Saudi Gas Costs Head Higher

By John Richardson

SAUDI Arabia’s petrochemical producers could soon, or may already, be paying $1.50-2.00/mmBTU for their ethane supplies.

“We are not sure whether the proposed increase from $0.75/mmBTU will take place from 1 January this year or from early 2013, but we think it is going to happen,” said one industry source on the sidelines of last month’s Gulf Petrochemical and Chemicals Association (GPCA) conference in Dubai.

This is further evidence of the pressures confronting Saudi Arabia as it deals with shortages of natural gas both for petrochemical producers and electricity generators.

The blog’s discussions during GPCA also re-affirmed that even if additional ethane supplies were plentiful, petrochemical producers wanting to only build basic cracker and derivative complexes would struggle to gain feedstock allocation from the government. Heavy focus remains on adding value downstream, which, the Saudi government hopes, will help resolve its unemployment problem.

Saudi Arabia, as we’ve discussed before, is searching for more natural gas through developing non-associated gas fields (it is associated gas, via oil production, that is in tight supply).

However, chemicals analyst Hassan Ahmed, of New York-based Alembic Global Advisors, in a recent note to clients, said that Saudi non-associated gas fields would take 5-6 years to develop. Gas from these fields would also cost around $4/mmBTU, he added.

Meanwhile, natural gas costs in Qatar and Iran were now $3-4/mmBTU, he said.

Qatar has its own version of the region’s natural-gas shortage due to problems with the stability of its giant North Field, leading to a moratorium on new developments.

But there is sufficient feedstock available for the big Qatar Petroleum/Shell Chemicals project to move forward.

There are also some suggestions that more natural gas for further petrochemical projects may soon become available in Qatar.

In Iran, following the privatisation of much of its petrochemicals industry, the government has steadily increased the cost of gas as the country also struggles with shortages – this time resulting from economic sanctions.

The Middle East gas issues are, of course, taking place as the US is awash with ethane thanks to shale gas.

But should companies be focusing so heavily on feedstock availability when the real issue is the once-in-a-generation changes in the global economy?

We think not. Building big new petrochemicals capacities when you have the feedstock advantage, on the assumption that demand will inevitably always catch-up with supply, is no longer the right approach.

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