Home Blogs Asian Chemical Connections Saudi Crackers Could Soon Be At 100%

Saudi Crackers Could Soon Be At 100%

Business, China, Company Strategy, Economics, Europe, Middle East, Olefins, Polyolefins
By John Richardson on 12-Jun-2011

By John Richardson

SAUDI ARABIA’S crackers could soon be running at operating rates of 100% again following widespread reports quoting the al-Hayat newspaper that the country’s crude production is set to rise to 10m barrels a day in July. Al-Hayat, a Saudi newspaper, is seen as a reliable indicator of government intentions.

We reported last week how Saudi production had already been raised to 9.5m-9.7m barrels a day in June, 500,000 barrels more than in May.

This all matters a great deal for petrochemicals as reduced associated gas availability, due to Saudi Arabia keeping its crude output at around 8.5m barrels a day for most of 2010 and into 2011, has taken around 1m tonne/year of ethylene production off the market. The country’s crackers have been forced to run at average operating rates of 85% because of reduced associated gas feedstock.

The 10m barrels a day crude production level is very significant – as it is this amount that is viewed as necessary to provide enough associated gas for Saudi crackers to run flat-out.

Tighter-than-expected petrochemicals supply has provided major support for markets. This has been due to the associated gas factor, delayed start-ups in the Middle East and constrained operations at European crackers resulting from another feedstock issue – lack of naphtha supply as a result of cuts in local refinery production.

It might not seem logical that Saudi Arabia should raise output simply because it might soon have more associated gas available.

But traditionally, crackers in the Middle East have always run flat out if they have had enough feedstock, regardless of market conditions. The reason is that they can always make money no matter how bad things are.

Despite exceptionally weak market conditions due to what is happening in China, Saudi Arabia might still exercise its option of raising petrochemicals production (note: Tomorrow we will provide you with our usual weekly update of current polyolefin market conditions).

Raising petrochemicals production would result in Saudi Arabia gaining market share in Asia, as deep rate cuts would have to occur among the higher-cost Asian naphtha cracker operators.

Applying the same approach in Europe hasn’t made sense for a long time because of SABIC’s petrochemicals investments in mainland Europe and in the UK.

On a wider level the Saudi decision to raise crude output added further volatility to crude markets last week. This made “buying forward” an even more dangerous strategy for chemicals and polymers purchasing managers.


During the sustained run-up in crude prices – which began in Q4 last year and ended around February-March – building inventory made sense in order to beat higher raw-material costs.

Crude prices had first risen last week following OPEC’s failure to agree on an increase production quotas during its meeting on Wednesday. 

But then on Friday, Saudi Arabia‘s apparent decision to unilaterally raise production caused oil prices to fall by their biggest amount in four weeks. Saudi Arabia, along with Qatar, Kuwait and the United Arab Emirates, had pushed for a higher OPEC quota because of concerns over the impact of expensive crude on the world economy.


The kingdom has the upper-hand in oil markets because it is the world’s most-important “swing producer”.