GCC mood lifts despite worsening gas crisis

THE MOOD seems to have become a little more upbeat in the Gulf Co-operation Council (GCC) region of the Middle East thanks to the economic recovery.

“The flow of foreign funds into the GCC came to a complete standstill in Q4 and the first quarter of this year, but in Q2-Q3 it reached all-time highs,” said a petrochemicals industry source.

“Whilst the mood is still a little depressed, there are signs of hope with the expectation that growth by 2011 will return to normal levels.”

The Saudis had budgeted for an average crude price of $40 a barrel for 2009, but $70 a barrel was more likely, creating more leeway for government spending, he added.

“Stimulus measures haven’t kicked in yet across the GCC. This should soon be the case in Saudi which will result in lots of money spent on infrastructure and therefore more petrochemicals demand.”

This rosy view is reflected in a recent pick-up in project activity in gas processing, refining and petrochemicals.

KBR, for example, won a contract to supply front-end engineering and design work (FEED) and project management services for a natural gas liquids (NGL) plant in Shaybah, Saudi Arabia.

Jacobs Engineering Group has been awarded the FEED contract for Borouge 3 in Abu Dhabi – the polyethylene (PE) and polypropylene (PP) expansion due on-stream at end-2013. This would raise the Borouge joint venture’s polyolefin capacity to 4.5m tonne/year.

The monster Ras TaNura project in Saudi Arabia also seems to be moving forward.

It will cost anywhere between $20-27bn and will produce either 8m tonne/year or 11m tonne/year depending on which reports you believe. Start-up is either 2014 or 2015.

Two consultants working on the project for different companies have told the blog that it is progressing.

Dow Chemical is still very much involved after suggestions earlier this year that the US major’s financial difficulties might force Saudi Aramco to seek a new partner, they added.

A sign that sentiment has improved was evident from reports about the financing of the Aramco-Total refinery project at Al-Jubail.

Bids from potential lenders left the $12.8bn project 30 times over-subscribed, Reuters said last week.

Technip has won engineering and procurement (EPC) contracts to build a hydrocracker and a fluid catalytic cracker (FCC) at what will be a 400,000 barrels a day full-conversion refinery – due to start commercial production in March 2013.

The project also includes 700,000 tonne/year of paraxylene (PX).

But gas supply remains tight for petrochemicals as this excellent article from my colleague Malini Hariharan explains.

Only one cracker might go ahead in Qatar instead of the scheduled three projects – involving Qatar Petroleum and Honam Petrochemical, ExxonMobil and Shell.

The economic rebound is constraining electricity supply throughout the GCC, resulting in priority being put on supplying gas to the power sector during the summer months.

New associated gas is dwindling with undeveloped non-associated fields containing a high sulphur content of 25-30%.

Processing this extremely sour gas would become economic only at a gas price of $5-7/mBTU, according to Justin Dargin of the Dubai Initiative at Harvard University.

Are the days of cheap gas for petrochemicals in the GCC over for good?

How economic will naphtha-based production be compared with building a new naphtha cracker in Asia?

One feedstock option for the Middle East and Asia could be to make use of liquefied petroleum gas (LPG), which according to a Singapore-based business development executive with a publishing company, will be “as cheap as chips” over the next few years.

This will be the result of a big increase in liquefied natural gas (LNG) output, where LPG is a by or co-product, and refinery expansions.

Indeed, the petrochemical industry source we quoted at the beginning of this post added: “There’s going to be lots of propane available in the GCC.”

Aramco was also exploring under the Red Sea for the first time for oil and gas after previously concentrating exploration on Saudi’s Eastern province, creating the potential for more petrochemical feedstock, he added.

At the moment, though, you can just about count the number of petrochemical on the fingers of one hand, beyond the ones already financed. This is provided you count the 35 or so plants planned for for Ras Tanura as one!

There’s another problem that’s as long-standing as gas feedstock, which might also be getting worse.

“I know of a refinery in the GCC that’s planning a turnaround in three years. It’s already worried about a shortage of engineers to execute the turnaround. India has become a much bigger draw,” said a refinery industry source.

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