Interview: Patrick Henry Go
What prompted the company to build the country’s first and only naphtha cracker?
PATRICK HENRY GO: The investment was made with the vision of industrialising the country. If one looks at different Southeast Asian nations, such as Thailand, Indonesia, Malaysia and Singapore, they all have naphtha crackers and a burgeoning petrochemicals industry. This has been the foundation of their industrialisation, given that petrochemicals are base chemicals needed by practically every industry, feeding activity in construction, packaging, food and transportation. Construction of a cracker was also prompted by the need to make the business sustainable. We invested in a polymer plant first, and operations were smooth as long as we could buy the olefins. However, after a wave of consolidation of upstream units with downstream polymer plants, options to purchase olefins became limited. We were faced with the decision to either build a cracker or shut down the plant, and so we had to opt for the former.
What are the challenges for industrialisation and petrochemicals manufacturing in the Philippines?
GO: The profile of petrochemical producers in South-east Asia comprises predominantly of naphtha crackers with cost structures as close as possible to each other; therefore, competitiveness centres on the complexity of downstream production. Only if a country has access to ethane and an ethane cracker will it benefit from cheaper feedstock to produce polymers. However, in South-east Asia this would be limited to gas producing countries, such as Thailand and Malaysia. The disparity in competitiveness is higher if one pits us against Middle Eastern or US producers, which have access to shale gas. Ethane crackers also have a limited range of products, as gas produces more ethylene and lighter olefins. Naphtha is a crude derivative, so the lower price of crude has lowered working capital requirement for crackers and has narrowed the gap between gas-produced ethylene and liquid-produced ethylene. However, less volatility in terms of crude prices would be most important for the industry moving forward. We source most of our naphtha requirements from overseas under long-term contracts; however, we would prefer to source more domestically, looking at the operations and expansions of the local refineries, and seeing how they can address quality issues.
Apart from raw materials, the major cost component for production is power, especially given the high electricity prices and low reliability of supply in the Philippines. This makes the construction of one’s own power generation facilities necessary. Logistics also add to a cracker’s competitiveness, as it is important to be located near or have direct access to the markets we want to serve. Petrochemicals operations have to be world class and competitive on their own and not rely on government. However, this type of major capital investment would always benefit from government support to help mitigate risks.
What are the most important factors related to being competitive in the cracking industry?
GO: Flexibility is important. Our cracker production comprises four main products: ethylene, propylene, pygas and mixed C4, while our polymer plants produce HDPE, LLDPE and PP resins. Investments are now ongoing for further extraction units downstream of the cracker that allow diversification into other products able to maximise asset use. We must also maintain close relations with customers and consult on the market’s polymer needs. Ultimately, success will depend on offering high-quality products, working closely with clients, and maintaining active research and development work to supply products that attend to local requirements. For bulk chemicals, the Philippines is not as developed as it could be; however, once we undertake local production, there will be greater interest in investing, as it is not easy to buy petrochemicals in bulk.
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