Khalifa Al Suwaidi, executive director, Refining and Petrochemicals, Mubadala Investment Company talks about driving expansion in the petrochemical sector
Following the merger how has the rest of 2017 been for Mubadala?
As a company, we have had a very exciting start to business as a new company. We have already been engaged with some substantial investments and we have healthy global portfolio.
Our global refining and petrochemical portfolio spans the petrochemicals supply value chain from the US, to Europe, through the Middle-East to Japan. The value of the portfolio is over US$41 billion and comprises 32.7 per cent of the Mubadala Investment Company.
In petrochemicals, we are one of the top five producers in the global polyolefins market and companies in our portfolio include the 4th largest ethylene producer in the US. The E&P operations produce 500,000 barrels per day.
We are the leading global producer of LAB - linear alkyl benzene (LAB) - the most common raw material in the production of biodegradable detergents (Cepsa).
Overall, I think the market is buoyant. Between 2007 and 2017, 212 new petrochemicals producers entered the industry, this is a 20 per cent increase, which is surprisingly high. The growth in the petrochemicals market is set to outstrip the growth in global GDP. We see a lot of diversification and change and there will be many investment opportunities.
How is Mubadala approaching the need to integrate its business and what are other companies doing?
For Mubadala, the main challenges around integration vary across the petroleum and petrochemicals platform and depend on the markets in which we operate. If we look to Japan, it is a mature market, which means that the focus is on diversification of products and applications while improving performance at plant level.
If you look to other parts of South East Asia, they are developing markets, so the focus is on supplying enough base chemicals to support their economic growth.
Thinking strategically, we are very clear that business sustainability and profitability will come from integration across the whole value chain.
The producers are focusing on going further downstream and working closely with their customers to make the applications and compounds they require. Future growth will come from companies who build partnerships based on scale, petrochemical experience and technology.
What are your thoughts on market expansion?
China and India will continue as significant drivers of demand across the industry. Pakistan is also a very interesting market, where our own asset Parco is expanding their midstream and refining business.
As a market, Europe is a mature market. Companies are seeking to expand their portfolio by considering more speciality chemicals. In North America, the expansion of shale gas is creating new opportunities based on competitive feedstock, and all the indicators are that it will continue to be an interesting market. We will see these trends emerging in other regions as they grow and mature.
We are very focused on applying our learnings from developed markets to developing markets, and this knowledge sharing is at the core of our business.
What is driving the change in partnerships between IOCs and NOCs?
The change in the relationship between IOC and NOC activity has been very interesting to watch. Over the last two decades, we have seen an increase joint venture activity between the two. Traditionally I think the NOCS have been slower to move downstream and diversify.
Today, this mentality is changing. NOCS are starting to understand that moving downstream helps them capture more value. It also enables them to sustain business through periods of price volatility and creates a natural hedge to their business.
When crude was high above $80, $90 or even $100, perhaps there was not much need or focus for diversifying portfolios. Some NOCS did not see or understand the market potential in petrochemicals. Now we see NOCS working with IOCS to develop technology and access new markets; this is a significant change in market dynamics.
Looking ahead what are the things that petrochemicals companies need to focus on to grow?
Two things spring to mind: the first is the investment in R&D and adapting rapidly to change. Investment in innovation is important because over the last decade producers have been very focused on chasing the demand for base chemicals in the Chinese market, and not enough capital has gone into R&D. This is an industry trend and we need to drive innovation to create the new applications and sophisticated products required by the market, in partnership with our customers. As an industry, we need to move quickly. I sense a disruption is coming to the petrochemicals market.
Think of all the innovators and inventors who are working today to design the next wave of smart products and the devices required for the growth of the automotive, infrastructure, medical, and other industries. The petrochemicals industry is vital to creating the applications that will make these inventions a reality.