Sabic's Al-Mady cites feedstock costs, location as keys to Middle East petchem industry success

Sabic's Al-Mady cites feedstock costs, location as keys to Middle East petchem industry success

The key to success in the petrochemical industry always has been access—access to feedstock, technology, and the right markets.

Access to competitive feedstocks and state-of-the-art process technologies has enabled petrochemical producers in the Middle East to exceed local demand and focus their attention on "access to the right markets," according to Mohamed H. al-Mady, CEO and vice-chairman of Saudi Basic Industries Corp. (Sabic).

"Petrochemical producers in the Middle East are looking at the world's fastest-growing markets in Asia overall and China in particular," he said.

Sabic has been able to translate low feedstock costs and access to Asian markets into record profit levels.

"Sabic had very good profitability last year—$1.8 billion net profits—which was the highest ever for our company. We expect this year to be another very good year for us," he said. "Sabic's total assets at yearend 2003 reached $29 billion, and production totaled 42.3 million tonnes.

"This phenomenal growth was only possible with the participation of joint venture partners," Al-Mady said. "These partners provide not only their capital but also their technical expertise and training for the Saudi workforce that now operates all of our major facilities."

The company has plans to reinvest these record profits in the petrochemical sector, significantly expanding its capacity in Saudi Arabia and abroad.

"Our plans are to expand production to 60 million tonnes/year [tpy] by 2008. We are now planning two major crackers, one in Jubail and one in Yanbu," Al-Mady said. Each cracker will have capacity for 1 million tpy, and both are slated for start-up in 2007-08.

"We are planning and discussing investment opportunities in China, and we plan to expand our plants in Europe," he said, referring to Sabic's 2002 acquisition of DSM NV's petrochemical business. The $2-billion deal included a 1.4-million-tpy ethylene complex in Geleen, the Netherlands (OGJ, Mar. 31, 2003, p. 42).

Middle East

According to Al-Mady, total cumulative investment in the petrochemical sector for the Middle East was $37 billion by yearend 2002. He expects another $40 billion of new investments by 2010.

"Various industry estimates suggest that ethylene capacity in the Middle East could reach almost 18 million tpy, or around 15% of global capacity by 2010," he said.

From 1998 to 2002, the Middle East added 4.5 million tpy of ethylene capacity. Of that total, Saudi Arabia accounted for slightly more than half of that growth with capacity expansion of 2.3 million tpy.

"The region is quite active, and we can expect the current pace of growth to continue for quite some time," Al-Mady said. "Our region is going to be significant in ethylene."

"We forecast that our region is going to jump to No. 3 behind the US and Europe [in ethylene]. This is a major achievement because the continuous growth in that region is not only Saudi Arabia but also the other [Persian Gulf] statesU. Iran is building many petrochemical plants," he said.

Al-Mady also noted that "in methanol, our company is No. 2 behind Methanex [Corp., Vancouver, BC]. We are No. 2 in glycol, and we will be No. 1 by 2005-06.

"These three products are very key, and the region will be a major supplier of these products."

A major factor in this expansion is the Middle East's proximity to export markets. The region's demand will grow slightly faster than increases in production, but it will not catch up in the near future.

"It is a fact that ethylene production in the Middle East will almost always be greater than regional demand," he said. "In basic chemicals, for example, the region's ethylene surplus was 520,000 tonnes in 2001.

Actual ethylene exports are not expected to increase from 2001 levels, as the region's ethylene surplus levels off to 470,000 tpy by 2006.

"At the same time, however, exports of ethylene-based products are forecast to grow from 5.7 million tonnes in 2001 to 11.5 million tonnes in 2006. Saudi Arabia's share of ethylene-based derivative exports will rise to 6.7 million tonnes in 2006," Al-Mady said.

Much of these exports is slated for Asian markets. "A third of the world's major industries are located in Asia. This makes the entire region an important market, as these industries require a broad range of chemicals," he said.

Global expansions

With the recent acquisition of DSM's petrochemical business in Europe—the first in its global expansion plan—Sabic has become the world's third-largest producer of polyethylene and the sixth-largest producer of polypropylene. Overall, Sabic is the world's fourth-largest polyolefins producer.

Six months after the DSM acquisition, Sabic opened a new polypropylene plant in Geleen. Also in Geleen, Sabic's growth plans include a third ethylene plant.

"There will be a new train at the existing location. It will not be 100% grassroots; it will be an add-on utilizing some of the facility there," he said. "We are still studying the capacity—we have options—[but] it will not be less than 500,000 tpy."

Sabic continues to seek additional overseas opportunities that fit with its core activities. This strategy may involve acquisitions or grassroots investments.

Al-Mady also said that Sabic is currently looking at investment opportunities in China, although a partner had not been chosen yet. And the company is not looking to other areas of the world currently.

"We are not looking for any other acquisitions at this time, just grassroots investments in the region [Saudi Arabia], plus gaining market share in our destination markets like China," Al-Mady said.

MTBE

Policy decisions caused the US industry to back away from methanol production and may end US production of methanol-derived methyl tertiary butyl ether (MTBE) altogether.

"Our MTBE business has now shifted the marketing to gasoline outside the US, so the banning will not affect Sabic that much. It is sad that it's banned; it's a good product, but it is a political product also," he said.

The decrease in US demand has shifted Sabic's future strategy for the gasoline additive.

"We're not growing the business; there is no growth in the MTBE business," Al-Mady said. "We are just utilizing the assets that we have built.

"The excess volume we have from the US, we are finding other markets for it in Asia and also Saudi Arabia itself. We are marketing about 700,000 tonnes locallyUso, the ban did not affect our production, but it did affect future investment in this product."

He mentioned that there may still be future uses for methanol in fuel cells or other alternative markets.

"If that should be commercialized down the road, we will see tremendous growth in the methanol business," he said. "And our region possesses the largest methane gas [reserves]; the gulf states and [especially] Iran, they have tremendous gas reservoirs."

Research, technology

Sabic has also increased its involvement in developing technical expertise. In the past 15 years, Sabic has built research and technology centers in Riyadh, Jubail, Houston, Geleen, and India.

"We intend to continue that investment in the future, but we also recognize that developing world-class centers of excellence takes time and patience," Al-Mady said. "We are really concentrating on research; we have more than 500 employees doing research."

He said that Sabic is in the process of commercializing its process and catalysis research. Much of the research is to support and debottleneck Sabic's existing plants.

Toward that end, Sabic recently jointly acquired (with Süd-Chemie AG, Munich) US-based Scientific Design Co. Inc., a licensor of process technology related to industrial catalysts.

Career highlights

Mohamed H. al-Mady, vice-chairman and CEO of Saudi Basic Industries Corp. (Sabic), joined the company at its inception in 1976. He is based at the company's headquarters in Riyadh.

Employment