There are about $50bn-worth of petrochemicals projects planned or under way in the kingdom
Source: MEED Projects
Petrochemical producers have two choices when it comes to the location of a new facility: building next to the intended market or close to the feedstock source.
Saudi Arabia has always located its plants near supplies of cheap feedstock and the majority of the chemicals it produces are aimed at the export market.
The problem with this model is that the countries providing the cheap feedstock to produce base chemicals are not adding much value to their energy resources. It is the nations that make the end products that gain the full advantage.
Riyadh has identified this as a problem and is now making an effort to build a petrochemicals industry that serves its overseas customers, as well as developing and expanding its domestic market.
A strong home market makes a compelling case and helps an economy mitigate against external factors such as high transport costs, trade barriers and any slumps in world demand.
Export focus in Saudi Arabia
Currently, base chemicals such as olefins, polyethylene terephthalate (PET), propylene and polypropylene are exported in bulk to manufacturing hubs in China, India and Europe, where they are made into end products and shipped out again.
If you also include the PetroRabigh complex, it signals the considerable extent of Aramco’s petrochemicals plans
Contractor based in Al-Khobar
Until now, this has worked for both Saudi Arabia and the countries with large manufacturing bases that received the shipments. For example, in 2010, China imported 5.9 million tonnes of non-oil exports from Saudi Arabia. The vast majority of this was petrochemicals and plastics.
Riyadh has identified key industries where value can be added to petrochemicals production, such as automotive manufacturing and plastics and polymers.
“I know that all of the talk in Saudi Arabia now is of moving the [petrochemicals] industry downstream and building clusters that provide jobs,” says a petrochemicals executive based in the kingdom. “But the fact is that up until now the export arrangement worked well for everyone. Either way there is no denying that there is a boom in petrochemicals projects at the moment.”
According to regional projects tracker MEED Projects, there are about $50bn-worth of petrochemicals projects planned or under way in the kingdom, with a chemical mix that is more diverse than export-orientated base chemicals.
Most of the chemicals are intended to be used as feedstock in industries that the government is keen to attract investment in, such as vehicle and electronics production.
Riyadh is fortunate to have the world’s largest energy company, Saudi Aramco and the Middle East’s largest petrochemicals company, Saudi Basic Industries Corporation (Sabic), at its disposal to execute its downstream ambitions.
With an estimated budget of $18bn, the integrated petrochemicals complex at Jubail is the largest facility currently planned in the kingdom. The scheme is a joint venture between Aramco and the US’ Dow Chemical. It will house a mixed-feed cracker using ethane and naphtha that will produce 1.2 million tonnes a year (t/y) of ethylene and 400,000 t/y of propylene. These base chemicals will be used as a feedstock to produce a diverse range of products, including metallocene-based elastomers, glycol ethers, solution polyethylene, methyl/polymethyl methacrylate, nylon and ethylene propylene rubber.
“The sheer scale of Aramco/Dow is incredible,” says a Saudi contracting source based in Al-Khobar. “If you also include the PetroRabigh complex, it signals the considerable extent of Aramco’s petrochemicals plans.”
PetroRabigh is Aramco’s joint venture with Japan’s Sumitomo Chemical on the kingdom’s Red Sea coast. The partners recently issued tenders for the scheme’s $5bn phase two expansion, which will produce more than 2 million t/y of specialty chemicals and products. The bulk of this will be used at an industrial park being constructed next to the complex.
Although the engineering, procurement and construction (EPC) tenders have been issued to bidders, there is still uncertainty over the project’s timeline. Banking sources have cast doubt on the scheme achieving financial close before late 2012, which means construction work will not start until 2013.
“As far as EPC contractors are concerned it is business as usual [at PetroRabigh phase two],” the contracting source says. “But if financial close is not going to be until late 2012 then this could cause problems. No work can start onsite, but the engineering could be started.”
While Aramco is becoming an important player in the kingdom’s petrochemicals industry, Sabic is the undisputed champion.
The firm has a number of schemes planned or under way. The $2bn elastomer project is a joint venture between Sabic and the US’ ExxonMobil Chemical that will be built at the Al-Jubail Petrochemical Company (Kemya) in the Eastern Province.
The project will produce about 400,000 t/y of carbon black, rubber and thermoplastic speciality polymers. ExxonMobil will provide the technology and the products will be sold to local and international markets.
Carbon black is used by the automotive industry to add strength to plastic and rubber products.
Despite initial delays, three EPC packages are currently being tendered for the project, including the ethylene propylene diene monomer/polybutadiene rubber facilities, the halobutyls rubber plant and the offsites and utilities.
At an earlier stage is Sabic’s methyl methacrylate (MMA) joint venture with Japan’s Mitsubishi Rayon subsidiary Lucite. The Alpha 2 scheme will see a 250,000-t/y MMA plant built at an undecided location in the kingdom. About 80 per cent of MMA produced will be used in the construction and automotive industries.
Riyadh is hoping that building downstream facilities will attract global carmakers such as Japan’s Toyota and the US’ General Motors to set up vehicle assembly factories in Saudi Arabia.
It is not just Aramco and Sabic that are developing downstream projects. Many of the kingdom’s private petrochemical companies are also expanding.
The local National Petrochemical Industrialisation Company (Tasnee) and Sahara Petrochemical are building a $1.5-2bn acrylic acid plant at Jubail, along with the US’ Rohm & Haas. “We are confident that we can get the finance in place soon,” says Moayyed al-Qurtas, Tasnee chief executive officer and vice-chairman. “Everyone concerned with the project is confident that the necessary funding will soon be in place and we can build a world-class facility.”
What is clear from the scale of the awards that have been made since the global economic crisis is that Saudi Arabia believes that both local and international demand and prices are going to rise to pre-2008 levels by the middle of the decade.
With many of the facilities due for completion in 2015-16, Riyadh’s ambitious expansion plans should come onstream when the market is firmly on an upward swing. The kingdom’s push to develop its downstream industries is set to intensify as the decade progresses.
A surge in smaller facilities will also add further value to the feedstock from the major plants.
Saudi Aramco chief executive officer Khalid al-Falih has said the kingdom’s petrochemicals industry in the kingdom will enter its golden age during the next 10 years. It will become a major global hub that will compete against China, Europe and the US.
The past few years have been about increasing the kingdom’s oil and gas output, but the next decade will be about adding value to that output. With more domestic gas supplies being developed, the kingdom will soon have all core ingredients in place.
A world-leading petrochemicals industry is just the beginning. Beyond that, Riyadh aims to establish a local specialist manufacturing sector that utilises the output from the petrochemicals facilities. The development of the industrial sector will only be considered complete when the kingdom exports products stamped “Made in Saudi Arabia”.