Price and market trends: Saudi Arabia seeks more petrochemical exports to Asia because of US shale

17 March 2014 00:00 Source:ICIS Chemical Business

Saudi Arabia refiners and petrochemical producers are looking at boosting exports to Asia in the face of weakening demand from the US, which is in the midst of a shale gas boom.

“The Middle East, as a whole, can no longer depend on the US to buy its oil and other derivatives. The US will become more energy self-sufficient at the expense of Saudi,” a regional petrochemical trader said.

Last year, net oil imports by the US – the world’s biggest economy and its top oil consumer – were down nearly 8% by volume compared with 2012, according to data in a February report from the International Energy Agency (IEA).

The country is expected to surpass Saudi Arabia as the world’s top oil producer by 2015 thanks to the shale gas and oil revolution, the IEA said in its 2013 World Energy Outlook.

Tanker Saudi Aramco

Saudi Aramco

US oil output increased by 1.1m bbl/day in 2013 to 10.3m bbl/day and is expected to rise to 11.36m bbl/day in 2014 as production increases from areas such as the oil-rich North Dakota region, the IEA said.

As the US becomes more energy-independent, the Middle East will likely look more to Asia as a major market for its crude and petrochemical products, regional players said.

“The Middle East remains a large oil and petrochemical exporting region. But, in the coming years, the US may take the lead [instead]. So, Middle East producers would need to look to Asia as the main market for exports,” said a petrochemical distributor based in the Gulf Cooperation Council (GCC).

The GCC comprises Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE.

The Middle East enjoys cost advantage over its peers in Asia that mostly rely on expensive naphtha. This cost advantage remains, allowing the Middle East to retain its position as the leading source of crude oil and petrochemical supply, industry sources said.

STRONG ASIA DEMAND

Asia has a strong demand for petrochemicals and is expected to make up for any expected reduction in US consumption of Saudi products, they said.

“We are not too worried. Even if US demand is weak, we still can sell to energy hungry China, India and southeast Asia. Emerging markets in Asia are all consuming more and more energy every year,” said a source close to a GCC petrochemical producer.

The availability of Asia as an alternative major market, however, does not shield Saudi Arabian producers from the possibility of shrinking margins as the growth in overall supply of crude and petrochemicals may dampen prices.

“With shale, margins will be even tighter for producers as crude and petchem prices will go down. Production costs, however, will go up. Profits will be affected for sure,” a source from a Saudi petrochemical supplier said.

Petrochemical buyers, however, welcome the market development.

“Increased supply and competition can only be good for us. We’ve been squeezed for so long. Now, we get a bit of respite with lower prices,” a Dubai-based end-user said.

By Muhamad Fadhil