INSIGHT: Oxea looks to value in derivatives and growing markets in Asia

24 November 2017 16:03 Source:ICIS News

By Nigel Davis

LONDON (ICIS)--Oman Oil acquired oxo-alcohols producer Oxea from Advent in 2013 to give the sultanate a further channel for development and value creation downstream from crude.

The acquisition was really all about technology and market reach. Oxea has a swathe of patents with intellectual property tightly held, particularly in its downstream derivatives businesses. The company has a successful intermediates business and a growing derivatives segment. Confidence in the future was reflected in the recent successful re-financing of senior debt.

On the horizon is the potential from constructing a large-scale oxo facility in Oman as part of the Duqm refinery and petrochemicals project. This could be about two thirds the size of the company’s principal production site in Oberhausen, Germany.

The 230,000bbl/day refinery planned for Oman is likely to produce around 250,000 tonnes/year of propylene, the principal feedstock for the oxo process (the other being carbon monoxide). Feasibility studies have looked into butanol, 2 ethyl hexanol (2-EH), carboxylic acids and maybe capacity to produce polyols.

Oxea CEO, Salim Al Huthaili, certainly sees a successful future for the company based on demand growth, principally for higher value oxo derivatives across Asia.

Hydrocarbon based alcohols, acids and esters grow with a developing economy given their broad application in industry and agriculture.

Oxea is likely to push derivatives first into fast-growing markets in China, southeast Asia and the important India market. The company says it will further develop its derivatives business in carboxylic acids and speciality esters.

The company has a great deal to build on. Created by Advent from former Celanese and Evonik assets with a long history themselves, it has production facilities in Germany and the Netherlands, in Bay City and Bishop in Texas and a small speciality esters unit in Nanjing, China.

This year, sales could top those generated in 2016 and may reach €1.5bn, Al Huthaili told ICIS in an interview. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to be around €200m.

Al Huthaili believes the corner has been turned in oxos with years of overcapacity giving way to tighter supply/demand dynamics.

Considerable volumes of new capacity were added in China in the 2010 to 2014 period but there has been some shake-out in the global market and recent capacity shutdowns in China driven by the country’s environmental improvement campaign.

“2017 has been a great year for us so far,” Al Huthaili said. He describes global capacity utilisation as “pretty good” despite the Hurricane Harvey related shutdowns at its Texas plants. Across the oxos industry, capacity utilisation could reach about 90% by 2020/21, he suggests. So if the Duqm plants are on-line from 2022 onwards, they will be hitting the market at just the right time.

The company uses a cost plus model for pricing intermediates, including n-butyraldehyde and the alcohols 2-EH, n-butanol and n-propanol, so the fall in the oil price has not made business easy. But Al Huthaili sees the derivatives businesses, including carboxylic acids, polyols and specialty esters, as being vitally important for the group.

There are product substitution trends to tap into: for example the use of ethyl and propyl acetate as opposed to toluene based solvents in certain applications. And the company has a very strong acids footprint with a developing long chain fatty acids business in animal feed.

In the changing plasticizers market, Oxea is looking further at the dimethyl terephthalate (DMT) route to terephthalate-based products. As most plasticizers are commodities, it is difficult to get investments in production assets right.

Propylene based intermediates are the core products in Germany while there is also an ethylene based business in the US where Oxea is taking advantage of ethylene availability and building additional propanol capacity. In future, acetic acid and propyl acetate capacity could be included.

“Our location for C2 derivatives in the US is a good one,” Al Huthaili said. The flooding caused by Hurricane Harvey stopped work on the new propanol plant for about two weeks but Al Huthaili said the project is progressing on time and on budget.

Oxea is targeting south and east Asia with its planned facilities in Duqm. “We sell a lot of our molecules in our own production regions,” Al Huthaili said. “The intention is to develop where feedstock is and where the market is,” he added.

Between 80% and 85% of Oxea’s intermediates volumes are sold in the region in which they are produced. However, the higher value derivatives can be shipped.

A key plank of current strategy, therefore, is to drive a focus on derivatives at Oberhausen.

Al Huthaili created strategy groups when he became CEO in May last year ago and subsequently the decision was taken to centralise the company’s headquarters in Monheim am Rhein, some 60 kilometres from Oberhausen

Moving to a new HQ helped the company bring scattered groups of employees together in one location and break down any silo thinking that might have developed.

“For me, people really are top of the agenda,” Al Huthaili said. He believes the company is doing a good job on health, safety and environment (HSE) issues. Oxea’s behavioural safely initiative ‘I-Safety’ is on going and recently there have been more specific campaigns on finger safety and slips, trips and falls.

Hurricane Harvey showed how well the company’s employees were able to work together to tackle the incoming challenges. Real leaderships was displayed, Al Huthaili said, as product was moved from the production sites in Texas to storage at the ports ready to be shipped to customers.

The production plants were brought down safely before the Hurricane hit. “We were one of the first facilities to be back up,” Al Huthaili said, and many customers did not know that the company’s production facilities had been down for two weeks nor notice any curtailment of production until state-wide logisitics were back to normal working conditions.

The biggest hit to operations came from infrastructure damage. The Colorado River, which carries Oxea barges, was not dredged for 40 days following the floods.

Al Huthaili said that Oxea’s strategy is still to go more downstream and to provide business opportunities that are complementary to its feedstock suppliers – there is little appetite for moving upstream into olefins production, for example.

In that respect, the company is looking more closely towards the demands of its customers and of growing its own production capacities selectively to suit their needs including possibly growth in areas of technology adjacent to its own.

Oxea at Oberhausen

By Nigel Davis