How competitive is the Middle East for producers in comparison to other refining and petrochemical producing regions of the world, most notably the US and Asia?
The Middle East is well known for having the bulk of the world’s oil reserves, with gas reserves not far behind, giving the region great advantages in terms of competitiveness. But in the Gulf, and the Kingdom of Saudi Arabia in particular, a range of added advantages exist for the refining and petrochemical sectors, resulting from strategic plans for development which are underpinned by political and economic stability.
In the Kingdom key advantages include the experience of Saudi Aramco, which invests continuously in development and expansion into new areas, the availability of feedstock at attractive prices, an extensive workforce trained in refining and petrochemicals, and government investment in the facilities and mega projects that allow communities and regions to develop and flourish.
Petro Rabigh is the perfect example of this. Our location on the Red Sea gives us proximity to emerging markets in India, China, Africa and southern Europe, while we are at the hub of a region witnessing unprecedented social and economic development. We are also bring the markets to us, by offering downstream investors from the region and further abroad conditions and advantages that they find nowhere else, through Rabigh PlusTech Park, Saudi Arabia’s first private industrial park integrated with a petrochemical complex, which serves as an integrated platform for downstream industries.
In your opinion, how is the falling price of oil affecting the downstream sector?
Downstream companies with highly sophisticated configurations should remain fairly stable even with fluctuating oil prices, and the greater the move downstream that integrated companies make, the more they will profit. Companies like Petro Rabigh, which is currently expanding to offer a greater and more diverse slate of value added products, are more resistant to the effects of oil prices. The relationship between feedstock and end product is not direct, but instead more subject to growth and demand.
That is not to say we are immune to price fluctuations, and at times we have to tighten our belts slightly like others, but confidence in the Kingdom’s petrochemical industry is very high, as it knows that it is well supported by the government in very stable political and economic conditions. In addition to that stability, there are feedstock advantages, an extensive young and willing workforce, well-known tax advantages, generous government loan conditions and equally generous incentives for foreign investors in a variety of forms. International investors find in the Kingdom opportunities and advantages difficult to match elsewhere.
Gulf Petrochemicals & Chemicals Association (GPCA) figures state that the Gulf plastics converting industry is growing from between 9% and 11% annually. With a growing population, improvements to urban infrastructure and rising purchasing power, plastics and plastics products are in increasingly high demand in the region, and all the more so in Saudi Arabia. So the outlook for petrochemicals and the downstream industry in the Kingdom is extremely good.
How well prepared is the region in terms of securing feedstock for the future?
In the case of Petro Rabigh, we have with Saudi Aramco agreements for feedstock supplies that are as secure and stable as any in the world, and I believe the situation for companies in much of the Gulf to be similar. The confidence across the region, and in the Kingdom in particular, is reflected in the number and scale of new downstream projects and government investment in mega projects. Unmatched hydrocarbon reserves and feedstock availability, proximity to growing markets in the Middle East, Asia and Africa and the availability of a qualified workforce to operate downstream facilities are making Saudi Arabia a growing hub for refining and petrochemical investments.
Many industry analysts are citing closer integration between the petrochemical and refining sector as a key way to improve profitability in the downstream industry. As a producer of refined petroleum products as well as polymers and monomers, how do you think closer integration could benefit the industry?
As I mentioned, increased integration makes the industry more resistant to price changes, but it also brings benefits in terms of product availability, reductions in transport and utilities costs, and synergies from joint infrastructures and logistics.
Some analysts have suggested that the Middle East should move towards liquid feedstocks in order to open up a broader slate of end products. Do you agree with this statement? If so, how well positioned is Petro Rabigh to deal with this change?
I totally agree with that position, and our Petro Rabigh II expansion is a perfect example of using liquid feedstocks to produce a wide spectrum of high value products. The $8 billion project will utilize leading-edge technologies from Sumitomo Chemical and other companies and explore the maximization of synergies with Rabigh I. The further diversified slate of petrochemical derivatives, including products new to the region, will give a major boost to the development of the conversion industry by creating new opportunities, diverse investment and growth for all stakeholders.
Do you think that the Middle East invests enough in innovative technology? How important is Research and Development to Petro Rabigh?
Petro Rabigh is part of an overall government economic strategy to create opportunities and spur growth, so areas such as research and development, education and training, and social development are carried out in collaboration with our numerous partners across the Kingdom and beyond.
