its Ras al-Zour fertiliser complex starts operations in 2011. It will be producing almost a quarter of the world's output of 12.3 million tonnes a year of diammonium phosphate (DAP) fertiliser.
Maaden and Sahara together, through their Arabian Chlor Vinyl Company joint venture, are building an ethylene dichloride complex in Jubail. Sahara is also set to enter the acrylic sector with its Jubail-based Arabian Acrylate Company acrylate ester complex. Other upcoming private ventures in the kingdom include the Osos Petrochemicals Company polybutyleneterepthalate (PBT) facility and the Arabian Amines Company amines complexes.
The action is not just confined to Saudi Arabia. Qatar, with its plentiful gas reserves, also has ambitious plans for its petrochemical sector, although it is still focusing mainly on upstream chemical production.
The most advanced grassroots scheme is the Korean/local Honam Petrochemical Corporation/Qatar Intermediate Holdings Company polymers complex in Mesaieed, which is due to come on stream by 2011. Shortly after will come the similar-sized local/US Qatar Petroleum/ExxonMobil Chemical Company project at Ras Laffan. France's Total and the UK/Dutch Shell Group are both looking at cracker complexes in Ras Laffan.
For existing producers, Qafco is set to reinforce its high ranking following the signing of a letter of intent for the engineering, procurement and construction contracts on its fifth production train, which will add more than 2 million tonnes a year of urea and ammonia production capacity. It is also building a melamine complex.
Qatar Fuel Additives Company (Qafac) is trying to overcome feedstock issues to expand its production capacity, while Qatar Chemical Company (Q-Chem) and Qatar Petrochemical Company (Qapco) both have expansion projects under construction.
In the UAE, the main focus is on Abu Dhabi Polymers Company (Borouge), which is in its second-phase expansion to increase olefins production. It also plans to build polycarbonate and phenols production capacity.
Staying downstream, it is in the process of building a new melamine plant using urea sourced from Ruwais Fertiliser Company (Fertil), which itself is undergoing a debottlenecking of existing facilities. Fertil is additionally planning a new urea and ammonia line at its Ruwais plant.
Elsewhere, opportunities are more limited. Kuwait, Oman and Bahrain all suffer from a lack of available gas feedstock, making capacity hikes difficult. Oman has the Sohar aromatics and Salalah methanol complexes under construction, while Kuwait's Equate is expanding capacity through its Olefins II scheme. But beyond that there is little on the horizon.
Oman Petrochemical Industries Company (Opic) has put its planned Sohar complex on hold because of rising construction costs. A decision has yet to be made on whether to proceed with the Duqm integrated refinery and petrochemicals complex in the south of the sultanate.
Over the next 10 years, there will be radical changes in the producers' table. Sabic should remain top but, lower down, competition will increase. Qatari and Saudi Arabian companies will climb up the list, and there will be a far greater and more influential private sector presence.
Product slates, currently dominated by upstream base chemicals and polymers, will change to reflect the trend of growing downstream chemical production. The only constant will be the region's growing dominance of the industry as a whole.
The petrochemicals production capacity in the GCC is 62.8bn tonnes a year.
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