In the global petrochemicals industry, the Gulf is becoming synonymous with the mass production of base chemicals and poly-mers. Saudi Arabia in particular has used its supplies of natural gas – it has the fourth-largest proven natural gas reserves in the world, estimated at 253 trillion cubic feet – as a base to diversify into petrochemicals.
The kingdom is home to the world’s fourth-largest producer of polymers, Saudi Basic Industries Corporation (Sabic), and is a significant force in the global petrochemicals market.
Saudi Arabiacurrently produces 8 per cent of the world’s petrochemicals, a market share it plans to raise to 15 per cent by 2014, once the petrochemicals plants planned or under construction start commercial production.
Along with mass production of polymers, there is a growing trend to diversify the kingdom’s product portfolio by producing more complex and expensive products such as elastomers.
Elastomers are polymers with elastic properties, and are increasingly being used in the automotive industry – a sector Riyadh has identified as having potential to contribute to the kingdom’s economic diversification.
In December 2008, Sabic signed a heads of agreement with the US’ ExxonMobil Chemical for two plants that will produce a mix of petrochemicals products including polymers. They will be built at a total cost of $800m in the industrial cities of Jubail and Yanbu, on Saudi Arabia’s east and west coasts -respectively.
The Jubail plant will be owned and operated by Al-Jubail Petrochemical Company (Kemya) while the Yanbu plant will be owned and operated by Saudi Yanbu Petrochemical Company (Yanpet). These joint venture petrochemicals companies were formed by Sabic and ExxonMobil in 1979, when the kingdom began its petrochemicals programme.
Kemya and Yanpet are expected to issue tenders for the projects by the end of 2009. Engineering, procurement and construction contracts are expected to be awarded in the second half of 2010, with completion forecast for the end of 2013.
Riyadh aims to establish a domestic supply of more than 400,000 tonnes a year (t/y) of new products, including 100,000 t/y of carbon black, which is used as a reinforcement in rubber and plastics products.
Other products will include ethylene-propylene-diene-monomer (EPDM), thermoplastic olefins, butyl rubber, styrene butadiene rubber and polybutadiene rubber. About 50,000 t/y of elastomers are expected to be produced at the plants, although the product mix has not yet been decided.
Elastomers are typically produced on a relatively small scale compared with products such as polyolefins.
Once completed, the plants will use feedstock allocated by the Petroleum & Mineral Resources Ministry. The type of feedstock has not yet been announced.
By producing elastomers domestically, Riyadh hopes to attract car makers to invest in manufacturing plants and assembly lines.
In June this year, US engineering firm Fluor Corporation completed the front-end engineering and design (Feed) for the plants and was consequently awarded the project management consultancy.
In October, Marc Grainier, vice-president of ExxonMobil, speaking at an industry conference in Dammam, said the final investment decision on the product mix at the plants was likely to be taken by 2010 or 2011.
“The product will be profitable, but ultimately the aim here is to do something new in the kingdom”
Darren Smith, project manager, CMAI
An eight-year dispute over the use of ExxonMobil’s polyethylene production technology and patents by Kemya and Yanpet was finally resolved in September 2006. The dispute centred on whether Sabic had been right to charge its joint venture companies royalties for using this technology. The agreement means Sabic and its affiliates now have the right to share equally in any third-party royalties from past or future licensing of the ExxonMobil technology.
Despite the high profile of the dispute, the decision to sign a heads of agreement on the two elastomers projects shows the two companies are willing to continue working with each other. “Their relationship remains intact,” says one Dubai-based petrochemicals analyst.
According to Sabic, the elastomers project is aligned with Saudi Arabia’s National Industrial Cluster Development Program (NICDP), which was officially launched in 2008 as the body responsible for accelerating growth and diversification in manufacturing.
Revenues from the oil and gas sector accounted for 40 per cent of Saudi Arabia’s gross domestic product of $468bn in 2008. Riyadh hopes the NICDP scheme will help turn the hydrocarbons-dominated economy into a regional industrial powerhouse.
