Saudi Arabia races to create plastics parks

24 August 2012 00:00  [Source: ICB]

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The Saudi government is developing new industrial parks for plastics conversion to stimulate investments and create jobs. But the parks are not being created fast enough to keep up with industry demand.

The new parks are part of the government's plans to create new industrial parks for mixed-use light industry across the country, particularly in under-developed regions. Some of these parks will be located next to production complexes for plastics resins and dedicated to plastics conversion.

As a result, plastics conversion will be expanded beyond the main hubs of Dammam, Jeddah and Riyadh. About 90% of plastics conversion in Saudi Arabia takes place across five industrial parks developed by government agency Saudi Industrial Property Authority (Modon): Dammam 1, Dammam 2, Jeddah 1, Jeddah 2 and Riyadh, according to energy and chemicals consultancy Nexant.

A new plastics park has also been created next to the Rabigh petrochemicals complex owned by Petro Rabigh, a joint venture between state-owned Saudi Aramco and Japan's Sumitomo Chemical. Saudi Aramco also plans to develop a plastics park in Jubail next to its joint venture Sadara Chemical petrochemicals project with Dow Chemical.

According to Modon's website, new parks for housing light and medium industries, including plastics and chemicals, are proposed for the following locations: Dammam 3, Jeddah 3, Al-Kharj (phase two), Sudair (phase two) and Al-Qassim 2.

NOT FAST ENOUGH

While the development of new parks is good news for Saudi Arabia's plastics converters, the parks are not being created fast enough. "There's very limited availability of land for industrial parks for downstream plastics conversion in the GCC [Gulf Cooperation Council]," said David Lines, principal at Nexant with expertise in Middle East polymer conversion. "There are a lot of companies wanting to expand or build new projects but they just can't get the industrial land."

The main plastics processing sites in Dammam, Jeddah and Riyadh "are vastly over-subscribed, with waiting lists for new companies to get onto or for existing companies to expand," he said. "It appears there will never be an oversupply of industrial land for plastics conversion in Saudi Arabia with what has been announced."

Companies already operating in existing parks often have to delay their expansions or look for alternative sites because of a lack of availability of land, said Lines.

For example, Saudi producer Tasnee had to buy land next to the Dammam II park to build its biaxially oriented polypropylene (BOPP) film plant, rather than building the plant inside the park, because there wasn't enough land available, he said. "On the one hand the government can't get enough investment and jobs, but on the other hand it's not developing industrial cities fast enough to keep pace with requirements."

Creation of the new plastics conversion parks at Rabigh and Jubail, known respectively as Rabigh Conversion Industrial Park (Rabigh CIP) and PlasChem, will go some way to meeting the rising demand. Rabigh CIP, located between Jeddah and Yanbu, is attracting more and more companies, following the start-up of the Petro Rabigh complex in 2009. "Plastics conversion industries are being established and the park is filling up all the time," said Lines. However, there have been some problems with material supplies as a result of commissioning problems at Petro Rabigh, he noted.

Sadara is developing the PlasChem park with the Royal Commission for Jubail and Yanbu (RCJY) and Saudi Aramco Entrepreneurship Center Company (Wa'ed), which was established by Saudi Aramco as a financer and incubator of new businesses in Saudi Arabia. The park will house downstream chemical manufacturers and plastics conversion industries.

The RCJY, which was established to promote petrochemicals investments in Jubail and Yanbu, has a good record for developing infrastructure, said Lines. Jubail and Yanbu both have large-scale petrochemicals production complexes but only have relatively small areas for small downstream industries, with nothing targeted for plastics conversion, he noted.

The PlasChem park will benefit from being located next to Sadara's petrochemicals complex, which will be one of the world's largest integrated chemical facilities when it starts up in 2015/2016. Saudi Aramco says the park will create opportunities for high-skilled employment and localised new technologies and will support Saudi Arabia's development as an exporter of finished goods.

With the development of the Jubail and Rabigh sites, the sites could account for about 15% and 5-10% of Saudi Arabia's plastics conversion respectively, Lines suggested. This would reduce the proportion of Saudi Arabia's plastics conversion located in the three sites of Jeddah, Riyadh and Dammam from about 90% to 70%. "Rabigh and Jubail will become significant plastic processing areas but they won't be huge," he said.

Saudi Arabia's downstream plastics industry currently has a production capacity of about 2.1m tonnes/year, representing about 62% of the GCC's total capacity, according to Nexant (see table). Polyethylene (PE) conversion has the largest capacity, followed by polypropylene (PP) and polyvinyl chloride (PVC).

CREATING JOBS

Riyadh is developing new industries such as downstream plastics conversion as part of plans to create new jobs for the country. Two-thirds of the Saudi population is aged under 30, and youth unemployment is estimated at about three times the national average.

When allocating feedstock to companies for large-scale petrochemicals projects, the government stipulates that the companies support the development of downstream industries. For example, Tasnee agreed to implement its BOPP film project to secure a gas feedstock agreement for a PE resin project in Jubail.

"The Saudi government is the main one in the whole region that is driving this development by getting the petrochemical companies to support the downstream industries," said Lines.

UAE IS REGION'S SECOND-LARGEST PRODUCER

The United Arab Emirates (UAE) is the GCC's second-largest plastics processing country. It has the Abu Dhabi Polymer Park, located next to Borouge's petrochemicals complex in Ruwais, plus small sites in Dubai and Sharjah.

The Abu Dhabi plastics park is still relatively unsubscribed, partly because some of the potential savings on the cost of raw materials, logistics and energy failed to materialize, said Lines. There was an expectation that Borouge, a joint venture between Abu Dhabi National Oil Company and Austria-headquartered Borealis, would sell materials to customers in the park at discounted prices but this has not happened, he said.

Occupancy rates at the Abu Dhabi plastics park could increase as a result of rising prices in Dubai. "The Dubai government is increasingly putting up the prices of land rates and electricity and, as a result, a lot of companies are looking at the Abu Dhabi park instead," noted Lines. "Even though the Abu Dhabi park is not offering savings, it will be cheaper than being in Dubai."

By: Anna Jagger
+44 20 8652 3214

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