Analysis of $2.5B Exxon Acquisition of Jurong Aromatics

1 + 1 v2EDIS analysis of $2.5B Exxon acquisition of Jurong Aromatics.

How this deal helps Jurong Island remain globally competitive, but more needs to be done.

The compelling power of “integration” and “synergies” manifested themselves in ExxonMobil’s recent announcement for the acquisition of one of world’s largest aromatics plants, Jurong Aromatics Corporation (JAC)[1]. Given that Singapore Jurong already houses ExxonMobil’s largest integrated refinery and petrochemicals complex that includes aromatics facilities, the “integration” of JAC would enable it to extract further “synergies” that others would find challenging. “Under one roof”, the level of efficiency goes up a notch as described in the recent EDIS paper on Digitization, and open up even more opportunities for AI to maximize optimization. So, a win for the acquirer, a win for the acquired in receivership, and a win for the sustainability of Jurong.

“Competitiveness” was one of the drivers for the acquisition – a necessity with an increasingly crowded production base fueled by highly competitive US shale gas renaissance and diversification agenda.

As of 2015, more than $130 billion of new investments in Chemicals/Manufacturing capacity has been announced in the US alone that is expected to triple its net exports by 2030[2]. Middle East players, endowed with low cost gas as feedstock, are diversifying rapidly from its dependency on oil economics with momentous investments into downstream petrochemicals value chain where growth is more attractive and resilient.  Such is the intensity of competitiveness which could give (shale) gas fed facilities more than 50% cost advantage over Asian oil fed ones that Asian petrochemicals powerhouses of Japan and South Korea are looking at government initiated industry wide restructuring. Even China, the world’s largest chemicals market and Asia’s largest producer, is not spared with the State Council announcing structuring optimization of the industry in August 2016[3]. Is there a need to do the same in Singapore to help sustain the chemicals sector – the largest contributor to Singapore’s manufacturing output? In South East Asia, Singapore Jurong with its “first-mover” advantage several decades ago has led the region with about 4 million tons per annum of ethylene capacity but Thailand has already outgrown Singapore, enabled by its regional competitiveness with feedstock availability and integrated facilities. Malaysia is growing to supplement its existing hub in Kerteh Trengganu and Lotte Titan at Pasir Gudang in Johor, with its ambitious world scale integrated RAPID project with Saudi Aramco at Pengerang.

The race to be competitive and staying relevant has intensified. ExxonMobil’s acquisition of JAC underscores not only the benefits but necessity of Jurong rationalization and integration. Another such example was in 2010 when Shell bought out its Japanese partners in EGS (Ethylene Glycols Singapore) that offered synergies with its portfolio of existing facilities that led to more growth[4].

  • Are there more of other similar 1+1= (>2) opportunities in Jurong?
  • The recent good petrochemical margins could lull participants and stakeholders into a false sense of security – Is it the calm before the storm?
  • Is there sufficient sense of urgency to “jump before being pushed”?

[1] http://www.exxonmobil.com.sg/en-sg/company/news-and-updates/news-releases/20170511-exxonmobil-to-acquire-one-of-worlds-largest-aromatics-plants?parentId=e55635e2-4fd6-4c46-a6d2-60290ba3c546

[2] https://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/Shale-Gas-Creating-Renaissance-in-US-Plastics-Manufacturing.html

[3] http://english.gov.cn/policies/latest_releases/2016/08/03/content_281475408000306.htm

[4] https://www.icis.com/resources/news/2010/11/12/9409714/shell-to-raise-singapore-eo-capacity-after-joint-venture-buy-out/