In the short term, the Saudi Arabian petrochemicals industry is set for a strong recovery in 2010, following an upturn in H209, the “Saudi Arabia Petrochemicals Report Q3 2010” said. The report, released by companiesandmarkets.com, noted that Saudi petrochemicals industry would remain highly exposed to global markets, particularly Asia. Performance will vary, with fertilizers expected to revive earlier and at a stronger pace, while engineering plastics will represent the weakest market. Demand growth in Asia, led by the surging Chinese market, has underpinned global petrochemicals growth and is the basis for growth in Saudi output. The Chinese polymer resins market should mirror, if not exceed, economic growth rates of 8.8 percent in 2010 and 7.5 percent in 2011, leading to a rise in prices and reversing the temporary drop in profitability seen in 2009. With domestic demand likely to continue to outstrip supply, China will remain a net polymers importer over the medium term and the largest importer in the world. By 2014, China could represent 35 percent of the global PP market and 20 percent of global PE demand. Saudi Arabia will also be able to leverage its advantage in ethane feedstock, with the price differential with naphtha feedstock rising as oil prices climb, while a situation of oversupply restrains polymer prices, the report further said. Its other strengths are the size of its units and the high level of integration, which make it more economical and competitive. “This competitive advantage should ensure that, even in the event that Chinese demand is not as strong as hoped, Saudi production will continue to have a market and operating rates will be maximized,” it said. Moreover, in the 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 74.4 points. Increasing capacity is helping to push up Saudi Arabia's score, although this is slightly offset by deteriorating external and financial risk scores. The Eastern Petrochemical Company (Sharq), a 50:50 joint venture between SABIC and Mitsubishi Motors, began operations in April 2010. The 2.8 million tpa expansion will boost Sharq's production at the complex to about 5 million tpa of petrochemicals. Ethylene capacity at the complex was expanded by about 1.3 million tpa to 2.46 million tpa; ethylene glycol capacity was expanded by 700,000tpa to 1.38 million tpa and PE capacity was raised by 800,000tpa to 1.55 million tpa. The Kingdom is placed ahead of Qatar, which is in second place with 63.6 points, and a cluster of other Gulf countries that cannot compete with Saudi Arabia's feedstock or economies of scale. It is also ahead of Iran, which suffers from poor risk levels, the report added. However, there is also a downside. The report pointed out that “rising costs are leading to project delays.” It cited the announcement last April to relocate a petrochemical joint venture between Saudi Aramco and Dow Chemical to Al Jubail or Ras Al Zaur from Ras Tanura to save costs. The relocation and the overhauling of the project's configuration make it unlikely that the target completion date of 2015 will be reached. The project will also be reduced in scale with one instead of two ethylene crackers, the report noted. “The project costs are likely to fall by $5 billion from the original estimate to $15 billion (more recent estimates put the project at $27 billion, so this represents a $12 billion reduction in costs) with the cost of building a port and other infrastructure removed and Al Jubail's existing infrastructure used instead, with the possibility of expansion.” Furthermore, the report indicated that it is not the first project to be postponed or cancelled due to costs. The Ineos-Delta project at Jubail, which planned to add 1.2 million tpa of ethylene capacity from 2011, was shelved in Q407 due to feedstock and capital cost restraints. Meanwhile, the Jizan refinery, which was due to be the Kingdom's first 100 percent privately built refinery with an associated 800,000tpa PP plant, has failed to attract sufficient interest. The completion of the massive Saudi Kayan project is also likely to become fully operational in H212, two years behind schedule - in part due to contractual changes, it added.
