Even as the Middle East petrochemical sector struggles with oil price volatility, gas feedstock shortage, growing capacity in the US and China, and a dithering global economy, it is looking for ways to stay on top through niche and specialty products.
“The US is a big challenge because of the rise in petrochemical production from shale gas. So is China’s plans to go from coal to petrochemicals, and the rising protectionism in the world. So it makes sense to go downstream,” Jamal J Malaikah, president and COO of Saudi Arabia’s National Petrochemical Industrial Co., said in an exclusive interview Tuesday on the sidelines of the 9th Annual Gulf Petrochemicals and Chemicals Association Forum in Dubai.
He estimated US petrochemical production at 12 million-13 million mt/year in about three years.
Natpet, which has a 400,000 mt/year polypropylene plant at Yanbu on the east coast of Saudi Arabia, has a PP compounding project that is expected to begin commercial production in about a year and a half.
The 50:50 joint venture with Ohio-based A Schulman, called Natpet-Schulman Engineering Plastic Compounds, will produce and globally sell polypropylene compounds.
The PP facility is back integrated to propylene secured from a 400,000 mt/year propane dehydrogenation plant.
The plant will start with an initial production capacity of 40,000-50,000 mt/year and this would be hiked to 100,000 mt/year in phases, Malaikah said.
Natpet already operates a geotextiles project with a capacity of 18,000 mt/year in cooperation with UK’s Low & Bonar.
The venture is in line with Natpet’s plans to gain more exposure globally. Referring to the joint venture with Schulman, Malaikah said that “bringing in foreign companies would help get access to the markets and also bring new technology and R&D to Saudi Arabia.”
CHALLENGES FACING SECTOR
Talking about the challenges for the sector, he referred to the recent hike in import duties on Saudi petrochemicals in Europe, the economic slowdown in China and geopolitical issues, apart from the rising shale gas-based petrochemical production capacity in the US.
Though the recent fall in oil prices made naphtha more competitive for petrochemical producers, these challenges made it tougher for Saudi producers, he said.
Most of the crackers in the Middle East use gas or a mix of gas and naphtha, and face increasing competition from other industries, such as metals, in gas allocation.
The Saudi Arabian government has been looking at raising gas prices for industries since 2011 as it struggles to meet growing energy demand.
US production is expected to eat into the Middle East’s share of the petrochemicals markets in Africa and Europe. Malaikah pointed out that according to experts, 40% of US petrochemical exports were expected to go to Europe, 40% to the US and Latin America, and 20% to the rest of the world.
“Iran too can become a big player. The sanctions don’t give a clear picture, but Iran has a lot of petrochemical plants and will expand as well,” he said. “The next few years will be difficult for GCC petchems.”
GCC, or the Gulf Cooperation Council, consists of Kuwait, Bahrain, Oman, Qatar, Saudi Arabia and the UAE.
Asked about any plans to expand the Yanbu PP plant, he said: “Natpet is keen to expand its existing PP plant if it gets extra feedstock from the government, especially as it has proven that it is a reliable company meeting government objectives to build more downstream projects.”
He did admit that shale exploration in Saudi Arabia was a possibility, but added that fossil fuels were still the country’s strength.
Demand for PP — which was about 2.5 million mt currently — was still growing at about 4.7-4.8% annually, he said.
“Basically you need more capacity [to cope with the growing demand],” he said, adding that in view of the gas feedstock shortage, “some obsolete technologies will get out of the market.”
This had happened in the wake of the financial crisis when a lot of PP capacity was lost, he pointed out.
“It is a changing world where diversification, efficiency, keeping a lid on costs, and innovation will help meet the challenges facing the Saudi petrochemicals industry,” he added, explaining Natpet’s joint ventures with foreign partners downstream.
“However, Saudi Arabia should be extra careful not to jeopardize its competitive advantage by raising feedstock prices; this might [deal] a severe blow to the industry considering the challenges mentioned earlier.”
– Platts.com
