Dow Chemical is expecting huge growth in chemical trade via the UAE’s Jebel Ali Free Zone Area port when its Sadara joint venture plant in Saudi Arabia starts up next year, says the company’s local chief executive, Moosa Al Moosa.
The US$20 billion Sadara petrochemicals plant at Jubail Industrial City – a joint venture between Dow Chemical and Saudi Aramco – will be one of the world’s largest when it is fully ramped up in 2017, producing a wide variety of end products, such as specialty plastics for food packaging and medical uses, building materials, bedding foam and car parts, among others, for markets primarily in the Middle East, Africa and the subcontinent.
“What’s going to happen with Sadara coming online is that the UAE becomes the regional hub for all sales out of the plant – US$6bn to $8bn of sales annually,” says Mr Al Moosa, who is also Dow’s finance chief for the Middle East and Africa. “That’s huge, it’s a tectonic jump. You will see trade volume for the UAE going up quite a bit because of this.” And with the cost advantages due to Sadara’s scale and its long-term feedstock agreement with Saudi Aramco, Dow should dominate the higher end of the region’s chemical market, he predicts.
Indeed, although trade volume for Dubai has grown by more than fourfold over the past decade to $358bn in 2013, still, Dow’s plans to move as much as $8bn worth of chemicals via Jafza would add 2.2 per cent to the emirate’s total value of trade.
Needless to say, the Dubai Chamber of Commerce and the Jafza authorities have been very supportive of Dow’s plans and have formed working groups to help Dow formulate the processes that will be needed for such a large volume of chemicals, much of which needs special handling.
“When you go to the authorities and talk a tenfold increase [in storage and handling requirements] their eyes light up,” says Mr Al Moosa.
Dow is currently in talks with DP World about the enormous amount of additional space and handling it will need at Jafza, Mr Moosa says.
“I’ll need a lot more warehouses, a lot more containers. In terms of storage – we would be thinking about storing $1.5bn worth of product here at Jebel Ali,” he says.
“DP World are our partners because they are also going to play a role in some of the product,” although the details of the commercial relationship have not yet been finalised.
Sadara is not only a huge development for Dow in the region, it plays a central role in the company’s rehabilitation after a period of drift.
When it is fully up and running, Sadara is expected to add $500 million a year to Dow’s after-tax earnings, a significant addition to earnings that were $8.4bn in 2013.
Dow, the world’s second-largest chemical company after Germany’s BASF, has seen its fortunes turn around in the past couple of years as the chief executive Andrew Liveris scrambled to survive the battering it took in the aftermath of the 2008 financial crisis, which required the help of American investor Warren Buffett to pay for the $16bn takeover of the speciality chemicals company Rohm & Haas that Dow had agreed to pay top dollar for before the market crashed.
Despite the economic concern that has dominated much of the global economy recently – especially for parts of the Middle East – because of the fall in revenue from a 40 per cent drop in oil prices – Mr Al Moosa predicts expansion for the regional chemicals sector. Dow UAE has seen growth in double digits in recent years and has built up the regional workforce to nearly 200, including at the coatings plant at Jafza it acquired with the Rohm & Haas purchase.
There will be further staff increases as the chemical sales side grows, plus all the necessary back-up staff, he says. Additionally, Dow has just opened a new office in Abu Dhabi, at Masdar, as well as one in Qatar.
Another fast-growing business in Abu Dhabi and Qatar is for amines used to extract sulphur and carbon dioxide from sour gas, which is produced in huge volumes in the region generally and is increasing in Abu Dhabi as the Hosn Gas project comes onstream this month.
Another regional area Dow is focusing on is desalination, which is moving from thermal technology to reverse osmosis membrane technology. The UAE has been a leader in the region in the move to the new, more energy-efficient technology and in October announced contracts to build a reverse osmosis membrane independent water and power co-generation project at Mirfa, 120km west of Abu Dhabi city.
Mr Liveris told the GPCA petrochemicals conference in Dubai last month Dow would build the first reverse osmosis membrane manufacturing plant outside the United States, near Sadara, next year.
Mr Al Moosa, an Omani national who was a banker for Citi and JP Morgan before he joined Dow in 2005, was mostly educated in the US, where he studied economics at Georgetown and business at the University of Pennsylvania’s Wharton School. He says the economics of this region favour chemicals over the next few years because demand is expected to stay robust for higher-margin chemicals products even while the price of feedstock stays low.
“There is a lot of misconception about oil prices coming down. It is only one variable [for petrochemicals]. If you look at what is happening on the demand side … we talk about the ethylene cycle and we are currently running [plants] at about 87 to 88 per cent” of capacity, he says. “We expect that to go up through 2017 to above 90 per cent,” which means bigger margins as oil prices have come down.
McKinsey recently said the demand growth for higher-end petrochemicals products tends to take off in places such as China when average incomes approach $10,000 a year, a level that traditionally equates to a surge in demand for plastic-based products. Parts of Africa are heading in that direction, too.
Meanwhile, Mr Al Moosa says the threat from lower-cost production in the US due to the abundant new supplies of shale gas for feedstock is overdone.
“A lot of people ask us, ‘look you are putting a lot of money into the US but you are investing in Sadara at the same time, explain that to me.’ We’ve been very clear: our US investments will be targeting North and South America,” he says.
“The market there is huge. Demand is really outstripping supply, so our products are not going to be coming out of there and into this region.”
While Dow’s shares were rising for most of the year, they fell sharply in October and have failed to climb back to their best levels. But Mr Moosa says Dow’s growth story has not yet been absorbed.
“We need to go out and explain the full dynamics of what is happening,” he says.
“Tune into our fourth-quarter earnings.”
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