PETRONAS Chemicals prepares for a rapid rise in production

01 July 2011 17:10  [Source: ICB]

The Malaysia-based chemical group will widen its footprint significantly on its parent company's massive refinery and petrochemical expansion

PETRONAS's expansion plans include a $20bn refinery and petrochemical complex in southern Malaysia

Rex Features

Malaysia's newly minted PETRONAS Chemicals Group (PCG) is poised to benefit strongly from state-owned parent firm PETRONAS's plans to build a new $20bn (€14bn) integrated refinery and petrochemical complex in the southern Malaysian state of Johor.

The new complex, called RAPID (Refinery and Petrochemicals Integrated Development), is now at the detailed feasibility study stage.

Plans on physical configuration and the final investment decision are expected in the second half of 2012 or early 2013, according to an official from the PETRONAS refinery operations unit at Kertih, Terengganu.

Upon completion, RAPID will consist of a 300,000 bbl/day crude oil refinery, a naphtha cracker that will produce about 3m tonnes of ethylene, propylene, C4 and C5 olefins each year and a petrochemical and polymer complex that will produce differentiated and ­specialty chemicals. PETRONAS also may build a liquefied natural gas (LNG) receiving and regasification terminal within the RAPID ­complex to support its overall operations. The oil and gas major also has revealed that it aims to eventually include multinational oil and gas companies as joint venture partners for an oil and gas terminal, a refinery and petrochemical and power plants.

A new independent deepwater petroleum terminal that is to be built at Pengerang will potentially attract foreign partners, according to the PETRONAS official.

The terminal project, a joint venture (JV) ­between Malaysian logistics services provider Dialog, Netherlands-based terminal operator Vopak and the Johor state government, is a tankage facility for the handling, storing, blending and distribution of crude oil and other ­petroleum products.

The parties involved are conducting a detailed feasibility study and an environmental impact assessment to determine the viability of the storage facility, which will be the first deepwater terminal in Southeast Asia.

Its initial storage capacity will be 1.3m cubic meters. The facility is expected to be completed in 2014.

Apart from the RAPID project, PCG is also working with Germany-based chemical major BASF on a new specialty chemical JV in Malaysia which could cost up to Malaysian ringgit (M$)4bn ($1.32bn). The two sides signed a memorandum of understanding on the JV in December 2010. The companies have an existing JV in Malaysia - BASF PETRONAS Chemicals - which owns and operates an integrated complex in Gebeng, Pahang, Kuantan that ­produces acrylic monomers, oxo products and butanediol (BDO).

Analysts say that while PCG has yet to ­formally confirm its participation in the project, they expect the company to be a primary ­beneficiary once it is commissioned by the end of 2016.

Malaysia-based CIMB Research said in a recent report that the RAPID project will provide great growth potential for PCG - similar to what the company has achieved at its integrated complex in Kertih, which produces 5.85m tonnes/year of olefins and aromatics products.

"Although PCG's management did not ­clearly state whether the company will expand at this Johor location, we believe this plan is likely to be an expansion of the new naphtha-based petrochemical complex that the company talked about previously," CIMB Research said.

"Based on PCG's investment in the Kertih project, we think that it may invest $1.5bn-2bn at the Johor location if it decides to invest in this project, which we believe the company will," it said.

RAPID also would be a positive step for PCG as it would deliver the feedstock needed for the firm to expand its domestic capacity, US-based investment bank J.P. Morgan said in a report.

"The new ethylene capacity would be three times PETRONAS Chemicals' existing capacity, and because it is based on naphtha, it will have the capability to produce profitable products like butadiene [BD] as well," the ­report said.

"This is important because for most Asian petrochemical producers, feedstock availability is the main bottleneck to expanding capacity significantly over the next 3-5 years," it added. In the medium term, PCG has announced a three-year expansion plan that could add 30% to capacity by 2015, according to CIMB Research.

The plan includes downstream specialty ­capacity expansion to enhance margins, urea and ammonia plants with 1m tonne/year of ­capacity as well as a new naphtha-based petrochemical complex, it said.

"All these plans are likely to be finalized by 2012 and should be adequately funded by PCG's net cash, which now stands at M$5bn," CIMB Research added.

PCG's earnings outlook remains promising in both the short and long terms, according to ­analysts. The firm posted a 36% year-on-year increase in its net profit to M$3.0bn for the fiscal year ended March 2011, while revenue grew by 20% to M$14.6bn following higher product prices and volume addition contributed by acquisitions of Optimal Chemicals and Optimal Glycols.

PCG's operating profit rose by 12% year on year to M$3.65bn for the full-year period, supported by the strong performance of BASF PETRONAS Chemicals, which mainly contributed towards higher share of profits from associate and jointly controlled entities by M$533m.

Going into the second half of 2011, both the selling prices and volumes of PCG's products are expected to be stable and sustainable, rather than continually going on an upswing, according to Malaysia-based OSK Research.

"In the fourth-quarter period that ended March 31, the group's utilization rate for the olefins and derivatives as well as fertilizers and methanol segments stood at 86% and 82%, respectively," the firm said in a recent report.

"[PCG's] management expects this rate to increase in the coming quarter. Demand growth is likely to continue to come from China, India and Asia Pacific," OSK Research added.

PCG's net profit is estimated to surge by 57% year on year to M$4.12bn for the full-year ­period which will end March 2012, while revenue is expected to grow by 10% to M$16.1bn, according to OSK Research.

By: Nurluqman Suratman

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