The kingdom

The region’s largest oil producer is stepping up its efforts to become the centre of the Middle Eastern petrochemicals worldwide hub. The question now is can it make it?

You would have to have been locked in a cupboard for the past few years to not be aware of the large scale plans Saudi Arabia has for is petrochemicals sector. Building itself as the centre of the proposed petrochemicals hub to the world, the growth of the industry in the region has been substantial, and continues to grow.

Being the largest producer of oil in the world, with around 270 billion barrels of proven oil reserves, it seems only natural that the country develops its downstream sector. This becomes an even more of a pragmatic progression given the proximity of two of the largest growing economies in the world, India and China.

According to the Oil and Gas Journal, Saudi Arabia currently has seven refineries with a throughput capacity in the region of 2.1 million bpd (barrels per day). Saudi Aramco, who is the largest refiner in the country and the world's sixth largest refiner, plans to invest approximately US$70 billion in expanding the sector to a capacity of 3 million bpd.

"The Saudi Aramco development plan calls for US$20bn of investment to increase domestic refining capacity to more than 3mn b/d and international holdings by at least 1-2mn b/d by 2011, particularly in an effort to meet the requirements of the fast-growing Asian market," says a report provided by Business Monitor International (BMI).

Majors Total and ConocoPhillips have both signed deals to form JVs with Saudi Aramco in the creation of new refineries. The construction of the Total and ConocoPhillips JV complexes are both believed to be adding in the region of 400,000 bpd capacity each, with the Total refinery costing roughly US$6 billion.

"Saudi Arabia is keen to expand refining capacity to 3.4 million bpd by 2011, aided by the new Total plant at the industrial city of Jubail. IOCs are happy to invest in Middle Eastern refining ventures as a means of boosting global capacity without the environmental problems encountered in the United States or Europe - and with a source of plentiful cheap crude feedstock to improve plant economics," the report continues.

For the plastics and chemicals segment, Saudi Arabia is also forging ahead with development. In early 2007 Aramco signed an agreement with US chemicals group Dow Chemical for the construction of a US$15 billion petrochemical plant at Ras Tanura.

Other projects include the Al-Waha Petrochemical Company, a joint venture between LyondellBasell, the Dutch petrochemicals major, and Sahara Petrochemical Company, which has seen the construction of a 450000 tpa Spherizone polypropylene plant in Al-Jubail Industrial City.

LyondellBasell also has a JV company with Tasnee and Sahara Olefins company for an ethylene and polyethylene complex, and a JV with Tasnee for an integrated polyethylene complex - all in Al-Jubail Industrial City, which are expected to be online and fully operational this month.

"The government wants to develop specialities in the petrochemicals sector within the country, and to encourage investment in the conversion industry in order to create employment and incorporate the whole chain downwards to finished goods," explains Manuel Fraga, manager of LyondellBasell's joint ventures in Saudi Arabia.

"And while the economic situation will certainly have a large impact on the US and Europe, we feel the Middle East and Asia will not be hit as hard, and growth in the sector will continue into 2009."

This positivism in face of fiscal fears is shared by others looking to continue the unbridled downstream development in the Kingdom. Paul Hodges, chairman of International eChem, commercial advisers to the global chemical industry and its investment community, believes that projects within the country will arrive as expected.

"The industry in Saudi is in a period of major expansion, based on the supply of advantaged feedstock. It has very competitive economics versus other regions and also has advantages of bringing onstream world-scale plants, considerable experience of the markets in which it will be operating and strong logistics," he says.

"The current expansions were all planned and financed back in 2003-5, and therefore their construction is not impacted by the current recession.  New projects are facing some delays, as sponsors wait for lower engineering costs to reappear, and lending markets to re-open."

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