As part of its downstream push, the UAE capital is developing the world’s largest plastics park, complete with tailored logistics and supply chain services.
Blessed by gas reserves of around 214 trillion cubic feet (tcf), the UAE is ranked the fifth-largest natural gas holder in the world after Russia, Iran, Qatar and Saudi Arabia.
Abu Dhabi alone controls around 90% of this reserve, with 198.5 tcf, followed by Sharjah with 10.7 tcf, Dubai with 4 tcf and Ras Al Khaimah with 1.2 tcf of gas.
However, the raw data tells only half the story. Much of the reserves are inextricably linked to oil production and a large portion of the gas also has a high sour content, making extraction and processing an expensive business.
Despite the higher extraction costs, Abu Dhabi is aiming to attract petrochemical production from the region and convert it locally through a dedicated polymers park, a dream that may prove difficult to realise in the current economic climate. However, Mohammed Hassan Al Qamzi, vice president of Abu Dhabi Polymers Park, remains impressively upbeat about the park’s advantages for investors.
“We will have very competitive rates and services that will benefit our converters, reflecting strong savings for them,” he informs Petrochemicals Middle East.
The Mussafah masterplan
With its first plant due to start up by the middle of 2009, the Abu Dhabi Polymers Park (ADPP) in Mussafah will consume between 1m and 2m tonnes per year of polymers, mostly polyethylene (PE) and polypropylene (PP). The masterplan covers 4.5 square kilometres at the Mussafah special economic zone in the UAE capital, with total investment estimated at US$4bn.
With conversion capacity of one million tonnes per year, the park will see the majority of its products exported to regional and international markets.
As well as bulk PE and PP, ADPP will process polyvinyl chloride (PVC) and polyester. Engineering plastics will feature in the future, although this will only be a small proportion of the park’s output.
“People who are looking to invest in ADPP are keen to have very cheap raw materials for conversion into plastics, which will certainly be there, not to mention the additional government incentives that will be given to them,” adds Al Qamzi.
Beyond service provision
Though the park seems to be merely a service provider for the polymer converters, Abu Dhabi has launched a major expansion in the downstream sector, in spite of the feedstock issue that has forced it to look for other sources in order to secure adequate gas allocations.
The emirate has started importing gas from Qatar through the
pipeline, although much of this is destined for domestic power generation. Abu Dhabi plans to use naphtha and other liquids for its petrochemical projects.
“We see a trend in refinery integration where naphtha will be cracked, like at Chemaweeyat in Abu Dhabi, which will begin cracking naphtha in its plant, so the feedstock has been a critical factor in determining the growth and potential expansion,” explains Dr. Abdulwahab Al Saadon, secretary general of the Gulf Petrochemical and Chemical Association (GPCA). “Cracking naphtha or other feedstock aims to generate a wider product portfolio. This will definately help Abu Dhabi to diversify its downstream industry output,” Dr Al Saadon adds.
Chemaweeyat’s production will not begin until 2015, so other factors must come into play to lure investors. It’s not the cheapest feedstock environment, but it is still competitve, and has other attributes. Abu Dhabi certainly seems to have an attractive lustre for companies looking to invest in downstream industries. “I would say Abu Dhabi is just as competitive as the neighbouring countries,” argues Pat Rooney, the Dubai-based managing director - Middle East of the US petrochemicals consultant Chemical Markets Associates Incorporated (CMAI).
Historically, there has been little incentive to develop a local petrochemicals industry due to the small population and, as a result, the small end-user market for plastic goods, but even this is changing. The emirate’s first real downstream foray was the urea-based fertiliser production operation at Ruwais Fertiliser Industries (Fertil), which was set up in 1982. It was not until 1998 that Abu Dhabi entered the basic chemicals industry with the creation of Borouge.
The first phase of Borouge, a joint venture between Vienna-based Borealis and ADNOC, came on stream in 2002 and was an immediate success. Using cheap ethane feedstock to produce 450 000 metric tonnes per year of PE, the complex was expanded in 2005 to increase production to 600 000 metric tonnes per year.
In 2006, Borouge announced plans to build a second-phase complex that will produce polypropylene (PP) in addition to two further PE units. The facility is due to come on stream in 2010, and Borouge recently announced plans for a third cracker to start production in 2013.
The operator has also indicated that it has initiated the feasibility study for Borouge 3 and awarded a further expansion of its polyolefin operations in Abu Dhabi to add approximately 2.5 million t/y of capacity by 2014. “Upon completion of the first phase in 2013, the complex will be the largest and most integrated of its kind in the world,” says Abdelaziz Alhajri, CEO of Borouge.
Building from a solid start
But even with this success, Abu Dhabi’s petrochemicals production is still lower than any other Gulf state except Bahrain. It is trying to diversify its portfolio and become a new petrochemical hub in the region by taking advantage of the huge oil windfalls as well the facilities and the business-savvy reputation the emirate has built for itself.
As part of an ambitious plan to expand its energy sector, the UAE is planning to make a major investment in petrochemicals in the next few years. The Abu Dhabi government has revealed mega petrochemical projects during the last year, including a number of major capacity expansions.
In March 2008, Abu Dhabi’s International Petroleum Investment Company signed an agreement with Borealis and the
Abu Dhabi Investment Council
to build a large-scale integrated olefins and aromatics complex at Khalifa Industrial Zone at Taweelah.
The multi-billion-dollar project, named Chemicals Industrial City or Chemaweyaat will comprise a naphtha cracker, downstream ethylene and propylene derivatives plants, a reformer, and xylene, benzene, cumene, phenol and derivatives.
All are basic ingredients used in the modern chemical industry. The complex will also have a large naphtha cracker, which will provide the plant with feedstock derived from a component of crude oil. The naphtha cracker is crucial because it means the plant will differ substantially from existing plastic plants in Ruwais since it will be fed by crude oil instead of natural gas.
The first phase of this project is expected to have a total project cost of approximately $11-20bn and produce a total output of 7 million metric tonnes per year.
“With regard to Chemeweyat - they can likely do an aromatics based project similar to those in Kuwait and Oman, but at this point a large naphtha or gas-oil-based project would be challenging to put together anywhere in the world if it had no advantaged feedstock in its supply base,” says Rooney.
Facing the challenges
The current financial situation has obliged some companies that expressed their willingness to invest in the polymer park to withdraw their plans. “2% of clients have put their request on hold,” says Al Qamzi. “We have no plans to postpone any part of the project. On the contrary, we will be launching the second phase of the project very soon,” he adds. ADPP has refused to disclose names or numbers of clients, so Low & Bonar remains the only publically confirmed tenant.
“I believe that the main challenge could be competition of quality resources. Abu Dhabi is considered a latecomer to the energy project - and in particular the petrochemical project - market,” says Kathleen Bury, project manager at Contax Group. The attraction of quality contractors could also be a significant challenge. “Owners could develop attractive bid terms to reduce the risk premiums that contractors include within their bid costs. No-one knows what will happen to commodity prices over the next 6-9 months, so one option that could be explored is that of reimbursement of costs over a pre-agreed price level,” she says. Whatever the solution is, Abu Dhabi’s drive to diversify its downstream will continue to be watched closely in the near future.
To read the full interview with Mohammed Hassan Al Qamzi visit
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