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Mideast: Facing the shale gas challenge
2:17 PM MST | November 11, 2013 | —Natasha Alperowicz
The Mideast, notably the Gulf Cooperation Council (GCC) states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, have for decades enjoyed a massive competitive advantage in petrochemicals. Cheap raw materials, especially associated gas from oil production, and a favorable geographical location—midway between Asia and Europe—helped the region to become a major producer and exporter of basic petrochemicals and plastics. But recent constraints on feedstock supplies in the Mideast coupled with the shale gas revolution in the United States and an upsurge in coal-to-chemicals investments in China are presenting challenges. As a result, diversification—already well under way in some GCC states—investments in new resource-rich countries, and regional and overseas acquisitions are the way forward, analysts say.
Mideast producers, after several decades of rapid growth, are facing new realities. These include shortages of gas feedstock and the advent of cheap shale gas in the United States, which has led many companies to announce steam cracker and downstream projects there, intensifying global competition. The last allocation of ethane gas for a grassroots petrochemicals project in Saudi Arabia was in the middle of the last decade. The $20-billion Sadara joint venture between Saudi Aramco and Dow Chemical will use liquid feedstocks as well as gas to feed its cracker at Al Jubail. Liquid feedstocks do not offer the same cost advantages. The situation is similar in other GCC states. The Borouge 3 project took up the last of the gas availability in the United Arab Emirates, as did Equate II in Kuwait. Increasing power demand is one of the reasons for the squeeze. “Demand for gas continues to increase strongly in the Middle East, driven by power generation, water desalination, and petrochemical projects, as well as own use in liquefied natural gas and gas-to-liquids production. In some cases, low regulated gas prices have resulted in physical shortages of gas, as demand has outstripped local supply capacity,” says the International Energy Agency (Paris) in its most recent annual report.
Petrochemical projects in the Mideast, as a result, will almost certainly become fewer and farther between. “I believe higher integration between refineries and the petrochemical industry will be the trend. Clustering, too, is expected to be adopted going forward,” says Sanjay Sharma, managing director/Mideast and India at IHS Chemical.
Hassan Ahmed, an analyst with Alembic Global Advisors (New York), says there are “bits and bobs being built but nothing even close to what we saw in the last decade. Saudi Arabia doesn’t have surplus cheap associated gas, Iran has sanctions-related issues, and Qatar still has a moratorium on using gas for new projects. It is tough to see growth in the absence of cheap gas,” Ahmed says. Gas prices in the GCC have increased over the last few years, but Saudi Arabia, the hub of the region’s petrochemicals industry, continues to benefit from low gas prices within its existing manufacturing network.
GCC governments, notably Saudi Arabia’s, are pushing the diversification process. The aim is to establish downstream industries that will boost local employment. Governments are no longer encouraging investment in basic petrochemicals.
Consulting firm Booz & Co. (Dubai) says that GCC petrochemical players have three main options to secure future growth: remain upstream and participate in shale gas ventures in North America, move downstream into performance or specialty chemicals, or become consolidators of the industry within the GCC to build greater scale. Mideast producers will need “to realign growth strategy by focusing on innovation in the field of technology, to add value to products in their portfolio, and think about investing in other competitive product centers like North America, to take advantage of shale gas, and in China, to participate in coal-to-chemical projects,” Sharma says.
Mideast producers are beginning to consolidate. Saudi International Petrochemical Co. (Al Khubar) and Sahara Petrochemical (Riyadh), each listed on the Saudi Stock Exchange, are discussing a merger, which they say would offer many synergies. Zamil Holding is a key shareholder in the two companies.
Several Mideast companies, including Sabic, the region’s largest producer; Saudi Aramco; Kuwait Petroleum; and IPIC (Abu Dhabi) continue to globalize. Sabic CEO Mohamed Al Mady, emphasizing that US shale gas is an opportunity as well as a threat for Mideast players, said recently that Sabic is exploring options to invest in North America to take advantage of the inexpensive raw materials there. The company, which is among the top-five chemical players worldwide in sales, is present in China through the expanding Sinopec Sabic Tianjin Petrochemical jv and is looking to invest in other parts of China, Al Mady says.
