RPME: What is the importance of investing in the chemical sector in the Kingdom and what are the benefits of developing the sector’s domestic capabilities?
While Saudi Aramco remains committed to being the world’s premier crude oil and gas exploration and production company, we are also focused on maximising the value of each hydrocarbon molecule at our disposal.
Producing chemicals — particularly high-value chemical products — is one way to accomplish this goal. Saudi Aramco already has the knowledge and fundamentals in place in addition to the asset base.
By integrating chemicals production with our refineries — both at home and abroad — we are leveraging our existing and future refining assets to provide additional revenue from a business that is growing faster than the oil business and would diversify our sources of revenue.
Our undertakings in petrochemicals further underscore our commitment to increasing opportunities for industrialisation and the manufacturing of higher value products, contributing to the job growth and economic diversification that are vital to our and the Kingdom’s future prosperity. The value parks that are associated with Sadara and Petro Rabigh are good examples of how this strategy is being successfully implemented to create domestic conversion industries.
RPME: Sadara is set to produce an array of products, some which have never been produced in the Middle East. What impact is this going to have on the region’s industry? What markets is Sadara looking to supply those products to?
We are excited that, Sadara, the largest petrochemical project ever built in a single phase has just come on stream. The company started selling its first products in December from its Solution Polyethylene unit.
Sadara is the first chemical complex in the region to crack naphtha in addition to gases and its heavier feedstock will enable it to manufacture a diversity of products. In fact, 14 of its 26 world-scale plants will be producing products never produced before in the region and will support the development of various local industries.
These products will be used to support diverse industries such as high performance flexible packaging, hygiene and medical applications, chemicals and additives for the oil and gas industry, chemicals for water treatment, soaps, detergents, cosmetics and other personal care products as well as adhesives, brake fluids and car seats for the automotive industry. Sadara will market its products locally but will also leverage Dow’s marketing arm to tap into the international market.
RPME: Aramco recently signed a JV agreement with Germany’s synthetic rubber firm Lanxess. Given the current market conditions, how are you planning to grow the JV? What are the synergies between Saudi Aramco and Lanxess that will be key to success?
This partnership is strategically important for us. It will further diversify our portfolio and strengthen our capabilities across the hydrocarbon value chain. We are in it for the long run. We will be looking into how this partnership can create economic growth and diversification opportunities for Saudi Arabia through possible local investment and technology cooperation.
Another area we will be exploring is how we can make the JV a natural home for butadiene and other Saudi Aramco petrochemical products. Saudi Aramco’s investment in the JV will provide the JV the resources and the stability to continue to grow and to invest in technology so essential for remaining competitive in this business. So this is an exciting partnership for all of us. Together, we begin a journey to make a great business even better.
RPME: What is Aramco’s view on the specialty chemical business and how can these products have an impact on the Middle East industry?
The petrochemicals industry in the region has been largely based on commodity chemicals produced using advantaged gas, with products exported, principally to the growing markets of Asia.
This strategy has worked well but reliance on commodities has resulted in a great deal of vulnerability to price swings and now, as traditional export markets become more self-reliant, to increased competition.
Specialty chemicals will play a bigger role in the future of the Gulf petrochemicals industry. This is also Saudi Aramco’s strategy. Going forward, we would like a significant portion of our products — whether from our wholly owned facilities or from our JVs — to be specialty or performance chemicals. We know this is a different business requiring advanced technologies and dedicated application centres to make products best suited for specific end uses.
But specialities are a higher margin business and provide greater price stability and can also be the basis for fostering the growth of local industries to meet the growing regional demand for such things as specialised plastic packaging, urethane insulation and paints and adhesives.
This strategy is being implemented in Sadara whose differentiated product slate will be the building blocks for many new industries. Sadara will be the first to manufacture isocyanates and polyols, opening up a complete new value chain in the GCC region – selling to foamers and systems houses. It will also be the first to produce butyl glycol ethers — used in industrial cleaning, electronics and coatings — and propylene glycol, which finds applications in de-icing, heat transfer, pharma, food and personal care uses. We look forward to seeing all of this come to fruition, especially now that the first facility has come on stream.
Similarly, Rabigh II will produce specialty derivatives such as ethylene propylene rubber and thermos plastic olefins which are key components for diverse end uses including various automotive applications, detergents, lubricants and solvents for the pharmaceutical and cosmetics industry.
So, yes, we are very bullish on the growth of specialty chemicals in the GCC.
RPME: Closer integration between a company’s petrochemical and refining operations has been successful in North America, Western Europe and the Far East in achieving better profitability and optimising feedstock availability. Can this model be successful in the Middle East?
One of the defining aspects of Saudi Aramco’s chemicals strategy is to create value through integrating chemical facilities with our refining assets.
Integration maximises profitability and is good from a commercial perspective but is also important from the point of view of leveraging hydrocarbon resources to promote local economic development. Our first domestic petrochemicals investment, Petro Rabigh, is a good example of that. Six of our refineries are already integrated with chemical facilities and we continue to explore additional opportunities, both in our domestic and our international refineries.
