Business Overview

In the Chemicals & Materials segment, OMV is one of the world’s leading providers of advanced and circular polyolefin solutions and a European market leader in base chemicals, fertilizers*On June 2, 2022, Borealis received a binding offer from AGROFERT, a.s. for the acquisition of its nitrogen business including fertilizer, melamine and technical nitrogen products., and plastics recycling. The Company supplies services and products to customers around the globe through OMV and Borealis and its two joint ventures: Borouge (with ADNOC, based in the UAE and Singapore) and Baystar (with TotalEnergies, based in the United States).

The segment comprises the production of base chemicals integrated with OMV operated refineries in Austria and Germany, the Borealis business of base chemicals, polyolefins, and fertilizers, and the joint ventures Borouge and Baystar. With a strong European footprint through Borealis and its two joint ventures, Borouge and Baystar, the Group is active in over 120 countries.

Base chemicals

Base chemicals are building blocks for the chemical industry and are transformed into plastics, packaging, clothing, and many other consumer products.

While the refinery-integrated, OMV-operated steam crackers in Schwechat and Burghausen mainly use naphtha as a feedstock, the steam crackers operated by Borealis in Stenungsund and Porvoo feature high feedstock flexibility using naphtha, ethane, propane, butane, or any LPG mix as feedstock. In Kallo, Borealis runs a propane dehydrogenation unit based on 100% propane feedstock.

The OMV Group produces base chemicals such as olefins (ethylene, propylene, butadiene, and high-purity isobutene) and aromatics (benzene and phenol).

• Ethylene and propylene are important chemical building blocks for producing polyolefins (polyethylene and polypropylene), for example, which are in turn used to manufacture a wide variety of consumer and industrial products.
• Aromatics such as benzene are used as starting materials for heat insulating materials and consumer products, including clothing, pharmaceuticals, cosmetics, computers, and sports equipment.
• C4s (e.g., butadiene and butene) are used in a variety of applications, with butadiene primarily used in manufacturing synthetic rubber, making it a fundamental material for the tire and automotive industries. Butenes are used in specialty chemicals, such as oxo-alcohols for plasticizers and polyols for coatings and synthetic lubricants.
• High-purity isobutene is a feedstock for key chemical products like adhesives, lubricants, and vitamins.
• Phenol and acetone are sold mainly to the polycarbonate and epoxy resin industries. Phenol is also used in phenolic resins and in caprolactam. Acetone is also an ingredient in solvents and MMA for PMMA (plexiglass).

The year 2022, was a challenging year with a very volatile market, which was caused by several main factors: the Russian invasion of Ukraine, high energy costs, high inflation, and decreasing demand across the year.

In comparison to 2021, the ethylene and propylene indicator margins were higher in 2022, driven by low feedstock prices, except for the peak in Q1/22, and high monomer contract prices. In Q1/22, even though the olefin market was tight, margins were negatively impacted by the war in Ukraine. Starting from April 2022, naphtha availability in Europe increased due to lighter refinery feedstock and lower demand from China. Together with a healthy demand in the spring turnaround season this led to historically high margins in Q2/22. After July, both the ethylene and propylene markets became extremely long. All crackers in Europe reduced throughput based on weak demand and high energy prices. Low Rhine water levels caused logistical constraints on the derivative market throughout the summer months. As the market was struggling with these constraints, thanks to declining naphtha prices, the healthy indicator margin could be kept throughout Q3/22. However, demand did not improve from the summer lull into fall, the dramatic collapse in demand continued until the end of the year. The cracker rates in Europe reduced to global minimum levels of 60% to 65% in Q4/22 due to extremely weak demand.

The propane dehydrogenation (PDH) margin remained on a healthy level in the first half of 2022 on the back of a decent propane spread versus naphtha. Margins dropped severely in the third quarter, driven by lowering demand and a strengthening propane price versus naphtha due to higher propane demand, mainly in Asia. Margins improved again in the last quarter of the year driven by lowering propane demand due to lockdowns in China and a mild winter in Europe.

Butadiene demand was healthy in Q1/22, but with increasing naphtha prices, the indicator margins were at the lowest level of the year. Starting from May, supply was low due to reduced cracker rates on a long olefin market, however, the market was still balanced as the demand was low. The skyrocketing natural gas prices in Europe put its chemical industry under great strain, with high energy prices, a significant driver of inflation, and economic weakness lowering demand. Most producers had to add energy surcharges to their prices. The highest butadiene price and indicator margin of the year was achieved in August.