In addition, Aramco is a partner with Fujian Petrochemical and ExxonMobil in Fujian Refining & Petrochemical Co. at Quanzhou, China, and in S-Oil (Seoul). Kuwait Petroleum has a stake in a refinery and petrochemicals project in Vietnam. Also, IPIC has acquired several overseas companies, including Cepsa (Madrid); Borealis, with operations in several European countries; and Nova Chemicals.
The Mideast remains a major force in the worldwide petrochemicals industry despite the current challenges. “The Middle East and North Africa (MENA) accounted for around 16% of global petrochemical capacity last year and, if all announced projects come online over the next five years, this will rise to 19% of the total,” Alembic’s Ahmed says.
The numerous projects announced in North America will hurt mainly the world’s high-cost producers, Sharma says. “I do not see any problems for the Middle East industry in terms of competitive position,” he says. The medium-term outlook for the GCC petrochemical industry is positive, notwithstanding US shale-gas developments, says the Gulf Petrochemical and Chemical Association (GPCA; Dubai). Petrochemical capacity in the Arabian Gulf region reached 127.5 million m.t./year last year, a figure that GPCA expects to grow to 134.5 million m.t./year by 2016. The association concedes, however, that competition will increase. “GCC petrochemicals producers are likely to see sustained growth, but global markets will become more competitive in the near future. The only way to realize the growth potential and to keep up with the competition is to innovate. We need to figure out how to do more with less,” says Abdulwahab Al Sadoun, secretary general of GPCA.
Current interest in shale gas focuses mostly on the United States, but other countries, including Algeria, Argentina, China, Poland, Russia, and the United Kingdom, have significant reserves. Dow recently signed an agreement with YPF (Buenos Aires) to jointly invest $168 million in the development of the Vaca Muerta shale gas deposit in Argentina. Shale gas reserves of 1,115 trillion cubic feet have been discovered in China, almost twice the US reserves of 665 trillion cu ft estimated by the Energy Information Administration. China has yet to exploit its shale resources, however.
Even Saudi Arabia could share in the shale bonanza. Saudi oil minister Ali Al Naimi estimated recently that the country has more than 600 trillion cu ft of unconventional gas, more than double its proven conventional reserves.
Most analysts believe that Mideast producers will retain a cost advantage in certain niches despite the growth in US competitiveness. “Based on my calculations, the pure ethane facilities in MENA will be cost-advantaged relative to US facilities, but the mixed-feed facilities will not,” Alembic’s Ahmed says.
The main projects under way in Saudi Arabia include Sadara, which will introduce many new products into the region; a doubling of capacity at Petro Rabigh (Rabigh), a jv between Aramco and Sumitomo Chemical; Sabic and ExxonMobil’s rubber and elastomers project at their Kemya jv at Al Jubail; and a polyurethanes project by Sabic, marking its entry into this market; as well as many downstream investments.
Moves are also under way to integrate Saudi Arabia’s refineries with petrochemicals production at Jazan, in the southwest of the country, Yanbu, on the Red Sea coast; and Ras Tanura, in the country’s Eastern Province. The initiatives are led by Aramco but also include Sabic and Farabi Petrochemicals (Al Jubail). Farabi, a producer of n-paraffin and linear alkylbenzene (LAB), plans to build plants producing LAB and a range of specialty chemicals from kerosene at the Aramco refinery being constructed at Jazan. Aramco and Total, partners in the Satorp refinery and aromatics complex at Al Jubail, also have tentative plans to expand the jv after the first phase comes onstream at the end of this year.
There are also plans to integrate the Aramco Sinopec Refining (Yasref; Yanbu) venture further into chemicals production. Yasref, in which Aramco owns 62.5% and Sinopec 37.5%, is building a 400,000-bbl/day refinery at Yanbu. The refinery’s first phase will include a 140,000-m.t./year benzene extraction unit, and the addition of para -xylene ( p -xylene) and toluene units is under consideration.
