Adnoc weighs ambitious downstream expansion

Sultan Al Jaber, the Minister of State, took over as Adnoc’s chief executive in February. Mohamed Al Hammadi / Crown Prince Court – Abu Dhabi

Abu Dhabi’s state oil company is weighing ambitious downstream expansion plans for the next decade that will focus on petrochemicals, according to the new head of Adnoc’s downstream division.

The plans have a number of objectives that form part of the new corporate ethos set out by Adnoc’s chief executive, Sultan Al Jaber, when he took over earlier this year.

They include the transfer of new technologies, skills development for Emiratis, the promotion of local businesses – in so-called convergence industries, such as engineering and plastics-related manufacturing – and adding value to Abu Dhabi’s crude oil output.

“We are not starting fresh but are implementing a new strategy that builds on the past legacy of successes that we have so far in Adnoc, in downstream in particular,” said Abdulaziz Alhajri, who was recently appointed the director of the newly combined refining and petrochemicals directorate at Adnoc.

Previously, Mr Alhajri was the chief executive of Borouge, Adnoc’s joint venture with Austria’s Borealis, which itself is a joint venture between OMV and International Petroleum Investment Company (Ipic).

In March, Borealis reported an 86 per cent jump in first-quarter net profit to €255 million (Dh1.06bn), boosted by better margins in its polyolefin business, where demand has held up as oil and gas feedstock prices have fallen.

Borouge has been the focus of Abu Dhabi’s petrochemicals development since it was founded in 1998 and recently ramped up its third expansion phase at Ruwais, adjacent to Adnoc’s main oil refinery in Abu Dhabi’s Western Region, with the $4bn project more than doubling capacity from 2 million tonnes to 4.5 million tonnes.

The plant is now the world’s largest integrated polyolefins complex, with the annual capacity to produce 2.3 million tonnes of polyethylene, 1.7 million tonnes of polypropylene and 350,000 tonnes of low-density polyethylene. It supports a cross-linked polyethylene compounding facility with 80,000 tonnes capacity that “will be commercially operational within weeks”, Mr Alhajri said.

The petrochemicals expansion over the past decade has been fuelled primarily by the rapid pace of Asia’s economic growth (Borouge’s marketing headquarters is in Singapore). That is expected to continue, with Africa and Asia to feature in the next phase of growth.

“We have ambitions to grow,” said Mr Alhajri. “The polyolefins and petrochemicals markets are very, very strong. Even during the downturn, growth has outpaced typical GDP growth, and we are uniquely located. There is a population of more than 3.5 billion from China to Africa, and these populations are where most of the world demand growth is coming from.”

Petrochemicals capacity has grown rapidly in the region, with 11 per cent annual growth since 2000 alone in the GCC countries. McKinsey, a firm of consultants, forecasts that world ethylene demand alone will grow by more than 40 million tonnes a year to about 210 million tons by 2025, with most growth coming from China and other emerging economies as demand for products from plastics to bedding to fibres expands.

To keep pace and maintain market share, Abu Dhabi’s petrochemicals capacity would have to double again by 2030.

But the GCC’s rapid petrochemicals expansion – which McKinsey forecasts will add 30 million tonnes of capacity by 2018, bringing its world market share from 14 per cent to 16 per cent – means that the industry is running short of ethane feedstock.

A key challenge for the region’s petrochemicals industry, therefore, is to use crude oil derivatives such as petroleum naphtha in place of ethane while maintaining competitiveness, especially given the distances to the big consumer markets.

“Almost everything we do here [in petrochemicals] needs to be exported. At least 85-plus per cent of output needs to find export markets,” said Mr Alhajri.

“Of course we have access to naphtha as well as [liquefied petroleum gas]. The question is can you make it economical? Can we go there with the scarcity of feedstocks? And the answer for us is we have to look for innovation, not only in technologies but in our product offering, in the business model, and across the supply chain. We are now studying options.”

Expansion plans may include bringing in new foreign partners. In Saudi Arabia, Aramco has partnered with Dow Chemical for the US$20bn, 3-million-tonne-a-year Sadara facility, which uses naphtha for half its feedstock.

“Whatever partner will come to us has to add value, not only in bringing technology and capital, but how much value added to Abu Dhabi and the UAE,” Mr Alhajri said.

Apart from Borouge, Abu Dhabi’s approach to chemicals investments has been cautious, as with ChemaWEyaat, a joint venture with Ipic and the Abu Dhabi Investment Council, each with 40 per cent, with Adnoc holding 20 per cent.

Its first proposed plant – Tacaamol Aromatics Plant, near Ruwais, a 51/49 per cent venture with the Singapore-based chemicals group Indorama, to produce aromatics (benzene and derivatives, used to make detergents, fibres and other products) – has been at the feasibility stage for years.

“The final investment decision has not been made yet,” said Mr Al Hajri. “Hopefully it will be made soon. Work is ongoing to closely review the viability and the feasibility of their projects.”

There is a new urgency across the region to push economic diversity and employment growth, and petrochemicals has been identified as a key transformation industry.

But it has been slow going in terms of jobs growth overall, as well as in promoting related “cluster” industries. As McKinsey points out, the petrochemicals industry in the region employs about 1 million people, but that is low compared to its potential, both in terms of direct employment – because of the relatively slow output of qualified personnel – as well as in offshoot businesses.

This is something Adnoc is looking to address as it expands further, especially for small and medium-sized enterprises.

“There are many efforts from the government now to streamline and make it easier for developing companies,” Mr Alhajri said.

“At Adnoc, at the refining and petrochemicals directorate, we are prepared to support the SMEs, helping with technical evaluation of projects, helping with quality measurement. Some small companies can’t afford to build labs and we are willing to provide them the necessary technical support through the Borouge innovation centre.”

The intentions are there, and now there is a new plan at Adnoc. As Mr Alhajri acknowledged, the proof of the pudding will be in the eating.

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