S Arabia must boost gas output to support petchem expansion

Focus story by Muhamad Fadhil and Pearl Bantillo

DHAHRAN, Saudi Arabia (ICIS)–Saudi Arabia needs to beef up its gas output to support its petrochemical expansion, while catering to rising energy needs of its rapidly growing population, industry sources in the Middle East said on Monday.

Consumption of natural gas in the Middle Eastern country is expected to double by 2030 from 3.5 trillion cubic feet per year in 2011, according to government estimates.

Saudi Arabia must find the right balance to address the competing household and industry needs, regional industry players said.

“Saudi Arabia will need to provide gas for domestic consumption and petrochemical production. The country needs to manage its limited gas supply well,” a Dubai-based energy distributor said.

The country’s gas reserves stood at 288.4 trillion standard cubic feet as of end-2013, with annual gas production pegged at 4.0 trillion standard cubic feet, data from state-owned energy firm Saudi Aramco showed.

More than half of Saudi Arabia’s proven natural gas reserves are found at the Ghawar, Safaniya and Zuluf oil fields, according to the Energy Information Administration.

Its average gas production per day, based on raw gas to gas plants, stands at 11bn standard cubic feet, according to Saudi Aramco.

The country’s population, which stood at 30m in end-2013, is estimated to grow at an annual average of 2%, according to the World Bank.

For now, its domestic natural gas requirements can be sufficiently covered by its own production.

But by the end of next year, a new world-scale Sadara petrochemical complex in Jubail is due to start up and this may compete with household requirements.

The petrochemical complex, which is a joint venture between Saudi Aramco and US petrochemical major Dow Chemical, is expected to produce more than 3m tonnes/year of high value-added chemical products and performance plastics.

Comprising 26 manufacturing units, the Sadara complex will be the first in the Middle East that will be able to use refinery liquids like naphtha as feedstock for production, other than ethane.

Market players warned that if Saudi Arabia were to switch entirely to using naphtha for petrochemical production, it will lose its competitive advantage.

“The capacity coming out of Sadara is massive and will significantly boost the petrochemical output coming out of the Middle East,” according to a Saudi-based buyer.

The complex will include a world-scale cracker and production units for polyurethanes (isocyanates and polyether polyols), propylene oxide (PO), propylene glycol, elastomers, linear low density polyethylene (LLDPE), low density polyethylene (LDPE), glycol ethers and amines.

Saudi petrochemical giant SABIC, also cognizant of the need for feedstock diversification, plans to build an oil-to-chemicals complex for start-up in end-2020. The project is expected to use around 10m tonnes/year of crude oil to produce petrochemicals and specialty chemicals.

“Saudi will look to ramp up gas production in the coming years with a number of large-scale projects,” a Middle East petrochemical buyer said.

Saudi Aramco is expected to complete construction of Wasit Gas Plant sometime this year.

Once completed, Wasit will supply 1.7 billion standard cubic feet per day of non-associated gas to the Master Gas System, the country’s main pipeline network.

Wasit will allow Saudi Aramco to increase gas production significantly from fields not shared with oil wells.

The company’s recent exploration efforts in the Red Sea resulted in a significant discovery at Shaur, a gas field Aramco calls a “potential game changer”, it said in its latest annual report.

Saudi Aramco is likely to accelerate extraction efforts there in the coming years to increase its gas output.

“Saudi will look at its available oil fields and probably start there,” a Middle East-based petrochemical distributor said.

Until the recent shale gas revolution in the US, the Middle Eastern petrochemical industry had enjoyed cost advantage with the use of gas, a much cheaper alternative to naphtha, as feedstock for production.

Gas prices in Saudi Arabia are low, with ethane – its main feedstock for petrochemical production – at $0.75/million metric British thermal units (MMBtu), significantly lower than in the international markets.

The low prices may have led to uneconomical consumption of the fuel, but efforts to raise the prices to $2/MMBtu to be more in line with global prices were met with strong resistance from energy companies in the country.

Now, however, Saudi Arabia is facing a shortage of natural gas, underscoring the urgency to accelerate exploration efforts to cater to its ever-growing energy demand, as well as to support its expanding petrochemical industry.

“Unconventional gas plays a significant role in Saudi Aramco’s upstream production strategy and as a potential growth area to meet the Kingdom’s energy demand,” Saudi Aramco said in its 2013 annual report titled “Energy is Opportunity”.

“We are actively exploring for unconventional gas resources in the three areas of Saudi Arabia: the Northwest, South Ghawar and the Rub’ al-Khali,” it said.

Exploration efforts at existing oil fields may also be enhanced, according to a Saudi Arabia-based polymer distributor.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections