Feedstock switch will create jobs

05 May 2010

More products mean more employment opportunities as well as stable revenue streams

That petrochemicals schemes in the GCC are increasingly being planned around alternative feeds to ethane, by chance falls in with job creation agenda of regional governments.

With ethane demand now outweighing supply, new petrochemical projects are increasingly being forced to consider naphtha or natural gas liquids as feedstock. The downside is such facilities offer reduced returns compared with their ethane-counterparts, but the upside is they produce a broader slate of petrochemicals, which in turn generates more employment opportunities.

A further advantage is that specialty chemicals provide a more stable – albeit smaller-revenue stream than products sold as commodities. This presents a challenge for foreign partners considering investments in the region. Shareholder commitments and finance agreements mean projects have to be configured to deliver the most attractive returns, but to form alliances with national oil companies they also need to satisfy government agendas.

Prior to the global economic recession, international oil companies looked prepared to rise to the challenge and were responding to incentives to encourage the use of naphtha. But the change in the economic climate came as a set-back, with oil majors under increased pressure to rethink their capital investments.

Concerns over profitability are understood to have prompted the recent change in feedstock choice for Saudi Aramco’s proposed joint venture integrated petrochemicals project with Dow Chemical of the US, which will now be fed using a mix of propane and ethane, rather than being purely naphtha-based.

But petrochemicals is a cyclical business and once demand recovers, the urgent need for job creation is certain to take precedence once again. Furthermore, ethane allocations are now much harder to secure. On this occasion ethane was available, but it will not always be the case. Petrochemicals producers will have to embrace alternative feedstocks sooner rather than later, and that will give a much welcome boost to the drive to create new jobs.

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