SAUDI PETCHEM UNDAUNTED BY TRADE UNCERTAINTY

The Saudi Arabian petrochemical industry received a big foreign investment boost in June, when the UK-based INEOS signed a memorandum of understanding with Saudi Aramco and Total ASA of France to build three new plants as part of the Jubail 2 complex in the kingdom.

The state-of-the-art 425,000-tonne acrylonitrile plant will use INEOS’ world leading technology and catalyst. It will be the first plant of its kind in the Middle East when it starts operation in 2025.

INEOS will also build a 400,000-tonne LinearAlphaOlefin (LAO) plant and associated world-scale PolyAlphaOlefin (PAO) plant. These units will be the most energy efficient in the world when they begin production in 2025.

“This is a major milestone for INEOS that marks our first investment in the Middle East,” said Jim Ratcliffe, chairman of INEOS. “The timing is right for us to enter this significant agreement in Saudi Arabia with Saudi Aramco and Total. We are bringing advanced downstream technology which will add value and create further jobs in the kingdom.”

The new investment taps into the growing global demand for acrylonitrile, as well as for lighter, stronger, energy efficient materials such as ABS filament, composites and carbon fibre.

“This first investment in the Middle East consolidates our position as the market leader and shows a clear and ongoing commitment to meet our customers’ needs wherever they are in the world,” said Joe Walton, CEO, INEOS Oligomers.

Saudi Arabian Basic Industries Corporation’s (SABIC) second quarter earnings declined 17% to SAR 35.78 billion in the second quarter of 2019 compared to the same period last year, while net income during the quarter amounted to SAR 2.12 billion.

The slowdown in global GDP growth coincides with a decline in petrochemical prices due to a significant increase in new supply capacity resulting in lower product prices and margins in key product lines,” said Yousef Al-Benyan, SABIC vice chairman and chief executive officer.

While the results were impacted by lower petrochemical prices, SABIC’s operational performance remains robust, prompting the company to continue investing for growth.

“We recently received all the regulatory approvals to increase our stake in Ar-Razi, the world’s largest methanol complex, to 75% and renewed our partnerships with Japan Saudi Arabia Methanol Company (JSMC) for a further 20 years. Also, we obtained all approvals to establish a petrochemical joint venture project with Exxon Mobil in the US Gulf Coast,” Al Benyan said.

Also during the second quarter, SABIC signed a memorandum of understanding to scope a new solar PV-based power plant in Yanbu Industrial city, which could have a potential capacity between 200 to 400 megawatt (peak). This project would be the kingdom's first largescale renewable energy project built for and by the private sector.

“The initiate aligns with SABIC’s wider sustainability efforts and in June the company launched its Sustainability Roadmap, which is allied to the United Nations Sustainable Development Goals (SDGs). This plan outlines SABIC’s targets relating to resource efficiency, climate change, the circular economy, food security, sustainable infrastructure, and preservation of the environment,” the company announced.

The global petrochemicals sector is facing higher supply and lower demand in the near term.

A new report by ICIS notes that Asia’s methanol, benzene and mixed ethylene market is expected to tilt towards the downside in the next six months due to a combination of rising supply and geopolitical trade tensions

“Polypropylene (PP) prices in the Middle East are likely to be impacted by a surge in Asian supply in the second half of the year, despite limited change in supply conditions within the region, ICIS reported.

While the long prospects of the petrochemicals sector remain on solid footing, trade tensions will see further deceleration in global trade, which will impact the Chinese economy and dampen petrochemical product demand in the interim.

The International Monetary Fund (IMF) said in July that economic growth in China is expected to moderate to 6.2% in 2019 and 6.0% in 2020, as uncertainty and risks around trade tensions remains high.

The expected growth for 2019 was lower than the previous forecast of 6.3%, but within China’s own target of 6.0% to 6.5%, which will impact demand for polyester, and prices of naphtha and monoethylene glycol (MEG) – key petrochemical products. Rising capacity across Asia and the Middle East should also keep prices in check.