ADNOC exemplifies big oil’s rise on petrochemicals stage

The official rollout of the Abu Dhabi National Oil Company’s (ADNOC) massive $45bn investment plan in petrochemicals and refining is another sign of the rise of “big oil” on the global petrochemical stage – in this case and in Saudi Aramco’s it is “big national oil”.

ICIS Insight editor Nigel Davis has well documented the drive among large oil companies to expand further in petrochemicals following the oil price collapse of 2014-2015 and amid the growing realisation that oil demand for fuel will one day plateau, with the electrification of vehicles and growing fuel efficiency.

ADNOC’s investment plan reinforces this, as the company seeks to “stretch the dollar further from every barrel we produce” by shifting its focus downstream, CEO Sultan Ahmed Al Jaber said in an interview with CNBC at the ADNOC Downstream Investment Forum in Abu Dhabi on 13 May.

ADNOC
Ceo Sultan ahmed al Jaber stands with officials at the aDnoC Downstream Investment Forum in abu Dhabi

A key element of ADNOC’s plan is to “build one of the world’s largest mixed feed crackers”, tripling production capacity at its Ruwais petrochemical complex from 4.5m tonnes/year at a 2016 base, to 14.4m tonnes/year by 2025. ADNOC aims to create many new value chains downstream in areas such as construction chemicals, oil and gas chemicals, surfactants and detergents, inviting partners to invest.

But ADNOC’s ambitions are not limited to Abu Dhabi. It is evaluating joining Saudi Aramco and a consortium of three Indian oil companies in building the Ratnagiri integrated refinery and petrochemical complex on India’s west coast, Al Jaber said in an interview with Bloomberg, calling it “one of many opportunities” being explored. The Ratnagiri project in the state of Maharashtra is estimated to cost around $44bn, according to Aramco when it signed a memorandum of understanding (MoU) with the Indian oil consortium in April.

It is clear “big oil” is no longer satisfied simply providing feedstock for the downstream chemical sector – they want to stretch the value from that barrel of oil (or cubic metre of gas) to the maximum. This is a complete reversal of the trend around a decade ago, when oil companies were seeking to divest or separate refining as well as chemical operations, viewing them as non-core to exploration and production.

Aramco has made its downstream ambitions clear for years, acquiring chemical assets worldwide, building out Sadara – the world’s largest chemical project in Jubail, Saudi Arabia, with US-based Dow Chemical – and laying out its own huge investment programme.Aramco is partnering with SABIC to build a fully integrated crude oil to chemicals complex (COTC) in Saudi Arabia. The project will have 9m tonnes/year of chemicals and base oils capacity, and start operations in 2025. In late April, the companies awarded a project management and front-end engineering and design (FEED) contract to engineering firm KBR.

Also in April, Aramco and France’s Total signed an MoU to build a $5bn petrochemical complex next to their SATORP joint venture refinery in Jubail, Saudi Arabia. This will comprise a mixed-feed steam cracker with capacity of 1.5m tonnes/year of ethylene. The companies plan to start the FEED in Q3 2018. An additional $4bn of investment downstream by third parties would bring the total project investment to $9bn.

MAJOR M&A ON THE WAY?

Aramco and ADNOC have quite a lot on their plate, with massive petrochemical projects in the Middle East and India. Yet do not be surprised if these companies or others in the Middle East announce major deals in the most feedstock advantaged country in the world.

Saudi Arabia’s ambitions in chemicals could extend to acquisitions of major US chemical companies, said Hassan Ahmed, analyst at Alembic Global Advisors.

“This inorganic growth route, in our view, would make much more sense than greenfield build-outs, particularly in light of the extreme capital cost inflation the global chemical industry has faced in recent years,” said Ahmed in a late April research note. “We believe overseas petrochemical companies looking to access advantaged shale gas in the US via M&A may become one of the key themes in the near-to-medium term with commodity chemical companies like LyondellBasell, the soon-to-be spun-off Materials Co at DowDuPont and Westlake Chemical as particularly ripe targets,” he added.

Additional reporting by Al Greenwood, Jonathan Lopez and Tracy Dang