Competition between private Saudi petrochemical producers is intensifying. One of the fastest growing companies in the kingdom is Saudi International Petrochemical Company (Sipchem), which completed its first decade of existence in December. Ahmad Al-Ohali, CEO of the company speaks with Refining and Petrochemicals Middle East, and reveals what he sees as his major achievements with the company after its first ten years, along with its future expansion plans.
“At the time of its formation in December 1999, Sipchem had a modest paid up capital of US$133m. This has now grown to $880m. During the first ten years our employees, who form the backbone of our success, grew from just a handful to more than 700,” says Al-Ohali.
The company’s operations have grown in three phases. The first phase was a methanol and Butanediol plant which started commercial production in 2004, while the most recent phase is set to go on stream by 2013. “The successful implementation of phase one (methanol and Butanediol plants) which started up in 2004 and 2005 respectively, followed by the recent start up of the Phase two (acetyls complex) make us proud and confident about our strategy and its execution. Phase three is progressing very well with start up planned for 2013,” explains Al-Ohali. The company has recently signed an agreement with Rhodia to build US$106m ethylene acetate plant in Saudi Arabia, as part of the phase three expansion programme. The project will produce 100,000 tonnes per year (t/y) of ethyle acetate, and will go onstream during 2013.
The CEO of Sipchem also revealed that Sipchem is in the process of building a corporate product application and technology centre in Dhahran. “The state-of-the-art world-class technical centre, that is scheduled to start in 2013, will support the development of the products and the process technology of the polymer and other products of Sipchem,” notes Al-Ohali.
Sipchem was the last company to receive subsidised ethane gas feedstock from Saudi Aramco in 2007. Looking ahead, Sipchem anticipates awarding the contracts related to its joint venture project with Hanwha from South Korea by the end of 2010. “The projects being considered with Hanwha are targeted to be awarded in late 2010 and early 2011. Other projects under consideration could be awarded in a similar time frame,” says Al-Ohali. “The projects are progressing as per plan with engineering work and preparation for tendering the EPC work,” he reveals.
The joint venture with Hanwha is for a plant that will produce 200,000 t/y ethylene vinyl acetate (EVA) and 125,000 t/y of polyvinyl products. Sipchem will hold a 75% stake in the joint venture, with Hanwha holding 25% of the company.
Financing the joint venture project is expected to come in the form of procured senior debt commitments from SIDF, PIF, ECA’s, and commercial banks. “The financing plan is being developed,” says Al-Ohali. “Whereas some equity for this project was procured in the March 2008 rights issue, additional equity funds will be required for this project and other Sipchem projects being considered. The amount of funding required as equity for Phase three projects is expected to be finalised in the first half of this year as the projects being considered are approved by the board of directors,” Al-Ohali adds.
The company inked in May 2009, a deal for mutual cooperation on new plants worth $4bn. “The agreement with Saudi Basic Industries Corporation (SABIC) is a positive move in the Kingdom toward rationalisation and use of the installed assets and right synergies,” explains the CEO. “The ministry of petroleum and minerals resources is behind this concept as there are several crackers in Al-Jubail industrial city that are not fully utilised to the maximum capacity,” he reveals.
Under the MoU, SABIC will implement seven plants worth $3.2bn, while Sipchem will build two plants worth $800m. “The idea is to utilise idle capacity in existing crackers to process or crack ethane for other users. Both parties will end up benefiting from this arrangement as it adds value to the cracker owner and the user,” Al-Ohali observes.
Chinese tax breaks
Though the company’s methanol and butanediol products are subject to anti dumping duties in China, the company is confident that these measurements will be lifted soon.“The duty on methanol is still under investigation, but we are confident that this matter will disappear shortly. However, in a significant and positive development, China’s ministry of commerce has recently announced a reduced anti-dumping duty of 4.5% instead of 20% on butanediol (BDO) imported from Saudi Arabia (KSA),” says Al-Ohali. “We are eager to continue working with Chinese regulatory authorities to reach better terms than the 4.5% that allow free trade between the two countries,” Al-Ohali adds.
Even with the huge capacities coming on stream from the region, the CEO of the company remains confident about the future of the industry in the Middle East due to the abundance of feedstock across the region. “The downstream industry in the region remains poised for more growth despite the recent downturn trend of product cycles. The Middle East region feedstock pricing provides an opportunity for local companies to get creative on new or the expansion of downstream products during the bottom of a product cycle as there is the opportunity to build plants at a lower construction cost,” Al-Ohali says.
A positive future ahead for producers in the region, according to Al-Ohali. “New plants will increase supply but this will be offset by increased demand as the product cycle reverses. Additionally, older plants are removed from the supply curve as they become less competitive which will reduce supply for the new plants coming on line,” he concludes.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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