Plastic ambitions

John Dearborn firmly believes National Geographic should cover Saudi Arabia's giant Ras Tanura integrated refinery and petrochemicals complex on its Megaprojects TV series.

'As far as we are aware, nothing like this has ever been done before in one go, certainly not in our industry,' says the president of the US' Dow Chemical Company's India, Middle East and Africa division. 'It really is going to be massive.'

Costing $22,000 million-26,000 million, the scheme can lay claim to being one of the largest industrial projects ever undertaken.

But its significance is not in its size alone. Along with the multi-billion-dollar Petro-Rabigh and Saudi Kayan Petrochemical Company complexes, the Ras Tanura scheme is one of a new generation of world-scale complexes that display Saudi Arabia's determination to become the world's leading plastics producer.

Together, the three projects will introduce more than 300 downstream products - ranging from engineering plastics and technical chemicals to performance materials and

synthetic rubbers - into the region for the first time, as Riyadh seeks to diversify its existing production portfolio of base petrochemicals. But not everyone agrees that the policy is right for Saudi Arabia.

'The local petrochemical sector is moving towards a more diversified product portfolio to strike a balance between value creation and a sustainable return to the industry,' says Abdulwahab al-Sadoun, director of energy at the Saudi Arabian General Investment Authority (Sagia). 'We want to exploit the most economically attractive differentiated opportunities to the full extent that the market can support even if they might be less economically viable or attractive.'

Riyadh's aim is to create a downstream industrial base by setting up a series of industrial clusters feeding off the kingdom's advanced chemical production. These labour-intensive conversion parks, like the ones planned for the Ras Tanura complex, will manufacture a wide range of plastic components for the automotive, construction, metals processing, electronics and packaging industries.

The move downstream is admirable, but can it work? The question has generated considerable debate and disagreement both in and outside the kingdom. 'The problem is that while everyone wants to make polymers in the kingdom, no one really wants to produce downstream chemicals,' says one international petrochemicals producer. 'There is no nearby market for them, the market risk is much greater and, of course, there is no real economic advantage.'

The government has given a number of reasons for the downstream drive. Until now, the kingdom has concentrated mainly on producing basic chemicals, such as ammonia and methanol, and differentiated and forward commodities including polyethylene (PE), polypropylene (PP) and ethylene glycol.

From a commercial perspective, this makes perfect sense as base chemical production maximises the kingdom's considerable feedstock cash cost advantage - ethane, the feedstock of choice, is supplied at just $0.75 a million BTU, compared with $6-8 a million BTU outside the region.

However, it does little to alleviate the kingdom's chronic unemployment burden. Basic petrochemical production will employ about 0.5 people per $1 million of investment. Plastic resin and plastic component manufacturing, on the other hand, will create jobs for 1.4 and 13.8 people respectively for the same amount, according to Riyadh.

The government is fearful of becoming too reliant on PE and PP production. For instance, of the 3 million tonnes a year (t/y)-plus of PP capacity due to come on stream in the kingdom over the next five years, just 10 per cent will be converted into derivatives. The remainder is destined primarily for export.

In the current era of undersupply, this is a lucrative business. Many of the new-generation, eth