By Malini Hariharan

It’s a question that has puzzled many – why has Petronas, the state-owned Malaysian oil and gas major, not made any effort to scale up its petrochemicals business in the last five years.

But there are signs that this is changing. Petronas has spun off the petrochemicals operations into a new company called Petronas Chemicals which is due to be listed on the Malaysian stock exchange by the end of this year. In August Petronas Chemicals acquired BP’s stake in Ethylene Malaysia and Polyethylene Malaysia. And it bought Dow Chemical’s holding in Optimal Olefins, Optimal Chemicals and Optimal Glycol last year.

In a prospectus released yesterday Petronas Chemicals provided details about its business strategy and future plans.

* All petrochemical activities will to be consolidated into a single entity to maximize efficiency. This includes centralized production management to better coordinate allocation of feedstocks. The two crackers at Kerteh (total capacity of 1m tonnes/year) will be managed as a single resource.

Petronas 1.jpg

Petronas 2.jpg

Source: Petronas Chemicals

* All marketing and sales functions will be by handled by MITCO, a wholly-owned subsidiary
* Product portfolio will be enhanced in the medium to long term. New grades are being developed such as pipe grade high-density polyethylene (hdPE)
* Production capacities will be expanded. Operational improvements would be made at the two crackers. In addition to this the company is reviewing debottlenecking projects for certain upstream products which should enable it to increase production of value-added deriviatives.
* An expansion of its operations in East Malaysia is being evaluated to take advantage of natural gas available in that region. A greenfield ammonia and urea complex is being studied.
* And an integrated refinery and petrochemicals complex is being studied in Peninsular Malaysia with international partners. The project is being evaluated by parent Petronas.
* The company will continue to look at acquisitions both in Malaysia and overseas.

Petronas Chemicals also revealed that reliable supply of attractively priced feedstocks is one of its key competitive strengths. Ethane prices vary by facility but are low enough to position the company at par with the average Middle East ethylene producer. Propane and butane are priced lower than the published Saudi Aramco contract prices. Methane is supplied at an “attractive discount to the average of a basket of global urea prices”.

The company said consultancy Nexant Chemystems has evaluated it as among the lowest cost producers of ethylene and polyethylene globally.

With such a strong position it would be imprudent to not expand in Malaysia. But the question is whether the parent has enough gas to support new worldscale petrochemical projects and if it would be willing to part with it at ‘attractive’ prices.

There is plenty in the prospectus to draw prospective investors to Petronas Chemicals but it remains to be seen how fast the company can implement its plans.

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