A new petrochemical plant to be built by Oman and US Dow Chemicals will start at the earliest in 2012, three or four years behind initial plans, a Dow executive told newswire Reuters on Monday.
Cost escalation has hit energy projects worldwide, causing delays and cancellations. Oman and Dow were looking to redesign the plant for better profit margins in the face of rising costs, Michael Gambrell, executive vice president at Dow, said in an interview.
“When we started looking at it in the current environment we found it didn’t provide the financial returns and expectations that we wanted to see, so we agreed to go back and rescope it, ” he said. “Cost escalation was a big part of it.”
When the plant was first announced in 2004, construction was scheduled to finish in 2008 or 2009. But the joint venture partners will take another six to 12 months to redesign the plant and another three to three and a half years to build it, Gambrell said.
The plant will be fed with Omani gas. Dow was not concerned about future gas supplies as it had a commitment for the feedstock from the Oman Oil Company, a partner in the plant with the Oman government, Gambrell added.
Still, tight gas supplies were an issue in the Middle East, he said. Rapid economic growth on the back of record oil revenues has fuelled surging demand for gas for power generation, leading to concern that the region’s oil producers may struggle to supply enough gas for planned industrial expansion. “I think we’re all concerned about gas in the Middle East,” Gambrell said.
High costs would hurt Dow and state oil giant Saudi Aramco’s return on investment in the giant Ras Tanura petrochemical complex in Saudi Arabia, although long-term profitability would not be affected, John Dearborn, president for India, Middle East and Africa, said at the same interview.
Dow will make the largest foreign investment in the Saudi energy sector if the plant goes ahead.
The partners had no plans to scale back the project, although there had been some changes in design, Dearborn said.
“We are making excellent progress in Ras Tanura with Saudi Aramco,” he said. “The project is on plan.”
He declined to give a cost estimate for the plant, although he said reports in the media “seemed to bracket things pretty well”. A Saudi Aramco source told Reuters last month the project would cost around $22 billion.
Engineering and design was underway and should be completed in 2009. The partners would then have a better idea of the cost, Dearborn said.
Dow and Aramco were working on selecting banks to help raise funding for the plant, he said.
Unlike the Oman project, most of the feedstock will be oil liquids from the nearby Ras Tanura refinery complex. Aramco is adding 400,000 barrels per day (bpd) at Ras Tanura, which will take total capacity to 950,000 bpd and make it the largest refinery in the Middle East.
The petrochemical plant will also use some gas supplies from a nearby Aramco gas plant.
A cracking unit that Dow and Kuwait are building as part of expansion at their Equate joint venture in Kuwait should be completed during the second half of this year, Gambrell said.
Dow was also “well along” in discussions for a definitive agreement with the Libya’s National Oil Company for a petrochemical plant there, he added.
Dow’s strategy to form joint ventures in the Middle East with state companies give it access to the region’s cheap energy supplies and counter the threat from other Middle Eastern chemical makers. Dow is the largest chemical maker in the US. (Reuters)
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