Monday, Nov 10, 2008
(This story was originally published on Sunday.)
By Oliver Klaus
Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Kuwait-based Equate Petrochemical Co. will start up a new ethylene plant by the end of the month and several other units next year amid uncertainty over petrochemical demand and falling prices, the company's top executive said.
Equate, majority owned by Dow Chemical Co. (DOW) and Petrochemical Industries Co., or PIC, has completed mechanical construction of its second ethylene plant and aims to start operations "in a week or two from now," Hamad Al Terkait, president and chief executive told Zawya Dow Jones in a written response to questions.
The 850,000-ton-a-year plant, part of Equate's $3 billion Olefins II complex, will convert ethane into ethylene to make ethylene glycol, commonly used as an antifreeze agent in automobile cooling systems.
Units for the production of styrene, used in applications like coffee cups, and aromatics, used in industrial chemical production, will become operational in the first and second quarters in 2009 respectively, Al Terkait said.
CRITICAL TIME
Equate's projects come on stream at a critical time for the Persian Gulf petrochemical industry.
Companies such as Dow, Chevron Phillips and Basell have been investing heavily in petrochemicals in the region in recent years due to the wide availability of cheap natural gas, which is commonly used to make plastics.
Cheap gas prices have given the region a competitive edge over petrochemical industries in Europe and the U.S., which are largely based on naphtha, a crude oil derivative that has become more expensive as oil prices have risen to record levels.
Hydrocarbon-rich countries in the Middle East have also benefitted from booming global demand for petrochemicals, especially from fast-growing markets in Asia, where manufacturers produce ever more consumer goods made of plastics.
However, the latest boom cycle is coming to an end amid falling crude prices and slowing demand for petrochemical products as world economies are heading into a recession triggered by the world financial crisis.
"We're seeing an impact on the petrochemical industry at large globally. It is pretty much a global industry these days so by definition the Gulf petrochemical industry sees the same challenges, which comes at a time when oil prices are coming off as well," Andrew Spiers, senior vice president for global chemicals at Nexant in London, told Zawya Dow Jones in a phone interview.
ECONOMIC CONDITIONS
Crude prices have dropped more than 50% to around $60 a barrel from highs of $147 a barrel in July due to concerns that energy demand will slow due worsening economic conditions. Prices for products exported from the Gulf, such as polyethylene, have subsequently dropped by as much as 50% per ton as well.
"We have seen prices falling and of course this affecting Gulf producers as well," Spiers said.
According to Al Terkait, the crisis hasn't directly affected Equate's plans but he predicts 2009 to be a tough year for producers worldwide.
"Of course, it is very difficult to project what is going to happen in 2009," he said.
"We would expect that the market is going to be tough and challenging. Demand will continue to be slow; prices will also be significantly lower than in 2008," Al Terkait said.
The situation is aggravated by billions of dollars worth of new projects coming on stream in the Gulf in the next 12-18 months, fueling concerns over a glut of products in the market.
According to Jacobs Consultancy, in the Arab Gulf states alone, 10 new ethylene plants will come on stream in the region by the end of 2012.
"We were expecting oversupply because a lot of the expansions are coming on stream. We were expecting prices to be under pressure. And the financial crisis just made it a more pressured situation," Spiers said.
"But if we take a more balanced medium, long-term (approach) the fundamentals of the (Gulf) region are still very strong," he added.
-By Oliver Klaus, Dow Jones Newswires, +9714 364 4962 Oliver.Klaus@dowjones.com
Copyright (c) 2008 Dow Jones & Company, Inc.
(END) Dow Jones Newswires
10-11-08 0429GMT
