Region switches feedstock strategy

19 February 2014

A shortage of ethane and the shale gas revolution in the US are forcing Middle Eastern petrochemicals producers to develop crackers that can run on liquid feedstocks

The $20bn Sadara Chemical complex under construction at Jubail in Saudi Arabia is the largest single-phase petrochemicals plant ever constructed and will be the first in the region to utilise both gas and liquid feedstock.

Traditionally, chemicals producers in the Middle East have used either ethane or natural gas liquids (NGLs), such as propane, to make their respective product slates, but that is changing. Saudi Arabia, Qatar and the UAE all have mixed-feed petrochemicals schemes planned and more are expected to follow. This usually means a mix of ethane and either NGLs or naphtha being fed into a cracker and then turned into intermediate chemicals known as polyolefins.

Changed strategy

The Sadara complex is a 50:50 joint venture between state-owned Saudi Aramco and the US’ Dow Chemical. It signifies a change in strategy for Riyadh. The kingdom’s industrialisation programme needs gas along with a diverse range of chemical products to supply its various planned conversion industries. Having a mixed-feed cracker frees up gas for use in other sectors such as steel, aluminium and fertiliser production. Liquid feedstock also offers chemicals makers the opportunity to diversify product slates.

Lengthening and diversifying the value chain is something all [Middle East] producers are thinking about now

UAE-based chemicals analyst

The change in strategy can be traced back to 2007, when the last ethane allocation for petrochemicals production was given to Saudi International Petrochemical Company (Sipchem). Prior to 2007, the kingdom’s hydrocarbons sector was very much an export-oriented industry, with oil and intermediate chemicals being shipped to manufacturing hubs such as China and India.

Ethane for industrial use is sold in the kingdom at $0.8 a million BTUs, making it among the lowest-cost gas used to produce chemicals anywhere in the world. The cheap ethane gave Saudi producers of intermediate chemicals, such as polyethylene, a huge cost advantage over competitors and was a strong driver of growth for the fledgling industry between the mid-1970s and 2000. However, such is the shortage of ethane that New York-based consultancy Alembic Global Advisors issued a report in September that suggested many of the kingdom’s polyethylene producers could be operating well below capacity in 2014.

No [producer in the region] wants to be in a position where [it gets] caught out by shale gas

UAE-based chemicals analyst

Since 2007, it has been clear from the projects under way that Riyadh expects any new petrochemicals facilities to help fuel domestic job creation. This is compounded by a lack of available gas. “I think the change in strategy came as a result of both issues,” says a senior petrochemicals executive based in Saudi Arabia. “There was a lack of ethane to fuel new schemes, as well as a clear desire to push job creation. This led to the formulation of a plan B.” 

The Sadara scheme is a good illustration of this strategy. The mixed-feed cracker will use ethane and naphtha and will produce 1.2 million tonnes a year (t/y) of ethylene and 400,000 t/y of propylene.

This in turn will be used to produce 3 million t/y of performance chemicals and plastic products, all of which have several downstream applications that tie in with Riyadh’s industrialisation programme. The complex is due for completion in 2018. Its products will include amines, glycol ethers, isocyanates, polyether polyols, polyethylene, polyolefin elastomers and propylene glycol.

The applications for Sadara’s product slate include industrial sectors as diverse as automotive, construction, packaging and containers, consumer goods, adhesives and sealants, coatings, and electrical and electronics.

Aramco and Dow Chemical plan to eventually sell the majority of Sadara’s output into the domestic market. To enable this, initiatives are planned such as a conversion park adjacent to Sadara called the Plaschem Park, which will house various industrial clusters that can utilise products from the complex.

Satorp facility

This mixed-feed cracker strategy is not expected to end with Sadara. The Saudi/French joint venture Saudi Aramco Total Refining & Petrochemical Company (Satorp) is commissioning a $9.6bn, 400,000 barrel a day refinery, which is expected to reach full production this year. A second phase expansion is set to go ahead in 2014 and is expected to be completely focused on petrochemicals. The product mix is planned to perfectly complement the output from the adjacent Sadara complex.

The Saudi government is also currently engaged in studies that could result in a new swathe of mixed-feed or 100 per cent liquid cracker schemes with a combined budget of up to $70bn.

Three potential sites that could incorporate liquid feedstock from refineries to fuel petrochemicals production have been identified at Jizan in the southwest of the kingdom, Yanbu on the Red Sea coast and Ras Tanura in the Eastern Province. 

Aramco is taking the lead on the planned initiative, but it is clear from the sheer size and scope of some of the schemes that it will invite other companies, such as Saudi Basic Industries Corporation (Sabic), to participate.

