Market intelligence: Middle East petrochemical sector faces tank container shortage

07 December 2012 10:31  [Source: ICB]

The Middle East needs to focus on greater efficiency and better use of technology in order to tackle the potential container-tank shortages. Efficiency has been under-prioritised in the past

In Qatar, petrochemicals capacity is set to more than double over seven years


Logistics bottlenecks hinder Saudi Arabia

Copyright: RexFeatures

Tank-container shortages are likely to arise in the Middle East with major petrochemical projects being built. How can the industry get around this logistics challenge?

Eighty percent of Saudi Arabian families get by on incomes of less than $3,300 a month, whereas Saudi Aramco makes $900m (€688m) of profit every day,according to Leslie McCune, managing director of the UK-based chemicals logistics consultancy Chemical Management Resources Ltd.

But he adds that in order to help compensate for this huge economic disparity, Saudi Aramco, the state-owned oil, gas, refining and petrochemicals player, hands over four out of every five dollars of its profits to the government for re-investment in the country.

The decision to use naphtha - in addition to just ethane, propane and butane - as feedstock for Saudi Arabia's future steam crackers is also part of a wider government agenda.

Cracking naphtha yields propylene, C4s and pyrolysis gasoline, which contains aromatics, whereas cracking ethane results in almost entirely ethylene.

This will enable Saudi Arabia to build a wider range of derivative plants downstream of its next-generation of crackers and on to a broader spread of manufacturing industry that will create more jobs. The Kingdom has high unemployment and a median age of just 25.3.

Saudi Aramco, as a refiner, controls the naphtha feedstock to realise this industrial strategy - hence naphtha will comprise 70% of the raw materials for Sadara Chemical, the Al-Jubail-located Aramco/Dow Chemical joint-venture petrochemicals project.

Sadara, which US-based Dow describes as the world's largest integrated chemical facilities and the largest ever built in a single phase, will comprise 26 plants, some of which are due to start up in the second half of 2015. The complex is scheduled to be fully operational in 2016.

Products will include polyurethanes (isocyanates, polyether polyols), propylene oxide (PO), propylene glycol (PG), elastomers, linear low density polyethylene (LLDPE), low density (LDPE), glycol ethers and amines.

"The project will transform Saudi Arabia's petrochemicals sector and create thousands of new jobs, directly and indirectly, for Saudi nationals. It will also rejuvenate the career prospects for many in Dow," adds McCune in the October issue of his Quarterly Middle East ISO Tank Market Review.

But while the motivation for broadening Saudi Arabia's industrial base is obvious, with financing certainly not an issue, given the Kingdom's immense hydrocarbon-based wealth, some commentators warn that for cultural reasons, it could be difficult to get Saudi nationals to work in manufacturing industries.

"I am not sure how many locals will be willing to work behind a hot plastics processing machine for eight hours a day," says one industry observer.

Others point to more easily measurable hurdles in the way of this attempt at petrochemicals and industrial transformation - for instance, logistics.

Problems with logistics include a lack of chemical-tank storage.

"Were the massive $20bn Sadara project to come on-stream today, it would be impossible for the global tank container operators to meet its demand for ISO (International Standards Organisation) tanks with their current availability," writes McCune in the same report.

Other projects elsewhere in the Middle East will add to the pressure.

In Qatar, petrochemicals capacity is scheduled to more than double over the next seven years from 9m tonnes/year to 23m tonnes/year. This would involve two grassroots cracker complexes.

And in Kuwait, a new liquids-based cracker complex is due to start up by 2017.

"In Oman, the longer term will see Duqm developing as an integrated refining hub, with Salalah remaining as the region's third-largest trans-shipment hub and Sohar being Oman's major industrial conversion centre," McCune adds. This would lead to a rapid and unsmooth acceleration of demand for tank containers.

"Tank container demand not only comes from the need for intermodal supplies of hazardous raw materials and the deep-sea and overland distribution of finished liquid products," he says.

"Often, as a new project comes on stream, intermediate liquid products (or waste products for furtherrefining) need to be stored or distributed prior tothe downstream derivative production units comingon stream."

Demand for tanks can arise at very short notice, sometimes with only few a weeks' notice, he warns.

"All of this activity points to a surge in demand for tank containers in the GCC in the longer-term and an urgent need for tank containers in the shorter term," he says. "Availability of tank containers in the region is tight and equipment will need to be repositioned, at a cost, into the GGC to meet demand."

Repositioning will therefore rise as there is a net deficit of tank containers. This could threaten the region's returns from specialty chemicals production, which even without the logistics headache, would still be considerably less than for commodities.

So what's the solution? The Middle East needs to focus on greater efficiency and better use of technology in order to tackle the potential container-tank shortages, says McCune.

On efficiency, he writes that this has been under-prioritised in the past, and has been viewed as rather un-glamorous. But now, everybody in the region is becoming more aware of the limited availability of petrochemicals feedstocks, soaring energy consumption and limits to hydrocarbon resources.

"The pressure on (Saudi Arabia's) Dammam port to improve its performance is intense. Container clearance delays have increased from a broadly acceptable 8-10 days to a problematic 14-16 days," he adds.

"This compares to an Organisation of Economic Co-operation and Development [OECD] average of 10 days. Alternatives to Dammam are being used to avoid the bottleneck."

As for technology, McCune adds that "genuinely technology-driven supply chain solutions are being sought.

"The scope for these may be less in the polymer 'hump-and-dump' supply chain but are more prevalent in the tank container sector. Introducing best-practice and providing local training on handling hazardous products will be crucial."

By: John Richardson
+65 6780 4359

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