Higher hurdles for Mid-East petchem projects-report

06 June 2006 14:39  [Source: ICIS news]

SINGAPORE (ICIS news)--The competitive landscape in the Middle East has shifted to the extent that it is no longer a given that a petrochemical project in the energy-rich region will automatically reap fantastic returns, said a new report on the region.

Project costs have escalated on the back of rising raw material and labour costs and the full order books of the contractors, it said.

“As a result, building a complex in the region is about twice as expensive as two years ago,” John Richardson, director of ICIS insight Asia and co-author of the report with Paul Hodges of International eChem said on Tuesday.

In addition, there is a there is a shortage of ethane in Saudi Arabia, meaning that all the next wave of crackers is mixed feed – ethane, propane and/or butane. These are the crackers due to start-up in 2008 and beyond.

“Cracking more propane and butane results in a wider and more complex range of derivatives, thereby increasing both capital and sales and marketing costs,” Richardson added.

The Saudi government is also asking project proponents to come up with a wider range of derivatives before applications for gas supply will be taken seriously, the report said.

Unemployment was unofficially as a high as 25% in Saudi, and so the idea of producing a broader range of derivatives is to stimulate manufacturing industry, say the authors.

Also, if plans to venture into acrylonitrile, polycarbonate (PC) and other higher value-added production prove successful, this will act as a hedge against the coming expected collapse in polyethylene (PE) and monoethylene glycol (MEG) pricing.

If project planners can clear these higher approval hurdles, the Gulf Co-operation Council (GCC) region is awash with liquidity. In the old days, there were only around four major lenders to petrochemical projects in the area but now there are also many second-tier lenders prepared to pitch up with very favourable financing terms.

Numerous private companies are investing in Saudi Arabia, with Sabic still expanding in the Kingdom and, potentially, overseas in China. Oil giant Saudi Aramco has also entered the petrochemicals business with plans for several ethane and naphtha crackers.

In Qatar and elsewhere in the GCC, expansions also continue at a rapid pace.

But Iran is a different story. The nuclear stand off will make it much harder for National Petrochemical Co to source the construction expertise and technology it needs to pursue its huge ambitions, the report says. Start-up delays are becoming longer and longer.

For more details on the report, contact Roland Kester Cher at rolandkester.cher@icis.com

By: Staff Reporter
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