Qatar is planning to spend about $25 billion by 2020 to expand capacity in its chemical and petrochemical industries. Projects include two grassroots petrochemical investments at Ras Laffan. Meanwhile, in Kuwait, plans are being developed for a large refinery and petrochemical complex, Olefins III, at Al Zour.
GCC players are also strengthening their existing operations. Aramco, under its Accelerated Transformation Program (ATP), aims to transform itself into the world’s leading integrated energy and chemicals company by 2020. ATP, launched in 2011 by CEO Khalid Al Falih, foresees Aramco’s refining capacity, including its share of jv’s, doubling, to 8 million bbl/day, making Aramco the largest refiner worldwide. The program also aims to establish Aramco as a top-tier chemicals business. The company’s current chemical operations include Petro Rabigh, where the planned doubling of capacity and an expansion into speciaity chemicals will involve a $7-billion investment in the next three years; the Satorp jv; and Sadara.
Aramco plans to invest heavily to expand its aromatics capacity. The company aims, by 2017–18, to be among the top-three aromatics players worldwide. The company and its partnerships, including Petro Rabigh, S-Oil, and the Fujian jv, will—over the next five years—supply 4 million m.t./year of p -xylene to world markets, which will make Aramco one of the largest p -xylene producers in the world by 2018. Aramco’s p -xylene capacity in Saudi Arabia includes 700,000 m.t./year at Satorp; 1.2 million m.t./year at the 400,000-bbl/day Jazan refinery; 1.4 million m.t./year at Ras Tanura; and 1.3 million m.t./year at Rabigh, part of the Rabigh II complex.
But, Sadara is the most significant component of Aramco’s diversification strategy. Sadara will operate the world’s largest single-phase integrated petrochemical facility when it comes onstream, in 2016. Sadara’s Al Jubail complex will include 26 process units making amines, glycol ethers, isocyanates, polyether polyols, polyethylene (PE), polyolefin elastomers, and propylene glycol. Construction work on Sadara is more than 25% complete, and the complex will supply the fast-growing Asia/Pacific, Mideast, Eastern Europe, and Africa, says Jim Fitterling, executive v.p. at Dow. “I cannot get these plants online fast enough,” Fitterling says.
Sabic aims to become more integrated, more differentiated, and more global under its new Sabic 2025 strategy. “We will work on developing competitive feedstock sources around the world while growing our global presence with a focus on rapidly developing and emerging economies,” Al Mady says.
Sabic’s performance chemicals segment, a relatively young business, has very ambitious plans, which include raising sales to 10% of the corporate total by 2020. The $3.4-billion investment with ExxonMobil Chemical to build a rubber and elastomers complex is Sabic’s largest investment to date and is expected to lead to the establishment of a major downstream industry in Saudi Arabia. The complex will include facilities for 110,000 m.t./year of butyl rubber; 110,000 m.t./year of ethylene propylene diene monomer (EPDM) rubber; and about 100,000 m.t./year each of polybutadiene rubber (PBR) and carbon black. ExxonMobil is providing technology for the butyl and EPDM rubber units. The EPDM facility will be a swing plant, capable also of making thermoplastic elastomers using metallocene technology. Goodyear is providing the PBR process and Continental Carbon Co. (Dumas, TX) the carbon black technology. “We will contribute two of our crown-jewel technologies: butyl rubber, the inner liner of the tire that retains air and promotes fuel economy—we are the world’s leader in butyl rubber and the inventor of it—and EPDM, where we are contributing our metallocene technology,” said Steve Pryor, president of ExxonMobil Chemical, at last year’s project launch. The resulting downstream industry is expected to manufacture tire and rubber goods.
Sabic’s performance chemicals unit is also planning to build a fully integrated polyurethanes (PUs) complex, which would mark the company’s entry into that market. Sabic signed an agreement with Shell Chemicals to expand their Sadaf jv at Al Jubail through the addition of propylene oxide–styrene monomer and polyol plants. The associated toluene diisocyanate and methylene di- para -phenylene isocyanate units will be owned 100% by Sabic or by a partnership with Mitsui Chemicals, which is providing the technology. The polyols complex will produce a full range of products, including coatings, adhesives, and specialty and elastomer polyols, using Shell technology. It is not clear, however, when the PU complex will be completed. “We are in the very early stage of conceptual design and engineering definition,” says Abdullah Al Rabeeah, Sabic’s v.p./performance chemicals.
