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Kingdom is low cost petchems champion as industry becomes biggest oil demand driver

Saudi Arabia, October 6, 2018

LONDON: Saudi Arabia remains the world’s low cost champion for petrochemical production as the industry becomes the biggest driver for global oil demand, the International Energy Agency (IEA) said on Friday.
Petrochemicals are becoming the largest drivers of global oil demand, in front of cars, planes and trucks, according to a major study by the IEA.
Saudi petrochemical producers from SABIC to Sahara are seeking to boost output and efficiency while oil companies, such as Saudi Aramco, are also increasingly looking at crude to chemicals technology to tap into the changing industry demand drivers.
SABIC and Saudi Aramco recently announced a massive crude to chemicals project, some five times the size of the only other such facility in Singapore.
Petrochemicals are set to account for more than a third of the growth in world oil demand to 2030, and nearly half the growth to 2050, adding nearly 7 million barrels of oil a day by then, the IEA said.
“Our economies are heavily dependent on petrochemicals, but the sector receives far less attention than it deserves,” said Dr. Fatih Birol, the IEA’s executive director.
“Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends. In fact, our analysis shows they will have a greater influence on the future of oil demand than cars, trucks and aviation.”
Demand for plastics – the key driver for the petchem industry – has outpaced all other bulk materials (such as steel, aluminum, or cement), nearly doubling since 2000, the agency estimates.
The Middle East remains the lowest‑cost center for many key petrochemicals, with a host of new projects announced across the region, the IEA said.
Saudi Arabia and the wider Middle East is at the lower end of the cost curve among petrochemical producing regions for primary chemical production, the IEA note
Currently the region accounts for 12 percent of the global production of high value chemicals, 9 percent of ammonia production and 15 percent of the methanol market.
In addition it also has huge growth potential with 90 percent of naphtha output currently exported instead of being used as petrochemical feedstock because of the ample availability of natural gas.
While the Middle East ranks as the third-largest petrochemical producer, its level of petrochemical and refinery integration is still low compared to other regions.
The IEA said that this may change with companies such as Abu Dhabi-based Adnoc recently announcing a $45 billion downstream investment plan withe the aim of creating the world’s largest refining and petrochemical facility by 2025.
The agency also said that the direct crude oil-to-chemicals route, currently being pioneered by Aramco and Sabic, may soon come to challenge the current model of upstream integration.
Saudi Aramco is also developing a proprietary technology, based on thermal cracking of crude oil to produce chemicals, which promises a 70-80 percent yield of chemicals, the IEA said.
The pair have already announced a large crude-oil-to-chemical project of 400 thousand barrels per day capacity.
That could have a “profound impact on chemical production in Saudi Arabia as well as the world,” according to IHS Markit vice president R.J. Chang.
“The potential impact of crude oil to chemicals projects on global petrochemical production is huge,” he said.

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