Malaysia's petrochemical industry has defied all odds and emerged from the Asian economic crisis unscathed; no major project was cancelled or even suspended.
The country has managed to piece together a comprehensive presence in all stages of the petrochemical sector, from feedstock through to high-density polyethylene (HDPE) production. It now appears on the verge of becoming one of the region's primary petrochemical centers.
Nonetheless, the financial performance of the Malaysian petrochemical industry in the near term appears rocky. This is true despite the country's active promotion and development of its position as a regional petrochemical center and its taking advantage of its position as a major gas producer in utilizing abundant feedstock.
Near-term woes; Petronas
Most existing and new ventures are export oriented, and regional petrochemical product demand will not return to 1997 levels until 2002 or 2003.
Moreover, after most of the region's domestic producers have added new capacity in the past few years, they will be struggling through high depreciation and financing costs in the best of times.
"There is a tough row to hoe before a lot of these projects achieve real profitability," says one industry executive. "Malaysia, through Petronas [Petroliam Nasional Bhd., Kuala Lumpur], has done a tremendous job at developing an interdependent, diversified industry, but the global and regional industry has a way to go before recovery will allow them to make money."
Led by Petronas, Malaysia has attracted investments exceeding $7.63 billion over the previous 3 years, and another $5 billion will be invested after 2001.
Greatly assisted by its monopoly powers in critical areas of the oil and gas sector, Petronas controls petrochemical projects and has equity stakes in associated companies covering all dimensions of the industry.
The state company has been the moving force behind the petrochemical sector's rapid development. A powerful entity, Petronas does not report to the Minister of Energy, Telecommunications and Post, but rather directly to the prime minister's office. Until recently, its cash reserves totaled $7 billion.
Petronas' involvement has attracted virtually all of the industry's major players, including BASF AG, Ludwigshafen, Germany; Union Carbide Corp., Danbury, Conn.; Shell Chemicals Ltd., London; BP, London; and Idemitsu Kosan Co. Ltd., Tokyo, among others.
"In spite of the gloomy predictions by the economic gurus, there has not been a cancellation of any major proposed project," said Tan Sri Zainal Abidin Sulong, chairman of the Malaysian Industrial Development Authority. "Project implementation has generally been on schedule with only minor delays at worst."
Geographical centers
The petrochemical industry in Malaysia started in the early 1970s with establishment of a few small polymer plants providing the necessary resins for local fabricators involved in the domestic electrical and electronics sector as well as the food-packaging industry.
Eager to promote the use of gas in industry, the natural gas industry saw the petrochemical industry as a logical extension of itself.
That industry received a major boost in 1992 with completion of the first two phases of the Peninsular Gas Utilization project (PGU). Construction of three gas-processing plants in Kertih has spurred development by providing the feedstock for petrochemicals manufacturing.
The current development of the industry in the country focuses on three major geographical areas that are designed as integrated complexes: Kertih in Terengganu, the Gebeng complex in Pahang state, and Gurun in Kedah.
Other major unintegrated developments are based in Bintulu, Sarawak, and Pasir Gudang, Johor.
Kertih complex
The most ambitious of the integrated complexes is the Kertih development. Primarily export-driven, the ethylene-based project has received $3.5 billion and is due onstream in mid-2002.
The anchor projects are three joint ventures between Petronas and Union Carbide.
These include a joint venture of Petronas (76.25%) and Union Carbide (23.75%) to build a second ethylene cracker with a 600,000 tonne/year (tpy) capacity of ethylene and another 85,000 tpy of propylene. Output from the cracker will be used as feedstock for the other two joint ventures.
Also planned is a 50:50 joint venture which will produce 385,000 tpy of ethylene oxide and 320,000 tpy of ethylene glycol; and a multi-derivatives plant with a capacity of 85,000 tpy of alkoxylates, 85,000 tpy of ethanolamines, and 60,000 tpy of glycol ethers.
Other projects in the Kertih complex include:
- A petrochemical complex to produce 400,000 tpy of ethylene and 250,000 tpy of polyethylene. This is a joint venture controlled by Petronas (72.5%) with the remainder held by BP Chemicals and Idemitsu Chemicals.
