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Saudi Arabia's Petrochemical Sector Set to Expand

JEDDAH -- The petrochemicals sector in Saudi Arabia offers one of the most promising long-term routes toward economic diversification, according to a report by the Riyadh-based Samba Financial Group.

The kingdom's reserves of oil and natural gas give it a substantial cost advantage over global competitors, which will allow the kingdom to continue expanding basic chemicals output even as a global supply glut begins to squeeze out higher-cost producers in other parts of the world, said the report titled 'Saudi petrochemical sector: Current situation & future prospects.'

"The Saudi petrochemical sector will continue to expand, and should become the primary centre of global production at least for basic chemicals over the long-term," said Howard Handy, chief economist at Samba.

The report said that it has been a difficult 12 months for the Saudi petrochemicals industry. The onset of global economic recession has bitten hard into sales. Saudi Basic Industries Corporation, or SABIC, the Gulf's largest producer, recorded a SR937 million loss in the first quarter of 2009, abruptly reversing a trend of years of large and growing profits. The single largest sector of Saudi Arabia's economy is the extraction of crude oil and natural gas (hydrocarbons), which accounted for 27 per cent of real GDP (gross domestic product) in 2008. Government services were the next largest contributor, with 17 per cent, and were easily the biggest employer. Petrochemicals provided 9 per cent of GDP last year, up from 7 per cent a decade ago.

From being a net importer in the 1970s, Saudi Arabia has emerged as one of the world?s leading petrochemicals exporters, supplying over 100 countries and accounting for around 7 per cent of the global supply of basic petrochemical products. It accounts for around 70 per cent of the Gulf Cooperation Council's (GCC) output.

SABIC, which was established in 1976, is the dominant player in the industry, and now ranks among the world's top six producers.

Over the past three years the company has nearly doubled its output of petrochemicals, and now accounts for over 8 per cent of the sales of the world's top ten firms.

However, deregulation means that there are now a number of private firms operating in the sector. In recent years, the state hydrocarbons producer, Saudi Aramco, entered the market via joint ventures with foreign partners. However, none of its projects have yet come on line.

All participants were initially attracted by the access to cheap and abundant ethane. Between 1990 and 2007 the kingdom's olefins capacity increased five-fold. Currently, there are some $45 billion worth of chemical projects under way. The majority are under construction, including the world-scale Yansab (Yanbu National Petrochemical Company) and Sharq olefins complexes developed by Saudi Aramco, and the Saudi Kayan Petrochemical Company complex at Jubail, which is understood to be the largest single-phase petrochemicals complex ever built.

Most petrochemicals production is based in Jubail. Other plants are located in Dammam and Yanbu. SABIC's joint venture with Saudi Kayan is expected to cost between $8 billion-$10 billion, will consist of an ethylene cracker and units producing ethylene glycol, high-density polyethylene, polypropylene and low density polyethylene.

© Khaleej Times 2009