Saudi Arabia Petrochemicals Report Q4 2009

Trends in Saudi petrochemical production are closely tied to its key export markets, notably Asia's economic powerhouse China. BMI's latest Saudi Arabia Petrochemicals Report argues that the rise in Chinese capacities at a time of falling Chinese demand is the largest threat to Saudi petrochemicals production.

BMI believes that Chinese demand for petrochemicals will have improved in H209 after some difficult months which have seen a sharp slowdown in building activity. This will be supported by the government's economic stimulus programme. Although H209 will be an improvement on the poor performance seen in H208, levels of demand growth are not forecast to return to 2007 levels until 2010 at the earliest. However, there are fears that the Chinese government's stimulus plan for petrochemicals, which is set to involve investment in new refineries to speed up their construction, could create a problem of short-term over-supply in Saudi Arabia's export markets in Asia. Much will depend on the strength of the recovery in the automotive and home appliance sectors, which are expected to recover before the construction sector. Taking a longer term view, China is set to remain a net ethylene importer over the next five years, requiring imports from Saudi Arabia. The poor situation in export markets, which cannot be remedied by the relatively small GCC market, has contributed to deterioration in the performance of Saudi Arabia's petrochemical producers.

Nevertheless, Saudi petrochemicals production continues to expand, with investors keeping their eyes on the post-recession era. In July, Saudi Aramco and French major Total awarded 13 engineering, procurement and construction (EPC) contract packages for the 400,000 barrel per day (b/d) Jubail refinery to local and international companies at a cost of US$9.6bn. The partners managed to make the best of the economic downturn by negotiating down the original US$12bn price tag to US$9.6bn. Aramco and Total's SATORP joint venture will process Arabian Heavy crude, plus 700,000 tonnes per annum (tpa) of paraxylene, 140,000tpa of benzene and 200,000tpa of polymer-grade propylene.

BMI's forecasts for the Saudi petrochemical sector take into account long delays in project completion.

We do not believe the proposed Ras Tanura complex, with a 1.5mn tpa ethylene cracker, will come onstream before 2014. The commissioning of the Petro Rabigh complex began in Q209, having been delayed from Q408. Nevertheless, ethylene capacity in 2013 is forecast to be more than double that of 2008 levels at 18.3mn tpa, with Jubail and Yanbu the focus of petrochemicals developments. Our projections for petrochemical capacity are based on planned projects, but it is possible that some may not come to fruition due to the restriction on ethane feedstock and a possible downturn in the Chinese market at a time of rising Chinese capacities. Due to the integrated nature of the megaprojects under development, any delay further up the supply chain causes delays in downstream developments.

Consequently, the delay in Petro Rabigh has led to a delay in the commissioning of polymer plants with capacities of 300,000tpa PE plants and 700,000tpa PP. By end-2009, polyolefins production capacity should reach 10.78mn tpa and should rise by more than 40% to 15.18mn tpa by end-2013, with most of the growth coming from the PE segment.