TOGY talks to
Full speed aheadJuly 10, 2017
Said Mohammed Bajodah, executive president of S-Chem, talks to TOGY about the reliability of feedstock in Saudi Arabia, support for the downstream sector and why the regional industry has experienced above-average annual growth. Established in 1996, S-Chem runs a fully integrated aromatics and olefins derivatives production complex located in Jubail Industrial City.
Production at S-Chem’s complex is managed by three joint ventures: Saudi Chevron Phillips Company (SCP), Jubail Chevron Phillips Company (JCP) and Saudi Polymers Company (SPCo). SCP and JCP are equally owned joint ventures between the Saudi Industrial Investment Group (SIIG) and the Arabian Chevron Phillips Petrochemical Company (ACP), a Chevron subsidiary. SPCo is a joint venture between ACP and SIIG’s subsidiary Petrochem.
During 2016, S-Chem pursued a strategy towards sustained production levels on a board decision made in December 2015 to maintain its feedstock supply from Saudi Aramco. The company is also looking to attract more private investment to Saudi Arabia’s petrochemicals sector.
• ON DEMAND IN THE OIL SLUMP: “Despite the decrease in oil prices, the Saudi demand for S-Chem’s petrochemical products remains strong. In fact, we are selling everything we produce.”
• ON SUPPLY AND DEMAND: “With the support of Chevron Phillips Chemical’s world-class marketing network, S-Chem is confident in its ability to sell all its production, especially thanks to the growing domestic demand in Saudi Arabia.”
• ON PROJECT AWARDS: “The investment is about USD 10 billion for the three projects, and the fourth project, which is S-Chem’s sister downstream company Petrochemical Conversion Company, represents USD 800 million of additional investment. That’s nearly USD 11 billion for the four projects.”
• ON THE LONG GAME: “Despite the current economic environment, the demand remains strong in Saudi Arabia and S-Chem believes that the long-term demand for its products will continue to deliver profitable growth.”
Bajodah also discusses regional competition in the downstream sector. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Said Mohammed Bajodah below.
Do you think your company’s operations are improving as the oil price continues to rise?
Last year was a good year, even with the fluctuation of the oil price, and we actually exceeded our budget. The first quarter of this year started very well because the price of oil was almost flat. There weren’t big ups and downs like last year, and Q1 2017 was a very good quarter, better than Q1 2016. In terms of our budget, it was also good. In the future, we anticipate that the price will be flat or rise a little bit.
We have a good relationship with Saudi Aramco, who are very reliable suppliers and from whom we receive our feed without interruptions. The more we receive feedstock reliably, the more our plant is reliable and we can continue to produce.
Our forecast is to continue producing at capacity. We have the market for whatever we produce, which is the good thing. We know that people still need our product and that we can sell whatever we make. We have reliable feedstock, reliable plants, continuous production and continuous sales.
The price of oil will depend on the market, but I think it will correct itself. I cannot predict exact numbers. It is a positive outlook, but this doesn’t mean that the price will increase.
How would you describe the competitive landscape in Saudi Arabia?
If we talk about competition from a product point of view, there is no competition. Even if others produce the same product, it is needed in the market. The growth of the market is greater than that of production.
We compete for labour. When new companies start, they take employees. We did the same thing when we started; we took employees from other companies, then new companies took from us. However, this is an opportunity for Saudis to grow, and this is not a problem for the country.
The other possible competition is for feedstock, but Aramco never allocates anything they do not have. In fact, they allocate less and save some for emergencies. In the end, we are also not really competing to get feed.
Have Saudi production cuts impacted your supply?
No, not at all. We had a very good year. We had meetings with Aramco and co-operate very well with it and all the local companies. Even with the reduction in crude, they told us all to be proactive.
There could be curtailments, but in 2016 we received our full feed from Aramco, actually 101%. There is always a risk in having only one supplier, but we have been aware of that risk since the beginning.
How much of your products are used locally compared to abroad?
At total of 90% of our products are exported. We are trying to get into the Saudi market because our volumes are huge, but the market is currently very small. For example, we are producing 1.1 million tonnes of polyethylene, but only 5% will be used in Saudi.
We export everywhere, to the USA, Europe, China, India and the Far East. We are using Chevron Phillips’ marketing arm. They are everywhere in the world and they are selling our product. We have been with them for about 20 years and we are very happy with our partnership.
What kind of support do you require in order to produce finished products in Saudi Arabia?
The government is on the right track. They are working very hard to support the downstream industry and I think we will see progress in the future.
We need to be precise, to talk about things we can do faster and things that are needed locally instead of just producing and exporting. We need to focus on the needs of Saudi Arabia and the Gulf. From there, we can expand and export raw material.
Sometimes we try to start big and build something for export. If instead we are specific about our needs and satisfy local requirements through downstream initiatives before expanding, I think that would be the right thing to do.
I see all these workshops and people working so hard. It will happen, we just need to be patient.
Do you fear that the rapidly developing industries in Malaysia or India will impact your exports?
I don’t think so. The market is still huge; the need for petrochemicals is massive. Even if India starts producing, there will still be the need. It’s a matter of competition; the demand is higher than the supply. No country or businessperson would start to manufacture something if there wasn’t a demand.
I’m sure new technology will come as there is more and more need. The competition is there, but I do not think we need to reduce our prices because we are producing materials that are needed.
What are the causes for the regional petrochemicals sectors’ above-average 5.8% annual growth in 2016?
First, you have new resources. There are so many resources in Saudi and the region – you have the right place, time, money and people around you.
Most plants are old, and to rebuild or modify them would cost more. However, we have a lot of space here, and companies are operating to the highest international standards. When you talk about this growth, most of these companies are new companies with new assets.
We experience faster, more extensive growth because we have new assets built to new standards. That’s why we can do more and other countries cannot. Our new assets mean that we are qualified to meet demand whenever it comes. We can also expand quickly because we have the resources, the money and the feed.
What path will S-Chem take in order to keep ahead of the game?
Until now our slate has been full and we haven’t had room for new projects. We are now looking at higher-hanging fruits and for new opportunities to enhance our products and systems.
In general, I’d like to expand more and more, but that depends on the availability of feed from Aramco. I hope that in the future we will start thinking about a new project. It’s only a matter of time. We are waiting for new feed, and then I am sure we will get into it.
We can expand on our existing products, depending on what feed they give us and what the government wants to see. We do not have our own technology, so we will need to get a new shareholder to provide this. We have very good relationships, a good history and a good reputation. From here we can go anywhere.
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