Petronas to partner Saudi Aramco on RAPID

  • Oil tanks at the Saudi Aramco headquarters in Dhahran city ... the company is the world’s largest crude oil exporter
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This article first appeared in Corporate, The Edge Malaysia Weekly, on June 6 - 12, 2016.

PETROLIAM Nasional Bhd (Petronas) has taken another important step forward in the RM60 billion Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, south Johor.

According to an industry source, Petronas intends to partner Saudi Arabian Oil Company (Saudi Aramco) on building the refinery and a steam cracker complex that will form the backbone of RAPID.

The source says the preliminary plan shows that the cost of the refinery and steam cracker plant is likely to be in the region of US$12 billion, or about RM50 billion.

It is understood that Petronas and Saudi Aramco had firmed up an agreement earlier this year to facilitate the massive development.

Under the partnership, Petronas Refinery and Petrochemical Corp Sdn Bhd, a wholly-owned subsidiary of Petronas, is likely to join forces with a Saudi Aramco unit for the refinery job. Another Saudi Aramco unit could tie up with a Petronas unit — possibly Petronas Chemicals Group Bhd (PetChem) — for the development of the steam cracker complex.

Petronas owns 64.35% of the publicly listed PetChem.

The plan is to build a refinery with the capacity to process 300,000 barrels per day (bpd) of crude oil and a steam cracker plant with an annual capacity of more than three million tonnes of petrochemicals. It is understood that a significant portion of the production from the steam cracker complex will be sold as feedstock to the surrounding Pengerang plants.

Some of the plants being built include Italy-based Maire Tecnimont’s US$482 million polypropylene plant with an annual capacity of 900,000 tonnes and that of China’s Huanqiu Contracting & Engineering Corp, which is likely to be completed in 2019.

Other outfits, such as PRPC Glycols Sdn Bhd, PRPC Polymers Sdn Bhd and PRPC Elastomers Sdn Bhd, have also been set up in Pengerang. These three companies were sold by Petronas Refinery and Petrochemical Corp to PetChem last November for RM13,000 and the assumption of US$110 million in debt.

It is understood that PRPC Refinery and Cracker Sdn Bhd and its related units could play a key role in the development of the refinery and steam cracker plant.

A check on the Companies Commission of Malaysia website indicates that PRPC Refinery and Cracker is almost 100% owned by Petronas Refinery and Petrochemical Corp with individuals Mohd Farid Mohd Adnan and Juniwati Rahmat Hussin having minute shareholdings.

“The viability of the proposal is more or less firmed up and the funding requirements are being ironed out. It shouldn’t be a problem, considering Petronas and Saudi Aramco are government-linked companies. The project’s completion is set for 2019, if all goes well,” says the source.

The RAPID project is spearheaded by Petronas and involves 20 years of development to transform Pengerang from a sleepy seaside town into a regional petrochemical hub by 2035. The first phase, currently being undertaken, is to be completed in 2019. It will involve 38% of the 20,000 acres of available land on which the project is being built.

If it happens, it will be a coup for Petronas to get Saudi Aramco as its partner to develop RAPID. Headquartered in Dhahran, Saudi Arabia, the state oil company of the Kingdom of Saudi Arabia is the world’s largest crude oil exporter, producing roughly one out of eight barrels of the world’s supply.

Saudi Aramco is conservatively valued at US$2.5 trillion, and plans for the company to sell a 5% block via an initial public offering have already generated considerable interest. It is, after all, the world’s largest energy firm.

Just listing 5% of Saudi Aramco would give the company a potential value of US$125 billion.

PetChem, the downstream arm of Petronas, has made known that it will be charting its next phase of growth in RAPID. So far, PetChem has awarded four contracts worth a combined US$1.36 billion to two consortia to build the four polyethylene and glycol processing plants in the RAPID project.

The investments in RAPID would make PetChem the region’s largest producer of polyethylene and glycol. With that, the group could capture future demand for petrochemicals. Furthermore, PetChem would be able to reduce its dependence on natural gas as feedstock.

The group intends to have facilities that consume naphtha as feedstock as a safeguard against a possible gas shortage.

In its first quarter ended March 31, 2016, PetChem posted a net profit of RM592 million on revenue of RM3.15 billion. In the previous corresponding period, it had raked in a net profit of RM605 million on revenue of RM3.14 billion.

As at March 31, PetChem had cash and cash equivalents of RM8.57 billion, long-term debt of RM346 million and short-term borrowings of RM15 million. Its reserves stood at RM23.34 billion.