Following the ISCC PLUS-certification at the Burghausen refinery in March 2022, OMV successfully sold its first ISCC PLUS certified benzene volumes this year. The benzene crack hit an all-time high in July at around EUR 900/t, however, the crack significantly weakened later in the year and reached around zero by year end due to volatile market conditions. Uncertainty in economics, logistical constraints and skyrocketing gas prices affected production costs and demand heavily.

Polyolefins

Through its subsidiary Borealis, OMV is the second-largest polyolefin producer in Europe and among the top ten producers globally. Borealis operates seven polyolefin plants located in Schwechat, Stenungsund, Porvoo, and Burghausen, where they are integrated with steam crackers, as well as in Beringen and Kallo, where they are integrated with the existing PDH facility, and in Antwerp. In addition, Borealis operates several compounding plants in Europe, the United States, South Korea, and Brazil.

The value-add polyolefin products manufactured by Borealis are the foundation of many valuable plastics applications that are an intrinsic part of modern life. Advanced Borealis polyolefins have a role to play in saving energy along the value chain and promoting more efficient use of natural resources. Borealis works closely with its customers and industry partners to provide innovative plastics solutions that create value in a variety of industries and segments. These solutions make end products safer, lighter, more affordable, and easier to recycle. In short: They enable more sustainable living. Borealis offers advanced polyolefins for virgin and circular economy solutions, servicing the following key industries: consumer products, energy, healthcare, infrastructure, and mobility.

Following the historically high levels reached in 2021, polyolefin margins slowly normalized in the first half of 2022, supported by a busy spring turnaround season, particularly in the second quarter. As of the third quarter, margins deteriorated due to plummeting demand resulting from the global GDP slowdown, and inflationary pressure on customers. In the meantime, the robust recovery of the international container freight market, which in December 2022 had approached pre-COVID‑19 levels, allowed imports to surge. Toward the end of the year, polyolefin margins recovered slightly thanks to low operating rates.

Renewables and circular chemicals

Plastics continue to play a vital role in the economy and in our business, making our lives more efficient, convenient, and safe. Yet, when insufficient effort is made to recover and reuse plastics, most of them end up in landfill or incineration. The vision of a circular economy where we optimize resource efficiency and reuse, recycle and re-purpose endlessly is both a business imperative and an opportunity. Demand for recycled plastics is growing due to increasing public awareness of the importance of using resources sustainably to ensure a climate-neutral future.

The circular economy opens up new ways to reinvent the economy in the interest of preserving natural capital and minimizing waste. OMV and Borealis are pursuing various initiatives in mechanical and chemical recycling, Design for Recycling (DfR), and circular polyolefins that are manufactured with second-generation renewable feedstock. While mechanical recycling has proven to be effective and will likely remain the eco-efficient method of choice for the foreseeable future, chemical recycling will play an increasingly important role to complement it for hard-to-recycle materials.

In June, Borealis launched the Borvida™ portfolio of circular base chemicals: Borvida™ B is produced using non-food waste biomass, while Borvida™ C is made of chemically recycled waste. The traceability of these ISCC PLUS-certified products – which include ethylene, propylene, butene, and phenol – is ensured thanks to the mass balance method of documenting and tracking renewable-based content across complex manufacturing systems. The Borvida™ portfolio will be extended in due course with the Borvida™ A range sourced from atmospheric carbon capture.

In October 2022, planning started for the construction of a novel and advanced commercial-scale mechanical recycling plant in Schwechat (Austria) to augment the three existing polyolefin recycling operations currently operated by Borealis in Europe. The plant will be based on the proprietary Borcycle™ M technology, which transforms polyolefins-based post-consumer waste into high-performance polymers. Once operational in 2025, the new plant will have an annual production capacity in excess of 60,000 t. These large volumes will ensure the ample supply of high-quality recyclate so as to fulfill growing demand for circular products and solutions.

Since 2021, Borealis has procured pyrolysis oil for the chemical recycling process from Belgium-based Renasci with which it manufactures Borcycle™ C circular polyolefins and base chemicals at several of its own production locations. Since then, Borealis has gradually increased the stake it holds in Renasci: from 10% in 2021 to just over 27% in November 2022, and as of January 2023 to a current majority shareholding position of 50.01%.

