Saudi Arabian chemical producers hope gas prices remain low in 2013

17 December 2012

No decision has been made by Riyadh regarding raising the ethane price from $0.75 per million British thermal units

Senior officials in Saudi Arabia’s petrochemicals industry are hoping Riyadh will keep industrial ethane prices frozen for a second consecutive year to maintain the industry’s advantage over international competitors.

The price for the industrial use of ethane in the kingdom is $0.75 a million BTUs. This has traditionally given Saudi petrochemicals producers a significantly lower cost-base compared with producers from nations that use oil-based feedstocks, such as naphtha.

Riyadh froze the gas prize for 2012, but scrapped the fixed-term contracts that had been in place. This means the Oil Ministry can change the price as needed, which allows it far more flexibility than in the past. MEED reported in February 2012 that the gas price would be frozen at the $0.75 level for the rest of the year, but no information has yet been forthcoming about 2013 tariffs.

World chemicals production
Region/country% of productionYear
Middle Eastna1980
Rest of world251980
na=Not available. Source: Chemical Economics Handbook

“I don’t have any information about what the decision will be regarding feedstock prices, but I hope the low price will continue in 2013, especially considering the development of shale gas in the US,” says Ahmad Al-Ohali, chief executive officer (CEO) of the local Saudi International Petrochemical Company (Sipchem). “We have enjoyed great success over the last three decades in the petrochemicals industry, despite not being close to the market. The cost to take our products to market has been offset by cheap feedstock prices, [which] has helped us to remain competitive.”

Other petrochemicals producers believe that relying on low gas prices will not be sustainable for their businesses in the long-term. “The question of the gas price is behind us and we are thinking forward and putting our plans forward,” says Khalid Ibrahim Al-Rabiah, CEO of the local Methanol Chemicals Company (Chemanol). “We are looking to increase our productivity and invest in getting the right people. I am not saying [the gas price] is not important, but we can do nothing about it so are concentrating on other matters.”

Saudi Aramco is aggressively pursuing its gas options in the kingdom with several schemes being fast-tracked. The oil major is also looking at non-conventional sources, such as shale gas.

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