SAUDI BASIC INDUSTRIES CORPORATION (Sabic), the state-controlled petrochemicals and industrials giant, is pushing ahead with its third wave of expansion projects despite the threat to profitability posed by turbulence in its biggest market, east Asia.

The corporation aims to lift total production to 28 million tonnes a year (t/y) by 2000 from 23.7 million t/y in 1997. Investment in petrochemicals projects alone will be around $10,000 million.

Profits rose modestly to SR 4,600 million ($1,227 million) last year as output edged up and prices improved for some of Sabic's products, including polyethylene, methanol and ethylene glycol. But earnings remain well below the record SR 6,281 million ($1,675 million) reached in 1995.

Managing director Ibrahim Ibn Salamah warned earlier this year that sales and profits will be hit in the short term as demand slows for Sabic's products worldwide, but particularly in east Asia where the corporation sells about half of its output. A drop of 8-10 per cent in profits can be expected for the first quarter of this year, he was reported as saying.

Some signs that Sabic is moving to rationalise spending and reduce management and operating costs are already apparent. A new management structure was put in place last year, reorganising the corporation into five strategic business units (SBUs) - basic chemicals, polymers, intermediates, fertilisers and metals.

The aim is to elevate Sabic from a production-obsessed organisation into a market-driven operation which is more efficient and competitive. In the future, both SBUs and companies within an SBU will have to compete with each other for investments, which will be made in line with market growth.

Affiliates with overlapping product portfolios are also likely to have their managements merged to cut costs. This has already happened in the case of Arabian Petrochemical Company (Petrokemya) and National Plastics Company (Ibn Hayyan) and for Saudi Arabian Fertiliser Company (Safco) and National Chemical Fertiliser Company (Ibn al-Baytar).

Despite these structural adjustments, capacity expansion is still the over-riding priority at several Sabic affiliates:

Saudi Methanol Company (Ar-Razi) is building a fourth plant in Jubail, confirming its position as the world's largest single-complex methanol producer.

Ar-Razi-4, planned as a duplicate of Ar-Razi-3, will have capacity of 850,000 tonnes a year (t/y) and is due to be completed in the second quarter of 1999. The main contractor is Mitsubishi Heavy Industries (MHI). Total investment in the project is $240 million, of which $175 million will be loaned by the Export-Import Bank of Japan (Jexim). The three existing units - also built by MHI and financed by Jexim - came on stream in 1983, 1991 and 1997. Technology has been licensed from Mitsubishi Gas Chemicals for all four plants. Ar-Razi-4 will raise total capacity to 3.1 million t/y. Ar-Razi is a 50:50 joint venture with a Japanese consortium led by Mitsubishi Gas Chemical Company.

Saudi Petrochemical Company (Sadaf) is going ahead with plans for a second grassroots styrene plant and a $1,200 million aromatics complex in Jubail.

A letter of intent for the lump sum turnkey (LSTK) contract to build the styrene plant was awarded earlier this year to South Korea's Daelim. The contract is valued at about $152 million. Basic engineering for the 500,000 t/y facility was carried out by US-based ABB Lummus Global. The same firm is also providing the liquid-phase ethylbenzene and adiabatic deep vacuum technology it developed jointly with UOP of the US. Completion is due for 2000. The plant will be jointly owned with Petrokemya, which already takes styrene from Sadaf for its polystyrene manufacture.

Benzene feedstock for styrene-2 will be sourced from the company's planned aromatics complex, for which Foster Wheeler Italiana is working on basic engineering and designs. Prequalification for four LSTK packages on the scheme is under way. These will be for: the aromatics unit; off-sites and utilities; a co-generation unit; and an additional process unit. Award of the first construction package on the scheme is not expected until late this year. The complex will use the Cyclar process developed by UOP and The British Petroleum Company to produce benzene, paraxylene, orthoxylene and metaxylene from liquefied petroleum gas (LPG) supplied by Saudi Aramco. Start-up is scheduled for 2001.

Sadaf is also upgrading its existing styrene capacity of 500,000 t/y under a $35 million contract awarded to the plant's technology licensor The Badger Company, which is part of Raytheon Engineers & Constructors of the US. Work is due to be completed by late 1999. Sadaf is a 50:50 joint venture with Pecten Arabian Company, a subsidiary of Shell Oil Company.

Saudi-Yanbu Petrochemical Company (Yanpet) is building an estimated $3,000 million ethylene and derivatives expansion.

All major contracts on the scheme - due for completion in early 2000 - have now been awarded. Contractors working on the complex are: ABB Lummus Global with Athens-based Consolidated Contractors International Company (CCC) for a 800,000-t/y ethylene plant; Toyo Engineering Corporation of Japan with the local Mohammad al-Mojil Group for a 410,000-t/y ethylene glycol plant; and Mitsubishi Heavy Industries of Japan, also working with Al-Mojil, for polymers facilities comprising a 535,000-t/y polyethylene plant and a 260,000-t/y polypropylene plant. The project manager is Fluor Daniel of the US. Yanpet is a 50:50 joint venture with Mobil Oil Corporation.

Arabian Petrochemical Company (Petrokemya) is building its third olefins project in Jubail. This entails a propane cracker and an 800,000-t/y ethylene plant with additional capability to produce 275,000 t/y of propylene. Engineering, design and construction of the propane cracker furnaces are being carried out by Netherlands-based KTI and France's Technip under contracts awarded in mid-1997. Japan's Mitsui Engineering & Shipbuilding Company on 26 March signed contracts worth more than $115 million for engineering, procurement and construction management (EPCM) of the ethylene plant. A contract to build the unit is expected to be let to a local contractor later this year.

