Sabic's Petrochemical Complexes example essay topic

The Middle East is probably the most important influence on the global petrochemical industry today and will remain so for many years to come. However, prospects of a war in Iraq are raising concerns, and logistical and feedstock challenges could hem in the region's growth. Saudi Basic Industries Corp., or SABIC, the majority of which is owned by the Saudi Arabian government, has grown to 40.6 million metric tons of petrochemical production and sales of $9 billion in 2002 to become the 11th largest petrochemical producer in the world. Iran, through the government-owned National Petrochemical Co., has made its petrochemical industry a strong second to Saudi Arabia. Iranian petrochemical output was 12.5 million metric tones in 2001. A number of other countries in the region, including the United Arab Emirates, Kuwait, Qatar, Oman, and Egypt, have either completed major petrochemical projects or are planning them.

SABIC, created 24 years ago to add value to Saudi Arabia's massive hydrocarbon resources, has grown into one of the world's largest and lowest-cost petrochemical producers, with more than 25 million m. t. /year of capacity, almost all of which is joint ventures. SABIC vice chairman and managing director Mohamed H. Al-Mady says that the company will expand to keep pace with projected petrochemical demand growth of 5%-10%/year, adding a further 13 million m. t. /year of new capacity by 2010. Access to cheap raw materials gives Sabic a big cost benefit over its competition. It pays Saudi Aramco (Riyadh), another government controlled firm, 75 cts / million Btu for its gas feedstock, compared with more than $5/million Btu being paid by petrochemical producers on the U.S. Gulf Coast at CW press time.

Most of Sabic's petrochemical complexes are based on gas. The company recently began production of aromatics, however, using the liquefied petroleum gas (LPG) -- based Cycler process. Sabic obtains LPG at a discount of 30% to international prices. Sabic last year completed construction of two olefin plants based on liquid feeds as part of a strategy to diversify into other olefin derivatives. SABIC has concentrated its production at two sites: Al Juba il, on the Persian Gulf coast, and Yan bu, on the Red Sea. SABIC raised its total production capacity from 7 million m. t. /year to 25 million m. t. /year between 1985 and 1998, and added a further 10 million m. t. /year by end 2000.

Sabic last year completed construction of three crackers that added a combined 2.3 million m. t. /year ethylene capacity. The company exported 80% of its output in 1999. Sabic's future growth will likely involve product diversification and globalization, says Spiers. 'Sabic is investing in R&D to develop new processes, such as its ethane oxidation technology to produce acetic acid, to broaden its production base,' he says. SABIC's biggest production complexes are jv's with overseas investors, including Shell Chemicals, Exxon Mobil, and Mitsubishi Corp. SABIC initially had to learn the ropes of the industry, which it did through very experienced partners such as Exxon and Shell. Now that SABIC has gained experience, it no longer needs to bring in partners to produce basic petrochemicals.

SABIC has 11 partners in eight jv's and none of them has been disappointed with its investments. Cash dividends paid out to partners have averaged a return rate of about 25%/year on initial equity investment. All of the partners have elected to double or even triple initial capacity. SABIC reorganized its operations in 1997 into five strategic business units (SBUs): basic chemicals, polymers, intermediates, fertilizers, and metals.

Benefits of that restructuring have included sharper customer focus and accountability for each business. 'We have become much smarter and more focused on our business, and, as a result, there is better customer satisfaction,' says Al-Mady. Individual subsidiaries used to plan their investments separately, but Sabic now operates as a single entity, 'which can lay down strategic targets and make decisions for the whole group,' he says. Recently introduced legislation allows foreign companies to invest in 100%owned industrial operations in Saudi Arabia.

The new laws will intensify competition with SABIC. SABIC is also facing increased competition from privately owned Saudi petrochemical producers, such as Saudi International Petrochemical Co. (SIPC; AI-Khobar), which is planning a $1-billion complex to produce male ic anhydride, butane diol, methanol, acetic acid, and VAM. SIPC is a jv among many partners, headed by the AI-Zam il Group (Al-Khobar).

Huntsman is a minority owner in SIPC and is planning an ethylene oxide derivatives jv with Ahmad Hamad Al-Gosaibi & Bros. (Al-Khobar). Aramco is also considering moving into chemical manufacture. Al-Mady is upbeat about SABIC's prospects. 'SABIC has been the beneficiary of two long-term trends across the petrochemical industry: migration of manufacturing to lowest-cost locations; and evolution of primary manufacturing in high-cost countries to activities toward more complex, value-added downstream products and services,' he says. 'By using the established infrastructure in Saudi Arabia as a growth platform and by pushing harder on future cost efficiencies, SABIC believes its prospects remain bright. ' Sources: web en. htm web e. html web.