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Following the recent acquisition of Jurong Aromatics Corporation, how will the ripple effect of the deal affect Southeast Asian markets?
What does the acquisition mean for the aromatics industry?
In terms of the overall Southeast Asia petrochemicals sector, the deal is unlikely to change market dynamics. JAC had already restarted its idled operations under a tolling arrangement and its volumes have found a home in regional markets during 2016 and 2017. ExxonMobil’s marketing position in aromatics is undoubtedly strengthened by virtue of the additional volumes under its control. With no change in net supply to the market as a consequence of the deal, little impact is likely to be felt.
How will the acquisition benefit ExxonMobil?
It presents an opportunity to access additional export logistics capacity, which had hemmed in its expansion ambition. Integrating JAC into the existing operation will also give access to additional cracker feedstock for it’s two world-scale steam cracker complexes. ExxonMobil’s two refineries in Singapore, which are thought to be short on hydrogen supply would additionally benefit from obtaining surplus hydrogen from JAC’s operations. One further benefit of the acquisition is that JAC has a long-term lease agreement for storage capacity in the Jurong Rock Caverns which would likely be of benefit to ExxonMobil were it to further expand its operations.
Does this signify a pick up in M&A activity in the Chemicals space?
The acquisition of JAC was opportunistic for ExxonMobil, with a number of factors making the purchase of JAC attractive. However, elsewhere across the chemical industry there are signs that companies are now starting to look at how and where their chemical portfolios could be further developed, which could lead to the next round of industry consolidation. In certain sectors, this consolidation has been underway for a number of years as excess capacity is rationalised or assimilated. Smaller M&A activity of recent years is set to continue as targeted growth appears much more attractive to many industry participants attempting to build value-added portfolios within existing businesses.
What’s next for JAC and ExxonMobil?
Integrating operations and taking advantage of immediate synergies would be a priority for ExxonMobil in the near term. The acquisition should then act as a catalyst for further exploration of investment opportunities within ExxonMobil’s Singapore operations.