- A vinyl chloride monomer-polyvinyl chloride project with a 400,000 tpy rated capacity, controlled by Petronas (60%) with Mitsui & Co. Ltd., Tokyo (40%).
- An ammonia-synthesis unit, owned entirely by Petronas, with a capacity of 450,000 tpy of ammonia. The associated syngas plant has a syngas production capacity of 325,000 tpy.
- An acetic acid plant owned by BP Chemicals (70%) with Petronas (30%) that will produce 400,000 tpy of acetic acid.
- Malaysia's first aromatics complex, a joint venture controlled by Petronas (70%) with MJPX (30%) that will have a capacity of 420,000 tpy of paraxylene and 145,000 tpy of benzene.
- A low-density polyethylene (LDPE) unit, controlled by Petronas (40%) with Polifin International Investments of South Africa (20%) and DSM Polyethylenes of The Netherlands (20%). The plant will produce 225,000 tpy of LDPE.
Gebeng site
Although smaller, the integrated complex in Gebeng is no less important. The major foreign company involved is BASF with three joint ventures with Petronas on a build-own-operate basis. Once again, the primary thrust is export.
According to BASF Petronas Chemicals Sdn Bhd Managing Director Bernhard Nick, the first line of products is due onstream this month and the company expects sales of $250 million during the first year of operation.
"We will be targeting markets in Asia which include Asean, Pakistan, India, Japan, New Zealand, Taiwan, and South Korea," said Nick. "We began marketing last June. The markets are certainly looking healthier than they were last year or in 1998. Things are looking decidedly healthier and we are anticipating a good year."
The first Petronas-BASF plant, an acrylic acid esters plant, is designed to produce crude acrylic acid that is then processed into butyl acrylate, 2-ethyl acrylate, and glacial acrylic acid.
The plant will produce 160,000 tpy of crude acrylic acid, 100,000 tpy of butyl acrylic, 60,000 tpy of 2-ethylhexyl acrylate, and 20,000 tpy of glacial acrylic acid.
An adjacent oxo-chemicals complex will be able to produce 160,000 tpy of butanols, 100,000 tpy of plasticizers, 80,000 tpy of 2-ethylhexanol, 50,000 tpy of butyl acetate, and 40,000 tpy of phathalic anhydride. The project will produce feedstock for other downstream industries producing paints, plastics, and textiles.
The third venture will be a butanediol plant that will produce 100,000 tpy of polyurethanes and polybutylene terephthalates.
"The chemicals produced at Gedeng will meet the growing regional demand for dispersions, essential ingredients of coatings and paints, and raw materials for adhesives, paper, diapers, textiles, and leather," Nick said.
Petronas will supply the vast majority of raw materials for production, including propylene, natural gas, and butane. Petronas has already started building a hydrogen plant.
According to Nick, BASF prefers building highly integrated petrochemical sites, rather than erecting numerous individual plants. "Raw materials are employed more efficiently, by-products and wastes are utilized within the integrated system, and transportation is reduced to a minimum," he said.
Petronas wholly owns through subsidiaries two other major projects at the complex.
MTBE Malaysia Sdn Bhd and Polypropylene Malaysia Sdn Bhd are constructing a methyl tertiary butyl ether (MTBE)/propylene plant and a polypropylene plant. MTBE is used to increase the octane level of motor gasoline. The propylene produced at the plant is used as feedstock for polypropylene.
Construction of a propane dehydrogenation plant began earlier this year and will supply propylene as feedstock to the Petronas BASF acrylic acid and oxo-alcohol plants.
The other major multinational involved in Gedeng is BP Amoco Chemicals, which is building a world-class purified terephthalic (PTA) plant. BP Chemicals is the world's largest producer of PTA.
A wholly owned investment, the $400 million plant will have a rated capacity of 600,000 tpy, the largest in Asia. PTA is the preferred raw material for a number of manufactured products with which Malaysia is attempting to develop greater involvement.
