Sabic: Mission possible

21 November 2003
When it was established in 1976, Saudi Basic Industries Corporation (Sabic) was handed a challenging remit. According to its mission statement, it would expand and diversify the kingdom's production capabilities, develop local manpower into a workforce of international calibre, stimulate local industry by providing raw materials for downstream product and diversify and increase Saudi Arabia's export earning capabilities.

Twenty-seven years on, Sabic has not only met nearly all its targets, but overshot the majority of them. Today, it is the Middle East's largest and the world's 11th biggest petrochemicals company in terms of production capacity - now approaching 40 million tonnes a year (t/y). In the past decade alone, Sabic has added 10 million t/y of petrochemical products to its portfolio. As a polyolefin producer, the company, which has a worldwide workforce of more than 16,000, ranks fourth internationally.

And more is to come. Acquisitions have been made, capacity is being added and several new cracker projects are in the pipeline. Add to this the fact that the kingdom sits on abundant and cheap feedstock and the message to the world is clear: Sabic is aiming for the top.

'What we announced in the past was that by 2010 we will have capacity of 48 million tonnes [of petrochemical products],' says Mohamed al-Mady, Sabic's chief executive officer (CEO) and vice chairman since 1998. 'But I think we are well on our way to surpassing this target.'

The figures are impressive. More significantly, Sabic has reached a level of maturity that enables it to take a different approach when it comes to new expansion schemes. Whereas in the past the company had no option but to bring on board a joint venture partner, today it has the technical and marketing expertise to act alone - as with the construction of the Jubail United Petrochemicals Company (United) complex.

Inevitably, its evolution into an industrial heavyweight in its own right has changed Sabic's relationship with its partners: companies such as the US' ExxonMobil Corporation and the Royal Dutch/Shell Group have become competitors too.

The company's reaction is pragmatic. 'Whenever we find the need to be partners, we will be partners. Whenever we find the need to be competitors, we will be competitors,' says Al-Mady. 'It depends on the situation.'

Although the balance of power between Sabic and international players has shifted in favour of the Saudi company over the last decade, joint venture projects will remain an integral part of its future strategy. 'We have learned a great deal from our partnerships and we value that highly. I think it is wrong to look at it and say 'this is a competitor, so we cannot team up',' says Al-Mady.

Indeed, Al-Mady maintains partnering has its advantages: 'Partnership will always be needed. No company has the capability and financial strength to do all projects on its own. Nowadays, instead of doing one cracker, one can do four crackers with four partners to lower the risk and get more production in different parts of the world. We welcome joint ventures any time with our existing partners or with new partners. As a matter of fact we prefer the joint venture approach.'

Words are being backed up by actions. At Yanbu Petrochemical Company (Yanpet), Sabic and its joint venture partner ExxonMobil are proceeding with a major debottlenecking. The project is seen as being especially significant, since the two companies have been locked in a contract dispute in the US over licensing fees at their two in-kingdom joint ventures, Yanpet and Arabian Petrochemical Company (Kemya).

'[In addition,] we are studying a new project with Shell and another new project with the Japanese,' Al-Mady adds.

Sabic's first partnership with Saudi Aramco on a petrochemical project is also on the cards. 'We are in the final stages of discussions with Aramco for a new cracker in Jubail,' Al-Mady says. Sabic is also one of three companies - the others being the US' Dow Chemical Company and Japan's Sumitomo Chemicals - in talks with Aramco to team up on the petrochemical element of an estimated $3,000 million investment at Rabigh refinery, on the west coast.

While Aramco's long-awaited push into the kingdom's petrochemicals sector had been anticipated, there are few worries that the oil company plans to establish itself as a competitor. 'Aramco's main business is in oil and my understanding is that it only goes into petrochemicals if it has no other way of supporting its oil business,' Al-Mady says.

Sabic's also has its own plans. In addition to the cracker project with Aramco, the company is pushing ahead with a new world-scale cracker, on its own in Yanbu. Both complexes, with capacities above 1 million t/y, will be mixed-feedstock crackers. 'Olefin cracking results in a multitude of products, such as ethylene, propylene, benzene, etc. This gives us more breadth for ethane utilisation, instead of just cracking it, and that will prolong its growth period. It will also get us more customers. They [the crackers] are both in the early stages. We have not even started the design on the Yanbu cracker. [But] the feedstock for Yanbu has already been assured to us from Aramco.'

