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Thai Petrochemical Industry Revives

Master plan sets ambitious growth targets for industry knocked out by Asian financial crisis

by Jean-François Tremblay
November 22, 2004 | A version of this story appeared in Volume 82, Issue 47

Thailand conjures up many images. It's the "land of smiles," a hospitable place that the stressed-out foreign visitor leaves feeling relaxed. It also features incredibly chaotic and dangerous traffic. One thing Thailand is less well known for is the orderly way in which it develops its petrochemical industry.

This fall, the Petroleum Institute of Thailand, a nongovernment think tank known by its Thai acronym PTIT, unveiled the third master plan for Thailand's petrochemical industry.

The Thai petrochemical industry has so far developed more or less along the lines of the previous two master plans, the first of which was released in the 1980s. Mapping out the next 15 years, the new study argues that investing in petrochemicals will allow Thailand to make the most out of its natural gas reserves.

Kriengsak Wongpromrat, a PTIT analyst who worked on the document, says the Asian financial crisis, which began in Thailand in 1997, delayed Thai petrochemical industry developments by about five years. PTIT now expects the industry to get back on an orderly track.

The PTIT plan calls for the construction by 2010 of a 1 million-metric-ton-per-year ethylene cracker, which would represent a 50% increase in Thailand's current ethylene capacity. The cracker would be built at Map Ta Phut, 100 miles southeast of Bangkok, where Thailand's petrochemical industry is concentrated. The cracker would be fed by a new pipeline, now nearing completion, that will carry gas from the south of Thailand to Map Ta Phut.

PTIT identified 33 downstream products that could generate attractive investment returns. Of these, PTIT deems 25 as able to withstand the toughest market conditions. Ethylene, propylene, and their polymers are on that shortlist, as well as the commodity chemicals ethylene glycol, polycarbonate, epoxy resins, bisphenol A, phenol, cumene, polyethylene terephthalate, nylon 6, polyurethanes, xylenes, and benzene. Total investment in plants and infrastructure for the 25 products would amount to $9 billion over 15 years, PTIT estimates.

It's up to the government to decide how the study will be implemented, Kriengsak says. In the past, the government has directly invested in the petrochemical industry through state-owned companies, has granted tax privileges to private companies, and has withheld business licenses for projects deemed unnecessary.

Danley B. Wolfe, a Bangkok-based consultant with Chem-Energy Advisers, points out that, with a population exceeding 60 million, Thailand is a significant market. He adds that the country offers a favorable environment for business. Since the 1980s, "on the macroeconomic side, industrial output has grown quite steadily." Chemical-consuming industries such as automobiles and electronics have thrived.

According to Kriengsak, one of the objectives of the master plan is to encourage local production of chemicals for local consumption. He says some of the plants will export their products because the needs of the Thai market are not large enough to support an economically sized plant alone.

A SOURCE at Siam Cement Group, a conglomerate that is one of Thailand's main petrochemical producers, says Thailand is an attractive place for petrochemical investment. The industry infrastructure is as good as, if not better than, that in Singapore, he says. There is local feedstock availability and, unlike in the Middle East, a significant local market.

Even without a master plan, PTT, a formerly state-owned company privatized in 2001, has been betting on the attractiveness of Thai petrochemical investment. PTT is on a spending spree this year, with agreements to buy an existing polyethylene plant and a refinery. There are rumors that the government has asked PTT to consider acquiring a controlling stake in Thai Petrochemical Industry, a heavily indebted firm that went bankrupt during the Asian financial crisis.

PTT also firmed up plans this summer to invest with partner National Petrochemical in construction of a 410,000-metric-ton-per-year ethylene cracker and a polyethylene plant in Map Ta Phut. Although the cracker will be small by current world standards, the spokesman says it will be competitive because of its modest price, about $444 million. The low cost, in turn, is because the plant is not a greenfield project but rather an add-on to an existing PTT cracker, he explains.

After five years of setbacks, the Thai petrochemical industry now has a road map for resuming its path of steady expansion. PTIT believes that a more developed petrochemical industry will support the government's grander goals of turning Thailand's auto industry into the "Detroit of Asia" and its textile industry into a world fashion center. With another Thai financial crisis appearing unlikely, the outlook for Thai petrochemicals is at its brightest since 1997. And judging by the congestion on Thailand's roads, becoming Asia's Detroit is a dream that is already within reach.


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