Middle East ‘big oil’ to boost global petrochemicals footprint

The Middle East oil companies have giant ambitions in petrochemicals with plans to bring on massive amounts of capacity in 2025, comments Joseph Chang, global editor, ICIS Chemicals Business

Amin Nasser, president and CEO, Saudi Aramco, with officials, after Saudi Aramco signed share purchase agreement to acquire 70% stake in SABIC.
Amin Nasser, president and CEO, Saudi Aramco, with officials, after Saudi Aramco signed share purchase agreement to acquire 70% stake in SABIC.

While the US cracker wave on the back of the shale gas boom is getting much of the attention, big oil and gas players in the Middle East are lining up mega projects that could shift the landscape of global petrochemicals from 2025 and beyond.

Driving this push from oil companies is the growing realisation that oil demand for transportation fuel will plateau with the electrification of vehicles and improving fuel efficiency. Thus, the future for hydrocarbons is not in gasoline and diesel, but in chemicals, where demand should continue to climb alongside GDP growth. And it is clear that ‘Big Oil’ is no longer satisfied simply providing feedstock for the downstream chemical sector.

ADNOC’S $45bn investment plan
ADNOC wants to ‘stretch the dollar’ from the barrel of oil to the maximum through producing chemicals, said CEO Dr Sultan Ahmed Al Jaber. ADNOC is embarking on a $45bn investment plan with a goal to more than triple petrochemicals capacity at its Ruwais site from a 2016 base of 4.5 million tonnes/year (mtpa) to 14.4mtpa by 2025, and adding new downstream product chains in construction chemicals, oilfield chemicals, surfactants and detergents.

In February 2019, its 50/50 joint venture (JV) company Borouge awarded front-end engineering and design (FEED) contracts for the 4th phase of its expansion in Ruwais, which will include a 1.8mtpa mixed feed cracker and add a total of 3.3mtpa of olefins and aromatics capacity. The cracker will be the first in the country to use mixed feeds. The feedstock slate will be ethane, butane and naphtha.

The Middle East is running out of cheap natural gas. All new projects are mixed feed, with a typical mix of about 35% ethane, and 65% propane, butane and naphtha, which is not as advantaged as ethane,” said Hassan Ahmed, analyst at US-based investment research firm Alembic Global Advisors.

While ADNOC and JV partner Borealis plan to finalise the downstream configuration within three months of the FEED contract awards, it should include polyethylene (PE) and polypropylene (PP).

Aramco’s COTC and $100bn plan
Saudi Aramco’s planned crude-oil-to-chemicals (COTC) complex with SABIC in Yanbu, Saudi Arabia is perhaps the most watched project on the planet as it could have stunning implications for the petrochemicals sector.

In late March, Aramco agreed to buy a 70% stake in SABIC from the Public Investment Fund of Saudi Arabia in a $69.1bn deal, taking control and effectively merging the kingdom’s energy and chemical giants into an integrated, international powerhouse.

Featuring a budget of around $30bn and a process to convert 400,000bpd of crude oil to 9mtpa of chemicals and base oils, the Aramco/SABIC COTC mega complex is expected to start operations in 2025. The initial plan was to convert 45% of each oil barrel to petrochemicals. However, Aramco aims to boost that figure significantly by advancing its proprietary process technology. Aramco believes it can convert between 60-70% of the oil barrel into petrochemicals using this technology. Petrochemicals are averaging about 10-15% of global refinery output, with wide differences between integrated complexes.

“In recent years, refiners have increasingly raised their share of petrochemical output at the expense of traditional fuels. Some of the new refineries in China can convert up to 40%,” according to Stefano Zehnder, vice president of consulting at ICIS. “In Saudi Arabia, the original base concept is rapidly evolving. It is clear Aramco is looking to scale up to commercial size its crude-to-chemicals technologies,” said Zehnder.

With the potential for further increase from the base 45% yield, this points to even higher petrochemicals and base oils capacities than the 9mtpa base. The final configuration will be function of the desired balance between petrochemicals, base oil and fuel products,” Zehnder added.

Ahmed notes that crude-oil-to-chemicals is all about “integration and trying to be more efficient both upstream and downstream”. That is because “every new facility in the Middle East puts them higher on the cost curve”, a function of the mixed feedstock slate.

Aramco plans to invest an eye-popping $100bn in petrochemicals over the next 10 years, CEO Amin Nasser said at the GPCA Annual Forum in Dubai in November 2018.