Securing feedstock - in particular the preferred ethane feedstock - will remain a challenge for any petrochemical player in the kingdom, whether it is Sabic or private-sector companies. New ethane supplies from Aramco have been limited in the past two years. And the long-anticipated 288 million-cubic-feet-a-day Berri gas plant, which came on stream earlier this year, has provided only temporary relief, as the output has been already assigned.

But there can be little doubt about the kingdom's commitment to the petrochemicals industry. The next wave of ethane supplies will come in 2006 when Aramco's straddle plant and additional gas plant expansion projects start to come on stream. Moreover, with the cancellation of the Saudi gas initiative after two years of fruitless negotiations between the government on the one hand and ventures led by ExxonMobil and Shell on the other, the path for the development of non-associated gas resources has finally been cleared. The government's latest initiative, the Saudi gas rounds, is designed to bring on board international oil companies for this purpose. Additional feedstock will potentially be made available from another upstream gas development in the Empty Quarter - to be carried out by a team of Aramco, Shell and France's Total.

Although ethane supply bottlenecks cannot be ruled out in the short to medium term, Al-Mady is confident that the long-term outlook remains positive. 'There will be shortages now and then but I think the region has enough ethane to satisfy the future growth here,' he says.

Sabic's battle for feedstock in the kingdom is increasingly being fought with private players. Companies such as Project Management & Development Company (PMD) and the local AH Al-Zamil Group have not only secured major ethane commitments from Aramco, they have also managed to attract some of Sabic's own workforce.

While the new players may not pose a threat to Sabic's dominating role, the emergence of a Saudi private petrochemical industry does have implications. Says Al-Mady: 'Of course, everybody has seen the success and profitability of Sabic. Our employees are doing very well with us and the private sector has found ways to lure away some of our employees while also securing feedstock from Saudi Aramco. Now they are starting their own projects. This will have an impact on us, in some ways positively. There will be ways of co-operation, where we can leverage some of our cost and sell them some of our products.

'Competition is a fact of life and we have to live with it. Sabic is a strong company. I hope we have enough knowledge and strength to deal with the new competitors.'

Sabic's knowledge and strength are unmatched in the region and are steadily rising, through acquisitions such as DSM Petrochemicals of the Netherlands and US technology provider Scientific Design Company. More importantly, both purchases have further strengthened the company's base to compete with the world's largest players - the likes of ExxonMobil, Dow and Europe's Basell.

'We do not do our acquisitions for the sake of acquisition,' says Al-Mady. 'We do it to fill strategic gaps. On the acquisition of Scientific Design, for example, we are the world's second largest producer of glycol but we did not have glycol technology. So we were at risk and by acquiring the company we now have the market and the technology to go with it. Likewise, the acquisition of DSM Petrochemicals was really to give Sabic a technology platform and a marketing structure.'

Al-Mady says no new acquisitions are pending - but neither are they being ruled out. 'What we are looking for in the future is investing on a grassroots level in and outside the kingdom. If the possibility of an acquisition comes along, we will evaluate it but we are not going out of our way.' Investments in new capacity are being considered in Europe, China and Iran.

Financially, the company is in a strong position. Fuelled by a combination of high oil prices and comparatively low ethane prices at home, rising margins have boosted Sabic's results for the first nine months of the year. By the end of September, profits stood at almost $1,300 million, 133 per cent up on the same period last year.

Mission accomplished? Not quite. The target is to make Sabic the Saudi Aramco of the petrochemicals industry, the leading global player. The fundamentals are in place, but until this goal is achieved, Sabic's mission continues.

Sabic will be represented by Abdullah Nojaidi,the vice president of petrochemicals at MEED's Investing in Saudi Arabia conference, taking place on 1-2 December at One Whitehall Place, London

For further information:

Telephone: +44 (0)20 7505 6044

Fax: +44 (0)20 7505 6001

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