Egypt Petrochemicals Report Q2 2008

Leveraging Egypt's petrochemicals future to its full potential still very much depends on attracting concrete multinational interest in its masterplan, according to BMI's latest Egypt Petrochemicals Report.

Some 1.2mn tonnes of petrochemicals used to manufacture plastics are consumed by the local market each year, while local production of these materials is only around 470,000 tonnes per annum (tpa), meaning two-thirds has to be imported. Reducing this reliance on imported plastics is one of the main aims behind the petrochemical masterplan. By 2008, which marks the end of the first phase of Egypt's national development programme for the petrochemicals sector, the government hopes to raise domestic capacities to 600,000tpa ethylene and 1.18mn tpa of polymers. However, BMI estimates that ethylene capacity will remain at 300,000tpa until 2008, after which it will double to 600,000tpa. Polyethylene (PE) capacity should rise from the current levels of 225,000tpa to 525,000tpa in 2008. BMI expects polypropylene (PP) capacity to rise to 820,000 by 2012.

The E-Methanex joint venture is set to come onstream in Q409. In December 2007, Methanex signed a memorandum of understanding to build a 200,000tpa dimethyl ether (DME) plant with joint venture partner XinAo Group (China) adjacent to Methanex's methanol plant. State-owned Egyptian Petrochemicals Holding Co. (Cairo) will hold a minority stake in the DME and the methanol plants, Methanex says. DME produced by the plant will be blended into the domestic liquefied petroleum gas (LPG) supply for use in homes, thus decreasing the country's reliance on LPG imports. Egyptian Petrochemicals Holding Company (EChem) is also studying a plan aimed at the construction of a downstream acetic acid plant in Egypt, with a capacity of 300,000tpa.

Gas production is expected to increase dramatically in order to fuel the various liquefied natural gas (LNG) export schemes. Much of the growth in production will be from the BG/Edison Nile Delta discoveries. BP and Royal Dutch Shell also have concessions offshore from the Nile Delta; initial seismic survey work and exploratory drilling has indicated significant probable reserves. This is good news for Egyptian petrochemical and fertiliser producers seeking stable long-term access to feedstock.

BMI forecasts suggest that gas supply could reach 80bcm in 2011 which, with demand of an estimated 37bcm, provides export potential of 43bcm. The purification of gas for LNG will create substantial amounts of ethane by-products to supply ethane crackers.

In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Egypt is ranked eighth with 48.8 points, compared with the regional average of 56.6 points. The country is 0.7 points ahead of Turkey, but 5.8 points behind South Africa. The Egyptian petrochemicals sector represents about 12% of total industrial production and is worth around US$7bn, or just 3% of total GDP. The business environment is obviously not as strong as Middle Eastern rivals, such as Saudi Arabia with its access to large quantities of cheap feedstock, well-developed existing capacity and the ability to attract foreign investment. However, it ranks above Algeria and Turkey because of higher production and a significantly better national (as opposed to sector-specific) business environment. This ranking should improve by the end of the decade as the government's ambitious petrochemical industry development plan progresses.