Petrochemicals: Diversification plans hit delays

30 May 2008
Plans to develop of some of the region’s largest petrochemicals facilities are falling behind schedule because of rising construction costs and a lack of ethane to use as feedstock.

In late April, Sheikh Tamim bin Hamad al-Thani, the 27-year-old heir apparent to the throne of Qatar, laid the foundation stone of the fifth train of the emirate’s flagship fertiliser project, Qafco 5. Once the estimated $3.2bn project comes on stream in early 2011, Qatar will become the world’s largest producer of urea, the most prevalent constituent in the global fertiliser industry (see box).

In comparison, Qatar’s global position in plastics production is modest, with its output just a fraction of that of neighbouring Saudi Arabia. But here, too, Doha has plans to expand capacity.

“The petrochemicals sector is important to Qatar,” says Andrew Spiers, senior vice-president, chemicals, at US-based engineering consultant Nexant. “They have a large amount of feedstock in the ground and are looking to exploit that for the purposes of diversification. They are trying to spread the use of gas across a broad range of industries, including fertilisers, methanol production, power generation, gas to liquids and petrochemicals.”

Development plans

Planned projects include the construction of a 60,000-tonnne-a-year (t/y) melamine plant at Mesaieed that will be the largest of its kind in the Middle East, and a 250,000-t/y low-density polyethylene plant, also at Mesaieed. But the current focus is on the development of two worldscale petrochemicals complexes.

Technical bids are due by the end of June to build a 900,000-t/y ethane and naphtha cracker at Mesaieed. The cracker will be the centrepiece of an estimated $4bn petrochemicals complex being developed by a joint venture of South Korea’s Honam Petrochemical Corporation and Qatar Holding, a subsidiary of state oil company Qatar Petroleum (QP).

A second complex, also scheduled to begin production in 2012, is being planned at Ras Lanuf by a joint venture of QP and the US’ Exxon-Mobil Chemical Company.

Both projects are scheduled to begin production in 2012 but neither has run smoothly. The $4bn price tag for the Honam project is almost 50 per cent more than the predicted $2.7bn cost when the partners joined up, and delays have already affected the original schedule.

For the ExxonMobil project, the problems could be even greater. Energy Minister Abdullah bin Hamad al-Attiyah told MEED in February that the project could be delayed for a few months, but insisted this was “normal”, saying discussions were ongoing between QP and Exxon on the scale of the facilities. However, the lack of news on the award of the co-ordination and construction package for the plant, which was expected to be awarded in March, has left some in the industry speculating that it will be postponed indefinitely.

“I would not be surprised if the Exxon project is in doubt, because the cost estimates will have made them suck on their teeth,” says Philip Leighton, director, petrochemicals, at Jacobs Consultancy. “They have tight purse strings, so they may just hold back and wait for the froth to go out of the market. They have another cracker project in Singapore so they can afford to hold back their Qatar project.”

The same considerations will inevitably affect the future of two further major petrochemicals projects. The UK/Dutch Shell Group signed a letter of intent with QP in 2005 to develop an ethane cracker and derivatives complex at Ras Laffan. And in late 2007, it emerged that France’s Total was in talks with QP to build a 1.3-million-t/y cracker at the same location.

Rising costs

According to industry analysts, the current cost environment could, at worst, push production costs up to $500 a tonne, while oil prices of about $100 a barrel are likely to continue to support a retail price of about $1,000 a tonne. The more critical issue is a lack of ethane feedstock. Shell’s Pearl GTL (gas to liquids) project, due on stream by 2012, and the 1,500-cubic-feet-a-day Barzan gas project being developed by QP and ExxonMobil, which will start production in 2012, will both be future sources of ethane.

However, the majority of Qatar’s gas is going into liquefied natural gas (LNG). Given that LNG can be sold on international markets for up to $10 a million BTUs, the case for extracting ethane, which is currently sold to projects in Qatar for $1-2 a million BTUs, is uneconomic.

The plants being developed by Honam and ExxonMobil are both based on a mixed feedstock, with ethane being used alongside other, more expensive, natural gas liquids, such as naphtha. “Any future projects would of course be dependent on availability of feedstock and the timing of that availability,” says Phil Parker, general manager of new business development at Shell Chemicals in Doha. “Since there is a limited amount of ethane available, it is difficult to predict whether we are likely to see another project before the moratorium is lifted”.

Shell’s proposal involves using ethane from Pearl, but the company is similarly philosophical about the prospects of new cracker projects going ahead before a decision is taken on the future of the North field. “Beyond the Honam and ExxonMobil projects, there is a little ethane, but not a lot,” says Phil Parker, general manager of new business development at Shell Chemicals in Doha. “We may well see one more additional project before the moratorium is lifted, but maybe none.”

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