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Thu 23 Oct 2008 04:00 AM

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Contax Project Snapshot: Ras Laffan Petrochemical Project

Kathleen Bury, Contax project manager, provides an insight into Qatar’s joint venture petrochemical project with oil major, ExxonMobil.

Kathleen Bury, Contax project manager, provides an insight into Qatar's joint venture petrochemical project with oil major, ExxonMobil.

The planned GCC energy Capex landscape for 2008 to 2010 continues to show signs of growth over the period 2005 - 2007, with circa US $390 billion worth of investments on the table.

The dominant sectors continue to include the refining and petrochemical sectors, with circa US $115 billion and circa US $110 billion respectively already planned for award by the end of 2010. Qatar supports a project Capex position of 15% worth of the investment planned within the GCC energy space.

Following Contax's analysis of project postponements from 2007 to 2008 and within the first half of 2008, it is evident that the market is continuing to see a considerable amount of award and execution schedule slippages.

Nevertheless, given the GCC's commitment to solidifying its global 'petrochemical and refining hub' position, it is anticipated that a number of key projects will be realised to help bridge the global demand and supply gap.

A major project that is expected to help Qatar achieve this goal is the Ras Laffan Olefins Complex (RLOC).

Background and strategic importance

On 15th October 2006, QP and ExxonMobil Chemical Qatar (a subsidiary of ExxonMobil) agreed on a 51:49 JV to build a world-scale petrochemical complex at Ras Laffan Industrial City, located on the northeast coast of Qatar.

The JV aims to utilise the feedstock from gas development projects in Qatar's North Field which - at circa 900 trillion ft3 (tcf) - presents the world's third largest reserves of non-associated natural gas.

The US $4.2 billion petrochemical complex, which includes a world-scale 1.3 million metric tonnes per annum (MTA) steam cracker and associated derivatives units, is expected to begin operations in 2012.

ExxonMobil's steam cracking furnace and LDPE technologies will be employed to produce approximately 2 million MTA of commercial products; polypropylene, monoethylene glycol, ethylene, LDPE and LLDPE.Ras Laffan's coastal location is of strategic importance to the JV, allowing an easy export route to Asian and European markets where premium products are in demand.

However, rising project costs and uncertainty around feedstock allocation may affect the delivery of RLOC. If current inflation rates continue, there is a good chance for the project to be delayed or cancelled.

When the RLOC was announced, the budget was estimated to be US $3 billion. However, given the recent cost escalations in the Gulf petrochemicals sector, the final price tag on the project (US $4.2 billion) is almost 40% more than the predicted cost.

Development of the RLOC project looks set to satisfy a number of key strategic objectives:

1. The investment will utilise feedstock from gas development projects in Qatar's North Field to capitalise on the surging demand for ethylene derivatives in rapidly developing petrochemical markets like India and China. RLOC will target these Asian markets, namely China and India, but also serve the European market.

2. RLOC is part of Qatar's investment programme to build its petrochemicals output capacity to 28 million MTA from 16 different products by 2012. This will make Qatar the world's fourth largest producer of petrochemicals with a diversified and carefully balanced portfolio.

3. The initiative will bring in foreign expertise and innovative chemicals production into Qatar's petrochemical industry and give it access to ExxonMobil's global marketing network.

4. RLOC will enable ExxonMobil to capitalise on its core competencies whilst utilising Qatar's low cost feedstock.  This will provide ExxonMobil with a competitive advantage and a platform for further growth in the Middle East.

5. The complex will produce polypropylene, mono-ethylene glycol, ethylene, LDPE and LLDPE which in turn will provide raw materials and many investment opportunities, creating more jobs for Qatari nationals and helping the Qatari government with its Qatarisation initiative.

Scope of work

The RLOC scope comprises of four main packages:

• Mixed Gas Cracker

• Offsites & Utilities

• MEG Units

• LDPE/EVA Units Timeline and status

All of the packages are currently at FEED stage with the EPC packages scheduled for award in Q4 2009.

Should the current project timeline remain unaffected by the construction delays being faced within the industry, construction on the project should be completed during Q4 2012.

However, delays have already affected the original schedule.

Challenges

With the current resource and material crunch challenges being faced by owners and contractors, the risk of continued project delays and cost escalations continues to rise.

To date, the project is already running behind schedule and as mentioned earlier, has had a substantial budget increase of 40% from US $3 billion to US $4.2 billion.

Recent Contax analysis indicates that there has been a significant decrease in the energy project realisation rate from 2007 to 2008 over the previous year.

This has resulted in a considerable spill over effect pushing up the annual planned project Capex and EPC workload forecasts over the next few years.

Drivers of this trend include the material and resource crunch leading to subsequent cost escalations, downward pressure on productivity (on site), management of mega project complexity and delayed mobilisation/demobilisation on site as a result of sliding project schedules.

Nevertheless, with the recent approved continued funding for the development of the project, completion of the FEED and announcement of the prequalification of EPC contractors for all the packages, Contax believes that the RLOC has a high probability of going ahead.

Contax Opinion: Likelihood of project realisation • Low

• Medium

• High

Contax offers a unique portfolio of fact based market and project reports which provide in-depth project information and market analysis to help you make informed decisions. For more information and access to these reports, please contact marketing@contaxgroup.com.

With over eight years of experience across market intelligence, consultancy, strategy and implementation, Kathleen is a part of the Growth Consulting practice at Contax. She has worked with FTSE 100 and other international companies in the United Kingdom, Middle East and Africa. Kathleen has a strong background in the energy, utilities and construction sectors. You can contact her at contact@contaxgroup.com.

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