The Qatar Petroleum subsidiary is at the heart of the state’s bid to diversify its petrochemicals sector.
Qatar Petrochemical Company (Qapco) occupies a central position in Doha’s latest bid to diversify its petrochemicals production base. Established in 1974 and one of Qatar’s oldest companies, Qapco was initially set up to use both associated and non-associated ethane gas from the state’s petroleum production. It has since experienced unprecedented growth, with net profits hitting a high of $300m in 2007. Ethylene output is expected to break the 725,000-tonne-a-year (t/y) barrier for the first time this year, with polyethylene production passing the 400,000-t/y mark.
Like many energy initiatives in Qatar, Qapco has a share in an array of related petrochemicals projects in addition to its own core activities. Ownership of the core Qapco company is split between the state-run Industries Qatar, the country’s largest firm by market value, which holds 80 per cent, and France’s Total, which owns the remaining 20 per cent.
Besides its own project commitments, Qapco holds the controlling 63 per cent share in Qatofin, set up in 2003 to develop a plant in Mesaieed with a capacity of 450,000 t/y of linear low-density polyethylene (LLDPE), along with Total, with a 36 per cent stake, and state energy giant Qatar Petroleum (QP), with 1 per cent.
Through a shareholding in Qatofin, Qapco holds a stake in the Ras Laffan Olefins Company, a joint venture of Q-Chem II (53.85 per cent), Qatofin (45.15 per cent) and QP (1 per cent).
The firm also has a 31.9 per cent shareholding in Qatar Vinyl Company (QVC), the state’s first downstream petrochemicals project, which produces 290,000 t/y of caustic soda, 175,000 t/y of ethylene dichloride and 230,000 t/y of vinyl chloride monomer. Other major shareholders in QVC are QP (25.5 per cent), Norway’s Norsk Hydro (29.7 per cent) and Arkema (12.9 per cent).
Finally, Qapco holds a one-third stake in Qatar Plastic Products in conjunction with Qatar Industrial Manufacturing Company (Qimco) and Italian firm Febo.
Qapco’s operational facilities consist of an ethy_lene plant producing 720,000 t/y along with two low-density polyethylene (LDPE) plants with total capacity of 385,000 t/y, and a sulphur plant with capacity of 70,000 t/y. Much of the firm’s attention last year focused on the ethy_lene expansion project, known as EP2, where capacity was boosted to 720,000 t/y from 525,000 t/y.
Mohammed al-Mulla, Qapco’s general manager, controls the company’s own operations but works closely with QP to ensure its strategy mirrors the wider ambitions of the state’s energy sector. Qapco has also steadily built up its marketing and sales network to include 15 offices and two regional warehouses, with a China office expected to open shortly.
It is also unifying its high-density polyethylene output with Q-Chem and QVC as part of a joint marketing arrangement.
Qapco plans to develop an LDPE plant, LDPE III, at its Mesaieed complex by 2011, with production of 250,000 t/y, expandable to 300,000 t/y. Ethylene feedstock for the facility will come from Qapco’s EP2 project at Mesaieed, which came on stream last year, and from Qatofin’s share of ethylene with the Ras Laffan Olefins Company. The LDPE output from the plant will primarily be destined for the Asian and European markets.
Pre-qualification bids from the prospective engineering, procurement and construction (EPC) contractors have been shortlisted by The Netherlands-based Basell, the technology provider for the plant, with invitations to bid to be issued to qualified bidders in June. The front-end engineering design of the plant is already being carried out by Germany’s Uhde and is due to be completed soon. Meanwhile, Qatofin expects to complete its 450,000-t/y LLDPE plant at Mesaieed, adjacent to the existing Qapco plant, by the end of 2008. Production will be expandable to 600,000 t/y and will be exported to Asia and Europe.
Qapco is guarded about its ambitions heading into the next decade, mostly because of the sensitivity around fresh ethane allocations from state gas producer QP.
With energy prices at an all-time high, Qapco is well positioned to take advantage of the surge in demand for downstream products. It is investing nearly $2bn in petrochemical projects that will almost triple its polyethylene capacity to 1.3 million t/y. Qapco is in a privileged position as one of the world’s most envied low-cost producers.
With oil prices exceeding $130 a barrel, the economics of the petrochemicals projects remain sound for Qapco. Product prices are buoyant and feedstock costs are still cheaper than in most countries outside the Middle East.
