Vishnu Shankar, head and associate director of Frost & Sullivan’s chemicals and materials practice, provides an overview of all the developments taking place in the Kingdom of Saudi Arabia’s refining and petrochemicals industry
The petrochemicals industry in the Kingdom of Saudi Arabia (KSA) has climbed a steep path from its humble pre-1970 days. Back then, natural gas from oilfields was treated as a waste product and flared off.
Today, the Kingdom boasts of over 25 mega petrochemical complexes which are either operational, under construction, or being planned.
The key drivers for this rapid growth were sustainable competitive advantages like ready availability of affordable feedstock, geographic location that facilitated trade, and proximity to the key end-use markets in Europe and Asia Pacific.
However, the growth prospects ahead are likely to be marred by the declining gas resources in the KSA, rising production costs, price competition from the USA in international petrochemicals markets, and uncertainties in the global economy.
Sector Overview
The petrochemicals sector in the KSA was estimated at about $9 billion in 2013, with an installed production capacity of about 96 million metric tonnes (MT).
It is the largest petrochemical producer in the Gulf Co-operation Council (GCC), accounting for over 64 per cent of its total installed capacity.
The petrochemicals sector in the KSA comprises of the following four key categories: Basic chemicals — these include seven major commodity chemicals, namely Ethylene, Methanol, Propylene, Butadiene, and Aromatics (Benzene, Toluene, Xylene). These chemicals are often considered to be the building blocks for the entire petrochemicals universe.
Intermediate chemicals — these are manufactured by the chemical conversion of basic petrochemicals and are processed further to produce more valuable derivatives. Ethylene oxide and propylene oxide, for instance, are used to manufacture respective glycols and glycol ethers.
Fine chemicals — these are organic chemicals produced in smaller quantities and are used in specialised applications like pharmaceutical ingredients, biocidal additives, and in research and technical fields. Some fine chemicals are also used for commercial purposes, like in the coatings and lubricants industries, to impart certain performance properties that are desired in the final products.
Polymers and resins — these include commodity and engineering thermoplastics, elastomers and fibres. Polymers and resins are finding application across industries ranging from packaging to textiles and automotive to construction.
Petrochemicals production in the KSA is dominated by basic petrochemicals sector, accounting for close to 40 per cent of the total installed capacity, followed by polymers with a 23 per cent share. Fertilisers, mainly ammonia, urea, and their derivatives, also form a significant portion of the KSA petrochemicals industry.
Total installed capacity for fertilisers in the country by 2013 was estimated to be about 11 million MT.
Article continues on next page …
Basic Petrochemicals in the KSA
Total installed capacity for basic petrochemicals (or the key petrochemical feedstock) in the KSA is about 35 million MT, representing close to 70 per cent of the basic petrochemicals capacity in the GCC.
Ethylene and Methanol command the largest share of basic petrochemicals, accounting for about 71 per cent of its installed capacity in the country, followed by other feedstock like Propylene, Benzene, Xylene, Butadiene and Toluene, respectively.
Having an installed capacity of about 17.5 million MT, ethylene is the largest petrochemical feedstock in the KSA.
Several world-scale crackers are located in the industrial cities of Yanbu and Jubail, with Saudi Yanbu Petrochemical Company (YANPET) and Saudi Kayan Petrochemical Company operating the largest production facilities for the monomer in the country.
Most ethylene produced in the KSA is used to manufacture its key derivatives like polyethylene and ethylene oxide, while a small share (less than 5 per cent) is exported.
Ethane, which has traditionally been the most favoured feed for crackers (ethylene production units), is known to be witnessing a supply shortage lately, owing to the Organisation of Petroleum Exporting Countries (OPEC) quota restrictions and limited supplies of ethane-rich associated gas resources in the country.
This has supported an increase in the use of Liquefied Petroleum Gas (LPG) as an alternative feedstock for ethylene and other petrochemicals.
Sadara Chemical Company is known to have developed a multi-feed cracker that can use ethane or naphtha, depending on their economics, as a feedstock.
The total installed capacity for methanol production in the KSA is about 7 million MT with the largest producer being Ar-Razi Saudi Methanol Company. Its 4.9 million MT plant at Al- Jubail is known to be the single biggest methanol production site in the world.
Other participants include International Methanol Company (IMC) and Methanol Chemicals Company (Chemanol). Most of the methanol producers in the KSA are forward integrated for the production of derivatives of methanol and formaldehyde like butanediol and acetic acid.
Construction of new methanol derivative plants, like the Methyl Methacrylate (MMA) monomer production unit that is being jointly developed by SABIC and Mitsubishi Rayon are currently underway.
Article continues on next page …
Powered by feedstock advantage that stems from the presence of large natural gas reserves in the country, the KSA is currently amongst the largest exporters of methanol globally.
