The days of plentiful low cost feedstock maybe over for the Middle East… but the region is still attractive to investors with second-order benefits, such as competitive utility costs and financing, says Bahrain-based Graham Hoar, Vice-President, Middle East from Nexant speaking to Refining and Petrochemicals Middle East.
Hoar was answering a question on the huge capacity the region was creating for petrochemical production and if the growth was sustainable.
The Middle East, according to Hoar, has already made announcements with regard to world-class complexes and the region has certain structural advantages which always makes it exciting for investors.
After Saudi Arabia, Qatar has the next largest GCC petrochemical plans, he added.
The availability of NGLs (including Ethane) coupled with the drive to compete globally in the petrochemical market works to Qatar’s advantage, said Hoar.
In Qatar, production of chemicals and petrochemicals is expected to double by 2020, reaching 23m tonnes per year (tpy), up from 9.3m tonnes at present. Qatar Petroleum (QP) will be looking to finance $10 billion to $13 billion worth of projects in 2014, the head of project finance, Meshaal Al-Mahmoud said recently.
QP plans to spend as much as $25 billion over the next five years on projects, Al-Mahmoud has said. Most of the planned projects will increase the petrochemical capacity of the tiny, gas-rich country.
The projects include a planned $6.4 billion petrochemical plant done in partnership with Royal Dutch Shell and a $5.5 billion plant in partnership with Qatar Petrochemical.
There are also talks of an aromatics plant in the Ras Laffan Industrial Area. While Qatar is definitely more aggressive in planning new projects, it is Iran which has the larger gas reserves that could feed potential petrochemical industries.
“Iran has ambitious petrochemical plans. International sanctions and internal delays are slowing them down, that’s it. Let’s not ignore them as they have the feedstock and that is the key driver for petrochemicals,” Hoar says.
National Petrochemical Company (NPC) of Iran recently said it intends to issue $490 million in bonds to finance petrochemical projects. The bonds will be issued in autumn 2012, said NPC managing director, Abdolhossein Bayat, according to Shana news agency.
On April 18, Bayat said that Iran exported $14 billion worth of petrochemical products to 60 countries between March 2011 and March 2012. He added that $10.5 billion of oil income will be allocated for the development of the national petrochemical industry.
Article continues on next page …
Tough Decisions
According to Hoar, Saudi Arabia is staying ahead of the other producers as the kingdom is not just investing in traditional petrochemicals projects, but also taking a conscious effort to diversify portfolio.
“Previously, countries would convert methane to ammonia and ethane to ethylene for polyethylene or MEG, make big profits and be happy. But Saudi Arabia is looking at developing aromatics and mixed feed crackers and moving down the value chain creating a bigger, more diversified base with more jobs and opportunities.”
Moving down the chain may seeming appear simple and straightforward, but the implications are complicated, Hoar says.
“To give you an example, when you are just exporting Methanol (an ‘easy’ liquid), the cost of booking a cargo for it is very different from packaging and shipping paints. The specifications and the demand from the market when you move down the chain are more complex and subject to change to match consumer preferences.”
For naphtha-based crackers and aromatics, the cost of Naphtha is similar all over the world, so the cost advantage of Saudi Arabia is much less than methane/ethane-based chemicals which still enjoy the very competitive $0.75/MMbtu gas feedstock cost.
But on that note, Hoar adds, Saudi Arabia have built excellent infrastructure in Jubail and Yanbu – which will definitely be a draw for potential investors.
Saudi Arabia also recently announced plans to invest up to $109bn in the solar energy industry, with the aim of creating a manufacturing sector for the technology, as well as installing up to 41,000 MW of capacity by 2032.
While this will help provide much-needed electricity to power industrial production, as well as create a whole new manufacturing sector in itself, the renewable energy programme will also free up natural gas supplies for the petrochemicals industry, which otherwise would have been used to turn generators.
Achieving a generational shift in the industrial sector should see Saudi Arabia on the way to becoming not only self-sufficient for many of its needs but a net exporter of petrochemical-sourced products, said an Oxford Business Group report.
Shale Gas boom?
The next question is obviously about the US Shale gas find? Is it really as big a deal as it is made out to be? Hoar says, let us not forget while gas prices are cheap currently in the United States, it is still halfway between Europe and the Middle East.
So, will the US become a big player? Hoar sees no simple or short-term answers to this question. “While today’s prices make it economical, we don’t yet know how the long the US gas prices will remain low. We need to know if it is profitable seven to eight years from now,” he says.
If the US does invest in significant new capacity, Middle Eastern producers will not be majorly impacted since it will be producers at the high end of the global cost curve in Europe or NE Asia which will suffer – the ME producers will just have to point their boats to a different direction, concludes Hoar.
Ambitious Qatar sees production doubling
In Qatar, production of chemicals and petrochemicals will more than double by 2020, reaching 23m tonnes per year (tpy), up from 9.3m tonnes at present. Qatar Petroleum plans to spend as much as $25 billion over the next five years on projects.
These include a planned $6.4 billion petrochemical plant done in partnership with Royal Dutch Shell and a $5.5 billion plant in partnership with Qatar Petrochemical and a planned aromatics plant at Qatar’s industrial city of Ras Laffan.
