Saudi Kayan delay is good news for US/European chemical producers

Reports that Saudi Kayan will delay the startup of its 1.5m tonnes/year Al Jubail petrochemical complex until late 2011 will be heartening news for many in Europe and the US. 

In the short term it means less downward pressure next year on pricing for commodity chemicals as Middle East capacities come onstream and exports ramp, mainly to Asia and Europe. 
But the delay also adds to the argument that mixed feed plants in the Middle East are much less competitive than ethane-based crackers against those in Europe and the US. This is especially true the further downstream from the cracker you go. As Leslie McCune of Chemical Management Resources recently told me, beyond the second derivative you stop making money in the Middle East due to high construction costs linked to the need to import expensive foreign kit and manpower. Logistics costs are also prohibitive for less stable liquid products.
According to Ahmed Hassan of Alembic Global Advisors, the Saudi Kayan delay is linked to cost over-runs as the project is 25% over budget and requires around $1.2bn in extra funding to cover the $2.5bn in cost over runs.
As the table below shows, this project does go into several downstream derivatives.http://www.zawya.com/story.cfm/sidZW20100921000078

Saudi Kayan Projects (1)

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