Winning formula

New capacity coming on stream has boosted belief in the ethylene glycol market, says MEGlobal’s CEO.
Winning formula
By Abdelghani Henni
Fri 21 Jan 2011 12:00 AM

As part of its drive to upgrade its hydrocarbon reserves, Kuwait has been launching a series of downstream investment projects inside and outside the country through its investment arm Petrochemicals Industries Company (PIC), which formed joint ventures (JV) with major international petrochemicals companies like Dow Chemical.

While PIC has entered into several JVs with Dow, MEGlobal has proven itself to be one of the most successful projects jointly owned by a Western private company and a state-owned GCC company. “We are one of the largest producers of ethylene glycol (EG) in the world. We are 50% owned by PIC and Dow, and are a validation of the successful strategy of both companies, and an upgrade for Kuwait. We are true validation that 2 + 2 can be 10!,” Dr Ramesh Ramachandran, president and CEO of MEGlobal, tells Refining and Petrochemicals Middle East.

The objectives of the two partners entering the joint venture were different, but they complemented each other.

“The strategy of Kuwait is to take the feedstock and upgrade it for the maximum benefit of Kuwait,” says Dr Ramachandran. “For Dow, it was the asset light strategy. They want to stay in basics and commodities through the value they bring through technology, people and responsible care and how to reach the market, and at the same time take advantage of the global presence of PIC and the feedstock advantage that they may be able to bring,” explains Dr Ramachandran. “One of the unique distinctions of this joint venture is the international flavour of the management team. Unlike several other Middle East ventures that are country centric, MEGlobal’s six member management team have five passports – Kuwait, US, Netherlands, Germany, and Switzerland. That is using global talent for the best results.”

As for the relations with the parent companies, Dr Ramachandran says that as president of MEGlobal, he reports directly to the board of the JV. “I report to the board. The chairman of the board is PIC’s Yousef Al Ateeqi and his leadership has enabled MEGlobal to exceed expectations. The board consists of four representatives from Dow and four representatives of PIC,” says Dr Ramachandran. “The leadership of the board and the alignment of the strategic interest of the partners have enabled MEGlobal to achieve its objectives.”

MEGlobal’s expanding market share is the best indication of the company’s success, believes the chief executive.

“Overall, I would say that we serve between 15% and 20% of the world’s glycol market,” claims Dr Ramachandran.

“Last year, our end users’ profitability was great, especially in the polyester market,” he continues. “We exist to serve our customers and their profitability is very important to us.  Our focus has always been on our customer,”  “The polyester  market constitutes 65% to 70% of the end use of glycol  and about 25% to 28% is PET used in the water and bottle market, and then the remainder serves the  anti freeze market. All three market segments have grown very well with polyester delivering the most positive surprise,” he observes.

The company was successful in delivering excellent earning to the parent companies, says the CEO. “The biggest advantage of MEGlobal is its global presence. It can satisfy customers in various locations in the world, that’s what separates us from other companies. No competitor is able to do that. Secondly, MEGlobal’s customer and commercial focus has a significant marketing component,” says Dr Ramachandran. “For some reason, there is a mentality in some pockets that sales of commodities are nothing but trading, while in fact there is a very small percentage of commodities that is controlled by traders. Marketing and fundamental understanding of customer needs is as important in sales of ethylene glycol as it is in sales of personal care products.”

While the company headquarters are in Dubai, its assets are located in Canada and Kuwait. The two facilities use ethane feedstock. “Gas-based feedstock doesn’t move so they have to be upgraded at the source,” says Dr Ramachandran. “The Canadian assets are based on Canadian feedstock while the Kuwaiti assets are based on Kuwaiti feedstock. Notably, the gas-based feedstock allows MEGlobal to be the producer of ethylene glycol with the lowest carbon footprint,” he explains.

MEGlobal produces about 1 million metric tonnes per year of EG, and markets in excess of 3.5 million metric tonnes per year.

In addition to marketing its own products, MEGlobal is also responsible for the ethylene glycol marketing activity of its parent companies. “The ethylene glycol produced by Equate or Dow Chemical is 100% marketed by MEGlobal,” says Dr Ramachandran.

