Market outlook: OPaL cracker complex prepares for 2014 start-up
30 August 2013 16:23 [Source: ICB]
The long-awaited project will include a 1.1m tonne/year cracker, along with PE, PP, BD and benzene units downstream
ONGC Petro-Additions Ltd's (OPaL) $4.2bn (€3.2bn) cracker and derivatives project at Dahej, Gujarat, India, is gradually falling in place.
Conceived nearly 10 years ago, the project has faced many hurdles, but construction has progressed to a point where the company is finally gearing up for the completion and commissioning of a 1.1m tonne/year cracker and downstream units.
OPaL's cracker complex was conceived 10 years ago but has faced many hurdles before nearing completion
"The cracker is mechanically complete. The target is to start in July 2014; if not [all] then at least some of the plants," said PSV Rao, CEO of OPaL.
Besides the cracker, the project includes a 340,000 tonne/year high density polyethylene (HDPE) unit, two swing HDPE/linear low density PE (LLDPE) lines with a capacity of 360,000 tonnes/year each, a 340,000 tonne/year polypropylene (PP) plant and a 115,000 tonne/year butadiene (BD) extraction unit. It will also be extracting around 150,000 tonnes/year of benzene from the pygas that will be produced at the cracker.
It would take three to four months to stabilise and achieve prime production, he added.
The cracker is at an advanced stage and 99% complete, but the utilities and some of the derivative units have been lagging behind. "HDPE is 90-95% complete, while the PP and swing PE plants are 70-72% complete. We are working with Tecnimont - the engineering, procurement and construction [EPC] contractor - to speed up completion," said Rao.
Since the utilities are only 70-72% complete against a target of 90%, OPaL is working with EPC firms Fernas and Gammon to ensure quick completion, he added. The state government of Gujarat has given a commitment to supply water and gas to the captive power plant and details are being sorted out, said Rao.
The mixed-feed cracker will rely on supplies of gas and naphtha from state-owned oil and gas producer ONGC, which has a major share in OPaL. ONGC will be supplying around 1.5m tonnes/year of naphtha as well as around 680,000 tonnes/year of ethane/propane/butane to the cracker.
Ethane will be extracted from the liquefied natural gas (LNG) imported at a neighbouring LNG terminal operated by Petronet LNG. ONGC also has a stake in Petronet. ONGC's extraction facility has been ready for a few years waiting for the cracker project to be completed. ONGC is now working with Toyo Engineering to prepare the unit for commissioning next year.
The OPaL cracker is ONGC's first major venture in petrochemicals and the company has experienced many challenges. The project cost has nearly doubled and there have been delays in awarding contracts.
Rao, who was previously with ONGC, said: "ONGC has plenty of experience in handling big projects, but petrochemicals is a different cup of tea; there are unique challenges which require quick decisions. The project is split into 17 packages and each has different characteristics. Coordinating between the different bidders has not been easy."
Besides working hard to ensure timely completion of the project, Rao has also accelerated efforts to find a strategic partner for a 25% stake in the company.
"We have hired Ernst & Young to identify companies in the Middle East," said Rao.
"All the prerequisites for bringing in an investor have been completed in the last six months; this includes the feedstock agreement, the financial information memorandum, the shareholders' agreement and the sponsors agreement."
Rao indicated that a strategic investor can expect marketing rights for some of the products that will be produced by OPaL.
"Everything is open except operations and maintenance," he said.
OPaL has been seeking a strategic investor for the last few years and international majors such as Saudi Arabia's SABIC were reported to have expressed interest.
While previous efforts have not yielded results, Rao expects greater interest this time, as OPaL's project is at an advanced stage.
Around 25% of equity has been kept for an initial public offering (IPO), the time line for which has yet to be decided.
OPaL's debt/equity ratio is currently at 70:30 and would stand at 60:40 after the introduction of the strategic investor and an IPO.
ONGC has the largest stake in OPaL at 26% and this will continue after the equity dilution. The other stakeholders in the company are GAIL, with a 15.5% interest, and Gujarat State Petroleum Corp (GSPC), which has a 0.5% share.
GAIL would initially have the right to market 38% of OPaL's output, which would gradually come down to 35%.
"GAIL will be marketing the material using their distribution channel but it will be sold under the OPaL brand. GAIL will also take equal share of exports," said Makrand Dixit, head of marketing at the company. OPaL will have to export 30-40% of its output as its plants are located in a Special Economic Zone (SEZ) at Dahej, which requires the company to be a net foreign exchange earner.
Dixit anticipates exports of nearly 600,000 tonnes/year of polyolefins, BD and also benzene. The primary target markets would be the Indian sub-continent, China, Turkey and Africa.
Dixit is also optimistic of placing 30,000-40,000 tonnes/year of polyolefins within the SEZ, which would be deemed as exports. A plastics-processing zone is being set up in the SEZ, and seven plastics processors have already acquired land.
Sales in the SEZ could eventually go up to 160,000 tonnes/year once the zone is fully occupied, he added.
"Our analysis shows that the domestic market offers the best realisation, followed by sales in the SEZ and then exports. Domestic sales realisation will be at least $60 more than exports," Dixit explained.
"Our strength will be in polyethylene and we will have practically every major grade, including metallocenes.
"Our marketing strategy will be a mix of realisation and volumes," he added.
The company is also in talks with potential buyers of benzene within the Dahej SEZ. Post extraction of benzene, OPaL will also have a toluene-rich stream available for sale. This stream should yield around 90,000 tonnes/year of toluene and around 25,000 tonnes/year of solvent-grade mixed xylenes.
Butadiene will also be exported until GAIL's planned polybutadiene rubber (PBR) project at Dahej is built.
The project is still at an early stage and is likely to take four to five years to be completed. GAIL has the first right of refusal for the BD produced by OPaL.
To facilitate exports, OPaL is having talks with Adani Ports & Special Economic Zone for two tanks at Hazira port, which will be for the exclusive use of OPaL for a period of 14 years.
"We are in the final stages of discussion. Each tank, which will be constructed by Adani, will have a capacity of 1,500 tonnes and will take around 15 months to build," said Dixit.
A portion of the BD output will also be placed in the domestic market, which is expected to see a shortfall after Reliance Industries Ltd starts up its new plants for butadiene rubber (BR) and styrene butadiene rubber (SBR) in 2013-2014.
"There is a huge pull for butadiene," said Dixit, with enquiries coming in from many prospective local as well as global buyers.
After missing many deadlines, India's largest cracker project is finally taking shape. The delays could well turn out to be a blessing in disguise with the company now looking forward to timing start-up with the onset of the next upcycle in petrochemical markets.