DHAHRAN, 19 May 2004 — Gas is the driving force behind the rapid growth of petrochemical industry in the region. The second day of the just concluded gas conference in Dammam was primarily focused on the role of gas in the growth and development of the petrochemical industry in the Kingdom.
Saudi Arabia already has the fourth largest proven gas reserves in the world, after Russia, Iran and Qatar. Saudi petrochemical industry has been flourishing and one of the major reasons for this unprecedented growth is the availability of cheap feedstock.
The first phase of the growth and developments of the petrochemical sector in the Kingdom was achieved by utilizing the associated gas that was being flared up until the Master Gas System was established. By establishing the system, an unused natural resource was transformed into a valuable commodity in Saudi Arabia. The focus is now shifting to the non-associated gas. The major Haradh and Hawaiya projects have also played significant roles in making gas available to the industry.
Recent developments in the upstream gas sector, which could make the required feedstock available to the petrochemical industry and the utility sector are thus being viewed by most observers as a major step toward taking care of the feedstock supply constraint fears.
The current level of gas supply to the industry had its definite limits and there was a definite need to develop the upstream gas sector. Additional gas is therefore required to deliver substantial additional volumes of ethane feedstock, the preferred feedstock for most of the petrochemical plants in the region.
Saudi petrochemical industry enjoys tremendous competitive advantage, as far as feedstock is concerned. Economical feedstock plays a significant role in the growth of the petrochemical sector here. The Saudi industry uses ethane-based feedstock, obtained by cracking gas. Value addition then takes place on this feedstock to turn it into various petrochemicals.
As compared to the Saudi petrochemical producers, most of its competitors use naphtha as a feedstock. When crude prices are high, their feedstock costs goes considerably up. Hence the other producers especially the naphtha-based petrochemical producers in Europe and the US are at a disadvantage.
According to some reports, feedstock contributed almost 60 percent to the total production costs of the petrochemicals. A recent study by CMAI consulting house had indicated that when the crude prices are roughly at around $10 a barrel, even then the petrochemical producers of this region enjoy a competitive edge of around $100/MT over its competitors.
When the crude price goes up to $20 a barrel, the gap widens to almost $200/MT and when it is $30 a barrel the gap turns out to be $300/MT. Due to the very significant growth of petrochemical industry in the region, in recent past there have been some voices expressing concern about the continued availability of adequate feedstock — a sort of supply constraint was feared.
Then gas, generally regarded as the green fuel, was also required to fuel the utilities — the power and desalination plants. With the consumption of power and water growing rapidly in the Kingdom, the need to fuel these plants with gas was also being felt. Secondly, using gas to fuel the desalination and power plants would also free up crude for exports, resulting in additional earning for the Kingdom.
All these requirements would thus have competed with the requirement of gas for the petrochemical industry in the Kingdom, adding to the feared constraint, analysts believed. All these factors could have put brakes on the growth of the petrochemical industry here.
Hence the recent developments in the gas sector are welcome in more than one ways. As Prince Faisal ibn Turki, adviser at the Ministry of Petroleum and Minerals, told Arab News on the sidelines of the First Saudi Arabian National Gas Conference, which concluded in Dammam on Monday, that the available gas is enough to meet the present requirements of the Kingdom.
However, he emphasized that the gas to be made available due to recent signing of accords with global energy majors, would be to meet the requirements of future. The gas from new developments would not be available before four to five years, and that would take into account the future requirements of the Kingdom.
The prince could not be nearer to the facts. New stream of gas to be made available as result of the new concession would go a long way in promoting Saudi Arabia as a major producer of basic petrochemicals. Further growth is pinned on gas. By developing the gas sector, the place of the Kingdom in the global chemical industry has been secured and assured for a long time to come.
