For Middle East chemical companies the glory days of ultra-cheap, plentiful feedstocks and a huge competitive advantage are drawing to a close. Regional businesses are now having to accept that ethane reserves are finite and mostly allocated to existing plants and projects. On top of that the structurally lower oil price has reduced the cost of production advantage previously enjoyed by ethane-based chemical producers everywhere.
Then there is the rise of North American shale oil and gas which has led to the current boom in cracker and derivative capacity there. This will shift the global competitive landscape further as these new projects come onstream over the next few years.
Middle East chemicals leaders recognize these pressures and are gearing up to tackle them so they can continue to thrive in the coming years. For many, this means diversifying and specialising the product slate they offer so they can enter new markets and rely less on commodity production. The switch to naphtha feedstocks for projects such as Sadara – the joint venture between Saudi Aramco and Dow Chemical – has enabled this diversification.
The $20bn Sadara’s 26 integrated worldscale plants have been ramping up during 2017 and will have a total of more than 3m tonnes/year of capacity when fully operational.
It gives Saudi Arabia access to many locally-produced products for the first time. In November, Sadara’s isocyanate production hit local markets for the first time and will enable the blossoming of downstream production to help the kingdom diversify its industrial base.
SABIC TAKES LEAD WITH OIL-TO-CHEMICALS
SABIC is a good case study in taking the need for rapid change seriously. Ahead of November’s Gulf Petrochemicals & Chemicals Association (GPCA) meeting in Dubai the group revealed it will move ahead to partner with Saudi Aramco in the world’s largest crude oil to chemicals complex to be located in Saudi Arabia. The ambitious project will process 400,000 bbl/day of crude oil into 9m tonnes/year of chemicals and base oils with start-up scheduled for 2025, according to Saudi Aramco.
The project is interesting because it signals the current trend for oil companies to rely more on chemicals and less on refining for fuels to drive future growth. It also fits perfectly with Saudi Arabia’s drive for diversification through the Vision 2030 strategy. By then the new plant is forecast to add 1.5% to Saudi Arabia’s GDP and create 30,000 direct and indirect jobs.
At the GPCA conference SABIC CEO, Yousef Al-Benyan, recognised the need for swift and transformative change, saying: “The fundamental change required to deliver a quantum leap in performance is transformation; it is not an incremental improvement but a drastic change in the way we operate and conduct business.”
Al-Benyan cited feedstocks, China’s rise to self-sufficiency, the disruption caused by technological change and global political trends. He said chemical companies can thrive if they take part in portfolio management through mergers and acquisitions (M&A) activity to streamline operations and divest non-core assets.
SABIC used M&A successfully to access the European market through the acquisition of DSM’s petrochemical businesses and moved further into the US by buying GE Plastics in 2007. Projects such as the joint venture with ExxonMobil in the US also demonstrate how it plans to grow in global markets.
SABIC also aims to double profit in its specialties business over the next five years to position itself as one of the world’s leading specialty companies. Speaking at GPCA, Ernesto Occhiello, executive vice president of SABIC’s specialties business, said that this could be achieved purely through organic growth in key regions of North America, Europe and Asia.
The unit’s profitability over the next five years will be driven by its core engineering plastics but the business is “seeing the importance of differentiated offerings as well,” Occhiello said.
Additional reporting by Nurluqman Suratman and Tahir Ikram