December 4, 2011

Petronas to grow its Downstream Business

 
As reported by Business Times, Petroliam Nasional Bhd (Petronas) plans to grow its downstream business by banking on lucrative specialty chemicals and an aggressive international expansion.

This expansion will be driven by Asia, which is growing faster than the rest of the world, then supported by a rising middle class country. The national oil company also refines oil into petrol, operates petrol stations, and produces petrochemicals.

For us, it’s important to be above water at the downcycle and to really make money at the upcycle. That is the nature of the business,” said Datuk Wan Zulkiflee Wan Ariffin, the executive vice-president of the downstream business.

For the year to March 31, 2011, the downstream business reported a net operating profit after tax (NOPAT) of RM7.2 billion, a 50 per cent jump from a year earlier. This was on the back of RM130 billion revenue, which also rose 13 per cent.

Wan Zulkiflee thinks the downstream business should report better profits in 2012 as the industry is still in an upcycle, until about 2015.

“We are catching the trend, especially in Asia Pacific where the demand growth is about 5.3 per cent for chemicals in general.

“We are targeting markets like India, for example, where plastic consumption per capita is 7kg. In the West, it’s 24kg per capita. The potential growth is in China and India.

Some 18 million new cars are sold in China every year,” he said. Interestingly, although the business makes up almost half of the Petronas group revenue, it is the smallest profit contributor.

The biggest money maker for Petronas is its upstream division, which looks for oil and gas. That business provided RM93.3 billion in gross revenue in 2011 but made RM34 billion in gross NOPAT. That is almost two-thirds of the total gross NOPAT.

This is followed by the gas and power business, with RM11.2 billion, or 21 per cent of the total. However, this was not how the downstream business should be viewed, Wan Zulkiflee said.

“The upstream return is quite high, for gas almost as high. For downstream, it’s a margin business. The idiosyncracies are different. The playing field is also different. What’s important for Petronas is to maximise the value chain,” he said.

The downstream division will also be very busy with the RM60 billion refinery and petrochemicals integrated development project, or RAPID, in southern Johor, set to come online in 2016.

As for its downstream marketing segment, it wants Petronas Dagangan Bhd to expand further abroad and boost its lubricant business to be among the top five in the world by 2016. –Business Times






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