The Mideast is turning itself into a chemicals hub

14 June 2012 19:08  [Source: ICB]

An additional 21.175m tonnes/year of announced ethylene capacity is projected to come on line in the Middle East by 2018, including in Algeria, Egypt and Iran, based on analysis by ICIS.

Ethylene capacity in the region is estimated at around 27.25m tonnes/year. Planned expansions amount to 67% of existing regional capacity. But certain projects - such as those in Iran - are likely to be delayed or cancelled on account of international sanctions.

Middle east construction worker Rex Features

 Rex Features

Middle East construction witnesses a revival

The annual production of plastic resins in the Gulf Cooperation Council (GCC) region is projected to increase by 39% to 25m tonnes in 2016 from the current 18m tonnes. The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE).

About 3m tonnes/year is converted in the region. This is expected to grow by more than 50% to 5m tonnes/year in 2016, Abdul Aziz al-Hajri, CEO of Abu Dhabi-based producer Borouge, said in Dubai during the opening of the third Gulf Petrochemicals and Chemicals Association Plastics Summit in April.

The small conversion capacity in the Gulf as compared with the vast amount of available feedstock, as well as converters' proximity to the feedstock, are factors allowing for growth of the conversion sector here, the CEO said.

According to Saudi Arabia-based Samba Financial Group, about $50bn (€40bn) worth of petrochemical projects are planned or under way in Saudi Arabia, with a chemical mix that is aimed at nurturing domestic industries rather than simply serving export markets with base chemicals.

MADE IN SAUDI ARABIA

The Saudi government's National Industrial Strategy aims to greatly develop and diversify the economy by 2020 with objectives to expand manufacturing from 11% to 20% of GDP; double Saudi industrial employment from 15% to 30%; increase industrial exports from 18% to 35%; and double the proportion of technology-based manufactured products from 30 to 60%.

The Saudi Arabia economy was worth roughly $580bn in 2011, noted Samba.

The latest project in the Middle East was announced at the end of May, with Japan-based Sumitomo Chemical and Saudi Aramco proceeding with the phase II expansion of Saudi Arabia joint venture Petro Rabigh.

Total investment in the Rabigh II project is estimated at $7bn, and includes expanding the capacity of the existing 1.3m tonne/year ethane cracker, as well as building a new aromatics complex using additional 30m standard cubic feet/day of ethane and around 3m tonnes/year of naphtha as feedstock.

The facility is scheduled to start in 2016, and its main products will include ethylene propylene rubber, thermoplastic polyolefin, methyl methacrylate monomer, polymethyl methacrylate, low density polyethylene/ethylene vinyl acetate (LDPE/EVA), paraxylene/benzene, cumene and phenol/acetone.

Sumitomo and Saudi Aramco have a 37.5% stake each in Petro Rabigh.

SADARA GETS UNDERWAY

But the largest project under way in the region is the $20bn Sadara Chemical venture. In 2011, US-based Dow Chemical and Saudi Aramco formed the Sadara joint venture, to be built in Jubail Industrial City.

Sadara's cracker will be the first Saudi plant designed to run on a mixed feedstock of ethane and naphtha.

"A mixed-feed cracker will enable Sadara the flexibility to crack the most advantaged feedstocks... capturing growth across large and attractive market sectors such as electronics, coatings, adhesives, and food packaging," says Jim McIlvenny, senior vice president at Dow Chemical and chairman of the Dow Sadara Project Office.

Borouge plant Borouge

 Borouge

Borouge expects steady PP/PE growth

Both Sadara and Petro Rabigh are encouraging downstream investment by building industrial parks next to their facilities, said Keith Savard, Samba's director of economic research, in an April report: "For investors, the close proximity to raw materials producers negates the need for large inventories; for the authorities, fostering these domestic industries opens up the possibility of significant job creation."

According to McIlvenny, the location of the joint venture "also creates a unique opportunity to target high margin end-markets in Asia Pacific, the Middle East, Africa and Eastern Europe, enabling customer growth in these key emerging regions."

Sadara is expected to deliver annual revenues of roughly $10bn within just a few years of operation.

What makes Sadara different from the petchem projects of 10 or 15 years ago is "the complexity and magnitude," says Dow's ­McIlvenny. "Comprised of 26 manufacturing units, Sadara will be one of the world's largest integrated chemical facilities and the largest ever built in a single phase with more than 3m tonnes of capacity."

