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Malaysia’s RAPID project in doubt
If the project does not go forward, PETRONAS Chemicals Group will have to rethink its growth plans
Malaysia’s PETRONAS Chemicals
Group (PCG) may have to rethink
its medium-term growth plan as
the $20bn petrochemical and refin-
ery project of its parent firm has re-
mained in a feasibility-study stage
nearly three years since it was pro-
posed, analysts said on 19 March.
State-owned energy firm PET-
RONAS, which is PCG’s parent
firm, is expected to make a final in-
vestment decision on its Refinery
and Petrochemical Integrated De-
velopment (RAPID) project in
Johor in end-March, with growing
apprehension in the industry that
the project may not push through.
“If RAPID doesn’t come
through, then they [PCG] will have
to re-examine their growth plans,
including potential acquisitions,”
said Sriharsha Pappu, director of
chemicals research at HSBC.
RAPID is an integrated green-
field refinery-cum petrochemical
plant of PETRONAS that was first
announced in May 2011. The de-
velopment is expected to turn
Southern Johor into a major petro-
leum and petrochemical centre in
Asia. The project has the potential
to double PCG’s current capacity of
11.5m tonnes/year within the dec-
ade. But PETRONAS CEO Sham-
sul Azhar Abbas was quoted in
various media reports in August
2013 as saying that RAPID runs the
risk of being scrapped if the pro-
ject’s potential economic returns
are deemed unsatisfactory amid
rising costs.
Early last year, PETRONAS and
German chemical giant BASF mu-
tually agreed to terminate their
agreement on building a specialty
chemicals project, which is part of
RAPID. Taiwan’s Kuokuang Petro-
chemical Technology Co – a sub-
sidiary of CPC Corp – also decided
to withdraw a plan to build a
major petrochemical project in
Malaysia that was supposed to lo-
cated in the same area as RAPID,
citing poor economics.
STRONG BALANCE SHEET
Amid the uncertainty surround-
ing the RAPID project, PCG can
22 | ICIS Chemical Business | 31 March-6 April 2014
pursue expansion on its own
given the company’s huge cash
buffer, analysts said.
“They [PCG] are cash rich and
growth constrained,” Pappu of
HSBC told ICIS. The company has
a cash balance of Malaysian ringgit
(M$) 10.3bn ($3.14bn), the highest
of any petrochemical group global-
ly, and it has the facility to borrow
substantial capital, said Malaysia-
based Maybank IB Research.
“Should the PETRONAS RAPID
project not proceed for whatever
reason, [PCG] will then look at al-
ternative investments, which in-
clude the acquisition and buy-out
of other petrochemical compa-
nies,” it added.
When first announced, the
RAPID project was to include a
300,000 bbl/day refinery, as well as
a naphtha cracker that would pro-
duce about 3m tonnes/year of eth-
ylene, propylene, C4 and C5 ole-
fins and a petrochemicals and
polymer complex that would pro-
duce differentiated and highly-
specialised chemicals.
DELAYED TIMELINE
In July 2013, PETRONAS said
that RAPID’s start-up will be de-
layed by a year from the original
schedule of 2017.
“We view the project as unlike-
ly to be fully commercially opera-
tional before 2019-20 at the earli-
est,” said HSBC’s Pappu.
Meanwhile, PCG’s Sabah Am-
monia and Urea (SAMUR) pro-
ject, initially scheduled for com-
pletion by the end of next year,
has been delayed after a fire had
broken out on a ship that was de-
livering critical equipment to the
project site in February, accord-
ing to Malaysia-based Hwang-
DBS Research.
The SAMUR project is an inte-
grated greenfield plant with a
nameplate urea capacity of 1.2m
tonnes/year.
“[PCG] has already assembled
a task force to investigate and as-
sess the damage as well as contin-
gency plans towards the project’s
August 2015 operational time-
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PETRONAS will announce a decision on its petrochemical project
line,” said Maybank IB Research.
A delay to the project’s start-up is
likely as the fire affected the
equipment’s integrity and re-
quires time to facilitate repairs
and testing, it added.
“Unless new developments
surface, we believe this project
will be delayed, with commercial
production only starting in fiscal
year 2016,” according to Malay-
sia-based RHB Research Institute.
AROMATICS PROGRESS
Meanwhile, at Pahang in east
peninsular Malaysia, PCG’s
$500m joint venture aromatics
project with German producer
BASF is expected to push
through, analysts said.
The final investment decision
on the aromatics unit in Gebeng,
Pahang, should be announced
by the end of the second quarter
of this year, according to May-
bank IB Research.
If PCG decides to go ahead with
the project, construction will take
about two years to complete and
the plant is expected to start com-
mercial shipments by 2016, it said.
The plant will produce chemi-
cals for the fragrance industry,
Rex Features
and superabsorbents used in
human sanitary applications.
For 2014-15, PCG is expected to
post earnings growth on the back
of higher olefin margins due to
stronger demand growth despite
the scheduled maintenance at its
olefins and aromatics plants, and
the gas supply shortage at its ferti-
liser plant in the first quarter of
this year, according to Suwat Sin-
sadok, an analyst at Malaysia-
based CIMB Investment Bank.
“The olefin industry has been
on the upcycle, leading to margin
expansion across the product
chain, thanks to higher demand
and tighter supply, Sinsadok said.
“The margins for its [PCG’s]
downstream olefin products, pol-
yethylene (PE) and polypropylene
(PP), were the key drivers for the
strong earnings. This offset the
weak naphtha-based aromatics
earnings which are now clearly
entering a downcycle,” he said.
In 2013, PCG’s net profit fell by
9% to Malaysian ringgit (M$)
3.5bn ($1.1bn), with group reve-
nue down by 8% at M$15.2bn, in
line with lower production vol-
umes amid heavy maintenance
schedule at its facilities. ■
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