Insight Conversation: Abdulrahman Al-Fageeh, Sabic

Sabic executive vice president of petrochemicals, Abdulrahman Al-Fageeh, talked with Claudia Carpenter about the outlook for the industry and Saudi Aramco's pending takeover of 70% of the company for $69.1 billion.

All eyes are on Aramco's acquisition of Sabic, now that the state-owned oil giant  has successfully issued new shares in the world's biggest initial public offering in December. Aramco has said it expects the Sabic acquisition to close in the first half 2020, turning it into a company with the world's largest net production capacity of ethylene and among the top four companies in net production capacity of polyethylene, monoethylene glycol and polypropylene.

Sabic has dominated the petrochemicals market in the Middle East for years, and now faces new competition from China to India and the UAE. Petrochemicals will provide the only source of demand growth for oil if policymakers stick to sustainable development plans, the International Energy Agency said in its world energy outlook report in November.

Aramco has said the Sabic acquisition is in line with its strategy to increase its global participated refining capacity from 4.9 million b/d to 8-10 million b/d by 2030, of which 2 million b/d to 3 million b/d will be converted into petrochemical products. The downstream portfolio will consume "significant quantities" of Arabian crude oil, according to Aramco.

Go deeper: The Middle East's petrochemicals push signals oil's future

The acquisition is also part of Saudi Arabia's long-term plan to reduce the kingdom's dependence on oil and develop new domestic industries that will need petrochemicals for growth. Headquartered in Riyadh, Sabic has global operations in about 50 countries with more than 33,000 employees. In 2018, its consolidated production volume across its various business units was 75.3 million metric tons, including 61.8 million mt of petrochemicals and specialty products.

Do you see any signs of petrochemicals bottoming or do you see an upturn in the business next year?

I personally believe that the petrochemicals industry is a major contribution into the economy and it’s bringing a lot of solutions in all businesses and all of modern life. We have observed in the past 50 years or even more, that the growth of petrochemicals is always higher than GDP [growth]. So as an industry, I think it is healthy.

We have seen that there is a downward trend of the economy in totality, and definitely petrochemicals is part of it. Petrochemicals is a cyclical business. It goes up and down. I still believe that there is good demand for petrochemicals even though there is some slowdown in the economy.

Abdulrahman Al-Fageeh, vice president of petrochemicals, Sabic

When Sabic changes ownership and becomes 70% owned by Aramco, is that all part of Vision 2030 to create jobs and expand in Saudi Arabia? And how will that affect Saudi Arabia's ability to export crude – won’t you need more of the crude for your expansion?

We are downstream of the oil and gas industry. We don’t know exactly how this is going to impact oil. I think this question can be asked to Aramco. But relating to your question about Vision 2030, you are absolutely right. The chemical industry in Saudi Arabia participated in the growth of the economy of the kingdom since the late '70s and early '80s when we started the petrochemicals business.

We have seen the journey of the contribution of the chemicals into the Saudi economy improving from one year to the other. I joined Sabic in the mid '80s and I recall at that time there were not more than five or six factories for plastic conversion in the early '80s. Now we have more than 800 plants in Saudi Arabia.

The consumption of plastic in Saudi Arabia is around 3 million tons. This is really contributing into the economy and the vision is to maximize this and also maximize the local content.

How will Sabic change?

We have created a local content department and that local content is helping the investors, whether they are from the kingdom or from outside. The beauty of Sabic is that we are a diversified portfolio in the chemicals and polymer sectors, we have almost everything that is required to build the downstream for the applications that are required in the kingdom.

We will provide the feedstock to those investors who would like to invest in the kingdom, localize this industry, plus support them from the technical marketing, from the technology, from the innovation process that they are going to implement for their investments.

What do you think about the drive by China to India to expand into petrochemicals? How do you feel about this expansion – will it make things worse for the petrochemicals industry?

The main driver, beside what I have said about the petrochemicals demand increasing more than the GDP, is the availability of abundant feedstock. For example, the shale gas that has been discovered lately in the US, this is a game changer into the investments. It attracts a lot of investors into the petrochemicals. [The] same thing in [is taking place in] China, [with] the availability of coal. That also gives the investors the appetite to invest.

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It's always good to have healthy competition in the industry because this is really making people think about innovation, improving technologies, improving operational excellence. In the meantime there is a health demand for petrochemicals long term.

If China expands locally, where will Sabic go?

We have observed in the past 10 years that China is moving into self-sufficiency. That is why we decided we want to act as a local in China. So we started our joint venture with Sinopec in Tianjin to be a local and we have already expanded this into a bigger portfolio. We also have our own compounding business there, and established our own innovation and application centers in China.

How fast is petchems demand growing in Saudi Arabia vs the rest of the world?

It is similar to the average growth of the world.

Does that surprise you?

Not really. For example in China, the growth is high, the demand is high, also in Southeast Asia they have some similarity to this especially lately when the trade war is happening. We see some stability in Europe, we see some increase in the US. So the average of this is in Saudi Arabia. I think this is good. It's faster than GDP [growth].

In the US, we are expanding our operations heavily. Also we have a lot of investment in Europe, and also in the Middle East and Saudi Arabia.

Will Aramco ownership change anything for Sabic?

The transaction has not been completed yet. Sabic is 70% owned by the government through the Public Investment Fund. The deal is between PIF and Aramco. We have nothing to do with this transaction except we provide some data if it is required.

In parallel we put a team together between the two companies, looking into potential synergies in the future, how these potential synergies can be benefit both companies and benefit our shareholders and our stakeholders in this regard. The moment that the transaction is completed then this team is going to present their views.

Do you have any plans to go into recycled plastics?

Yes we do. We are looking at circular economy very seriously and we are investing in the technology development for the circular economy including chemical recycling. Europe is the starting part for us and also the technology is going to be available for us and for the people who want to use it.

Our focus at this point of time is to make the technology available. The mechanical recycling developed in past decades, it cannot give you the material that you can take it to high end uses. It's always to the low end. Now with the technology that Sabic is doing in chemical recycling this will enable all these ways to use it as a high end [product].

With the rising trend of integration, newer technologies, bigger economies of scale, what are your thoughts on how companies can stay competitive?

I think for those companies that care about the sustainability of the business and their operational excellence, and also are making sure they deliver fast with the high quality, these are the fundamentals in business, especially in the petrochemicals business.