Saudi Arabia Petrochemicals Report Q2 2008

Saudi Arabia's petrochemicals sector is on course for further expansion, although feedstock has mostly been allocated and the country will approach its full potential by 2015, according to BMI's latest Saudi Arabia Petrochemicals Report.

Jubail and Yanbu will be the focus of petrochemicals developments over the medium-term. A number of polymer plants are due to come onstream in 2008, raising PE capacity by 2.1mn tpa and PP capacity by 1.11mn tpa. In H208, new polyethylene capacity additions will include 400,000tpa HDPE and 400,000tpa LLDPE operated by Sharq; 400,000tpa HDPE, 325,000tpa LDPE and 300,000tpa LLDPE operated by Saudi Kayan; 400,000tpa LDPE operated by SEPC, and; 500,000tpa LLDPE operated by YanSab.

Additional polypropylene capacity will include 500,000tpa at Ibn Zahr's facility in Jubail and 420,000tpa and 400,000tpa at Yanbu, operated by Teldene and Yansab respectively. Also in 2008, ethylene capacity will rise 3.8mn tpa, with 300,000tpa at Saudi Chevron/Phillips in Jubail, 1.3mn tpa at Sharq in Jubail, 1.3mn tpa at YanSab's complex in Yanbu.

By 2012, further developments will see ethylene production capacity rise to 19.67mn tpa and polymer production capacity to at least 14.66mn tpa. Our projections for petrochemical capacity are based on currently 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.

Consequently, it is possible that ethylene capacity may reach only 18mn tpa by 2012.

Analysts fear that the availability of the sector's preferred feedstock, ethane, could decline. The requirements of planned projects in the Kingdom exceeds the level of feedstock available over the forecast period, unless the gas production capacity is substantially increased, which is unlikely in the next five years. Moreover, Saudi Aramco's venture into the petrochemicals sector could lead to cuts in the availability of ethane to its rivals. Other sources of feedstock will have to be used, pushing up plant costs and threatening to make some projects unviable.

In BMI's Middle Eastern Petrochemicals Business Environment Rankings Matrix, Saudi Arabia is rated as the most attractive country out of the eight surveyed by some margin, with a score of 75.3 points, up 1.3 points over the last quarter. Increasing capacity is helping to push up Saudi Arabia's score, although this is slightly offset by a modest rise in negative economic risk. The country is placed ahead of Qatar, which is in second place with 64.3 points, and a cluster of other Gulf countries that cannot compete with Saudi Arabia's feedstock or economies of scale, as well as Iran, which suffers from poor risk levels.