Sadara Chemical Co. – a joint venture between state-owned Saudi Aramco and Dow Chemical Co. – has nearly completed construction of its integrated chemical complex in Jubail, the world’s largest to be built in a single phase. The company’s CEO Ziad Al-Labban tells Argaam about Sadara’s manufacturing operations, 2017 plans, and an upcoming capital hike.
Q: Can you shed some light on the company’s operations, in terms of feedstock and final products?
A: Sadara’s integrated chemical complex in Jubail consists of 26 chemical plants, 14 of which will produce products never before manufactured in Saudi Arabia. Construction of the complex is 99.9 percent complete, and commissioning activities are underway.
Sadara is already manufacturing products at four of its 26 plants. Solution Polyethylene (SPE) Train 1 started up in December 2015. Its main feedstock is ethylene, and it produces linear low density polyethylene (LLDPE). SPE Train 2 began operations in April 2016 and is a replica of SPE Train 1.
Our Mixed Feed Cracker (MFC), the heart of our chemical complex, began operations in August 2016. The MFC cracks both ethane gas and naphtha liquid – another first for the kingdom and the region. Its main products are ethylene, propylene and pygas, which are used as feedstocks by other plants in the complex to make plastics and high-value specialty chemicals. SPE Train 4, which produces elastomers, began operations in September 2016; its main feedstock is also ethylene.
Looking ahead, we have a very busy 2017 planned, with all facilities in full operation by mid-2017.
Q: Why did Sadara increase capital three times in the last two years from SAR 11.76 billion to SAR 24.19 billion? Do you expect any further increase in the near future?
A: These capital increases were planned and are standard procedure for a company which converts shareholder loans to equity. There will be at least one more increase that will take place in the first quarter of 2017.
Q: The company started its ethane-naphtha cracker in August 2016. When do you expect to ramp up to full capacity? And when do you expect all downstream units to reach full capacity?
A: We expect to be commissioning an average of one chemical plant per week. This includes plants such as our ethylene oxide, propylene oxide, propylene glycol and our polyol facilities. By mid-2017, all 26 of our plants should be in their startup phases and we should be ramping up rates in the second half of the year.
Q: Sadara is the first Saudi company to use naphtha as feedstock. How do you see the competitiveness of this feedstock given the plunge in oil prices?
A: Our MFC is made up of a series of furnaces, some of which crack ethane and others naphtha. Most of the liquid naphtha furnaces have the ability to swing between gas and liquid feedstock. This gives us flexibility, which allows the company to adjust feedstock inputs depending on which configuration is most profitable for Sadara.
When oil prices are low, naphtha cracking is financially very attractive; when oil prices are high, ethane cracking is more financially attractive. Furthermore, naphtha cracking produces heavier feed products which can be used to produce specialty petrochemicals and chemicals which have high profit margins.
Q: The stock market expected the company to float 30 percent of its shares in 2014 – 2015, but nothing has happened so far. What are the reasons for the delay and do you see chances of an IPO in 2017?
A: The initial public offering (IPO) will be initiated by Saudi Aramco. The proposed 30 percent IPO will come from Saudi Aramco’s share of Sadara. As such, this is ultimately a Saudi Aramco business decision on how and when the IPO will be conducted.
Q: How do you see global demand for petrochemical products in the future?
A: Economic prospects are projected to improve during 2017, as global GDP is expected to advance 2.8 percent and grow 3.1 percent next year, according to IHS. The growth in petrochemical demand has typically outpaced GDP growth, so as long as economic prospects are strengthening so will the petrochemical industry.
Q: How do you see the supply situation globally in light of the expected increase of North American production from cheap natural gas feedstock?
A: Global demand for ethylene cannot be met by shale gas-derived feedstocks alone. Naphtha-based feedstock, which is cost-effective, will have a financially attractive market niche. The design of Sadara allows for the company to reap market opportunities from a broad range of downstream specialty petrochemical and chemical products.
Write to Jerusha Sequeira at jerusha.s@argaamnews.com
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