By John Richardson
SAUDI ARABIA’S National Petrochemical Industrial Co (NATPET) has gone public over an issue that has worried Gulf Co-operation Council (GCC) petrochemical producers for several years now: The erosion of the GCC’s competitive advantage over the US.
“There has been a migration of investment to the US that is a very clear threat to the growth of the [GCC] petrochemical industry,” Jamal Malaikah, chief operating office and president of NATPET (see picture) told the UAE’s National newspaper. NATPET is a Yanbu-based polypropylene (PP) producer.
And in what might be a hint that the long-delayed rumoured increase in Saudi gas costs could still happen, he added: “”We believe this is the wrong time to do that because of the shale gas. We still have an advantage in Saudi Arabia but we believe that advantage will be affected by the sheer volume of shale gas in the United States.”
Gas costs were, reportedly, supposed to be increased early last year in the Kingdom.
Ethane costs just $.075c/mmBTU in Saudi Arabia.
In the case of propane, which is relevant to NATPET, Saudi Arabia provides discounts on propane costs to local consumers of around 28% off prevailing CFR Japan naphtha prices, as naphtha is viewed as a comparable market to that of liquefied petroleum gas (LPG).
(NATPET operates a propane dehydrogenation (PDH) plant and a 400,000 tonnes/year polypropylene (PP) unit, and plans to raise its PP capacity to close to 1m tonnes/year by 2015.)
The motive behind the reported plans to raise gas prices in Saudi Arabia is the well-documented overall gas shortage, driven by soaring power-generation demand.
Interestingly, when it comes the new generation of mixed-feed crackers in Saudi Arabia that came on-stream in 2010-2011, an industry source believes that existing propane price arrangements have already significantly shifted the competitive position.
“These crackers are making use of a much-bigger percentage of propane versus ethane feedstock than is the case with the previous generation crackers,” he said.
But, as we discussed last month, Saudi Arabia could find much-bigger volumes of ethane supply in the future, thanks to the heavy focus by Saudi Aramco on gas exploration.
If the shale-gas revolution has taught us anything, it is to anticipate constant change in feedstock advantages between different regions.