The Next Game Changer: Ample Saudi Ethane

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Picture: US shale gas worker

Source: Image Broker/Rex Features

 

By John Richardson

SHALE-GAS exploration in northern Saudi Arabia shows tremendous promise, said an industry observer on the sidelines of last week’s seventh Gulf Petrochemicals and Chemicals Association (GPCA) conference in Dubai.

“The main purpose of the Saudi Aramco project is to generate methane for power generation that would reduce the need to use fuel-oil for electricity production,” the source added.

“However, it is possible that the project could also yield additional ethane supply for petrochemicals.”

Bloomberg reported in early November that SABIC was planning to invest in shale-gas technology in the US and elsewhere.

“SABIC’S venture capital arm is looking for opportunities in the US, Europe and China to buy stakes in start-up companies that can turn shale gas into petrochemicals, according to Ernesto Occhiello, SABIC Ventures’ executive vice president for technology and innovation,” wrote the wire service.

The industry observer added that with 80% of Saudi Aramco’s capital expenditure on hydrocarbons exploration in the Kingdom devoted to gas exploration, the future will not necessarily remain the same as the present: Constrained ethane supply that is limiting SABIC and its competitors from further expanding basic petrochemicals capacity in Saudi Arabia.

SABIC, however, isn’t expected to add ethylene capacity at home for at least the next five years because of the shortage of ethane.

And, even if more ethane does become available, projects would still have to involve more than just basic petrochemicals production in order to obtain an allocation, the source added.

“In return for being given ethane to make hugely profitable downstream polyethylene (PE) and mono-ethylene glycol (MEG), any project would have to also include substantially less profitable ‘value added’ derivatives,’ ” he said.

As we discussed last week, this is part of Saudi’s job-creation agenda.

The shale-gas revolution took the petrochemicals industry by surprise and so the question foremost in the mind of the blog as it visited the GPCA event last week was, “What might be the next game changers?”

Could one such game changer be a return to ample ethane supply Saudi Arabia in the longer term?

What would this mean for, perhaps, an overconfident US petrochemicals industry? It seems to have become convinced that, thanks to its own abundant and very cheap feedstock ethane supply, it has the field pretty much to itself.

And, as we continue to argue, demand is the thing that everyone needs to worry about.

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