SAUDI ARABIA - The SABIC Perspective.
The years 2007-09 are likely to be difficult because of new capacities going on stream, mostly in Saudi Arabia and other Middle Eastern countries. But Madi on Oct. 7 was quoted by MEED as saying: "We are taking the optimistic view that growth in demand in...China, India and Brazil, coupled with our strength, will allow us to get ahead of our competition. It is difficult to predict but I am an optimist. Most new capacity is...to come in 2008-09. But the impact of that may be offset by some plant closures, growth in China and also some projects may slip. So the situation is not so bad as many people are saying".
Mady sees a big increase in Asian demand, mainly in China where year-on-year GDP growth is anticipated at 7-9%. China's GDP by 2050 would reach $45 trillion, from $1 trillion now, overtaking the US as the biggest economy in the world.
Addressing a meeting of the European Petrochemical Association (EPCA) in Vienna last month, Mady spoke of a "shifting of the centre of economic, population and petrochemical gravity" to the east. He said: "This...epic shift...deserves the attention of all planning exercises associated with meeting future global chemical demands". SABIC will have a 1m t/y naphtha cracker in China and its presence there will be growing (see overseas investments in OMT 16).
Mady said: "The Middle East, with its hydrocarbon resources and its strategic geographic location, has become the world's most attractive location for petrochemical assets. For European petrochemical companies, it is an economic bridge to the rapidly growing Asian markets". SABIC is considering a major expansion of its European capacities in Germany and the Netherlands.
The core of SABIC's expansion is a big rise in its domestic capacity, including its two mega-projects - the $3 bn construction of the Yanbu' National Petrochemicals Co. (YanSab) complex and the $2.5 bn expansion of its Jubail affiliate Eastern Petrochemical Co. (Sharq). Mady told the EPCA: "We have a $20,000m investment programme, which also covers investment already in place that will come on stream next year. This covers steel, Saudi Arabian Fertiliser Company (Safco), Europe, the two crackers and the China investment...At YanSab...We have awarded all the contracts except for the HDPE [high-density polyethylene] bimodal plant, which will be awarded next year. And work has already begun, so we are ahead of schedule".
This summer saw engineering, procurement and construction (EPC) contracts worth over $5 bn won in Saudi Arabia. The autumn has been as hectic. This quarter is to feature the three remaining downstream contracts at the Rabigh petrochemicals complex, as well as the polypropylene (PP) plant and propane dehydrogenation (PDH) unit at Jubail for the private Sahara Petrochemical Co. (see DT No. 16), and the styrene plant for Saudi Petrochemical Co. (Sadaf) in Jubail.
Earlier this month contractors were preparing offers for a series of new capacity additions, including the PDH/PP packages at the Saudi European Petrochemical Co. (Ibn Zahr), three downstream units at SABIC's Yanbu' olefins complex, and the second phase of development of a large-scale carbon monoxide (CO) and purification plant at Jubail for Saudi International Petrochemical Co. (Sipchem).
SABIC's share of local petrochemicals output will fall from 95% to 75% by 2010, due to huge private investment in the sector. According to the Saudi Arabian General Investment Authority (SAGIA), investment in the kingdom's petrochemicals output from 2004 to 2009 will be about $41 bn, involving about 17.3m t/y of additional capacity (see the private Saudi petrochemicals business in DT No. 16).
However, rapid expansions are straining the industry's limited supply chain and many are warning a severe shortage of EPC contractors could seriously delay many of the projects.
Mady admits the lack of EPC contractors is an issue but, according to MEED, he is "sanguine about the matter and, once again, believes the opening-up of China will be part of the solution". It quoted him as saying: "It is a concern in terms of extra cost but not in terms of stopping implementation. We have good relations with our contractors. They see SABIC as a strategic partner and they give us priority when they select projects. But there is a lot of strain on capacity because of [Saudi] Aramco's upstream activities (see OMT).
"So we are trying to diversify our suppliers by bringing in new talents. We have the Chinese [Sinopec] for the first time, the Koreans are back and some Europeans are very competitive. We have also changed our acquisition strategy to carry out projects on a reimbursable basis. And we are introducing incentives, so that if they do the job right they will benefit".
Of great worry is the mounting demand for feedstock in the kingdom. But Mady says SABIC investments overseas are not a result of these concerns, adding: "Yes, we are concerned about feedstock. But our global acquisition strategy was started before concerns about feedstock supply. We look at it as a challenge and an opportunity. We can use the position to our advantage through co-operation with new producers. We may participate with these investors in the future".
The rise in the prices of construction materials has hit SABIC. But Mady said: "The impact of rising materials costs is not only on SABIC. The rise in the cost of steel and cement is worldwide. It is therefore a level-playing field for everyone in the industry and does not affect our strategic planning. Of course it increases our costs but we are hopeful we can mitigate against this".
Many investors in Saudi petrochemicals are moving further up the value chain by producing more complex items. Although SABIC has no plans to move downstream now, MEED said, Mady "is open minded on the idea", saying: "SABIC has a strategy to be in the business that we are in. However that strategy can change. There is no single set of criteria. Some chemicals companies do well integrating downstream. In the near term we will continue the way we are. However, there may be opportunities that we may have to take in order to do business. That will be opportunistic". He was less equivocal on moving to oil refining as Saudi Aramco is moving into petrochemicals, saying: "It is not our business". (See SABIC background in Vol. 61, DT No. 15).
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 are mostly JVs between SABIC and foreign firms. Their output capacity exceeds 43m 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.
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 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 Mady in late 2001: (1) "Size is important in our business... 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... So you have to increase your skills in other areas"; and (4) efficient management, with a restructured SABIC consisting of one shared services unit and six strategic business units (SBUs): basic chemicals, intermediaries, polyvinyl chloride (PVC) and polyester, polyolefins, fertilisers and metals, and global businesses including DSM - 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 R&T unit; Alpha-Sablin, developed jointly with Linde of Germany; and a new venyl acetate monomer process used at its semi-commercial acetic acid plant at Yanbu' on stream in 2004.
SABIC wants to be among the four or five leading commodity petrochemical producers in the world. It 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) later this year. Being a WTO member means Riyadh will no longer be allowed to subsidise raw material and fuel prices.
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 also benefits from "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.
The main SABIC companies, their ownership structures, products, capacities, and expansions are listed below:
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|Publication:||APS Review Downstream Trends|
|Date:||Oct 10, 2005|
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