Having said that, I would like to point out that successful integration extends well beyond just the hardware of how chemicals assets are interconnected to refinery infrastructure in ways that improve profitability of fuels and chemicals production.
There is inherent synergy value for both the refining and chemicals businesses alike, through stream exchanges and interconnectivity. But to most effectively capture the full value of integration, refining and chemical organisations must be able to understand each other’s businesses, while at the same time be organisationally capable and willing to act in the greatest interest of the company as a whole. This “general interest thinking” is an organisation wide aptitude and capability necessary for capturing the full economic potential from every molecule. And it will strengthen the company’s leadership position in the industry.
RPME: Do you think this region is making the most of its feedstock advantage? And how well prepared is this region in terms of securing feedstock for the future?
One of the crowning achievements of the GCC countries over the past several decades has been building a thriving and globally competitive petrochemicals industry. The abundant availability of feedstocks has been the principal enabler for this achievement. As a region, we have made very good use of the petrochemical feedstock advantages the methane, the ethane and the LPGs – to develop a strong chemical industry.
I do not see this fundamental strength changing in the future. But in the future, feedstock advantage will come not only from the gases and liquids produced in upstream activities, but also from heavier feedstocks available from refineries.
Future success will be driven by the ability to integrate across the value chain to optimise the feedstock slate for chemicals, refined products, power and water.
RPME: How are you seeing the GCC’s petrochemical sector develop over the next couple of years and what are some of the factors in play?
Much has been achieved by the regional petrochemical industry, which grew out of a desire to make better use of hydrocarbon resources. Now the GCC chemicals industry accounts for $88 billion in revenue, has created over 150,000 direct jobs and several times as many indirectly, and contributes 13% of the world’s petrochemical output by volume.
The chemicals and business landscape has been changing: there is now more limited availability of advantaged feedstocks, increased competition from North American suppliers, greater self-sufficiency in the traditional export market of China as well as a growing need to promote the diversification of the domestic economy and create jobs.
To be effective, regional petrochemical companies have to and will pick up their game. They will become more competitive, whether through greater efficiencies in their operations or through benefitting from integration. They will diversify their feedstocks and broaden their product slates based on the heavier feedstocks. They will acquire the right technologies and produce more differentiated, technology-driven products that are better able to withstand the cyclicality of the business. They will look for growth opportunities both domestically and abroad. They will also develop the local talent and the expertise that could successfully manage a competitive business with a global footprint.
RPME: And finally, you are the chairman of the GPCA Responsible Care Committee. What does responsible care mean to you and why is it an important aspect of the chemical industry?
Responsible Care is a subject that has been close to my heart for a long time and I am excited to continue to work in this area as Chairman of the GPCA Responsible Care Committee.
All of us have not only an ethical but also a commercial obligation to play an active role in improving safety in the workplace and reducing the environmental impact of our business. But the emphasis that Responsible Care places on safety, product performance, resource efficiency, risk minimisation, pollution, waste minimisation and recycling, helps not only the companies but also our clients, our suppliers and our communities.
Saudi Aramco is committed to the highest international standards of Environment, Health, Safety and Security for all our businesses. We are committed to applying industry-standard Responsible Care protocols to our chemicals business.
Our two domestic chemicals joint ventures, Petro Rabigh and Sadara, are already signatories of Responsible Care and have made CEO-level commitments to implement the Responsible Care programme at their manufacturing facilities and in their corporate functions.
Aramco-Lanxess JV
In September 2015, Saudi Aramco and Germany’s Lanxess signed a 50:50 joint venture agreement to create a new company for the development, production, marketing, sale and distribution of speciality chemicals and synthetic rubber products that are principally used in the global tire and auto-parts manufacturing industries.
As part of the deal, Lanxess will contribute its existing synthetic rubber businesses to the joint venture. The business employs 3,700 people, has 15 global manufacturing facilities and contributed over $3.8bn to Lanxess group revenues in 2014. The joint venture is expected to close by the middle of next year, after obtaining regulatory approvals.
Petro Rabigh
Petro Rabigh was established as a joint venture between Saudi Aramco and Japan’s Sumitomo Chemical in August 2005. It currently utilises 400,000 barrels of crude per day and 1.2mn tonnes of ethane annually to produce a variety of refined petroleum and petrochemical products.
Currently in its final stages, Petro Rabigh 2 expansion project will enable the conversion of 4,000 kilotons of naphtha per year into higher value aromatic products, and add specialty ethylene and propylene-based products to the company’s portfolio.
Conversion Parks
Aramco has also led the development of two major conversion parks adjacent to its joint ventures Petro Rabigh and Sadara, providing converters with sites to process products manufactured at these facilities to finished goods.
Rabigh PlusTech Park was the first industrial estate for conversion industries in Saudi Arabia, and is now almost fully occupied with local conversion and support industries. The park is integrated with the Petro Rabigh’s petrochemical complex and is used for converting chemicals into consumer products. Aramco claims the park is one of the reasons why close to a quarter of Petro Rabigh’s petrochemicals output was sold in Saudi Arabia, the Middle East and North Africa in 2014.
