Adnoc’s big bet on petrochemicals

Pay attention at the back.

Earlier this week Abu Dhabi-listed Fertiglobe reported net profits of $160m for 2024, down by more than half on 2023 because of lower revenues. Meanwhile, net earnings at Borouge, another of Abu Dhabi’s listed petrochemicals ventures, jumped by nearly a quarter year-on-year to $1.2 billion. Borouge reported record production and sales. What is going on?

A lot, as it happens.

Both companies are controlled by Adnoc, Abu Dhabi’s ambitious oil and gas major, and are central to the UAE’s plans to move downstream and prosper in a low-carbon future.

Fertiglobe and Borouge serve different markets. Fertiglobe is the largest nitrogen fertiliser producer in the Middle East and North Africa. It is set to become Adnoc’s low-carbon ammonia platform globally.

Adnoc only took control of Fertiglobe in October, when it bought out OCI Global, a Dutch producer of nitrogen, methanol and hydrogen, paying $3.6 billion for a 50 percent stake. The purchase means that Adnoc has 86 percent, while the free float traded on ADX, the Abu Dhabi stock exchange, is 14 percent.

Why the fall in profits? The company said it had been hit by gas shortages in Egypt and Algeria, where it took sizeable provisions, and had deferred some shipments to attain better prices this year. That judgment looks sound: urea prices have increased by nearly a quarter so far this year.

Across town, Borouge is all about polyethylene and polypropylene. It says its products are used in agriculture, infrastructure, energy, packaging, mobility and healthcare. Adnoc has 54 percent while Borealis, a joint venture between Adnoc and OMV of Austria, has 36 percent, leaving a free float of 10 percent. Borouge’s higher profits were simply a result of higher turnover and lower financing costs.

Adnoc has been negotiating since 2023 to merge Borouge and Borealis, in which OMV has 75 percent and Adnoc 25 percent. The talks are ongoing in a “constructive and positive manner”. For which, read: the haggling is protracted.

The proposed merged entity will then try to acquire Canada’s Nova Chemicals from Mubadala Investment Company as its first growth opportunity, Adnoc has said.

Adnoc’s M&A team has been busy elsewhere. In December it finalised a deal worth €15.9 billion ($18 billion), including debt, to buy Covestro, a German specialist in plastics and chemicals for construction and engineering, in its largest acquisition to date.

Covestro will now sit within XRG, the Adnoc owned low-carbon vehicle. Given the scale of the investment – roughly six times the size of the Fertiglobe transaction – the first results under Adnoc will be closely watched. The company is due to announce fourth-quarter results just before the end of this month. Expect some more provision-taking to get any bad news out of the way.

Another Adnoc subsidiary, Adnoc Gas, has started producing hydrogen and graphene – a “miracle material” stronger than diamond, more conductive than copper and more flexible than rubber. We like graphene.

Yet the patchy performance of subsidiaries and affiliates reveal the unpredictability of the petrochemicals industry.

In essence, the Abu Dhabi champion is seeking to maintain revenues after the use of gasoline and diesel starts to drop – as it has done in China. All this investment also represents a bet that demand for oil and its many derivatives will peak more slowly in Africa and Asia than it is likely to do in Europe and the US.

Yet my colleague Matt Smith reported last year that petrochemicals plants globally are operating at close to historic lows.

Can Adnoc take the strain? Bluntly, yes. Given competitive advantage in feedstock prices – oil and gas – the billions spent seem like a good bet. Borouge boss Hazeem Al Suwaidi told Shruthi Nair, our multimedia editor, last year that he was not concerned about predictions that annual global petrochemical capacity will exceed demand by a whopping 218 million tonnes a year between 2023 and 2025.

“Of course, there is always a cyclicality in the market with supply and demand,” he said. “This is what we have been navigating through [in] 2023.”