Earlier this year, Saudi Basic Industries Corporation (Sabic) announced plans to build a 200,000 barrel-a-day (b/d) oil-to-chemicals plant at Yanbu on the Red Sea coast of Saudi Arabia that will create up to 100,000 direct and indirect jobs.

The complex will be the first of its kind in the Middle East and the largest of its type ever built, and will be the catalyst for an enormous downstream conversion park that will support tens of thousands of jobs. Completion is mooted for 2020.

Game changer

Sabic has had an extremely quiet period over the past five years as it consolidated its global operations and refrained from extensive project activity, but the buzz around this scheme indicates the industry views it as a serious game changer.

However, questions remain unanswered. These include whether Sabic will be able to afford to go it alone or will need to join forces with another company to execute the project, and whether that company will be Saudi Aramco.

There is no doubt that Aramco’s expansion into large-scale petrochemicals production has eclipsed Sabic’s recent domestic efforts. Sabic has about $7.5bn-worth of projects under execution at the moment, including the $3.4bn elastomers joint venture with the US’ ExxonMobil at Jubail.

Selected petrochemicals projects in Saudi Arabia 
Project Budget Owner Staus  Completion date 
Sadara chemical complex  $20bn Aramco/Dow Chemical  Execution 2016
PetroRabigh phase 2 $8.5bn Aramco/Sumitomo Chemical Execution 2016
Kemya elastomers $3.4bn Sabic/ExxonMobil Execution 2016
PMMA/MMA $500m Sabic/Lucite Execution 2017
Ras Tanura expansion $3bn Aramco Main contract 2018
Satorp phase 2 $5bn  Aramco/Total  Study 2019
Sadaf polyurethane  $3bn Sabic/Shell Feed 2018
PMMA=Polymethyl methacrylate; MMA=Methyl methacrylate; Feed=Front-end engineering and design. Source: MEED Projects

This is dwarfed by Aramco’s $30bn-worth of petrochemicals schemes under execution in the kingdom. These include the $20bn Sadara Chemical Company joint venture with the US’ Dow Chemical, the largest single-phase petrochemicals plant ever built.

“Aramco has entered the market in a big way at the same time as Sabic was consolidating its position,” says a petrochemicals executive based in the Middle East. “This is why Sabic is so keen to tackle a project that is similar, or even larger, in scope to Sadara

Rumours had been circulating for some years that Sabic was planning a major scheme and, in March, MEED reported that the company was looking at developing a new petrochemicals megacomplex that could cost upwards of $30bn to execute. Its intentions were confirmed in May. 

The sheer scale of the project means that it will be two or even three times larger than anything ever attempted in the kingdom before, even Sadara. To properly process crude oil into chemicals, utilising the full economies of scale required to make the scheme profitable, would mean the production of millions of tonnes of end products that would in turn feed into dozens of conversions units. 

Selected Sabic subsidiaries 
Name  Percentage share 
Arabian Petrochemical Company (Petrokemya)  100
Sabic Industrial Catalyst Company (Sabcat) 100
Saudi Arabia Carbon Fibre Company 100
Saudi European Petrochemical Company (Ibn Zahr)  80
Jubail United Petrochemical Company (United) 75
Yanbu National Petrochemical Company (Yansab)  52
Saudi Yanbu Petrochemical Company (Yanpet) 50
National Methanol Company   
(Ibn Sina)  50
Saudi Petrochemical Company (Sadaf)  50
Eastern Petrochemical Company (Sharq) 50
Al-Jubail Petrochemical Company (Kemya)  50
Saudi Japanese Acrylonitrile Company (Shrouq)  50
Arabian Industrial Fibres Company (Ibn Rushd)  50
Saudi Kayan Petrochemical Company (Saudi Kayan) 35
Source: Sabic 

Oil-to-chemicals technology works in a similar way to complex oil refining and basically entails crude oil entering the complex at one end and an extremely diverse product slate coming out the other.

The process works by crude oil being fed into three steam crackers. One would crack natural gas liquids (NGLs) and liquid petroleum gas (LPG), a second would crack naphtha and a third would crack fuel oil.

The product slate of the three crackers would include ethylene, propylene, butadiene, benzene, toluene and xylene. These would then be fed into downstream processing facilities that would be constructed as part of the complex.