In the past few years, several initiatives have been established by both regional governments and the private sector to enhance R&D developments related to the petrochemical industry, including the UOP Technical Center at the King Fahd University for Petroleum & Minerals Technology Park in Dhahran and the TASNEE Plastics Research Center in Riyadh. Further examples are the Saudi National Science and Technology Plan in King Abdul Aziz City of Science and Technology (KACST) in Riyadh, and SABIC’s Plastics Application Development Center in the Riyadh Techno Valley research complex inside King Saud University.
Which markets are most interesting to Petro Rabigh and why? What products are driving growth in these locations?
Both the domestic and international markets are important for us. Our refined products, which are marketed by Saudi Aramco, are essential in meeting local demand, providing vital supplies to the airline industry, for example. The local demand for petrochemicals, meanwhile, is set to continue to increase.
In 2014, for example, approximately 80% of our refined products went to meet demand from the local Saudi market, with 18.5% going to Asia, 1% to Europe and 0.5% going to other parts of the Middle East, while 70% of our petrochemicals went to Asia, and 8% to Saudi Arabia. 10% to other parts of the Middle East, 5% to Europe, 6% to Turkey and Africa, and 1% South America.
As a policy we prioritize sales to the local market, which includes Rabigh PlusTech Park. Part of Saudi Arabia’s vision is to bring markets and investment to the Kingdom, and Rabigh PlusTech Park is an embodiment of that vision. The 2.4 square kilometer facility is attracting high value added industry investors from both home and abroad by offering unique conditions and technical support that create a “win-win” situation. Investors benefit from ready high standard at-cost utilities and communications, an integrated network of feedstock suppliers, infrastructure and service providers, and long-term feedstock supply agreements with favorable prices and contractual terms and conditions, while Petro Rabigh benefits from committed customers and all the advantages of having them on our doorstep. So far over 30 local and international companies from as far and wide as China, Japan, Italy, France, Switzerland, Germany, Hungary, Turkey and UAE are already taking advantage, and upon full operation Rabigh PlusTech Park will have created more than 2,000 jobs that feed back into local job creation and development.
Tell us about your plans for Petro Rabigh in 2015 and beyond. How does the company plan to grow?
2015 is a major year for Petro Rabigh as we enter a new phase of horizontal and vertical expansion. We are working round the clock on our $8bn Petro Rabigh II expansion, which is on schedule to come into operation in 2016. Petro Rabigh II will double the size of Petro Rabigh’s operations and introduce over around dozen new products, many of them new to the Kingdom of Saudi Arabia and the Gulf region, further enhancing refining and petrochemical integration and boosting diversification into high value-added petrochemicals. In addition to expansion to the existing ethane cracker and a new world scale aromatics complex, the project will bring a dozen new additional process plants and utilities.
Petro Rabigh II represents a new era of downstream opportunities for plastic converters and a new era of Saudi competitiveness, and is set to create more than 3,500 jobs. The project also includes expansion to Rabigh PlusTech Park.
Together with support industries and third party suppliers, Petro Rabigh, Rabigh PlusTech Park and Rabigh Phase II will have created over 11,500 jobs.
As we measure our growth not just in production and financial terms but also in terms of how we contribute to sustainable economic and social development, training and development is a vital element in Petro Rabigh’s vision. We have significantly increased and enhanced our training programs and engaged with proven partners to achieve best-in-class performance in our people, assets and systems. Reflecting our local commitment, the Saudization rate of our workforce is approximately 85%, and together with the diverse expertise and experience we have from across the globe we are building the culture and implementing the values that we want at Petro Rabigh.
Petro Rabigh is a joint venture between Saudi Aramco and Sumitomo Chemical. What do each of these two parties bring to the table? What strengths do you feel are derived from being a Joint Venture?
Saudi Aramco’s experience and reputation in oil and gas needs no reiteration, and Sumitomo Chemical has a similarly long and distinguished heritage as a leader in technology patents related to petrochemicals and in the global marketing of chemical products. The important thing in joint ventures like these is the consolidation of know-how and infrastructure, with both parties recognizing each other’s best qualities and letting them enrich each other to build a cohesive and unique corporate culture, and that is exactly what our founding shareholders set out to do from the start.
Together we are forging a culture, a Petro Rabigh culture, that brings out the best of everyone through diverse skills, experience and viewpoints. Teamwork is the foundation of everything we do, at all levels of the company, and the founding shareholders have spared no efforts in supporting us with resources, talent, skills, expertise and experience. Together we are developing a dynamic and sustainable model of operations.
