The huge number of petrochemicals projects launched in Saudi Arabia between 2005 and 2006 affected the commercial start-up of many companies that saw delays as a result of a lack of qualified contractors, construction materials and a number of other factors.
One of those affected companies has been National Petrochemical Industrial Company (NatPet), which finally started commercial operation at its 400,000 tonnes per year (t/y) polypropylene plant in August 2010.
The company opted in 2005 to sign a contract on a lump sum turnkey (LSTK) basis for its project with a number of international contractors. It signed a deal for its propylene unit with Germany’s Lurgi using UOP’s Oleflex technology to produce propylene from propane.
In addition, it also inked another LSTK basis contract with Tecnimont of Italy. Furthermore, NatPet opted to use LyondellBasell’s Spheripol technology for its polypropylene and utilities requirements. In December 2008, Natpet announced the commissioning of its plant, but, like many petrochemicals projects both in the Saudi Kingdom and around the world, the company saw intermittent production, which is a normal occurrence in this phase. RPME took the opportunity to meet with Jamal Malaikah, president and COO of the company, to discuss this mammoth undertaking.
“We are one of at least five petrochemical companies in Saudi Arabia that have faced delays,” says Malaikah. “I believe the boom in mega projects in the GCC and around the world has put a lot of pressure on resources, manpower, engineering companies, vendors and materials. All those projects that started construction in 2005 and 2006 have faced major delays,” he explains. The company’s production facility is located in Yanbu Industrial City on the western coast of the Kingdom. Production during the start-up period was irregular and witnessed some technical problems. Malaikah dismisses those problems as normal. “All petrochemicals projects face technical problems in the first year and NatPet is no exception. However, we will see regular production in 2010 and in the years to come,” he promises.
The president claims that operational rates at the plant are close to 100%. “So far, we are doing well,” affirms Malaikah. NatPet sells its products under off-take and marketing agreements (which are normally negotiated prior to the construction of a facility). It signed a marketing contract with SABIC and another off-take agreement with Noble, a diversified conglomerate based in Hong Kong, to market its product in Asia and Turkey.
In addition, NatPet markets its polypropylene through its own marketing and sales organisation. Currently, the company uses the Jeddah Islamic Port, instead of Yanbu, to export its products. “We only use Jeddah Islamic Port because shipping companies are not calling at Yanbu due to the small size of exports from there,” reveals Malaikah. But Jeddah is about 400 kilometres from the Yanbu plant, which naturally adds extra cost to the firm’s logistics bill.
As with all petrochemicals companies in the Kingdom, NatPet receives gas allocations from Saudi Aramco. It started receiving gas for its fuel requirements in November 2007. On 16th March 2008, the company received propane gas feedstock for the PDH unit. But the price of feedstock is expected to be reviewed by Saudi Aramco in 2012. “We firmly believe that the prices for certain feedstocks should be decreased and not increased – propane is one of them,” he says. “Saudi Arabia should sustain its competitive advantage in the petrochemicals field and increasing feedstock prices may damage this position,” the NatPet president continues. “I am hopeful that there will be a positive dialogue between the policy makers and the petrochemicals sector with regard to this particular matter.”
Losing that feedstock cost advantage would hit the profitability of the petrochemical companies in Saudi Arabia and may affect the position of Saudi Arabia as the new hub of the petrochemical industry. “The damage is not going to be limited to reduced profitability and our ability to compete when there is a down cycle or a slow down, but, more importantly, it could ruin the opportunity to allow Saudi Arabia to become a petrochemical and downstream hub,” says Malaikah.
“In our view, this is extremely damaging to the future of this sector and gives the opportunity to other countries to build more petrochemicals projects, thus depriving the Saudi economy of this important opportunity,” he observes.
The president says that the downturn has bottomed out and that he expects improvement in 2010. “Being a petrochemicals firm, the major factors affecting us are oil prices, slower demand, risks associated with a weak dollar, and the credit crunch. However, oil is stabilising and the GDP in most countries is picking up. The Saudi economy performed well in 2009, and although we are still facing credit issues, we believe 2010 will be much better,” he says.
Surviving the downturn requires a series of actions, Malaikah believes. “In a downturn, you need to solidify your position in the market, offer distinctive products and services, cut costs, be more efficient in your operations and offer value to your clients.”
The president’s intention is that his firm grows vertically and horizontally. In the current climate, it is unlikely that the company will embark on aggressive expansion. Malaikah hints that the ideal period for acquisition may have passed. “I think in 2008 and 2009, the opportunity to do just that was ripe, but acquiring companies in the same field is an option for NatPet at all times.”For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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