Across the rest of the GCC, several other member states face similar shortages of ethane and have had to adapt their downstream petrochemicals schemes to also utilise NGLs.

Despite producing its own gas as well as importing the resource via the Dolphin Pipeline from Qatar, Abu Dhabi has had to look to liquid feedstock for one of its proposed petrochemicals projects.

Chemaweyaat complex

Abu Dhabi National Chemicals Company (Chemaweyaat) has long been planning a $11bn complex that would produce polyolefins, polystyrene and polycarbonate among other chemicals.

This has now been scaled back and in January 2014, Chemaweyaat signed a 51:49 joint venture agreement with Singapore-based chemicals group Indorama that would see the two companies develop a $1bn-plus complex in the Western region of the emirate.

The first phase of the petrochemicals project is planned to produce 1.4 million t/y of paraxylene and 500,000 t/y of benzene from the Madeenat Chemaweyaat al-Gharbia site, east of Ruwais. The feedstock for the scheme will exclusively be naphtha sourced from the nearby refinery operated by Abu Dhabi Oil Refining Company (Takreer).

In Oman, Oman Refineries & Petroleum Industries Company (Orpic) is planning a $3.6bn petrochemicals scheme to be constructed adjacent to its Sohar refinery. The product slate has not been disclosed as yet, but it will include the sultanate’s first steam cracker.

To accommodate the cracker, the scope of the project includes a new gas extraction plant at the Fahud field in central Oman and a 300-kilometre pipeline connecting it to Sohar to provide ethane and source naphtha from the refinery.  

Across the rest of the Gulf, it is not just countries with issues over gas availability that are rolling out petrochemicals schemes based on mixed-feed crackers. Qatar has two world-scale petrochemicals plants at the pre-execution phase and both will feature a mixed-feed cracker using ethane and NGLs.

The $6.4bn Al-Karaana petrochemicals complex is a joint venture between state-owned Qatar Petroleum (QP) and the UK/Dutch Shell Group. The mixed-feed steam cracker unit will be supplied with ethane and propane feedstock. The cracker will have a capacity of 1.1 million t/y of ethylene and 170,000 t/y of propylene. This will supply a linear alpha olefins unit, a monoethylene glycol unit and an oxo-alcohols unit.

The engineering, procurement and construction tenders are expected to be released for the scheme in the first quarter of 2014. 

The $7.4bn Al-Sejeel petrochemicals complex is scheduled to be completed about a year after the Al-Karaana facility. The project will have a mixed-feed cracker supplied with ethane and butane.

The scheme, a joint venture between QP and Qatar Petrochemicals Company (Qapco), will produce 1.4 million t/y of ethylene when completed, which will feed other units at the proposed complex. These will be able to produce up to 850,000 t/y of high-density polyethylene, 430,000 t/y of linear low-density polyethylene, 760,000 t/y of polypropylene and 83,000 t/y of butadiene.

It may appear unusual for a country blessed with as much gas as Qatar to include NGLs in its feedstock mix, but it is clear that diversifying the product slate is an important consideration for many of the region’s petrochemicals producers.

Qatar’s strategy also points to the growing realisation across the Middle East that the shale gas revolution in the US might have a serious impact on the traditional habit of exporting intermediate chemicals to global manufacturers.

It is estimated that an investment of up to $150bn is being mooted for the US’ petrochemicals sector and this has led the Middle East to look for alternative product ranges to polyolefins, such as polyethylene. 

Diversifying value

“Lengthening and diversifying the value chain is something all [Middle East] producers are thinking about now,” says a UAE-based chemicals analyst. “No one wants to be in a position where they get caught out by shale gas.”

Another factor driving regional petrochemicals strategies is the expected rise in non-Opec sources of oil. If oil shale and other non-conventional sources drive the price of oil down, then utilising refined products such as naphtha for domestic petrochemicals production is a method of protecting against future oil shocks.  

What is also encouraging for Middle Eastern petrochemicals producers is that most domestic manufacturing sectors around the region are underdeveloped and developing them ties in with government efforts to create employment opportunities. 

This means there is scope to build factories and downstream industries that can utilise a large proportion of the future output from petrochemicals producers. Only one job is created for every $10m of investment into large polyolefins projects. But further down the value chain, the job creation benefits increase. Plastics converters only need to invest $1m to create 80-100 jobs.

The region’s petrochemicals producers have enjoyed decades of growth and prosperity by being major suppliers of polyolefins to the world’s manufacturing hubs. However, as the new schemes being launched across the region show, the time has come for a change in the way the Middle East produces its chemicals.

Key fact

Saudi Arabia’s Sadara Chemical complex will be the first in the region to utilise both gas and liquid feedstock

Source: MEED

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