Naptha Is The Key Ingredient For A Saudi Petrochemicals Boom

Although plans are well advanced for constructing one of the world's biggest combined cycle petrochemicals plants in the kingdom, being built by the Sadara Chemical Company (a joint venture between the state oil company, Saudi Aramco, and Dow Chemical of the US), in reality the petrochemicals sector has mostly taken a back seat in the country's rapid industrialisation of recent years. This is primarily due to the shortage of ethane-rich associated gas and natural gas liquids (NGLs), which are both linked to crude oil production. However, this may well change if a new strategy planned by Saudi Aramco bears fruit.

In an indication of the new approach, Saudi Aramco and a joint-venture partner, France's Total, are planning to carry out a feasibility study in October to expand the 400,000 barrel/day heavy-oil refinery at Jubail in Eastern Province that was started up just last week. The expansion is strategic not just for both companies, but also for the kingdom at large, as it will serve as a litmus test for producing significantly higher volumes of naphtha either to partly offset or to replace in full the use of natural gas or natural gas liquids as feedstock for petrochemical products.

Naptha the key to new petrochemicals capacity

Undoubtedly, for the past few years the biggest stumbling block for building a downstream hydrocarbons industry has been the availability of feedstock gas. However, an expansion of the Jubail refinery could throw up options for Aramco to extract naphtha from that facility-which could in turn be supplied for new multi-feed crackers.

A multi-feed cracker is a facility that can operate using either ethane-rich gas or naphtha as feedstock. The first such facility in the Middle East is being built by the Sadara Chemical Company for its chemical plant at Jubail Industrial City. This will soon be followed a similar facility in Qatar, being built in a joint venture between Qatar Petroleum and Royal Dutch Shell for their olefins project at Ras Laffan.

Besides emerging as a new feedstock source, the use of naphtha will result in yet another benefit that is more commercial in nature: compared with a natural gas/NGL cracker, a naphtha cracker can produce a much greater variety of chemicals, such as ethylene, propylene, butadiene, and a full slate of aromatics such as benzene, toluene and mixed xylene.

Aramco has labelled its new programme as "downstream refinery integration", and the expectation is that after Jubail, Aramco will start similar projects for the Yanbu, Jizan and Ras Tanura refineries. Reinforcing this expectation, Aramco and the Saudi Basic Industries Corporation (SABIC) have already selected Yanbu, Ras Tanura and Jizan Economic City as the new locations where they will invest first in infrastructure to create a platform for both private Saudi and international players to invest in new facilities. The three sites are already home to crude oil refineries, providing easy access to feedstock.

Feasibility study should point the way

The Aramco-Total feasibility study should indicate the volumes of naphtha that can be "stripped out" of an expanded Jubail refinery, and, if the report is positive, Fluor of the US and Australia-based WorleyParsons have indicated that there may well be potential to build at least six new world-scale crackers, each with a capacity of some 2m tonnes/year. That figure could increase further, if Aramco's efforts to tap into the kingdom's shale gas resources are successful, and also if non-associated gas is discovered in the Red Sea and the Western region where an exploration and drilling programme is currently under way.

Aramco and Total are already in talks with the Dow Chemical Company to sell the naphtha it plans to produce from the expanded Jubail refinery, while the local Farabi Petrochemicals Company has already showed its willingness to invest at least US$10bn in several "ancillary" projects that could use naphtha to produce rubber, detergents and soaps, as well as other exotic chemicals. The enormous interest in the sector reflects optimism over likely healthy rates of return, reflecting expected high rates of demand growth for downstream products not just in Asia, but also in the Gulf Co-operation Council (GCC) region where the population is increasingly rapidly.

However, one obstacle remains to realising this potential: the need to raise the existing fixed gas price of 75 US cents/m Btu. According to Platts, naphtha prices averaged about US$621/tonne, the equivalent of about US$3.2/m Btu, in the first six months of 2013, and, as a result, if these new naptha conversion plants are to be economically viable, a gas price better reflecting the market rate will be required. However, if a higher price can be implemented, the resulting rise in petrochemicals output would help to mitigate, to a degree, the decline in demand for Saudi crude in North America, owing to rising shale oil output in North America. In addition, by moving towards a naphtha-based petrochemical industry, natural gas would be freed up for reinjection into Saudi Arabia's older oilfields, allowing them to maintain higher levels of output for longer.

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