FocusMerging Thai PTT’s three refineries makes sense - analysts

23 July 2009 07:18  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)--Thai oil and gas giant PTT would realise better synergy and cost savings in combining operations of its refineries via a three-way merger of affiliates, analysts said on Thursday.

Merging PTT Aromatics, Integrated Refinery & Petrochemical Complex Public Co and Thai Oil now appears more viable, they said, leaving PTT Chemical – the pure petrochemical operations of PTT – out of the equation.

The move would create a company with a combined refining capacity of 770,000 bbls/day that can rank among the top 10 biggest in Asia.

“Benefits will come from jointly investing in upgrades that would create economies of scale,” said Naphat Chantaraserekul, senior investment analyst at Kim Eng Securities.

The three integrated refiners have plans to either upgrade refineries to be able to process heavier feeds and carry out configurations to their facilities to meet prescribed international standards, he said.

Joint investments could create significant savings, Chantaraserekul added, citing that PTTAR could cut $20m off its $240m bill to configure its refinery if it were to carry out works with IRPC’s facility.

The geographical challenge of combining the Mab Ta Phut-based operations of PTTAR and IRPC and Thai Oil’s facility in Sriracha, in Chanburi province, could easily be resolved through building a 60km pipeline to connect the two sites, analysts said.

“Building a pipeline from Mab Ta Phut to Sriracha would cost Baht (Bt) 2bn ($58.6m).Without a pipeline, shipping fuel from Sriracha to Mab Ta Phut is estimated at Bt50m per year. This is still minimal compared to the cost savings from joint-investment,” said Chantaraserekul of Kim Eng.

PTT Chemical and IRPC were initially thought to be the best bets to merge based on proximity of their operational bases in Thailand’s petrochemical hub of Mab Ta Phut.

The largely gas-based operations of PTT Chemical present a problem in merging its operations with the three integrated crude refiners, said Sutthichai Kumworachai, an analyst at KGI Securities.

Analysts now see PTT Chemical becoming the flagship petrochemical operations of PTT.

PTT Chemical’s use of gas as feedstock provide it with competitive edge over other Asian olefins producers, 80% of which use the more expensive naphtha as feedstock.

PTT was supposed to finalise its consolidation plan involving its four petrochemical affiliates in the fourth quarter.

“The process of merging – be it [through] share swap or PTT decides to incorporate a holding company that would control the affiliates – would be extremely complicated,” said KGI’s Kumworachai.

($1 = Bt34.13)

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By: Bohan Loh
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