Adnoc bets big on petrochems as sector struggles

May 22, 2025, 7:47 AM

With strategic pechem mergers and acquisitions like Covestro and Borealis, Adnoc aims to future-proof its energy portfolio beyond oil and gas

Creating petrochem conglomerate
Acquisitions despite low margins
Long-term diversification strategy

Abu Dhabi National Co.’s (Adnoc) multibillion-dollar bet to expand its petrochemical capabilities comes at a fraught time for the sector.

The numbers may not immediately add up in terms of return on investment but the focus should boost the company’s global reach and technological capabilities, analysts say.

“Abu Dhabi is trying to create a global petrochemical conglomerate,” says Yousef Husseini, director of chemical equity research at EFG Hermes investment bank in Cairo.

“Asset prices more broadly and petrochemical companies specifically are relatively cheap right now because the macroeconomic outlook is bad globally, so it could be a good time to either acquire or merge assets.”

Abu Dhabi holds almost all the UAE’s natural gas reserves – the seventh largest in the world – and the world’s sixth largest proven oil reserves at 107 billion barrels.

Such resources mean the emirate’s national oil company could limit itself to oil and gas extraction, and still rake in tens of billions of dollars of profit each year.

Yet Adnoc has greater ambitions. It is expanding its petrochemicals operations despite industry margins toiling at two-decade lows.

Even Saudi Basic Industries Corp (Sabic), the world’s seventh-largest chemicals maker and among the lowest-cost producers globally, has slipped into the red, posting a $333 million loss in the first quarter.

In March Adnoc agreed with Austria’s OMV to merge their co-owned units of Borouge and Borealis.

OMV owns 75 percent of Borealis and Adnoc the rest, while Adnoc and Borealis own 54 and 36 percent of Borouge respectively.

Diversification strategy

The merger of Borouge and Borealis will create Borouge Group International, of which Adnoc and OMV will each own 46.9 percent, and the remainder will be free float. The deal should be completed early next year.

The Borealis agreement also follows Adnoc’s €14.7 billion ($16.5 million) purchase of 91 percent of loss-making German petrochemicals maker Covestro in December.

Covestro produces polycarbonates, which are strong, transparent plastics commonly used as an alternative to glass. The only other maker of polycarbonates in the Middle East is Sabic, says Husseini.

“Adnoc is taking a similar approach to Sabic, which used to be a wholly Saudi Arabia-based business before becoming a global conglomerate through acquisitions,” says Husseini.

“There are aspects of Adnoc’s petrochemicals strategy that makes sense: it’s expanding its global marketing reach, trading platform and brand name.”

But in terms of margin and returns, buying assets in Europe right now does not make much sense, Husseini says.

Strategically, oil exporters’ plans to diversify beyond crude production and refined products into petrochemicals remain valid despite the prolonged downturn in the petrochemicals sector, says an industry expert who spoke on condition of anonymity.

Yet there are perils in buying petrochemical assets at such a moment, the source says.

“Calculating the right price in this market is challenging given the outlook,” the expert says. “It’s interesting to see how the market reacts when a transaction goes through to try to get a sense of whether it was done at a fair value.”

Ethane advantage

Natural gas is a mixture of gases including methane (75 to 90 percent), ethane (1 to 15 percent) and propane (0 to 5 percent).

Shale gas constitutes a big chunk of Abu Dhabi’s reserves and has a high ethane content. It is one of the richest places in the world of the feedstock to make ethylene and polyethylene.

Adnoc’s sister company – sovereign wealth fund Mubadala Investment Co. — agreed to acquire Canada’s Nova Chemicals Corp. for $13.4 billion following protracted negotiations. Not uncoincidentally, Nova makes polyethylene, which is “very profitable”, says Husseini, due to low-cost shale gas.

European producers do not enjoy such privileges, having lost a big chunk of their polyethylene market over the past two decades.

Borealis made a net profit of €566 million last year, up from an all-time low of €159 million in 2023. That was despite what the company acknowledged as a year of “stubborn inflation and high energy costs…weak margins, and record overcapacity in the face of feeble demand.”

“Borealis owns patented technology that enables it to make polyethylene that possesses properties unavailable elsewhere,” says EFG’s Husseini.

“Usually, if you want plastics to be harder or stronger, you give up flexibility and vice versa. You can’t have both.”

Premium

Borealis created technology where it can make polyethylene that is optimal in terms of strength and flexibility. That enables it to charge a premium, says Husseini.

Adnoc CEO Sultan Ahmed Al Jaber said in a statement announcing the Borealis merger that the deal would help future-proof his company.

“If you want to be a global petrochemicals conglomerate, you must move into the technology game,” says Husseini. “Sabic, for example, has a very large R&D division that in the last two decades has created a lot of products that are used worldwide.”