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Saudi ethane price revision to be delayed?

Analysts Reports, Business, Middle East, Projects
By John Richardson on 20-Sep-2010

By Malini Hariharan

The much talked about revision in Saudi ethane prices may not take place in 2012. In a recent report on the Middle East petrochemical sector analysts from Nomura expected the current price of $0.75/mmbtu to continue until 2015.

They pointed out that there has been no official update from the Ministry of Petroleum over the last year.

“While changes can occur at short notice (for example, gasoline pricing in 2006), we believe the limited official update points to keeping the status quo for ethane pricing until 2015, with perhaps only minor changes to propane, naphtha and butane pricing,” they said.

The analysts also confirm to the blog’s view that the revision is unlikely to be significant as the Kingdom is still interested in promoting the petrochemical industry. Additionally, lenders to many of the new petrochemical projects would not welcome an abrupt price change that would adversely affect profitability.

The analysts also pointed out that several chemical projects in Saudi Arabia were being restructured as the industry was under pressure to justify to lenders that new projects met internal profitability hurdle rates at higher feedstock prices.

As for propane butane and naphtha pricing, Nomura expected the conversion factor to continue to rise modestly in line with the increases seen between 2002 and 2011.

“We assume that propane, butane and naphtha conversion continues to
gradually liberalise to approximately a 20-25% discount to international prices by 2020.”