In his five-year mandate from the Council of Ministers (cabinet), starting this year, NICDP president Azzam Shalabi, a former director of new business development at energy giant Saudi Aramco, will seek to develop five industrial clusters throughout the kingdom.
While the locations have yet to be decided, the sectors represented will include automotive, construction, packaging and consumer goods, all of which need elastomers.
NICDP is working closely with Saudi vocational schools and universities to prepare specific training programmes that will be required by the cluster industries to ensure that quality and quantity of graduates are met.
In keeping with this aim, the elastomer projects will include a vocational training institute and a product application development and support centre.
If further investment of the kind announced by Sabic and Exxon is to take place, Riyadh will need to maximise the appeal of new gas feedstock allocations.
As competition for feedstock grows, petrochemicals companies have come under increasing pressure to prove that their ventures will create jobs before they are given access to cheap ethane. Saudi International Petrochemical Company (Sipchem) was the last to receive an ethane allocation from the Oil & Mineral Resources Ministry, in 2006.
“The product will be profitable, but ultimately the aim here is to do something new in the kingdom,” says Darren Smith, project manager at US-based industry consultant CMAI.
Both Sabic and ExxonMobil need gas allocations for their future projects in Jubail and Yanbu, so their investment in a project that contributes to Saudi Arabia’s economic diversification may mean Riyadh looks favourably on them when the next round of gas allocations is made.
In May, ExxonMobil Technology Licensing, a subsidiary of the US company, won a contract to provide polyethylene technology for Sipchem’s 200,000-t/y ethylene vinyl -acetate plant in Jubail. This material is used to make the photovoltaic cells in solar panels, a growing sector in the kingdom. Sabic already produces elastomers in Europe, but the new plants are unlikely to result in it scaling back its European production.
Unlike the Middle East’s growing dominance in the mass production of olefins and polyolefins, the elastomers market is seen as a by-product stream. Butadiene, for example, which is used in the production of synthetic rubber, is produced as a by-product in the naphtha cracking process. As such, it does not enjoy the same feedstock cost advantages as olefins and polyolefins because it is not produced on such a large scale.
Running crackers on liquefied petroleum gas (LPG) or light naphtha, as is the case at the 1.3 million-t/y crackers at Jubail and Yanbu, results in the generation of large volumes of butadiene. Typically, this has been exported or converted back to butane, which is used largely as fuel for heating and cooking. Collecting the butadiene streams in the kingdom has been discussed several times in the past. However, the Sabic and ExxonMobil projects are the first to attempt to make this a reality.
“It is a by-product stream everywhere, so the Saudi production will be complementary to production in Europe, rather than a replacement,” says Smith.
CMAI estimates there is currently a global market for elastomers of 15-20 million tonnes a year. For Sabic and ExxonMobil, the most interesting application will be in automotive parts manufacturing, which accounts for about half of global elastomer demand.
Didier Vigouroux, head of NICDP’s auto-motive division, expects sales of car parts -produced in the Gulf to grow to as much as 1 million units a year over the next decade, including exports to Europe and Asia.
In June 2008, Vigouroux told the International Experiences in Industrial Cluster Development Forum, held by the Energy & Industry Ministry and the Gulf Organisation for Industrial Consulting in Qatar, that its abundant supply of materials, including plastics, steel, aluminium and glass, mean the kingdom also has the potential to be a global producer of automotive components and spare parts.
EPDM, which will be produced at Yanpet, is widely used in making car door seals and roof matting. Nitrile rubber is used in gaskets, fuel lines, engine belts and cable jackets, while styrene-butadiene-rubber is used for tyres, as well as belts and hoses for machinery and engines.
For Saudi Arabia, the priority is to shift the product portfolio away from the traditional focus on base polymers towards niche products. Projects such as the Sabic/Exxon-Mobil elastomers plants could lead the way. What is needed now is for bodies such as the NICDP to attract further investment to Saudi Arabia’s growing petrochemicals -sector.
2013 – Year when Saudi Arabia will begin producing elastomers
50,000 t/y – Estimated supply of elastomers produced in Saudi Arabia
t/y=tonnes a year
CAPTION – Sabic: Diversifying into niche products