Oil-to-chemicals technology is available; ExxonMobil operates a 1 million tonne-a-year (t/y) crude oil cracker that produces ethylene as part of its complex in Singapore. Aramco, meanwhile, stated in its 2013 annual review that it was exploring the use of similar technology in China. China has also been looking to process coal to oil, gas and chemicals, although world-scale production has not yet been achieved.

Crude availability

“The technology was originally driven by the desire to cut naphtha out of the equation because crude is usually over $150 a tonne cheaper,” says Manuel Asali, Middle East principal for the US’ Nexant. “But when you look at Saudi Arabia, it is more about the availability of crude than the price differential with naphtha.”

Using oil as a feedstock seems like a logical choice for a petrochemicals plant in Saudi Arabia. Gas feedstock, such as ethane, is difficult to secure an allocation for, whereas there is ample crude available.

However, a 200,000-b/d oil-to-chemicals plant requires 30-40 per cent more oil to provide the power for the complex. In this case, that means as much as 80,000 b/d of extra crude will be required.

The 200,000 b/d will be sourced at market prices, but to make the scheme economically viable, this additional 80,000 b/d will have to be provided with a vast subsidy. Sources in the kingdom say this will entail a subsidy of $36 a tonne for the crude used for power, equivalent to the $0.75 a million BTUs that the Oil Ministry charges for ethane in industrial use.

With the scheme moving forward, it would seem that a deal has been agreed in principle regarding the fuel subsidy.

Project ownership

What is less clear, however, is the ownership structure that any future oil-to-chemicals complex would have. Sabic will be the lead company, but with conservative estimates indicating a budget of $30bn, it is extremely unlikely that it will be able to execute the project alone.

It is more likely that a partner would come on board to share costs, although no company has yet been mentioned as a potential partner.

With the scheme being so close to Aramco’s refinery operations, there is a case for the energy major to play a pivotal role in the development of the project.

Aramco is already developing world-scale petrochemicals facilities adjacent to several of its oil refineries across the kingdom as part of an initiative to use the full hydrocarbons value chain.

This includes utilising both gas and liquid feedstock to produce chemicals in locations such as Jubail, Ras Tanura, Rabigh, Jizan and Yanbu.

“If you look at much of what is going on, it is clear that Aramco and Sabic should be working together on this project,” says an executive from a major technology provider. “If the main aim is to create 100,000 domestic jobs, then the two largest domestic companies should be doing this as a team.”

Perhaps surprisingly, Sabic, the Middle East’s largest listed company, and Aramco, the world’s largest oil exporter, do not have any major joint ventures. The two companies have looked at several projects in the past, but none has ever been realised.

There has never been any suggestion that Sabic and Aramco are reluctant to work together. The two firms have traditionally pursued different agendas, with Sabic’s core business being the production of intermediate chemicals using gas feedstock, predominately for the export market, and Aramco focusing on oil exports and refining.

Aramco has entered the market in a big way at the same time as Sabic was consolidating its position

Middle East-based petrochemicals executive

Since 2010, this situation has changed, with Aramco building up extraordinary momentum in the petrochemicals projects sector and planning to ramp up its domestic refining capacity by 1.2 million b/d by 2018. The two companies also share a deep commitment to domestic job creation, which is evident in the work being done by both parties to bolster small and medium enterprises in the kingdom.

It is clear that oil-to-chemicals offers the possibility of mass job creation while utilising the core skills and resources of Saudi Arabia. The scheme also has the blessing of Riyadh and has been mentioned in recent speeches made by Petroleum & Mineral Resources Minister Ali al-Naimi.

Pioneering development

For the rest of the region, the innovation that will come from being able to make chemicals directly from crude oil on a large scale could revolutionise the industry and offer an extremely viable alternative to gas feedstock. Outside Qatar, gas is in extremely short supply in the Middle East for petrochemicals production.  

Crude-to-chemicals could also insulate the region’s oil producers against lower prices, which are already showing signs of easing amid the rise of non-conventional oil and gas production across the world.

Being able to use crude oil domestically as a means to lengthen the hydrocarbons value chain and create jobs is what all these economies should be aiming for. Sabic is set to become the pioneer in what is likely to be the next phase in the evolution of the region’s petrochemicals industry.

Key fact

The plant at Yanbu on the Red Sea coast will create up to 100,000 direct and indirect jobs

Source: MEED