InterviewNatPet hopes for better propane pricing in 2011 - VIDEO

20 April 2010 07:04  [Source: ICIS news]

By Prema Viswanathan

SHANGHAI (ICIS news)--National Petrochemical Industrial Co hopes the Saudi Arabian government will re-set the current pricing formula for feedstock propane gas next year to make it more beneficial to polypropylene (PP) producers, the company’s top executive said on Tuesday.

The current formula, wherein propane is priced at 29% discount to Japan naphtha prices less freight costs, could prove challenging for local PP makers during tough times, NatPet president and chief operating officer Jamal Malaikah told ICIS news in an interview, on the sidelines of ChinaPlas exhibition in Shanghai. (please click here to watch the interview)

ChinaPlas – Asia’s largest annual plastics event – runs from 19-22 April.

“Currently, there is a big difference between the discounts offered on ethane and propane gas.

"We hope that when the government revisits the pricing formula (for gas feedstocks) for all petrochemical vendors in 2011, they will [adjust] the propane price formula,” said Malaikah.

Ethane gas price in Saudi Arabia is fixed by the government at 0.75 cents/mmbtu.

The current pricing structure for feedstock gas was extremely favourable to producers of ethylene and its derivatives, but did not offer as much cost advantage to producers of propylene and PP, industry sources said.

Strong PP prices currently shield the producers from the ill-effects of the current propane pricing formula, but there are concerns they would have to take hits when product prices started to fall, they added.

Meanwhile, shortage of propane, caused by cuts in oil production, was another big challenge for Yanbu-based NatPet, Malaikah said.

“Although the government has given concessions to international companies to look for gas, we have not seen any real signs of it…so we think availability of propane will be a challenge,” he said.

But the biggest challenge for the company was to keep its 400,000 tonne/year PP and propane dehydrogenation (PDH) units running efficiently, he said.

“The market is good. We want to make sure we are operating at comfortable level for a long period,” the NatPet executive said.

NatPet, along with other new polyolefins producers in the Middle East, have faced several production disruptions in the months following the start-up of their plants.

Malaikah said the quality of engineering materials used in building petrochemical facilities may have deteriorated due to mass production necessitated during the plant construction boom in 2005.

“There was a lot of pressure on services, EPC (engineering, procurement and construction) contractors, on vendors, on engineering manpower. The pressure caused some vendors to produce more than their capacity, at the expense of quality,” he said.

Malaikah said he was optimistic about the global economic recovery, which should bode well for Middle East petrochemical players.

“The outlook for petrochemicals is excellent,” he said, citing that strong economic growth, along with high oil prices and demand recovery, would keep the petrochemical market strong in the near term.

Malaikah said he is not overly worried about the spectre of overcapacity when all the new PP plants in the Middle East run full throttle on expectations that demand would also grow.

“We believe most of these plants will be running at a good operating rate in the second half [of] 2010. But I think the impact of the overcapacity on price will not be of high magnitude,” he said.

High-cost plants would also have to be shut in other regions, cutting down on global petrochemical capacity, he said, adding that Middle East players were at an advantage given their access to lower-priced feedstock.

If the current growth environment continues through to 2011, NatPet may look at doubling the capacity of its PP and propane dehydrogenation plants in Yanbu to 800,000 tonnes/year each, Malaikah said.

“As soon as we have passed a few months of operation, we will again study expansion,” he said.

“Today with technological improvements, you can go much higher than 400,000 tonnes/year whether in PDH or PP. But it is too early to talk of a deadline,” Malaikah said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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By: Prema Viswanathan
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