INSIGHT: Qatar venture signals next stage of Total’s petchems plan

12 January 2010 16:43  [Source: ICIS news]

By Will Beacham

As the Emir of Qatar lowered a large pearl onto the ceremonial plinth, the next chapter in Total Petrochemical’s ambitious Middle East expansion plans officially kicked off.

Journalists and local dignitaries mingled with groups of Total and Qatofin executives at the ostentatious opening ceremony last November in Mesaieed, southern Qatar, for the inauguration of Qatofin’s new 450,000 tonne/year linear low density polyethylene (LLDPE) plant.

During the same trip, just a day earlier, we had climbed, breathless, to the top of 60 metre tall furnaces at the 1.3m tonne/year Ras Laffan cracker, which our Total hosts revealed, would be starting test runs by January 2010. From there we could see various ethane and liquefied natural gas (LNG) installations feeding off the nearby North Field, as well as the Ras Laffan oil refinery.

A new ethylene pipeline links the two sites, and should send 422,000 tonnes/year of ethylene to be converted into 450,000 tonnes/year of LLDPE. By now, production from the new LLDPE plant may already be hitting Europe, Asia and the Middle East.

Thus, through a myriad of joint-venture agreements, Total - with a keen eye on future feedstock availability and market dynamics - continues to grow its footprint in Qatar and elsewhere in the Middle East and Asia.

The company’s global petrochemical strategy is logical and straightforward: invest where cheap and plentiful feedstocks exist and where market growth is likely to be most explosive.

As Graeme Burnett, senior vice president Middle East and Asia for Total Petrochemicals put it: “Long term, China takes a huge portion of global demand…we must be present in Asia and produce in advantaged feedstock regions such as the Middle East”.

He produced Total projections showing China and the rest of Asia accounting for 50% of petrochemical demand by 2030, from 40% in 2005.

Total plans for 3% annual worldwide polymer productions growth focused on the Middle East and Asia with the Middle East becoming a petrochemical hub in the mid-term. There is a $200-$400 delivered tonne cost advantage to producing polymers from ethane in the Middle East compared to the naphtha-based production in the US, he said.

“That pays for a lot of freight and logistics.This region will become the main global arbitrage point for polymers worldwide,” he added.

Like most major US and European energy and chemical groups, Total is desperate to increase its presence in and revenues from these high growth regions. Over the past few years it has taken several steps in this direction.

Total has been in Qatar since 1935, so it has strong links with energy and chemicals there. The company sees its upstream integration into oil and gas as a real strength compared to some competitors.

Apart from the Ras Laffan cracker, in which Total has a 22.2% stake, the company also has a 20% stake in QAPCO, the Qatar Petrochemical Company.

QAPCO operates a 800,000 tonne/year ethylene cracker and 410,000 low density polyethylene (LDPE) unit at Mesaieed in Qatar. There are plans to add 300,000 tonnes/year of LDPE by 2012.

Qatofin, which owns the new LLDPE plant at Mesaieed, is 63% owned by Qapco and 36% directly by Total.

Unfortunately for Total, it lost to Exxon Mobil in the race to secure Qatar’s next major petrochemical complex.

Earlier in January the US-based petrochemicals giant was revealed as the winning bidder to develop a 1.6m tonne/year mixed feed steam cracker, two 650,000 tonne/year gas phase polyethylene plants, and a 700,000 tonne/year ethylene glycol plant at Ras Laffan. Start-up is scheduled for the fourth quarter of 2015.

South Korea’s Honam Petrochemical and Shell also bid for the project.

Beyond that, Total is hoping to bid for the next round of petrochemical developments in Qatar, which could include another cracker.

A moratorium is due to end in 2014 on further gas extraction from the North Field which supplies Ras Laffan.

With this and other developments, Burnett said there should be enough feedstock for another cracker. Ras Laffan and Mesaieed are being considered as locations.

The fact that this next stage of the Ras Laffan project is mixed feed is indicative of the limitations of ethane as a feedstock.

Burnett said that in the long term the global balance of ethane as a cracker feedstock would only reach around 15% due to finite supplies of gas.

“From 2000-2015 Total’s balance will go from 90% naphtha to 55% naphtha, with the balance taken by liquefied petroleum gas (LPG) and ethane,” he said.

Elsewhere, in 2003 the group acquired South Korea’s Samsung Total and put in place an ambitious expansion plan which boosted capacity at its Daesan cracker and monomer unit by 50%. “This a key asset: a top quartile asset,” said Burnett.

In Al Jubail in Saudi Arabia, Total has developed a refining and petrochemical complex and has just begun engineering work to add a 700,000 tonne/year paraxylene (PX) unit scheduled for start-up in 2013.

In Algeria, the company is facing delays in its plans to build a world scale cracker complex at Arzew, due to renegotiations over the terms of the deal.

Burnett said that after the law changed so that the majority share in a joint venture has to be owned by an Algerian company, Sonatrach, the state-controlled energy and chemical group, needs to renegotiate a previously signed deal with Total. Technical issues over feedstocks also had to be resolved.

According to the original deal, Total would have a 51% stake in the venture with the rest going to Algeria's Sonatrach. The cracker complex would include a 1.2m tonne/year ethane-based ethylene cracker with downstream polyethylene (PE) and monoethylene glycol (MEG) units.

“A feasibility study has been completed but it has proven difficult to move with a good pace," Burnett said, adding: “Total has worked in many countries with volatility so we are used to it. Because we believe in these projects, they come to fruition eventually.”

Burnett revealed the company is still looking for acquisitions and joint ventures in India and China. “We have no firm project but we continue to look,” he said. The most likely scenario would be an existing refinery onto which chemical projects could be bolted.

And with all this low-cost product flowing around the world, Total has embarked on a plant closure plan for its 3^rd and 4^th quartile chemical plants, focused mainly on Europe.

Between 10-20% of overall European petrochemical capacity will close down over the next five years, Burnett reckoned, to be replaced by Middle East production. This will leave 80% of “good, core assets” operational.

“There are no more [Total] closures in the pipeline. We’ve taken some very hard decisions,” he added.

In the US, Total’s assets are all first quartile, he said, and, therefore, less vulnerable.

*Graeme Burnett's speech in Qatar and a map of Total Petrochemical's global locations are available here and on ICIS connect.

By: Will Beacham
+44 20 8652 3214

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