Qatar may call off polymer expansion on Mideast supply glut

Focus article by Muhamad Fadhil

DOHA (ICIS)–Qatar is taking a second look at its petrochemical expansion plans, with a view to expunging any new polymer capacities in the pipeline amid a supply glut in the Middle East that is chipping away at regional producers’ margins, industry sources said on Monday.

The country plans to invest $25bn to boost its petrochemical capacity to 23m tonnes by 2020 from 16.8m tonnes in 2012, according to state-owned energy distributor Muntajat, which holds the exclusive rights to market, sell and distribute Qatar’s chemical and polymer products globally.

“Qatar seems to be in a process of re-evaluating its priorities. The country may not expand its polymer capacity for the time being. Margins are also of concern,” a source close to a Middle East producer said.

State-owned conglomerate Industries Qatar announced last month that its mega Al-Sejeel petrochemical complex project is on hold, and that it is looking at an alternative downstream investment.

The Al-Sejeel complex was supposed to produce 1.4m tonnes/year of ethylene; 550,000 tonnes of low density polyethylene (LDPE); 430,000 tonnes/year of linear low density PE (LLDPE); 1.04m tonnes of high density PE (HDPE) and 760,000 tonnes/year of polypropylene (PP).

The project was originally scheduled for completion in 2018.

“A new downstream petrochemical project expected to yield better economic returns is instead under study,” the conglomerate said in a statement released in September.

Industries Qatar’s decision to shelve the mega project took many industry players by surprise, but the move was hardly unexpected.

“I don’t understand why Qatar put on hold Al-Sejeel only a few years before the complex is supposed to be completed,” a Dubai-based commodity trader said.

Qatar’s move is “calculated”, a separate Dubai-based polymer source said.

“It is pulling out at the last minute, not without reason. Look around Qatar. Everyone is building more PP and PE units,” the source said.

In the Middle East, at least 2.5m tonnes of new olefins and polyolefins capacities are due to come on stream in the UAE in the coming months, with the start-up of Borouge 3.

Fresh supply from this third phase of Borouge’s expansion in Abu Dhabi is expected to hit the markets by end-2014 or early 2015.

Borouge 3 comprises a 1.5m tonne/year ethane cracker and derivative plants, including HDPE and LLDPE units with a combined capacity of 1.08m tonnes/year; a 350,000 tonne/year LDPE unit; and two PP units with a combined capacity of 960,000 tonnes/year.

Sadara’s petrochemical complex in Jubail in Saudi Arabia that is due to start up sometime in 2015 will further augment polymer capacity in the Middle East.

An estimated 350,000 tonnes/year of LDPE will be made available once Sadara becomes operational.

Sadara is a joint venture between US’ Dow Chemicals and state-owned energy firm Saudi Aramco.

A regional oversupply of polymers is forcing Qatar to diversify to other petrochemicals, deviating from its long-standing focus on growing its polyolefins production.

“Qatar is set to welcome two major projects in a few years: Al-Karaana and Ras Laffan Gasoline and Aromatics Project (RLGAP). Both projects are not related to polymers at all,” according to a petrochemical source based in the Middle East.

The Al-Karaana project in the industrial town of Ras Laffan, will feature a 1.5m tonne/year monoethylene glycol (MEG) plant; a 277,000 tonnes/year oxo-alcohols unit; and a 300,000 tonnes/year linear alpha olefins (LAO) facility.

Al-Karaana, which is scheduled to start up in the second half of 2018, is a joint venture between Shell and Qatar Petroleum (QP).

RLGAP, on the other hand, is expected to produce 1.304m tonnes/year of paraxylene (PX), 890,000 tonnes/year of benzene, and 820,000 tonnes/year of pentane.

The QP-commissioned RLGAP is also due for start-up in the second half of 2018.

“You are talking about significant volumes of petrochemicals coming on stream in Qatar. The country will be smart about utilising its resources well, especially its huge gas reserves,” a Dubai-based trader.

Qatar is the world’s largest exporter of liquefied natural gas (LNG), with natural gas reserves of 885,000 billion cubic feet in 2013, according to the Energy Information Administration (EIA).

Qatar enhanced its naphtha and baseoils segments in end-2012, with the start-up of the Pearl Gas-To-Liquids (GTL) project, which is a joint venture between Shell and QP.

The facility in Ras Laffan can produce 140,000 bbl/day of GTL liquids, such as naphtha and base oils.

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