In October 2018, Aramco and France-based Total signed a joint development agreement for the FEED of their planned JV petrochemicals complex in Jubail, Saudi Arabia. The $5bn project, slated for start-up in 2024, will comprise a mixed-feed (50% ethane, 50% refinery off-gases) cracker with 1.5mtpa of ethylene capacity and downstream units.

The petrochemical complex will be downstream of Aramco’s and Total’s JV SATORP refinery and the companies expect an additional $4bn in investments in petrochemicals and specialty chemicals capacity from third-party investors. Aramco is also in the process of merging with Saudi Arabia-based petrochemicals and polymers giant SABIC.

Mega projects worldwide
Aramco and Abu Dhabi’s ADNOC are not only ploughing investment dollars in their backyards but setting up mega complexes around the world. The most ambitious among these is the memorandum of understanding (MoU) signed in June 2018 between Aramco, ADNOC and a consortium of Indian oil companies (Indian Oil, Hindustan Petroleum and Bharat Petroleum) to build a $44bn refining and petrochemicals complex in India with 18mtpa of petrochemicals capacity. Aramco and ADNOC would jointly own 50% of the project, with the Indian consortium owning the other half. The Indian government expects construction to start in 2020 in Raigad, India, with completion of the project by 2025.

Sheikh Abdullah bin Zayed bin Sultan Al Nahyan (standing, left), UAE minister of foreign affairs and international cooperation, and Dharmendra Pradhan (standing, right), India’s minister of petroleum and natural gas, Amin H Nasser (sitting, left), Saudi Aramco president and CEO, and Dr Sultan Ahmed Al Jaber, UAE minister of state and ADNOC Group CEO, at the signing ceremony to explore a strategic partnership and co-investment in the development of a $44bn mega refinery and petrochemicals complex at Ratnagiri, on India’s west coast.

Ahmed cautions on raising expectations from MoUs. “MoUs sometimes do not materialise. Until we see steel in the ground, we typically do not take them too seriously,” said Ahmed.

China is another target for the Middle East oil companies. In February 2019, Aramco signed an agreement with China’s NORINCO Group and Panjin Sincen to develop a $10bn-plus fully integrated refining and petrochemical complex in Liaoning, China, with start-up expected in 2024.

The partners will create a new company, Huajin Aramco Petrochemical (Aramco 35%, NORINCO 36%, Panjin Sincen 29%), as part of a project that will include a 300,000bpd refinery with a 1.5mtpa cracker and a 1.3tpa paraxylene (PX) unit. Aramco will supply up to 70% of the crude oil feedstock for the complex.

SABIC merger to bring projects
Aramco is inheriting two additional mega projects in its planned merger with SABIC. SABIC and China’s Fuhaichuang Petrochemical are planning to jointly build a petrochemical complex in Fujian, China, a source from Fuhaichuang said in late February. The project to be located at Gulei in Zhangzhou would include a 1.8mtpa cracker, a 600,000tpa propane dehydrogenation (PDH) unit and derivatives units, according to the Fuhaichuang source. An official deal has yet to be finalised.

However, one SABIC mega project is already underway. On the US Gulf Coast, SABIC and ExxonMobil are building a 1.8mtpa ethane cracker in San Patricio County, Texas, with a monoethylene glycol (MEG) plant and two PE units downstream. Project completion is expected by the fourth quarter of 2021 and start-up in the first half of 2022.

Beyond the potential merger between Aramco and SABIC, the Middle East oil companies could seek to acquire western petrochemical assets. Aramco acquired Germany-based LANXESS’ synthetic rubber business by buying out the latter’s 50% stake in their ARLANXEO JV in December 2018, while SABIC took a nearly 25% stake in Switzerland-based specialty chemicals and catalysts company Clariant in September 2018.

Earlier, major deals included SABIC’s acquisition of the US-based GE Plastics in 2007 and Abu Dhabi’s IPIC (now Mubadala) buying Canada’s NOVA Chemicals in 2009.

They would still be interested but we would not expect them to go too far from their comfort zone in olefins and polyolefins, and possibly in polyurethanes. We think they would look to the US rather than Europe,” said Ahmed.

It is clear that the Middle East oil companies have giant ambitions in petrochemicals with plans to bring on massive amounts of capacity in 2025. However, it remains to be seen what projects actually start up and in what timeframe.

“The devil is in the details in terms of what gets built, delayed and cancelled. We all know the game of companies throwing down big numbers to prevent competitors from overbuilding,” concluded Ahmed.

(Additional contribution by ICIS editors Nigel Davis, Nurluqman Suratman, Niall Swan and Fanny Zhang.)

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