SAUDI ARABIA - The Saudi Petrochemical Sector; Big Expansion At Home & Abroad.

The Saudi Arabian Basic Industries Corp. (SABIC), owned 70% by the state and 30% by private Saudi and other GCC shareholders, has become the 11th largest petrochemical producer in the world. Before it bought the Dutch firm DSM Petrochemicals in 2002 it was the world's No. 22. The acquisition raised its ethylene output by 1.2m tons to 6.9m t/y and gave it a good key to the European market. While expanding at home, it is on the lookout for other major acquisitions or joint ventures (JVs) on both sides of Suez.

With assets worth $26 bn and more than 16,000 employees, SABIC in 2002 generated $9 bn in sales and $750m in net profit. All of SABIC's plants at the Saudi industrial cities of Jubail and Yanbu' keep raising capacity or are having their output streams diversified. Their plants, numbering 17, are mostly JVs between SABIC and foreign firms. Their production capacity exceeds 42m t/y, up from SABIC's capacity of 22m t/y in 1995. SABIC and partners in Jubail and Yanbu' produce more than 45 kinds of petrochemicals and other products. SABIC says its plants and JVs at home and abroad should exceed 50m t/y by 2010.

The private sector in Saudi Arabia is to play a significant role in the petrochemicals business. The industry was opened to local and foreign investors following a cabinet decision in September 1994 (see DT No. 16).

In early 1997 Saudi Arabia became the biggest exporter of oxygenates in the world, with its capacity to produce methyl tertiary butyl ether (MTBE) rising to nearly 3.2m t/y, from 2.5m t/y in 1996 when it accounted for 13% of the world's MTBE output. Now its MTBE/ETBE production is much higher.

SABIC depends on four factors outlined by its CEO Mohammed Al Mady in late 2001: (1) "Size is important in our business. We have seen over the past five years the field of major companies shrinking. If you don't participate in this (globalisation) process, you will not be influential in the market"; (2) "No company can continue to rely on imported technology. By concentrating on technology, we will upgrade our people, material assets and add value to our products"; (3) "You cannot rely always on the strength of your raw material (advantage) alone. People will find ways of manufacturing in your back yard. So you have to increase your skills in other areas"; and (4) efficient management, with a restructured SABIC now consisting of one shared services company and six strategic business units (SBUs): basic chemicals, intermediaries, polyvinyl chloride (PVC) and polyester, polyolefins, fertilisers and metals, and global businesses including DSM - now called SABIC EuroPetrochemicals (SEP).

By acquiring DSM, SABIC gained one key technology - Stamicarbon - to add to three processes it has developed: the Acetic Acid process created at its Research & Technology (R&T) unit; Alpha-Sablin, developed jointly with Linde of Germany; and a new venyl acetate monomer process, to be used at its semi-commercial acetic acid plant at Yanbu' to start up in 2004.

SABIC wants to be among the four or five leading commodity petrochemical producers in the world. SABIC cannot grow fast enough to reach this goal without acquisitions abroad, because of its eroding feedstock advantage as Saudi Arabia joins the World Trade Organisation (WTO). Being a WTO member means Riyadh will no longer be allowed to subsidise raw material and fuel prices. US petrochemicals consultant Larry Wheeler says "the shortage of additional low-cost feedstock would ultimately limit (SABIC's) future profitable growth in Saudi Arabia". So SABIC is still negotiating with ENI of Italy to acquire EniChem. It was said before the purchase of DSM that a SABIC-EniChem combine would be the leading olefins producer in Europe, No. 3 producer of polyolefins and the market leader in linear low-density polyethylene (LLDPE).

The growth strategy of SABIC through the 1990s focused on two aims: (1)yto raise capacity so that exports are increased while domestic demand is met, and (2) to keep adding new petrochemicals to its production mix.

SABIC had the advantage of abundant low-cost gas feedstock. This made the company highly competitive on the world stage, allowing it to profit despite a slump in the market and protective tariffs on both sides of Suez. The cost advantage was reduced from Jan. 1, 1998 as the price of gas to SABIC plants rose from $0.50/m BTU to $0.75/m BTU and Saudi Aramco's discount on LPG supplies was lowered. Now both gas (ethane & methane) and LPG prices are expected to be higher.

The challenge comes from WTO entry conditions. EU petrochemical exporters, the world's biggest, complain that SABIC benefits from subsidised fuel/ feedstock prices and "hidden" subsidies like concessionary project finance provided by the Public Investment Fund (PIF) and Saudi Industrial Development Fund (SIDF). Saudi and independent experts dismiss these claims. Saudi Arabia will enter the WTO and may be allowed a transition of up to 10 years before subsidies are totally removed. This would give SABIC a comfortable time-frame to leverage its inherent strengths and consolidate its position as a global giant in the petrochemicals business.

With petrochemicals prices having risen since the second quarter of 2002 and SABIC sales having increased by 18%, the company in 2002 recorded a net profit of SR 2,844m ($758.4m), up 60% from 2001. SABIC's CEO Al Mady said earlier this year he expected the positive trend to continue in 2003, thanks to the acquisition of DSM, the group's restructuring and major long-term supply contracts. In 2001, SABIC's net profit had slumped by 51% to SR 1,782m ($475m), due to low petrochemicals prices combined with weak demand and an increase in feedstock costs; 2000 had been a much better year (see background in Vol. 57, DT No. 18).

The main SABIC companies, their ownership structures, products, capacities, and expansions listed below:

Saudi Petrochemical Co. (Sadaf): Having started production in 1985, Sadaf is a 50-50 JV between SABIC and Shell Chemicals Arabia (a unit of Shell US). Sadaf, the biggest of SABIC's JVs, has a complex at Jubail producing a variety of petrochemicals and this was expanded with a second grassroots styrene monomer plant with a capacity of 500,000 t/y which went on stream in 2000. A $1 bn aromatics project based on the Cyclar process of BP/UOP for 520,000 t/y of benzene has been postponed. A co-generation unit to provide 500 t/h of steam to the new styrene plant and 260 MW of power to the whole complex is being built as an IPP - called Jubail Energy Co. - owned by CMS Energy of the US (25%) and National Power Co. (75%) which is a 50-50 JV of the local AH Al-Zamil Group and Al Seif Group. To start up in May 2005, this will be the first captive IPP in Saudi Arabia but the plant will sell surplus output to other users at Jubail.

A styrene monomer plant is owned by Sadaf and Petrokemya (see below). It is the largest single-line styrene plant in the world. The basic engineering and technology licencing was done by ABB Lummus. The plant is using technology developed by ABB Lummus and UOP.

Apart from this Sadaf currently has production facilities for: 1,2m t/y of ethylene, 560,000 t/y of ethylene dichloride, 360,000yt/y of styrene and 450,000yt/y of caustic soda. In February 1997, a 700,000yt/y MTBE and ethyl tertiary butyl ether (ETBE) plant was inaugurated at the Sadaf complex. This raised Saudi MTBE production capacity to 3.2m t/y, making the kingdom the biggest exporter of oxygenates. Sadaf is marketing the MTBE and ETBE in the US through Shell's network. The Sadaf complex has a unit producing more than 300,000 t/y of ethanol, a feedstock for ETBE. Technip-Coflexip is modernising five gas cracking furnaces at Sadaf's ethylene plant under a contract awarded in mid-June 2003.