With methanol demand from the existing and upcoming derivative units likely to grow, and no methanol capacity expansions expected until 2017, utilisation rates in the existing plants are likely to improve and export volumes from the country are likely to drop over the next five to six years. Propylene is the third largest petrochemical feedstock in the KSA with an installed capacity of about 6.4 million MT.
With a combined production capacity of about 1.5 million MT, Rabigh Refining and Petrochemical Company (Petro Rabigh) and Saudi Kayan Petrochemical Company are the largest amongst the 14-15 participants currently producing propylene in the KSA.
Almost all the propylene produced in the KSA is consumed by the production of its largest derivative, Polypropylene (PP) while a small share (less than 4 per cent) is exported.
Propylene has traditionally been produced as a secondary product to ethylene. Thus, propylene production in the KSA was highly subject to the production levels of ethylene, which in turn was often challenged by uncertainties in the availability of feedstock ethane.
However, with the growing adoption of new on-purpose propylene technologies like Propane Dehydrogenation (PDH), and the ongoing development of integrated propylene-polypropylene production facilities, propylene production levels in the KSA are likely to rise in the coming years.
Also, propylene supply from the USA is expected to decline over the short to medium term ahead, owing to a shift in feedstock from naphtha to its cheaper alternative, ethane, derived from the abundant shale gas resources available locally. Hence, facilities throughout the Middle East are likely to operate at near capacity levels over the coming years to compensate for supply shortage from the USA.
Among the remaining four basic petrochemicals, Benzene and Xylene (mixed xylenes) are relatively more significant in the KSA owing to their brighter market prospects and projected capacity growth.
Their current installed capacities in the KSA are estimated at 2.1 and 1.3 million MT for benzene and xylene, respectively. While the estimated capacity expansion for benzene is likely to register a Compound Annual Growth Rate (CAGR) of about 17 per cent, xylene is likely to mark a staggering CAGR of about 40 per cent from 2013 to 2017.
The largest share of the projected capacity expansions is being developed by Saudi Aramco and its affiliates. While Saudi Chevron Phillips Company is the largest Benzene producer in the KSA currently, Ibn Rushd Arabian Industrial Fibers Company is a major producer for both the chemicals.
Ethylbenzene, the key raw material for styrene production, accounts for the largest share of benzene demand in the KSA. Cumene, followed by cyclohexane, represent the other major benzene derivatives.
Paraxylene (PX) is the most important isomer of xylene commercially, as compared to ortho- and meta-xylenes. Production of Purified Terephthalic Acid (PTA) is the single largest application of PX.
PTA, in turn, is used in the production of Polyethylene Terephthalate (PET). Xylene plants in the KSA are mostly integrated right up to the production of the end products (PET resins and fibres).
Other petrochemical feedstock – butadiene and toluene – account for less than 1 per cent of the total installed basic petrochemical capacity in the KSA. Presently, installed capacity for toluene is estimated at 0.06 million MT, while butadiene capacity is estimated at 0.15 million MT. Various feedstock woes, coupled with unattractive end-use markets, restrict prospects for new capacity additions for these chemicals in the Kingdom.
Article continues on next page …
Shifting Gears…
The KSA Government, as a part of its strategic plans, is promoting targeted industrial diversification to add and derive further value from its existing product lines that are currently being exported, while creating job opportunities for the large youth population.
Plastics and packaging has been selected as one of the five key industrial clusters to be developed aggressively.
Having remained amongst the world’s largest oil, gas, and bulk petrochemicals producers, the KSA is presently shifting its focus to the farther reaches of petrochemical value chain — the more lucrative, higher value, performance and specialty chemicals.
The vision is to develop the KSA as a global leader in new advanced polymers by the turn of this decade. Massive capacity expansions, aimed at diversifying the petrochemical product portfolio, are being pursued.
Private investments are being encouraged and international petrochemical giants like Total, Dow Chemicals, Chevron Phillips, etc. are collaborating with Saudi companies to develop fully integrated mega complexes for petrochemical production.
Petrochemical projects, valued in excess of $65-70 billion in total, are being planned or developed. Some of the projects currently underway are Sadara Chemical Company (Saudi Aramco-Dow Chemicals), Petro Rabigh II (Saudi Aramco-Sumitomo Chemicals), and SATORP (Saudi Aramco Total Refining and Petrochemical Company).
The projects are aimed at boosting the total production of petrochemicals in the KSA to 100 million MT annually by 2015, and raising its share in the global market to over 12 per cent.
Attractive feedstock advantage, growing local demand from nascent end-user industries, and world-scale infrastructure support are attracting international participants. But concerns over the diminishing gas reserves, growing competition from the USA, and lack of access to advanced technologies are likely to loom over the future growth prospects of the KSA petrochemicals industry.
In numbers:
96 mln MT The KSA’s installed petrochemical output capacity
64 per cent The KSA accounts for this much of the GCC’s installed production capacity
35 mln MT The KSA installed capacity for basic petrochemicals
$65 bln The value of all petrochem projects being planned or developed in the KSA exceeds this amount