Sabic’s performance chemicals unit is implementing other projects, including a 330,000-m.t./year n-butanol plant, owned by a three-way partnership of Saudi Kayan, a Sabic affiliate; Sadara; and Saudi Acrylic Acid Co. (SAAC; Al Jubail), a Tasnee subsidiary. Sadara and SAAC will captively use most of the output. The butanol plant will be the Mideast’s first and the world’s largest.
Separately, Saudi Japanese Acrylonitrile Co. (Shrouq), a jv in which Sabic has 50%, Asahi Kasei 30%, and Mitsubishi Corp. 20%, is building a 220,000-m.t./year acrylonitrile plant at the Ibn Zahr facility at Al Jubail. The plant, scheduled to be onstream in 2016, will supply a planned 3,000-m.t./year carbon fiber plant at Sabic’s Ibn Rushd facility at Yanbu. Sabic Innovative Plastics will use some of the acrylonitrile in a 140,000-m.t./year acrylonitrile butadiene styrene resin plant at the Petrokemya facility at Al Jubail.
Meanwhile, Sabic and Mitsubishi Rayon are building 250,000-m.t./year methyl methacrylate (MMA) and 40,000-m.t./year polymethyl methacrylate plants at the Ibn Sina complex at Al Jubail. The MMA plant will use Lucite Alpha technology, provided by Mitsubishi Rayon. Ibn Sina, owned 50% by Sabic and 25% each by Celanese and an affiliate of Duke Energy, is building a 50,000-m.t./year polyacetal plant at Al Jubail, scheduled to be completed at the end of 2016.
Sabic has significant operations in Europe following the company’s acquisition of the petrochemical operations of DSM in the Netherlands and of Huntsman in the United Kingdom. Sabic, after restructuring some of these operations to make them more competitive, says it is studying plans to “review the potential of the UK Wilton cracker to crack ethane.”
Qatar plans two megapetrochemical projects at Ras Laffan. The first, Al Karaana, a jv in which Qatar Petroleum (QP; Doha) has 80% and Shell 20%, is slated to be onstream in 2017. The second, Al Sejeel, a jv between QP and Qatar Petrochemical Co., is expected online in 2018. The jv’s form part of Qatar’s plans to raise petrochemicals output to 23 million m.t./year by 2020, more than doubling current production.
Fluor has been awarded the front-end engineering design (FEED) contract for Al Karaana, the total cost of which is estimated at $6.5 billion. The project will comprise a world-scale steam cracker; a 1.5-million m.t./year ethylene glycol plant based on Shell’s Omega technology; a 300,000-m.t./year linear alpha-olefin unit using Shell’s Higher Olefins Process; and a 250,000-m.t./year oxo alcohols unit, based on Mitsubishi Chemical technology.
Al Sejeel will produce 2.2 million m.t./year of polymers, including PE and polypropylene (PP). Upstream units will include a world-scale ethylene plant and a butadiene facility. Bechtel is the project management consultant. Univation Technologies, a 50-50 jv between Dow and ExxonMobil, is providing Unipol-process technology for the three PE plants, which will have a combined capacity of 1.59 million m.t./year. One will be designed to produce 550,000 m.t./year of linear low-density PE (LLDPE), and the others will each produce 520,000 m.t./year of high-density PE (HDPE). Dow has licensed the PP technology.
QP is also carrying out feasibility studies for propylene-based and benzene-derivative complexes at Ras Laffan, adjacent to existing liquefied petroleum gas facilities. Plans include a propane dehydrogenation plant producing 650,000–750,000 m.t./year of propylene; and an aromatics complex, which would produce 1 million m.t./year of p -xylene; and 500,000–700,000 m.t./year of benzene.
Another recent development is the creation of Qatar Chemical and Petrochemical Marketing and Distribution Co. (Muntajat; Doha) to take over the marketing and distribution of chemicals and petrochemicals produced in Qatar. “The petrochemical industry is a key driver of Qatar’s growth, positioning it as a global player in this sector,” says Mohammed bin Saleh Al Sada, Qatar’s minister of energy and industry and the chairman of Muntajat.
