Tuesday, 13 December 2011

2012 Outlook on the Oil&Gas Market in the Middle East

Special contribution of Mr. Colin Chapman, President, Euro Petroleum Consultants for the Q1 issue of PTQ Magazine

In the  Refining and Petrochemical Industry it is true to say that “ the only constant in the Industry is Change”  
Over the past decades  Refiners and Petrochemical companies have had to meet Challenges posed by legislation  such as
  • Refiners:to continuously improve product qualities for transportation fuels
  • Petrochemical producers: to produce higher valued products to differentiate from Competitors

In the Gas sector the introduction of Shale Gas on the global horizon is having a major impact on the future Global Gas Markets and in particular in the Middle East and Russia.

To meet these challenges Technology improvements have played a  key role. We have seen very significant improvements in Catalysts, Plant designs and Equipment.
This overview will focus  on the Middle East  Gas and Petrochemicals  markets and impact on the global markets
This overview will focus on the Petroc37%
 As the Middle East region looks to produce and export more refined products, predominantly ultra low sulphur diesel (ULSD) that meet the latest environmental specifications, radical changes are taking place in the established refining infrastructure and also produce more higher valued speciality products in the Petrochemical Sector. Instead of commodity products.
Investment  for new Refineries  and Petrochemical facilities and new process technologies are being extensively reconsidered as the economic climate has changed drastically in the last few years and Middle East producers are taking a fresh look at their existing assets and the options open to them in order to meet the increased production and product quality demands for the future.   Projects are being scaled back to meet the new global situation.
However we have recently seen the announcement about the project for the largest integrated Refinery Petrochemical Complex in the world  “SADARA” the Complex will benefit from the low cost  Ethane and Propane   feedstock from the adjacent Satcorp Complex and also from economy of Scale. The Complex will produce a variety of Propylene  based products and Aromatics. Project is estimated to cost 20 bln usd. About 45% of the products are destined for the Asian markets  and 25% for other countries in the Middle East.

Sadara is the reincarnation of the $28 billion Dow/Aramco Ras Tanura Integrated
Project (RTIP). The project was abandoned in 2010 due to escalating costs and a lack of agreement between the parties. Nearer term, Petro Rabigh’s $10 billion expansion on the Red Sea is being reconfigured from its original plan to produce 17 products in a $6.7 billion investment. Major quantities of speciality liquid chemicals will still feature. And in the immediate future, the $10 billion Saudi Kayan complex. Kayan has been producing major quantities of liquids and polymers for some time and will eventually manufacture 18 products.
These projects are based on low cost feedstock and benefit from economies of scale Middle East prices are usually fixed at favourable rates . The Saudi price for natural gas, by far the dominant feedstock for the petrochemical industry in the Middle East, is $0.75/million British thermal unit (Btu).  This compares with much higher prices in other regions  where prices can vary from 3-10 $/million BTU.
The  objective  of the low Saudi price level was to guarantee  very attractive Internal Rates of Return for the potential international partners whose technology was required to develop the petrochemical sector. The price level has been fixed for decades however the price is due to be revised at the end of 2011 and is the subject of much debate in the region and beyond.

Saudi Arabia is in the leader of the move  towards  differentiated, higher valued specialty liquid chemicals. Other countries in the region are also moving into speciality, liquid chemicals. The move to downstream specialty liquids is a   strategy to stimulate economic diversification in the ccountry leading to greater employment prospects by creating locally available chemical and polymer ‘building blocks’ for local conversion industries. This enables addedvalue to be captured in the region. Eg  Why ship acetone from the Middle East to China, where it is converted into acrylic glass and then ship it all the way back to the Middle East for use in signs and windows?

GAS MARKETS: The Global gas markets are expected to change over the next decades with the production  of  non conventional gas such as Shale Gas in USA and other regions. This will mean that major Gas producers  such as those in the Middle East  and Russia will be looking to alternate options for use of the natural Gas eg for production of Chemicals and Petrochemicals and also liquid fuels and for Power Production. Recent developments in the unconventional gas sector are having an important impact on the global gas market – and the LNG market in particular – and are likely to continue doing so for the foreseeable future.

The emergence of Shale Gas production in the USAs is helping to transform the Gas and Petrochemical sectors in the USA.
The processing of Shale gas has turned around the decline of US gas reserves and significantly changed the gas supply outlook for the United States. According to recent reports estimated US reserves of natural gas were 35% higher than those estimated two years ago.

As a result the US has reduced its LNG demand and this has affected the global LNG markets.
This low cost feedstock compared with previous feedstocks such as Naphtha is allowing to now produce Petrochemicals more efficiently hence reducing the need to close the previously considered inefficient plants. The USA is now looking to become a LNG exporter. This of course impacts other regions such as Russia which was planning large LNG plants targeting such regions as the USA. Such projects have now to be reevaluated.

A sign of its growing importance is the support that these Shale Gas developments are getting from many of the major oil companies, with the likes of ExxonMobil, BP, Total & Petronas already involved in these unconventional hydrocarbon opportunities. 

n Europe, Shale and other unconventional gas resources have been identified in France, Germany, Hungary, Italy, Netherlands, Poland, Romania, Spain, Sweden, Switzerland and the UK.

The long-term growth in Shale Gas production is expected to play an important role in shaping North American, European and Asian natural gas demand.

Australia’s intention of developing its CBM resources is likely to have a significant impact on the Pacific Basin LNG market. These exports would predominantly head towards Asia and therefore directly compete with Qatar’s main export routes.

Both Shale Gas and CBM are susceptible to add considerably more volume to domestic and regional gas supply and as a result could potentially create opportunities for LNG export by the US and Australia.

So  more Changes are on the horizon in Refining Petrochemicals and Gas Sectors in the Middle East

Many of these topics will be presented and debated at our upcoming ME-TECH 2012 to be held in Dubai on February 13th and 14th

This overview was prepared with assistance from Leslie McCune Managing Director of Chemical management Resources Ltd

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