OMV is currently constructing a demo plant based on its proprietary ReOil® technology to scale up its chemical recycling capacities. The plant has a capacity of 16,000 t p.a. and is scheduled to start up in 2023. The feedstock will consist mainly of polyolefins and will be sourced in Austria in close cooperation with local waste management companies. Examples of such plastic waste include food packaging, plastic cups, lids from takeout coffee, and confectionery packaging. OMV’s next step toward an industrial-scale plant with a processing capacity of up to 200,000 t/year is planned for 2026.

Fertilizers, melamine, and technical nitrogen products

Through its subsidiary Borealis, OMV is a leading European manufacturer and distributor of fertilizers, technical nitrogen products, and melamine: The Company is Europe’s third-largest nitrogen fertilizer manufacturer and the world’s third-largest melamine producer by production capacity utilized.

In 2020, the OMV Group announced that it had started the divestment process for the nitrogen business unit, which includes fertilizers, technical nitrogen, and melamine. A binding offer received from EuroChem in February 2022 was declined in March after assessing the consequences of the war in Ukraine and related sanctions. In June 2022, Borealis received a binding offer from Czech-based AGROFERT that valued the business on an enterprise value basis at EUR 810 mn. Pending regulatory approval, closing is anticipated for the first quarter of 2023. The sale of the Company’s share in Rosier, which operates the production sites in the Netherlands and Belgium, to Yilfert Holding was completed on January 2, 2023.

Joint ventures

Borouge (Borealis 36%, ADNOC 54%, free float 10%)

Established in 1998, Borouge is a true success story of the long-term partnership with ADNOC. The joint venture has successfully combined the leading-edge Borstar® technology with competitive feedstock and access to growing Asian markets. Through Borouge, the Group’s footprint reaches all the way to the Middle East, the Asia-Pacific region, the Indian subcontinent, and Africa.

In June 2022, Borouge, became the largest-ever IPO in Abu Dhabi when it was listed on the Abu Dhabi Securities Exchange (ADX). The IPO offered 10% of Borouge’s total issued share capital and raised over USD 2.0 bn in gross proceeds. It drew USD 83 bn in orders and was oversubscribed by nearly 42 times in aggregate.

Baystar (Borealis 50%, TotalEnergies 50%)

Baystar is a joint venture between TotalEnergies Petrochemicals & Refining USA, Inc. (TEPRI), a wholly owned subsidiary of TotalEnergies SE, and Novealis Holdings LLC (Novealis), a wholly owned subsidiary of Borealis AG.

TotalEnergies contributed its award-winning Bayport facilities to the JV and will be the operator of the cracker in Port Arthur. Borealis brings its proprietary Borstar® technology to North America for the first time along with the Bayport site for unique polyethylene grades for the most demanding applications.

Growth projects

Borouge

Borouge continued to drive growth in 2022. February saw the ground-breaking ceremony for Borouge 4, the new USD 6.2 bn facility under construction at the Borouge complex in Ruwais (UAE). Once operational, Borouge 4 will help meet growing demand for polymers in the Middle East and Asia, and will also supply feedstock to the adjacent TA’ZIZ Industrial Chemicals Zone. The successful start-up of PP5, the fifth Borouge polypropylene (PP) unit, also took place in February, boosting total Borouge PP capacity by more than 25%. The new PP5 unit is leveraging the proprietary Borstar® technology to deliver greater quantities of polymer-based material solutions for a wide range of industries, from packaging and consumer goods to pipe and infrastructure.

Baystar

The largest Borealis growth project underway in North America is the Baystar™ joint venture with TotalEnergies in Port Arthur, Texas. A new ethane-based steam cracker was started up in July 2022. With an annual production capacity of 1 mn t of ethylene, the cracker supplies feedstock to Baystar’s existing polyethylene (PE) units. In the future, it will also supply ethylene to the new, 625,000 metric-ton-per-year Borstar® PE unit once construction and ramping up have been completed. Baystar is a crucial growth anchor as it enables Borealis to bring Borstar to North America for the first time.

Kallo

Progress was made in the first half of 2022 at the new world-scale propane dehydrogenation (PDH) plant in Kallo (Belgium). However, construction was stopped after misconduct on the part of the site’s contractor, IREM, was uncovered. Borealis suspended, then terminated all contracts with IREM and its subcontractors due to non-compliance with fundamental contractual principles. Work resumed in October following a re-tendering process. Start-up of the new PDH plant is expected in the second half of 2024. Borealis has zero tolerance for non-compliance in all aspects of its operations and has since implemented more extensive controls and monitoring measures to ensure full future compliance.