If it was not clear before last week, it certainly is now – Abu Dhabi Inc plans to grow substantially in petrochemicals in the coming decades as a cornerstone of this country’s strategy to diversify away from oil through technology-driven industries.
The state oil company, Abu Dhabi National Oil Company (Adnoc), last week won approval from the top decision-making body, the Supreme Petroleum Council, to set a target to grow UAE petrochemical output by more than 150 per cent over the next nine years, to 11.4 million tonnes per annum (mtpa).
At the same time, the energy minister Suhail Al Mazrouei set out a vision for the UAE’s petrochemical interests controlled by the International Petroleum Investment Company (Ipic), of which he is the managing director, to aim for ambitious expansion.
It is often overlooked, because the interests come under a range of banners, that Ipic is already one of the world’s top five producers, up there with ExxonMobil, LyondellBasell, Saudi Basic Industries Corp and China’s Sinopec.
“I’ve been working with Ipic now for 10 years,” said Mark Garrett, the Australian chief executive of Borealis, which is majority owned by Ipic. “This history of petrochemicals within Ipic group has been a massive success story for the UAE,” he said.
“When we started we had about 4 million tonnes [per annum] capacity, €4.5 billion [Dh18.4bn] of sales and €200 million in net profit. Now we have €16bn in sales, more than €2.5bn in net profit and more than 10 mtpa of capacity.”
The core Abu Dhabi petrochemicals group comprises Borealis, with its main operations in Europe, where it is ranked as the second-largest maker of polyethylene and polypropylene, which are used to produce plastics. Then there is the Borouge joint venture in Abu Dhabi, 60 per cent owned by Adnoc and 40 per cent by Borealis, and also Nova Chemicals in North America, which was acquired by Ipic during the severe downturn in the industry in 2009, when LyondellBasell had to file for bankruptcy protection.
The strategic case for Abu Dhabi’s pursuit of petrochemicals is driven fundamentally by the world growth in underlying markets, which range from plastic packaging to car parts to detergents and building materials. It is an industry that starts with oil but can end up in an almost unlimited number of sectors.
The market is also being driven by demographics, particularly the emergence of vast middle classes in China, India and Africa, with their purchasing power and infrastructure needs driving consumption.
China and other emerging markets will account for 60 per cent of petrochemicals demand over the next decade, according to McKinsey, the consultancy firm, because average annual incomes there are approaching US$10,000, the point when demand for plastics tends to be at its highest.
For Abu Dhabi, it is also about charting a future to leverage both the world’s transition from fossil fuels as well as the economy beyond that revolution.
The most profitable single petrochemicals line for Borealis, for example, has been making the cables used to connect up solar parks and wind farms to electricity grids. These often need to travel great distances, for example under the North Sea, to reach their distribution destinations, which requires very high-spec cables that will not be easily damaged.
“This has been a growth market for us, this change in the energy mix,” Mr Garrett said. “In our profits in polyolefins it is probably 20 to 25 per cent, [but] only about 10 per cent sales, so high margins.”
Also, the size of the market is huge, he said, citing the €6bn that a small European country such as Switzerland alone is spending on renewable energy rewiring.
Another transformation story for the Ipic petrochemicals group is the transport sector. Borealis has a wide range of contracts with European car makers, including Volkswagen and BMW.
“We work with the VW design teams at the beginning of the process, working with them for the design of the next Golf on glass- or carbon-reinforced polypropylene products” which can be used for anything from bumpers to non-weight-bearing panels and interior parts, including the support structures for the seats, Mr Garrett said.
“We have much more flexibility than steel or aluminium manufacturing and we can make almost any shape,” he said. “On the Opal Astra, we have 35 kilos of our product in that car. We’ve managed in the past 15 years to move the amount of product in a car from maybe 10kg of polypropylene up to maybe 35kg, and as you replace the steel you ‘lightweight’ the vehicle to get much better fuel efficiency and lower CO2 emissions.”
So, even as the amount of fuel cars use is falling and with the move towards electric vehicles, there is at least something of a natural hedge for oil producers in that transition as vehicles are made with more oil-derived materials.
It is a very technology-driven industry, too, amid intensifying competition from countries such as Saudi Arabia, which have set similar ambitions to add more domestic and international refining and petrochemicals capacity as a major step towards diversifying from a reliance on commodity oil.
The Borouge facility in Ruwais, which completed its US$4.5bn third phase of expansion this year to bring its output to 4.5 mtpa, markets primarily to Asian customers through a dedicated Singapore office and it has set up an innovation centre in Abu Dhabi city that already has more than 40 patents, mostly for products to meet Chinese customers’ requirements.
Borouge, on whose board Mr Garrett sits, also has an automotive resins compounding plant in China, producing about 90,000 tonnes a year.
The expansion of the UAE’s petrochemicals capacity will follow the fourth and fifth stage phases at Borouge, which will grow output by more than 1.5 times and add product lines as the feedstock changes from ethane gas to mixed ethane and naphtha, a liquid byproduct of the adjacent Adnoc refinery at Ruwais, which itself doubled output last year to 900,000 barrels per day.
In terms of international expansion, Mr Garrett said Borealis has been financially conservative up to now but is looking at opportunities in Russia, where it recently signed a deal with Gazprom to explore opportunities to set up for export to either European or Chinese markets, as well as North America.
“The acquisition of Nova in 2009 was a really good strategic move,” Mr Garrett said. “Nova was just on the edge of bankruptcy as were many at the time, and we stepped in and acquired it at a good price and just when the whole shale gas revolution came in and changed the economics completely.”
Is it the right time to do something similar or invest in a greenfield plant?
“If we’re lucky we’re coming to another good timing opportunity” he said. “This whole wave of big projects in North America – they’re all coming on-stream at the end of 2017, into early 2018 and when those close up, yes, the engineering companies are out there looking again for business and it could be good timing for our project.”
amcauley@thenational.ae
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