Dr Ramachandran is not concerned about new capacities coming on stream in the region, causing a surplus in the supply, instead seeing it as a healthy development for the market. “The reason behind why people are entering the market is a belief in the growth of the market, and this is always a good sign,” says the CEO. “Yes, there will be new capacities coming on stream, but the market, which is growing at a rate of 6 to 7% per year, requires assets to run at 95% reliability,” says Dr Ramachandran.

Currently, MEG prices, in both spot and contract markets, are hovering above $1000 per tonne, and this has impacted end user profitability.

“Our customers were very profitable in 2010, which is very positive for us,” points out Dr Ramachandran. “In the polyester chain, mainly in the cotton and garment industry, customers are very profitable today, which is fantastic. At the end of the day, we depend on a healthy and profitable customer base.”

The company produces one million tonne per year of monoethylene glycol and diethylene glycol.

The production process relies on Dow’s technology. “While our assets are not that people intensive, it is technology intensive. Also, running a glycol plant safely and reliably is our key competitive advantage,” says Dr Ramachandran.

“The second thing is if you run a 800,000 tonne unit and you have to take it down for maintenance, it means that you are taking out almost 1% of the world supply,” says the CEO. “Its unlikely that our expansion plans would rely on  building an 800,000 tonne single unit because it is fashionable, we will do it only if it makes financial sense,” he adds.

Like any other business, MEGlobal faces a raft of challenges, but the CEO remains optimistic: “The biggest challenge, and I put this in positive way, is to grow. As our customers are growing at a very rapid pace, we are not able to keep up, because a glycol plant  requires a  lot of investment,” says Dr Ramachandran. “It is a long term investment of 20 or 30 years, and requires US$1bn to $2bn of funding.”

Finding the right location to build new plant is another challenge that confronts the company. “The biggest strategic challenge is where to bring in new capacity that will be competitively advantaged. We want to grow with our customers in the right region,” says the chief executive.

According to Ramachandran, one of MEGlobal’s priorities is its commitment to “Responsible Care”. As a large producer of a key commodity, MEGlobal is working hard at understanding the use of its products from “cradle to grave”, says the CEO. Sustainability, and the reduction of its carbon footprint is important to the company, says Ramachandran. He points out that the carbon footprint of its production site in Alberta is the lowest in the world. This is because, in addition to being ethane based with high energy efficiency, the company sells its carbon dioxide for enhanced oil recovery in Alberta. So unlike other producers who emit carbon dioxide, MEGlobal assets reuse it. The recent recertification of MEGlobal’ assets in Alberta by the Canadian Responsible Care agency were a matter of great pride for the entire company.  Indeed, Dr Ramachandran remarks that while financial performance is important, the environmental record of the company is his greatest source of pride.

When speaking about what MEGlobal has learned from its local parent company, Dr Ramachandran says that EQUATE and PIC helped the company to understand how to do business in the region. “Different regions of the world react to marketing initiatives based on their local cultures. For us, we needed to learn how to do business in the Middle East and the Kuwaitis bring that to our management team. Some of our best strategy meetings and decisions are based on the wisdom of our Kuwaiti members,” he said. “At the same time, operational discipline and marketing strategies are the things we brought from the Western side. This combination of management and business talent from the West and the Arab world is a true win-win,” he adds.

Passionate about his company output, Ramachandran takes offence to the common perception within the industry that MEG is a “boring” product subject to a low-tech production process.

“In this part of the world, there is a tendency to look at a  commodity with a trader’s mentality, which means figure out the way to get the product in the hands of a seller, and then selling it a penny above the cost and then look for the next cargo. The concepts of marketing and costumer focus are grossly over simplified,” he says.

“This needs to be changed because customers expect and deserve the best.  We are trying to change this by saying that customer focus, and marketing add tremendous value to the partners.”

Speaking about MEGlobal future’s plans, the CEO is optimistic about the future of his company. “We are looking to establish new facilities here in the region as well as in regions where the market is growing fast,” reveals Dr Ramachandran. “We are definitively looking at the region, but this requires a lot of discussion, negotiation and board approval.”

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