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The UAE’s national oil company agreed to buy Germany’s Covestro for about $13 billion, marking the biggest deal ever for ADNOC as it moves to transform itself from a crude producer to a global energy firm.
The company has been on a tear in recent months. It plans to produce polymers in China, bought a stake in a gas field in Azerbaijan, invested in a liquefied natural gas field in Mozambique, partnered with Exxon Mobil in a US hydrogen project, and joined BP in a deal to take an Israeli oil and gas firm private. ADNOC is also boosting its trading operations, and is on track to open a trading office in Houston, a person with direct knowledge told Semafor on condition of anonymity.
Covestro is its biggest move by far, and, pending regulatory approvals, gives ADNOC the capacity to extract greater value from hydrocarbons: The German company is a major supplier of plastics and chemicals for construction and engineering, representing a well of intellectual property and a lucrative segment of the downstream products derived from oil. Covestro will remain an independent entity and has little overlap with ADNOC’s majority stake in UAE-listed chemicals company Borouge, which caters to customers in the Middle East, Asia, and Africa, an ADNOC spokesperson said.
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ADNOC outlined in 2022 a $150 billion five-year spending plan. The capital expenditure project aims to help the firm boost its production capacity to 5 million barrels per day by 2027 — a target it’s close to achieving with 4.85 million capacity now — and diversify its energy and product mix as the world transitions from oil and gas. ADNOC last year built trading operations in Europe and Africa, while the Covestro deal is a leap toward its stated aim of cracking into the top 5 global chemicals producers.
Expansion into downstream production — the chemicals that make up the building blocks of modern life, from the plastic on your phone to the aspirin you may take for a headache — also follows market demand. Analysts project that chemical production will need to double by 2050.
Refining and chemical production generates more revenue than crude: If oil is around $65 a barrel, refining it adds $15 a barrel to a company’s revenues while turning it into petrochemicals amount to a further $30 increase, according to the Gulf Petrochemicals & Chemicals Association. Expanding into downstream products helps upstream companies hedge against falls in global oil prices: when prices are high, upstream divisions rake in cash; when they are low, downstream products generate profits thanks to lower input costs.
Other crude producers are piling in: Saudi Aramco’s 2019 deal to buy chemicals maker Sabic for $69 billion remains one of the biggest chemical deals ever. The company also bought Motiva Trading last year and set up shop in Houston.