High logistics costs force chemicals producers to create new technology

29 April 2014

Oil-to-chemicals schemes needed to keep prices competitive, says Sabic CFO

High logistics costs are forcing petrochemicals producers to create technology that can skip the feedstock refinery process, said Mutlaq Al-Morished, chief financial officer at Saudi Basic Industries Corporation (Sabic) at the IHS Forum in Dubai on 29 April.

He said that the cost of shipping feedstock, in addition to the cost of transporting its products to clients overseas, means petrochemicals companies in Saudi Arabia struggle to compete with producers abroad.

“Just think about it - you may have a cracker in Jubail requiring naphtha and a cracker in Tianjin. If the price is the same, you’re dead in Jubail because of the logistics of shipping. A 20 foot container for polyethylene costs me $30 to 50 a ton. Shipping naphtha from Ras Tanura is costing something like $12 a ton, so logistics kills you by itself. Something has to break,” he said.

He added that since traditional feedstock such as natural gas liquids and ethane are not as widely available as they were in the past, chemicals producers either need to be able to buy liquid feedstock at discount prices or create their own technology to remain competitive.

“We ourselves are tackling it from the technology side, going from crude [oil] straight to chemicals, because so far the country does not have a pricing policy on liquid,” said Al-Morished.

The introduction of oil-to-chemicals has the advantage of skipping the refining process. When using commonly used feedstock such as a mix of ethane and either natural gas liquids or naphtha, that needs to be fed into a cracker and turned into intermediate chemicals known as polyolefins, adding an extra step to the production of chemicals.

Sabic is currently looking into plans to build a $30m oil-to-chemicals complex in Yanbu, on the Red Sea coast of Saudi Arabia, MEED reported at the beginning of April. That would require the construction of a complex that could be two or three times larger than anything ever seen before in the kingdom, possibly including an oil refinery and three crackers to process the crude derivatives into intermediate chemicals.

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