Borealis, a petrochemicals maker majority-owned by the Abu Dhabi Government, believes the millions of tonnes of production capacity it is adding will find buyers in spite of the global economic slowdown.
The company, based in Vienna, is a co-owner of Borouge, a maker of polymers in the emirate that is planning a US$6.3 billion (Dh23.13bn) expansion to bring an extra 2.5 million tonnes of product to market by 2014. The new plant, Borouge 3, is to turn cheap natural gas into plastic pellets, which will then be sold to factories that make plastic parts for cars and television sets.
"When you build these plants, you're building them for 30 years or 35 years, right?" Mark Garrett, the chief executive of Borealis, said during a visit to Abu Dhabi. "You can't afford to take decisions based on short-term hiccups in the economy."
Borealis is 64 per cent-owned by the International Petroleum Investment Company (Ipic), an Abu Dhabi energy investment vehicle. The Austrian oil producer OMV, in which Ipic is an investor, owns the remainder. Borealis, in turn, co-owns Borouge with Abu Dhabi National Oil Company.
The relationship between the Abu Dhabi Government and its Austrian partners grew last week when Ipic increased its stake in OMV from 20.4 per cent to 24.9 per cent. OMV has struggled recently with the loss of its Libyan output, which accounts for a 10th of its global supplies, and plans to sell €1 billion (Dh5.05bn) of assets - although Gerhard Roiss, the OMV chief executive, said last month that Borealis was not for sale.
"Both of our owners support us very strongly, and I think both of our owners value us very highly," Mr Garrett said. "From our point of view, we see ourselves as an Abu Dhabi entity."
Other chemical companies, such as Germany's BASF, are also shedding assets as their older plants find it harder to compete with state producers in the Gulf such as Saudi Basic Industries Company (Sabic), which buys natural gas at a price as low as a quarter of market rates.
Meanwhile, global economic growth that once chugged along at 4.5 per cent a year is expected to dwindle to below 4 per cent this year and next.
"We'll do exactly what we did for 2008, which was keep the gearing low, keep the balance sheet as healthy as possible," Mr Garrett said.
Three years ago, Borealis's core customers - car manufacturers including Daimler and Audi - suffered a slump in orders, leading to a drop in profit for Borealis.
This time around, Borealis is banking on a gentler fall-off in demand and the opening of new markets in countries such as Turkey to help to absorb the new capacity from Borouge.
Turkey is "growing at about the same rate as the Chinese market", Mr Garrett said. "It's 80 million people, so it's large by European standards. And the Turkish government has been doing a very, very good job with stabilising the situation there."
The market for Borouge's products, which are made from ethane, is expected to grow by 4.7 per cent a year, according to the consultancy Chemical Market Associates.
But supplying it may become more difficult as sources of ethane dwindle. Producers such as Saudi Aramco are turning to naphtha, which is harder to process, for their next projects.
"Future developments might not be 100 per cent ethane-based, but there's definitely feedstock available," Mr Garrett said. "Abu Dhabi's a big exporter of naphtha, for example, so I don't see it being a feedstock-constrained situation."
The shift to more challenging feedstocks comes after a migration in new petrochemical building from Europe to the Middle East.
"If you look back to 1970, 1980, 1990 and 2000, you'll see the names have been changed, right?" he said. "The new players are the Sinopecs, the Sabics, the Saudi Aramcos, Ipic, and I think that the trend will continue. These guys will continue to make investments. They'll continue to make acquisitions."
