| Going public: Borouge expansion projects to go ahead despite warnings of recession
By Karen Remo-Listana
Posted: 04 June 2007
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Borouge - Abu Dhabi ’s main petrochemical producer - is planning to go public after the Borouge 2 project goes online, says a senior executive of the company.
The expansion next to Borouge’s existing petrochemical complex in Ruwais is slated to be finished in 2010. The entire complex is estimated to cost around $5.5 billion.
 Harald Hammer, CEO of Borouge marketing, said that the amount of stock to be offered would be defined by the financial success of the project. He declined to give further details.
But he told Pipeline in an interview: “In a leading industry, you can go public. You should go public. I promise Borouge will be a success so we will go public.”
Borouge is 60% owned by the Abu Dhabi National Oil Company and 40% by Borealis which in itself is 65% owned by the Abu Dhabi government and 35% by Austria ’s OMV.
The Borouge 2 expansion was ordered to meet growth in demand from both the local and foreign markets but some experts are now warning of a recession in petrochemicals once new Middle East and Asian ethylene capacity comes onstream beginning 2009.
Energy consultants Jacobs said the Arabian Gulf will account for over 20% of global polyethylene capacity by 2010. The region’s polyethylene net exports will increase to around 16 million tonnes by 2010 and 19 million tonnes by 2012. But Chinese capacity is also expanding dramatically.
“The polyethylene market is looking dangerously overbuilt. This poses a key challenge to Gulf producers especially to those bringing on new projects around 2010,” Philip Leighton, director, Jacobs said adding that even in the best scenario, operating margins will be squeezed in 2009-2010.
In addition, global polyethylene trade is getting stiffer. The Middle East has depended on the Chinese market to absorb much of its product. But with Chinese import growth lagging Middle East capacity growth, the region will need to exploit new markets just as global operating margins tighten. Some markets, such as Western Europe and the Americas , are geographically remote and difficult to penetrate.
China is Borouge’s single largest market accounting for nearly a quarter of total sales and is slated to remain the leading customer after the completion of the expansion.
Hammer said that while China is the most important market, the company will also focus on India and the Middle East .
He said there are no current plans to build a production plant in China but said the company hopes to make a deal with a local Chinese company to improve logistics.
Hammer said the risk of recession was being addressed by the company but the unpredictability of growth in China posed more of a problem.
“In every global economy, you have in some point a recession but there will be no dramatic changes,” he said. “Unpredictability in China is much more difficult.”
While products from the existing plant are sold-out, he said Borouge is being selective in targeting new customers and has not signed any new purchase agreements.
In the past four months, multi billion contracts for the Borouge 2 project were awarded. The contract to build an ethylene cracker went to Linde Engineering.
The cracker will have a capacity of approximately 1.5 million tonnes per annum and is considered to be the largest in the world. The value of the contract is about $ 1.3 billion and was awarded on a lump sum EPC turnkey basis.
The contract to construct three new Borstar polyolefin units was awarded to Tecnimont of Italy for about $1.8 billion. The utilities and offsites contract was awarded to Technicas Reunidas of Spain at approximately $1.2 billion.
All three are underway and scheduled for completion in the second quarter of 2010. In addition, Borouge 2 comprises the world’s biggest olefins conversion unit, producing 752,000 tonnes a year; two Borstar polypropylene plants with a combined annual capacity of 800,000 tonnes; and a Borstar enhanced polyethylene plant that will have an annual capacity of 540,000 tonnes to complement the existing 600 tonnes unit. |