Meanwhile, at Ruwais, Abu Dhabi, the Borouge 3 complex is nearing completion. Borouge is a jv between Abu Dhabi National Oil Co. and Borealis. Borouge 3 consists of a third cracker and 2.5 million m.t./year of additional polyolefins capacity by 2014, lifting the company’s total polyolefins capacity to 4.5 million m.t./year. Bourouge says that this increase will make it the world’s largest integrated polyolefins site. Borealis already sells some Borouge polymers in Europe and plans to increase these volumes to about 1 million m.t./year from 2020.
A long-delayed aromatics complex in Abu Dhabi planned by ChemaWEyaat has made little progress. Foster Wheeler was awarded a project management consultancy contract in early 2012, and some reports say a financial advisor will be appointed soon. The complex will be built at the Madeenat ChemaWEyaat site, east of Ruwais. The complex is expected to process 3 million m.t./year of heavy and medium naphthas, supplied via pipeline from the Takreer refinery at Ruwais, to make p -xylene, mixed xylenes, and benzene.
Kuwait National Petroleum Co. gave a presentation recently on a planned refinery with a capacity of more than 600,000 bbl/day, and Petrochemical Industries Co. (PIC) has presented plans to integrate it with the proposed Olefins III complex. The projects are still in the study phase, but land is already being prepared for construction of the refinery.
Equate (Safat, Kuwait) is also planning to grow its operations. The company, a jv among PIC, Dow, Boubyan Petrochemical, and Qurain Petrochemical Industries, has completed a feasibility study to debottleneck its complex at Al Shuayba, which may lead to the addition of an ethylene furnace. Technip, which supplied technology for Equate’s existing crackers, is working on detailed design, Mohammad Husain, president and CEO of Equate, tells CW. He has declined to comment on the size of the expansion, but earlier reports say that the debottlenecking could lead to a 20% hike in capacity for ethylene and PE. Equate’s two ethylene plants have combined capacity for 850,000 m.t./year, and its PE capacity, based on Unipol technology, is estimated at 850,000 m.t./year. “If all goes right, we are looking at completion by 2015,” Husain says.
The jv would like to expand further. “Equate would love to be a part of Olefins III,” Husain says. Earlier reports say that the Olefins III ethylene plant at Al Zour would likely have a capacity of 1.4 million m.t./year. An aromatics complex is also planned.
Meanwhile, Oman Refineries and Petroleum Industries Co. (Orpic; Muscat) is planning a polyolefins project integrated with the Sohar, Oman, refinery, which is currently being expanded. Completion of the project is scheduled for 2018. The project has six components: a gas extraction plant at Fahud; a 300-kilometer gas pipeline between Fahud and Sohar Port; a cracker based on ethane, propane, butane, and condensate feedstocks; and two PE plants, one producing 420,000 m.t./year of HDPE and the other making 420,000 m.t./year of LLDPE. An existing 200,000-m.t./year PP plant, also a part of Orpic, will be expanded by 215,000 m.t./year. About 60% of the feedstock for the polyolefins project would come from the Sohar refinery, and the remaining 40% would be natural gas liquids extracted from gas at Fahud. The project would increase Oman’s polyolefins capacity from 200,000 m.t./year to 1.4 million m.t./year.
Oman is also planning to build purified terephthalic acid (PTA) and PE terephthalate (PET) resin plants at Sohar. Oman Oil Co. (OOC) and LG International have signed an agreement to build the plants jointly, with OOC owning 70% and LG having the rest. The complex is expected to be designed for 1.1 million m.t./year of PTA and 500,000 m.t./year of PET. Feedstock p -xylene would come from the Orpic refinery.
OOC and IPIC announced last year the formation of a 50-50 jv to develop a refinery and petrochemical complex at Duqm, on the east coast of Oman. Duqm Refinery and Petrochemical Industries expects to begin production in 2017. The refinery, the first phase of the project, will have a capacity of 230,000 bbl/day. Petrochemicals will follow in the second phase.