The project also entails construction of a 70-kilometre feedstock pipeline from Saudi Aramco facilities in Ju'aymah. The local Zamel & Turbag Engineering was awarded a contract for detailed designs and procurement assistance after the client decided against an EPCM option. A tender for construction of the 24-inch-diameter pipeline is expected to be launched later this year.

Petrokemya's total ethylene capacity will rise to 2.3 million t/y when the project comes on stream in 2000. Petrokemya is a wholly-owned Sabic subsidiary.

Al-Jubail Petrochemical Company (Kemya) is going ahead with a major olefins expansion, which includes the company's first ethylene production facilities.

Earlier this year, ABB Lummus Global won a $392 million contract to install 700,000 t/y of ethylene capacity. Italy's Tecnimont has started work on a 210,000-t/y grassroots low-density polyethylene (LDPE) plant on the basis of a letter of intent awarded earlier this year. A contract for the scheme - which will use Exxon technology - was expected to be signed by late April. Both schemes are due to be completed by mid-2000. The project manager is The Parsons Corporation of the US.

The scheme will be part-financed by commercial loans of about $700 million, which the client is soon expected to ask a group of international banks to arrange. Kemya is a 50:50 joint venture with Exxon Chemicals Arabia.

Eastern Petrochemical Company (Sharq) is building a new 497,000-t/y ethylene glycol (EG) unit and adding 300,000-t/y of linear low-density polyethylene (LLDPE) capacity by debottlenecking two existing units.

Japan's Chiyoda Corporation has the $500 million LSTK contract for Sharq's third EG plant. The unit is planned as a duplicate of the earlier 2-EG, which came on stream in 1994 and uses technology licensed from Shell International Chemical Company. Chiyoda also built both Sharq's existing EG facilities, which have combined capacity of 950,000 t/y.

Sharq is also planning to upgrade its LLDPE capability by raising output to 750,000 t/y and adding flexibility to produce other polyethylene resins. The scheme is likely to involve installation of new technology for the catalyst licensed from the US' Exxon Chemicals Company to replace the current Unipol process of Union Carbide Corporation. Mitsubishi Heavy Industries of Japan is understood to have secured a letter of intent for the contract. Both schemes are due to be completed in 2000.

Ethylene feedstock for the expansions will be supplied by Petrokemya's new plant in which Sharq will have a stake. Petrokemya will own 50 per cent of Sharq's 3-EG. Sharq is a 50:50 joint venture with a consortium of Japanese companies led by Mitsubishi Corporation.

Saudi-European Petrochemical Company (Ibn Zahr) plans to add a second Unipol polypropylene (PP) plant at its Jubail site by 2000. Bids submitted in January for an EPCM contract are still being evaluated. The company is also going ahead with plans to raise existing PP capacity through debottlenecking.

Propylene feedstock for PP-2 will be sourced from Petrokemya's planned olefins expansion - to be part-owned by Ibn Zahr - and from Kemya. Ibn Zahr is also thought to have looked at installing propylene capacity of its own. But a third polypropylene plant - which would not be started until after 2000 - would probably take priority, industry sources say.

Investment in new and upgraded PP facilities and the Petrokemya scheme is reported to total $500 million. Ibn Zahr is 70 per cent owned by Sabic, 10 per cent by Neste-Oy of Finland, 10 per cent by Ecofuel of Italy and 10 per cent by Arab Petroleum Investment Corporation.

Arabian Industrial Fiber Company (Ibn Rushd) expects new Cyclar aromatics and purified terephthalic acid (PTA) plants to begin production this year. The LSTK contracts were awarded in late 1995 to Chiyoda Corporation and Tecnimont respectively. Sabic has 52 per cent of Ibn Rushd, Saudi companies 43 per cent and a Bahrain-based company has 5 per cent.

Al-Jubail Fertiliser Company (Samad) is expanding into phthalic anhydride (PAN) production. Basic engineering and designs for a 50,000-t/y unit are being carried out by Germany's Lurgi. The plant was scheduled to be on stream by late 1999. Samad is a 50:50 joint venture with Taiwan Fertiliser Company.

Saudi Arabian Fertiliser Company (Safco) is adding 500,000 t/y of ammonia and 600,000 t/y of urea capacity at its Jubail complex under contracts signed with Italy's Tecnimont early last year. Sabic owns 43 per cent of Safco, private Saudi shareholders own 47 per cent and Safco employees have 10 per cent.

The scheme, planned to double Safco's capacity, is due on stream by the end of 1999. Technology is being provided by Brown & Root of the US for the ammonia unit, Stamicarbon of the Netherlands for the urea unit and Hydro Agri International of Belgium for the granulation unit.

United Jubail Fertiliser Company is pursuing plans for a 1,500-tonne- a-day off-gas ammonia plant.

Four contracting groups submitted bids in mid-March for an estimated $150 million LSTK contract. They were: Toyo Engineering Corporation and SNC Lavalin International of Canada, both proposing to use technology licensed from The MW Kellogg Company of the US; Tecnimont using technology from Brown & Root of the US; and Germany's Krupp Uhde with The Parsons Corporation using Uhde technology. Commercial bids were expected to be opened by the end of April with an award to follow by July. Nitrogen feedstock for the scheme will be supplied by National Industrial Gases Company (GAS). Hydrogen will be sourced from Ar-Razi and Petrokemya. United Jubail is 20 per cent owned by Safco; National Chemical Fertiliser Company (Ibn al-Baytar) has 20 per cent, Ar-Razi 20 per cent, Petrokemya 20 per cent and GAS 20 per cent.