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Middle East Petrochemicals: Significant Developments in 2001 and Implications.

The following are excerpts from a presentation By Larry Wheeler, a Houston-based petrochemicals consultant, to the 15th Annual APS Conference, which has been postponed from Sept. 22-24, 2001, to Feb. 16-18, 2002. The conference will be held in Tehran. Until 1999, Mr. Wheeler was president of Shell Chemicals Arabia.
 Middle East & North Africa (MENA)
 2001 Capacities for Key Commodity Petrochemicals

Product Capacity
 Million Tons/Year Share of World Capacity
Ethylene 9.2 9%
Polyethylene 4.9 8%
Polypropylene 1.9 5%
Urea 10.3 10%
Methanol 7.2 22%

Number of Operating MENA Ventures for all Petrochemicals = 61 >TE

* The Saudi Gas Initiative and its petrochemical components.
* Progress towards implementation of Iran's long-term expansion plans.
* Further development of large, private sector projects in Saudi Arabia &
* Announcements of new ethylene & derivatives projects in Qatar & Kuwait.
* SABIC's move to become a global producer of petrochemicals.
* The deepening petrochemical industry downturn and negative short0term growth.

The Saudi Gas Initiative, especially, can have a significant impact on the
petrochemical industry in the region.

Venture Ownership Products Location/Date
Core Venture 1 ExxonMobil 35% Ethylene & Derivatives Jubail 2006
 Shell 25%
 BP 25%
 Phillips 15%

Core Venture 1 Same Ethylene & Derivatives Yanbu 2006

Core Venture 2 ExxonMobil 60% Ethylene & Derivatives Yanbu 2006
 Occidental 20%
 Marathon 20%

Core Venture 3 Shell 40% Ethylene & Derivatives Jubail 2006
 TotalFinaElf 30%
 Conoco 30%

Preliminary Agreements were recently signed by the Saudi Government with three consortia of international oil companies for development of the Kingdom's natural gas resources. As shown on the chart, the Agreements envision four, ethane-based, world scale petrochemical complexes, two at Jubail and two at Yanbu, all producing ethylene and/or ethylene derivatives. These projects are now being more fully defined, but stated expectations are that they will be in operation by about 2006. They may or may not involve SABIC. It is very possible that Saudi Aramco could position itself as a partner in these ventures, bringing it into a more complex relationship with SABIC as both a raw material supplier and a competitor.

A major concern is that these projects don't appear to be driven by market demand and, if not properly phased, could have a significant negative effect on regional supply/demand balances and product pricing.

There are a number of issues besides timing to be resolved. These include the prices that the investors will receive for the natural gas and natural gas liquids they produce and the prices that will be charged to the petrochemical ventures for these materials as feedstocks. It will most likely be difficult to arrive at pricing that is high enough to make the gas development investments profitable, yet low enough to make the petrochemical investments profitable. Due to the complexity of these ventures and the many difficult issues to be resolved, there is a high likelihood of delay. Another key development of the past year has been the continuing progress made by the National Petrochemical Company of Iran in advancing its long-term expansion agenda.

Product Project Total New Capacity
 Million Tons/Year
Ethylene Olefins 6, 7, 8, 9, 10 6.3

Polyethylene Olefins 6, 7, 8, 9, 10 3.0

Urea Bandar Imam,
 Bandar Assaluyah,
 Qeshm Island,
 Kermanshah 3.1

Methanol Methanol 3 & 4 2.8

As shown on the chart, expansion plans include five ethylene and derivatives projects as well as significant urea and methanol expansions, all to stream within the 2002-2005 time period. The Iranian Oil Minister, Mr. Zangeneh, has stated that Iran needs about $4.5 billion of fresh investment to carry out these plans. Many of these projects involve foreign investors and there is concern that the recent rejection by the Guardian Council of the new foreign investment regulations, earlier approved by the Majlis, could delay the implementation schedule. The private sector in Saudi Arabia and also in Egypt has shown the ambition and the ability to carry out mega-projects, previously the exclusive domain of government-owned chemical companies.
Ownership Products Estimated Cost Status

Saudi International Methanol $700 million Technologies
Petrochemical Company Acetic Acid Contractor Selected.
& Partners Vinyl Acetate Financing Arranged.
 Maleic Anhydride 2003-2004 Startup.
 1,4 Butane Diol

National Petrochemical Propylene $550 million Technologies
Industrialisation Polypropylene Contractor Selected.
Company and Basell Developing Financing.
(Saudi Arabia) 2003 Startup.

Alujain & Partners Iso-Octane $425 million Technology Selected.
(Saudi Arabia) Developing Financing.

 2004 Startup.

TAAS Group (Egypt) Ethylene $900 million Announced.
 Propylene 2004 Startup.

As shown on the chart, the Saudi International Petrochemical Company, the National Petrochemical Industrialization Company, the Alujain Group, and the TAAS Group in Egypt are all involved in projects in the $400-900 million range, to stream in 2002-2004. The first mega-project of this type, the Saudi Chevron Petrochemical Company, was successfully streamed last year.

These ventures are typically syndicates of many private investors in partnership with foreign technology suppliers who also invest in the projects. The ventures purchase their feedstocks from the national oil companies and also benefit from access to Government-sponsored, low cost financing, such as that provided by the Saudi Industrial Development Fund.

Project Ownership Products On-Stream
 Capacities KT/Yr

QCHEM II Qatar Petroleum Co. Ethylene 1200 2006
 Chevron Phillips Polyethylene 750

EQUATE II PIC of Kuwait Ethylene 850 2005
 Unnamed Partner Polyethylene 450
 Ethylene Grycol 650

Aromatics PIC of Kuwait P-Xylene 670 2005
 Benzene 380
 Styrene 500

The government-owned Qatar Petroleum Company and the Petrochemical Industries Company of Kuwait recently announced major new ethylene complexes, Q-Chem II and Equate II, based on offshore gas reserves. These projects would double the production of ethylene and derivatives in the two countries. QCHEM II will have the same ownership as QCHEM I, with Qatar Petroleum Company and Chevron Phillips Chemical Company as partners. EQUATE II will be a joint venture, but the foreign partner has not yet been selected. The Kuwaitis also announced a major aromatics project, based on naphtha feedstocks from local refineries. This will be a wholly owned venture. These projects would all stream in 2005-2006.

SABIC also has a new ethylene and derivatives complex under development, the Jubail United Petrochemical Company to stream in 2004, but its ambitions go beyond continued expansion of its diverse Saudi manufacturing base.
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Publication:APS Review Downstream Trends
Date:Sep 24, 2001
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