November 2009 marked a milestone in Saudi Aramco’s evolution from an upstream giant to a fully integrated oil, gas and petrochemicals firm.
On 8 November, the inauguration of Petro-Rabigh – one of several integrated refining and petrochemicals projects Saudi Aramco is developing – was a key moment in the Saudi energy giant’s ambitions to extend its downstream activities beyond refining.
Having achieved its five-year aim of reaching sustainable production of 12.5 million barrels a day (b/d) of crude oil in September, through a series of upstream developments, Aramco is now refocusing its attention on developing integrated refining and petrochemicals projects.
It makes sense for the company to broaden its activities, given the natural links between the hydrocarbons industry and petrochemicals production. Alongside the new integrated complexes, Aramco will continue to invest in natural gas development projects, not least because of the strong demand for feedstock from downstream industries in the kingdom.
Aramco has plans to raise its gas-processing capacity from its current 6.2 billion cubic feet a day (cf/d) to 9 billion cf/d by 2015, yielding significant increases in ethane and other natural gas liquids (NGLs), the building blocks of the petrochemicals industry.
In September, Aramco awarded a contract to Canada’s SNC Lavalin to expand the Arabiyah gas-processing plant in the Eastern Province. The work will increase the plant’s processing capacity from 1 billion cf/d to 1.2 billion cf/d. Aramco also plans to install an NGL recovery facility at Shaybah, in the Rub al-Khali (Empty Quarter), and increase the output from the Shaybah gas-processing plant from 1.4 billion cf/d to 1.5 billion cf/d by 2014.
The Shaybah plant will feed ethane, propane and other NGLs to the Ras Tanura integrated petrochemicals and refining complex, and to a possible second-phase expansion of the Petro-Rabigh complex.
Aramco and its joint venture partner, Japan’s Sumitomo Corporation, expect to make a final investment decision on the second-phase expansion of the Petro-Rabigh refinery and petrochemicals complex by the end of 2010.
Under the plans, the existing cracker will be expanded to process an additional 30 million cf/d of ethane feedstock and a new naphtha-based aromatics complex will be built. If the projects go ahead, the expansion should come on stream by 2014.
Another refinery and petrochemicals complex at Ras Tanura, which Aramco is developing in partnership with the US’ Dow Chemical Company, is even larger in scale, designed to produce 8 million tonnes a year (t/y) of petroleum and petrochemicals products by 2015.
The planned complex will include 35 processing plants, producing a broad range of basic and derivative products, including ethylene, propylene, aromatics, chlorine derivatives and polymers. Despite concerns raised in March 2009 over Dow’s ability to finance its share of the scheme, which carries a $22bn price tag, Aramco is fully committed to the project and a series of construction packages have already been put out to tender.
Both Ras Tanura and Petro-Rabigh are critical to Saudi Aramco’s project to extend its downstream reach. “Given the abundance of crude oil and gas reserves in Saudi Arabia, and the sustained long-term demand for petrochemicals worldwide, the strategic priority is to make the best use of the kingdom’s natural resources by grasping opportunities to add value and expanding exports across a range of oil and gas-based products,” says Sadad al-Husseini, a former head of exploration and production at Aramco.
Integration is key to both projects. In practice, this means some of the output of the refineries is used as feedstock for adjacent petrochemicals plants.
Saudi Aramco is not alone in this tactic – the majority of the world’s 50 largest refineries are integrated with chemical facilities. Yet it marks a break with the company’s previous activities in the downstream sector, which were focused solely on refining.
The company’s plans could also lead to a shift in the type of raw materials used by the Saudi petrochemicals industry, with naphtha, which is produced from crude oil, likely to replace ethane, which is produced from natural gas, as the feedstock of choice, given the lack of any new gas discoveries.
While the second phase of the Petro-Rabigh complex will require additional ethane allocations, Aramco’s feedstock mix will in future tilt heavily towards naphtha. A more diverse mix of feedstocks will also take in butane and propane, helping to mitigate the shortage of ethane in the Gulf.
According to forecasts by local bank Samba, ethane will remain the dominant feedstock in Saudi Arabia up to 2012, but naphtha and other liquids will become much more important.
Aramco’s efforts should also create more jobs, since the processing of liquid products such as naphtha requires more manpower.
But Aramco’s push into the petrochemicals market also raises questions about how the Saudi authorities see the various roles of Aramco and Sabic.
“They already have Sabic as a national champion, but Sabic is quite different to Aramco, as Sabic is not integrated with refineries,” says Bassam Fattouh, research fellow at the Oxford Institute of Energy studies in the UK.
“Developing a petrochemicals industry based on naphtha falls within the kingdom’s general strategy of leveraging cheap energy to develop the economy.”
Another important element to Aramco’s growing role within the petrochemicals sector is its ability to act as a catalyst for greater industrial development. Aramco’s business units have drafted plans to create large industrial parks fed by the new downstream plants.
Aramco chief executive officer Khalid al-Falih referred to this potential at the 8 November opening ceremony of the Petro-Rabigh complex, when he highlighted the positive impact Aramco could have on the country’s economy, not only by virtue of its own operations and products, but also through its role as an industrial hub at sites such as the Rabigh Conversion Industrial Park.
“There is a logic to focusing on refining and petrochemicals projects that comes with the commercial opportunity to cluster oil and energy based industries in one location, thus benefiting from the synergies of access to fuels, feedstocks, power supplies and supporting infrastructure,” says Husseini.
The industries that will operate in the Rabigh industrial park will not only create new jobs, but also provide further openings for both domestic and foreign investment, offering Saudi Arabia the chance to diversify its economy through the development of technologies.
This role of providing a catalyst for economic development is not a new one for Aramco. Its involvement in a wide range of social and industrial development projects goes back many decades to its founding charter in the 1950s, which included directives from the Saudi government to undertake local business and industrial development programmes, make provision for medical services and housing loans, and set up local educational facilities and industrial training programmes on a massive scale. Its push into petrochemicals production is merely the latest example of its central role in the country’s economy.
“The Saudi government has always taken the long-term view in regard to the oil industry,” says Husseini. “Refinery and petrochemicals investments form a critical component of such an outlook.”