­McIlvenny adds: "Ultimately, Sadara will be instrumental in Saudi Arabia's strategy to become not only a strategic chemicals and plastics producer, but also a hub for future downstream manufacturing."

There is a considerable difference in the projects in Saudi Arabia compared with most others, notes Robert Bauman, director of US-based Polymer Consulting International: "The strategy in the Kingdom has been to move up the value chain to specialty chemicals and polymers, to consume more commodity polymers in the country to convert them to higher value-added fabricated products that can be exported - and create more jobs. Thus Saudi Arabia will still be a step ahead of the competition."

FROM ARABIA TO ASIA

Other projects in the region include Saudi Kayan Petrochemical starting up its Al Jubail-based 300,000 tonnes/year LDPE plant this year. Saudi Arabia chemical major SABIC owns 35% of Saudi Kayan, with 20% owned by Al-Kayan Petrochemical and 45% by public shareholders.

Output from the new LDPE unit will be marketed globally, said Khaled al-Mana, the company's executive vice president for polymers, on the sidelines of Chinaplas, in Shanghai, China, in April.

"Part of the LDPE exports from the plant will be targeted at China," he added.

Demand growth for polymers, including polyethylene (PE), will average about 6% in 2012 - above the projected growth of global GDP - with growth in China forecast to be in the double-digits, al-Mana added.

Borouge expects demand for polypropylene (PP) and PE to grow in the next five years by 7%/year, mainly due to the higher GDP growth rates in the Gulf Region.

"A major contributor will be the continued trend towards urbanization and growth of cities in our target markets," says a representative from the company.

"We are confident in the long-term growth of the high value markets we serve... The specific high-end infrastructure, automotive and advanced packaging markets of the Middle East and Asia have not experienced the decline in demand seen in many other petrochemical market sectors," says the Borouge representative.

"We expect this trend to continue," the representative adds.

Although Europe is in recession, "on the positive side, [the continent's] ethylene and derivatives capacity is being, and will be, rationalized," points out consultant Fred Peterson of US-based Probe Economics.

"When Europe's economy recovers, there will be more room than before for Middle East imports," Peterson adds.

ADDITIONAL CAPACITIES

With its rich natural gas resources, Qatar is keeping busy as well. State-owned Qatar Petroleum and Qatar Petrochemical Co. (Qapco) are jointly developing a new petrochemical complex in Ras Laffan Industrial City.

The new complex will include a 1.4m tonnes/year steam cracker that will obtain feedstock from natural gas plants at the site.

Output from the new complex will be sold primarily in high-growth markets in Asia, ­Africa and Latin America, and it is expected to produce 850,000 tonnes/year of high-density polyethylene (HDPE); 430,000 tonnes/year of linear low density polyethylene (LLDPE); 760,000 tonnes/year of PP; and 83,000 tonnes/year of butadiene.

The complex is estimated to cost $5.5bn and is scheduled for completion in 2018. Qatar Petroleum will have an 80% equity interest in the project, with Qapco taking up the remaining 20% stake.

Qapco has also started up its new 300,000 tonne/year LDPE facility at Mesaieed in Qatar.Qapco's two existing 200,000 tonne/year LDPE plants, which are located at the same site, are running at full capacity.

About 250km west of Abu Dhabu City is the Ruwais petrochemical complex, where Borouge has been since 2001, starting with 450,000 tonnes/year PE capacity.

The company was founded in 1998, as a joint venture between Abu Dhabi National Oil and Germany-based Borealis.

The current $4.5bn Borouge 3 expansion project at Ruwais in Abu Dhabi will increase capacity of the plant to a total of 4.5m tonnes/year by the end of 2013. It will be fully operational by mid-2014.

As of March 2012, the company had completed 60% of its construction.

This project includes the construction of an ethane cracker producing 1.5m tonnes/year of ethylene, at the cost of $1.01bn; two additional Borstar PE units producing 1.08m tonnes/year as well as two additional Borstar PP units producing 960,000 tonnes/year; and a 350,000 tonne/year LDPE unit.

The contract for the PE and PP units is valued at $1.26bn, while the contract for the LDPE unit is valued at $400m.

  • With additional reporting by Ong Sheau Ling in Singapore; Tomomi Yokomura in Tokyo; Prema Viswanathan in Shanghai; John Baker and Anna Jagger in London

By: Ivan Lerner
+1 713 525 2653



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