Oil rout threatens more Mideast petrochemical projects

Muhamad Fadhil

15-Jan-2015

Focus story by Muhamad Fadhil

Saudi Arabia eyes more exports to Asia amid US shale boomDUBAI (ICIS)–More petrochemical projects in the Middle East may be rendered unfeasible by the oil price rout and trigger a huge scale back in capital investments by regional players, industry sources said on Thursday.

A $6.5bn petrochemical project in Qatar can be considered as the first casualty. On Wednesday, the project – a joint venture between Qatar Petroleum and Shell – was scrapped in view of poor conditions in the energy markets.

The Al Karaana project in Ras Laffan was supposed to include a 1.5m tonne/year monoethylene glycol (MEG) plant; a 277,000 tonne/year oxo-alcohols unit; and a 300,000 tonne/year linear alpha olefins (LAO) facility.

Capital spending is often limited during times of low crude oil prices as energy majors “rein in and adopt cautious positions”, according to a polymer source based in the Middle East.

“Governments will need to step in with new incentives to encourage major producers to start spending again,” the source said.

For now, capacity expansion in the region may have to be put on hold until the energy markets stabilise.

“Producers are looking closely at their upcoming expansion plans. Anything in the pipeline needs to be commercially viable,” said a source close to a Saudi-based petrochemical supplier.

State-owned conglomerate Industries Qatar in September last year had decided to put on hold its mega Al-Sejeel petrochemical complex, opting instead to pursue an alternative petrochemical 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).

These developments come as no surprise to petrochemical players after oil prices have shed half of their values over a period of six months on concerns over a supply glut amid weakening global consumption.

At midday, US crude was trading 31 cents lower at $48.17/bbl, while Brent crude was down 45 cents at $48.24/bbl.

Weak US and Chinese manufacturing data, record declines in the value of the euro and renewed fears of a Greek exit from the eurozone are keeping downward pressure on crude prices.

Ongoing construction of some petrochemical projects in the Middle East may not be totally scrapped but these may suffer delays, industry sources said.

“Producers with sunken costs won’t suddenly scrap their mega projects. But delays are possible,” according to a petrochemical source based in Dubai.

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

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?