As elsewhere in the region, Doha’s petrochemicals sector has suffered a sharp rise in construction costs over the past few years, due in part to contractor capacity being squeezed by the high volume of work on offer. Despite construction cost pressure, Qapco’s enterprises are so profitable that it can afford to invest more than expected in its facitilities.
The firm predicts ethylene prices, which are currently about $1,200 a tonne, will stay in excess of $1,000 a tonne in 2009. Even if prices plunge, Qapco receives such cheap feedstock, at about $1-2 a million BTUs compared with more than $10 a million BTUs on the world market, that it would still be in good shape.
Ethane has been the feedstock of choice so far in Qatar’s petrochemicals industry, but a shift to mixed feedstock production combining ethane with liquified natural gas is likely heading into the next decade. This potentially offers a further path downstream for Qapco should it favour diversification.
With a good track record of rising profitability, Qapco remains in a strong position to keep driving the state’s emergence as a major petrochemicals producer.
Qapco in numbers
Qapco’s expected ethylene output in 2008 (t/y) - 725,000
Qatofin’s expected ethylene output in 2009 (t/y) - 1.3bn
Budget for the third low-density polyethylene plant planned for 2011- $410m
Qapco’s average oil price forecast for 2009 - $90
Q&A Mohammed al-Mulla, general manager
How are you dealing with increased engineering, procurement and construction (EPC) costs?
Costs have increased in the range of 22-27 per cent, but we are coping. For an EPC project, you have to plan ahead because you have to make a reservation for resources and you may also have to make a down-payment, which could be refundable at the end. It depends on who you are dealing with.
We have to order for long-lead items for EPCs and for our own existing plants. But we are dealing with this situation. We are taking care, and we stock good numbers of spare parts in our warehouses in order to avoid problems.
We generally ask EPC prices to be quoted in dollars and the part of the equipment that is in euros or other currencies is covered by hedging the risk.
In terms of construction and engineering costs, which covers manpower and construction materials, prices are generally firm and the EPC contractor then bears the potential risk.
How is the financing progressing for your 250,000-t/y low-density polyethylene plant?
If I go to any bank today and tell them I am from Qapco, they will say ‘whatever you want we will give to you’, so it is not a big deal.
We are thinking of a package but I cannot give you a figure. It could be 40 per cent from the banks and 60 per cent by ourselves through the market.
We have our money too as a company. So we will probably take a loan of 40-50 per cent for this project, but it has not been decided yet because we are still in the final discussions. We will know by September of this year, but we are in no rush.
Saudi Basic Industries Corporation (Sabic) has grown into one of the largest petrochemical operators in the world. Do you view it as a rival?
Sabic is huge. It is bigger than the dinosaurs that came 200 million years ago. We cannot compare ourselves to Sabic [in size], but we do compare ourselves to it in terms of quality, in terms of being on time and serious customer satisfaction.
We produce less but we sell better than Sabic when it comes to prices. Sometimes we can sell our product, which is an exact copy of a Sabic [product], but we sell it better [and gain] $100 or $90 over what Sabic is selling it for.
Where do you see the company’s growth areas?
Today, if you ask any company where it is selling, it will tell you India and China. I think our business now is turning from China to India.
In India now, there is huge demand for petrochemicals. This is the market.
We are also selling to the Middle East and most of the countries in the Far East as well as Europe through our shareholder Total, and also a little bit in the US.
We sell to 85 countries and 4,500 customers and we will make it 4,501 soon. I do not think there are difficulties for today, tomorrow or in the years to come over creating more plants and producing greater quantities.
What is the situation with receiving feedstock supplies from Qatar Petroleum (QP)?
Feedstock is available. QP never announces a project without studying the project and making sure that the feedstock is enough for that project before giving the go-ahead. That is the rule with QP.
As a subsidiary, normally if we have a good project we approach QP and then we review the project with QP and it advises us to go ahead.
It then reviews the quantity and we say this is what we want to produce. So QP is always there and QP is always advising us what to do as feedstock is in its hands and under its control.
We cannot award a project and say ‘go ahead’ without having a feedstock [allocation]. That would be ridiculous. You cannot invest in a multi-billion [dollar] product and not have feedstock. That would be a waste and equally shareholders would never join such a joint venture agreement in the future.