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Thu 3 Mar 2011 03:40 PM

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Sabic plans shift to propane, naphtha amid Saudi gas shortage

World’s largest petrochemical maker to make up for a reduced supply of natural gas in Saudi Arabia

Sabic plans shift to propane, naphtha amid Saudi gas shortage
FEEDSTOCK SHIFT: Sabic is switching feedstock to propane and naphtha to make up for reduced natural gas supply (Getty Images)

Saudi Basic Industries Corp, the world’s largest petrochemical maker, is switching feedstock to propane and naphtha to make up for a reduced supply of natural gas in Saudi Arabia, a company executive said.

Sabic and other Saudi producers use mostly ethane because the government provides it at subsidized, below market prices. Other feedstock such as propane and naphtha are more expensive than ethane, and the companies use fewer of these inputs.

The rapid growth of Saudi Arabia’s economy and population in recent years has led the government to divert greater quantities of ethane to power plants to use as fuel for generating electricity. This practice has reduced the availability of the gas for petrochemical manufacturers, Al Rajhi Capital Co, a Riyadh based investment bank, said in a report in August.

Sabic plans to boost its consumption of propane and naphtha to fulfill its expansion plans, Mutlaq Al Morished, the company’s executive vice president for corporate finance, said in an interview yesterday. He declined to give details of the expansion.

“Every petrochemical company wants to expand at the moment, and we all need gas, but there is not enough gas for all of us,” Al Morished said at a conference in Khobar in eastern Saudi Arabia.

The kingdom, holder of the largest crude oil reserves, wants to expand its petrochemical industry to create more jobs for its people. Saudi Arabia reported a 10.5 percent unemployment rate last year.

State run Saudi Aramco is investing about $40bn in three refining and petrochemical projects that together will add more than 8 million metric tons of production capacity, the company’s chief executive officer Khalid al Falih said last December. The outlays include about $20bn for a joint venture plant with Dow Chemical Co and as much as $8bn to expand Rabigh Refining and Petrochemicals Co, a project with Sumitomo Chemical Co, al Falih said.

Aramco and Total SA are moving ahead with a $12bn refinery at Jubail on the Arabian Gulf coast. Aramco is building other refineries at Yanbu on the Red Sea and Jazan in the country’s southwest. Some of these plants will supply products such as naphtha and fuel oil for export.

Saudi Arabia is expected to spend $31.4bn through 2015 on improving gas supplies. Of that amount, $24bn will go toward downstream projects and gas based petrochemicals and fertilizers, according to Arab Petroleum Investments Corp, a multilateral energy investment bank known as Apicorp.

Ethane comprised around 73 percent of all feedstock used in the country until 2007, according to the Al Rajhi Capital report. Ethane’s share is likely to decrease to 65 percent by 2014 as producers consume more propane, which is more widely available than ethane even though it costs more, according to the bank.

“The percentage of natural gas in oil fields in Saudi Arabia has been declining steadily,” Al Rajhi said. “Efforts are underway by Saudi Aramco to boost natural gas production, but we believe there will be a near-term ethane shortage,”

Aramco, the world’s largest state-run oil company, plans within this decade to produce natural gas at new fields in northern Saudi Arabia and off the Red Sea coast, al Falih said in December.

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