By Malini Hariharan
Sabic's Saudi Kayan appears to be heading down the same road as other recent Saudi petrochemical projects.
After starting up a 1m tonnes/year cracker and a mono ethylene glycol (MEG) facility, a local media report states that commercial production is likely only in late 2011 and not mid-2011 as was widely expected in the market.
The report, which quotes a senior company official, did not give reasons for the late start of commercial production.
The blog had heard a few months back that the Saudi Kayan needed another couple of years to complete the entire project and that plans for a 2010 start were too ambitious but this news was dismissed after the company's announcement of a successful start of the cracker. It appears we were a little premature.
Source: Saudi Kayan
Saudi Kayan has been a troubled project right since its inception in 2003. First conceived by a private-sector company, it did not progress as there were difficulties in putting it together because of its size and the breadth of the product slate which ranged from polyethylene to ethylene oxide derivatives and polycarbonate (PC). This was of course necessary as the Saudi government was putting pressure on companies to add value to base petrochemicals.
The project was finally rescued by Sabic in 2006 and was initially targeted for completion in 2009 and then pushed back to 2010.
It has turned out to be an expensive project. The company said in July that it was 24% over budget after having spent about $9.4bn till the end of March. It has since then secured a loan of $1.2bn and is in talks to obtain the balance amount.
"To us this start up delay and financing issues clearly signifies deteriorating economics for mixed feed facilities in Saudi Arabia," pointed out Ahmed Hassan of Alembic Global in a recent report on the company.
He estimated that ethylene production costs for a mixed feed facility like Saudi Kayan were in the $450-500/tonne range, significantly higher than pure Saudi ethane facilities with production costs of $200/tonne.