These include polyester textiles, video and audio tapes, film, and engineering resins. Approximately 70% of the plant's output will be sold domestically with the balance being exported.
Gurun; Pasir Gudang
The smallest integrated complex is in Gurun, Kedah, and has been developed as an agro-based project. A new fertilizer facility, wholly owned by Petronas, which came onstream in December 1999, is producing 594,000 tpy of urea, 370,000 tpy of ammonia, and 66,000 tpy of methanol.
Petronas Fertilizer (Kedah) Sdn Bhd owns and operates the plant that receives residue gas from the Kertih gas-processing plants via the PGU gas pipeline.
Pasir Gudang, Johor, is another major petrochemical region in the process of major development (OGJ, July 3, 2000, p. 51). It is home to two PE producers: Titan Polyethylene (200,000-tpy capacity) and Polyethylene Malaysia (245,000 tpy).
Both plants are swing linear low-density polyethylene/high-density polyethylene (L-LDPE-HDPE) types.
In late 1999, the Titan Group started up its Phase II expansion that included a naphtha-LPG cracker, polypropylene plant, and a cogeneration plant. Other components completed in early 2000 are an aromatics plant that can produce up to 108,000 tpy of benzene and 60,000 tpy of toluene, a 200,000-tpy LDPE plant, and a 100,000-tpy HDPE plant.
Start-up of the new naphtha-LPG cracker increases Titan's total annual ethylene capacity to 560,000 tpy from 230,000 tpy, propylene capacity to 280,000 tpy from 115,000 tpy, and pyrolysis gasoline capacity to 230,000 tpy from 120,000 tpy.
According to Titan, the recent expansion will enable it to provide local manufacturers with a full range of PE and PP products for plastic fabrication. Titan is a joint venture between the Chao group of the US and PNB Equity Resources of Malaysia.
Also in Pasir Gudang, Idemitsu Petrochemical Co. has formed a joint venture with Petronas for an ethylbenzene-styrene monomer plant with a capacity of 215,000 tpy of ethylbenzene and 200,000 tpy of styrene monomer.
Ethylene for the plant is from Kertih and benzene is currently imported, pending the completion of the aromatics plant in Kertih. The plant, spread over 110 hectares of prime industrial land, is the first in Malaysia to produce styrene monomer, the feedstock for several petrochemical products such as polystyrene resin, expandable polystyrene, and acrylonitrile-butadiene styrene.
These are all plastics widely used in the electronics manufacturing and automotive sectors, two of the country's most important industries.
Other projects
There are other petrochemical projects not part of larger complexes:
- The Labuan methanol plant, wholly owned by Petronas, uses gas feedstock from offshore Sabah and has the capacity to produce 660,000 tpy of methanol.
Petronas sells the output to its MTBE-propylene joint venture with BASF in Gebeng. - The Bintulu urea-ammonia plant that Petronas operates in association with four other Asean member countries uses gas from offshore Sarawak as feedstock.
Asean Bintulu Fertilizer Sdn Bhd has a rated capacity of 648,000 tpy and 432,000 tpy of ammonia and is the largest granular urea plant in Asia.
Regional prospects
While the Malaysian industry has successfully coped with the Asian crisis and the downturn in the international industry, it continues to struggle with low domestic demand and with export competition that has driven profits to their lowest levels in memory.
While the Asian region appears to be pulling out of the economic crisis that began in the summer of 1997, a major rebound in the petrochemical sector to previous high-growth levels is extremely unlikely until at least 2002.
Regional markets remain in decline after falling precipitously since the crisis. With four ethylene plants coming onstream in Asia in 1999, the regional market continues to soften.
Production patterns for the most basic petrochemicals are also changing. Countries such as Malaysia, Thailand, and Indonesia, which had been significant importers, are now significant exporters, particularly in olefins.
The result has been that these countries now have major overcapacity and compete fiercely at the expense of such traditional exporters as Japan and Singapore, but also the European Union, US, and Middle East.
These producers have also focused their investments in the higher value end of the market, where volumes are lower but prices are higher.
