SABIC, The World's Most Profitable Petrochemicals Co., Is Expanding E. & W. Of Suez.

The Saudi Basic Industries Corporation (SABIC) is negotiating stakes in petrochemical producing companies in Mexico, Europe, China and other markets. Having become the most profitable petrochemicals company in the world, SABIC has 11 new projects in Jubail and Yanbu' which will add 13.4 million tons/year of production capacity by 2008; this will be about 25% of its 2003 production of 42 million tons/year.

SABIC now is one of the top five producers of polyolefins in the world. Jacobs Consultancy of the UK has ranked SABIC number five in global polyolefins production, at about 5.5 million t/y in 2003. Capacity additions in Saudi Arabia and abroad will push it further up the ranks of polyolefins producer companies, which are led by Dow Chemical Co. of the US at 9 million t/y.

Private sector investment in petrochemicals production in Saudi Arabia is increasing. Profits from mostly ethylene-based products coming out of Saudi Arabia are at their highest level in years, thanks to low cost gas-based feedstocks and strong oil prices (see overleaf).

The strategic business unit (SBU) of SABIC's global businesses, which includes SABIC EuroPetrochemicals (SEP), is negotiating with the state-controlled Pemex Petroquimica of Mexico a stake of at least 50% in the company. Among other things, the Mexican firm has a greenfield petrochemicals project at the Phoenix unit. Under construction, the Phoenix complex will comprise an ethane cracker with a capacity of at least 1 million tons per annum and ethylene-based downstream units. This stake would give SABIC access to the North American Free Trade Agreement (Nafta) market.

SEP's main component so far is DSM Petrochemicals, the Dutch group which SABIC acquired in April 2002 whose assets in Europe include plants in the Netherlands and Germany. Through this, SABIC obtained a 12.5% stake in a northern European pipeline system, consisting of a propylene pipe, which is of strategic importance to SABIC's penetration of the European market.

This system has a 180m project to build a northern European propylene grid. The grid will enable SEP to expand in northern Europe through additional acquisitions (see below). In mid-2004 the European Commission approved government subsidies from Belgium, Germany and the Netherlands to partially fund the project, which had been on the drawing board since 1998. Without state aid, the project was unlikely to go ahead. The project company, European Pipeline Development Co., will lease capacity in an existing propylene pipeline owned by Shell and oversee construction of a new 400-kilometre network.

The European petrochemicals producing giant Basell (BASF/Shell) is to go on sale in 2005. SEP has indicated that, if Basell is to be split up, it will buy some of its divisions. Basell is a partners in as well as a technology provider to three important private petrochemicals JVs in Saudi Arabia, one of which - a 450,000 tons/ year polypropylene (PP) producing complex in Jubail - has been on stream since early 2004.

SEP is on a look out for other acquisitions in Europe. It is awaiting opportunities once BP and EniChem go ahead with the planned disposal of their olefins and derivatives businesses.

In China, SABIC is looking into two petrochemicals ventures. Speaking at the K2004 exhibition in Dusseldorf in late October, SABIC Vice-Chairman and CEO Mohammed Al-Mady said: "In China, we are in talks over two possible investments, one of them including a refinery". (For years Saudi Aramco and ExxonMobil have been negotiating a $3.5 bn JV to upgrade an expand an existing 80,000 b/d oil refinery in Fujian so that this reaches 240,000 b/d and build a complex to produce 800,000 t/y of ethylene and units to produce polyethylene and PP. The JV has been proposed to be owned 50% by Sinopec and Fujian Petrochemical Co., 25% by Saudi Aramco and 25% by ExxonMobil).

In Dusseldorf, Al-Mady laid out SABIC's ambitious plans for global expansion. He said: "When we look at acquiring assets [overseas] we never look at taking less than a 50% stake because it does not allow us a satisfactory level of control".

Al-Mady then confirmed that talks with Iran's state-owned National Petrochemical Co. (NPC) over a JV on the proposed Olefins-11 complex had been abandoned, saying: "At any one time we are in discussions over several ventures, and inevitably many of these never come to fruition, so not too much should be made of it".