MENA Petrochemicals Special Report

For analysis and commentary on these and other stories, plus the latest downstream developments, see inside…

Copyright © 2012 NewsBase Ltd.

www.newsbase.com Edited by Ian Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All

reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

April 2012

Special Report News

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OVERVIEW 2

The Arab Spring and its impact on MENA downstream projects 2

SAUDI ARABIA 3

Sadara – changing the game 3

QATAR 5

Shell finally enters Qatar’s petrochemicals sector 5

UAE 7

Borouge 3 expansion project set for late 2013 start 7

ALGERIA 8

Eyeing up Algeria’s Arzew 8

EXPORT OUTLETS 10

Middle East export projects key to expansion 10

IN THIS NEWSBASE SPECIAL REPORT…

Petchem promise While the Arab Spring brought upheaval to much of the MENA region, several major petrochemical projects are steaming forward, and will bring enormous increases in the region’s output capacity.

The largest of these is Sadara – Aramco-Dow’s 50:50 joint venture that is likely to cost around US$20 billion. (Page 3)

Pearl GTL appears to have helped open the door for Shell in Qatar, as it follows up the project with a petrochemical venture in Ras Laffan. (Page 5

Abu Dhabi’s Borouge expansion is set to bring together ADNOC’s competitively priced feedstocks with Borealis’ Borstar polyolefins.(Page 7)

Algeria is keen to retain the value of its natural resources by increasing its downstream infrastructure, but progress has been slow at the flagship Arzew ethane cracker. (Page 8)

These four are among a host of projects that will see the Middle East’s capacity rocket in the next decade. A wide range of ventures are under way to open up export routes for their output. (Page 10)

NewsBase

MENA Petchem Projects–– Special Report ––

MENA Petchem Projects April 2012 page 2




On March 7, a senior energy analyst with Goldman Sachs, Jeffey Currie, set the tone for a leading oil and gas conference in Houston when he said: “History does not repeat itself, but it does rhyme.” His statement is open to several interpretations.

However, in the Middle East and North Africa (MENA) – home to nearly 56% of the world’s proven reserves of crude oil and natural gas – few will deny that history was made with the Arab Spring of 2011, from both from a geopolitical and business perspective.

While oil production remained undeterred in the six Gulf Co-operation Council (GCC) states, the scenario was quite different in Libya, with over 1.6 million barrels per day of output being hamstrung for more than a month. On the natural gas front, production was affected in Egypt, besides Algeria, Libya and Tunisia, with supplies being curtailed through the sub-Mediterranean pipelines to consumers in Europe.

The Arab Spring also impacted the downstream sector in MENA.

“Demand for polymers weakened significantly and some producers were unable to book sales for several months,” a New York-based petrochemical product trader told NewsBase. “A number of chemical plants in Libya and neighbouring countries were shut down, as there was a shortage of feedstock to run polyolefin facilities,” he added.

Top of the list was the 130,000 tonne

per year ethane cracker at Ras Lanuf in Libya, which forced Egypt’s Oriental Petrochemicals Company (OPC) to run its 160,000 tonne per year polypropylene (PP) plant at around 80% capacity.

In Syria, which is the largest consumer of polyethylene (PE) and PP resins in the East Mediterranean region, a number of converters have been running plants at rates of 30-50%.

Along with the dip in output, producers have also faced logistical issues: land transportation costs to Syria for PE and PP resins have increased by an average US$5-20 per tonne since the unrest began last spring.

Lower Gulf In the GCC states, a prime concern is the demand/supply scenario in Asia.

“The GCC downstream sector is driven primarily by demand and prices,” Colin McKenzie, a senior vice president in Saudi Arabia with US engineering firm Fluor Corporation, told NewsBase. “China’s growth forecast has just dropped to 7.5% in 2012 from 8%, but the marginal difference has not impacted project activity in the lower Gulf. [Saudi Basic Industries Corp. (Sabic)] is firing on all cylinders and along with it the private sector in the kingdom, as more feedstock gas will be available from mid-2014 onwards when Saudi Aramco brings on stream the Al-Arabiyah and Shaybah facilities. The Arab Spring has had little impact on the downstream

patch in the GCC,” he said. His views are shared by Sriharsha

Pappu, a Dubai-based analyst at HSBC Global Research, who commented that the overall impact on the Middle East petrochemical industry had been minimal, given there are major petrochemical complexes in the region mainly catering to the European and Asian markets.

“The political unrest in MENA had an impact on trade flow, but the domestic market is quite small,” he said in a research note. He added: “The consequent spike in crude prices, meanwhile, had a net positive effect on the business operations of major petrochemical players within the GCC, particularly Saudi Arabia, Qatar and the UAE. The bulk of the petrochemical capacity is in the GCC.”

Looking ahead, the future seems to be bright for GCC downstream producers.

For its part, the Royal Commission for Jubail and Yanbu (RCJ&Y) has recently given the green signal for five major ventures entailing an investment of around US$5.86 billion.

To the south, in December 2011 Qatar Petroleum (QP) signed a heads of agreements (HoA) with super-major Shell to build a steam cracker and a mono-ethylene glycol (MEG) plant with a capacity of 1.5 million tonnes per year and a 300,000 tonne per year linear alpha olefins (LAO) unit.

OVERVIEW

The Arab Spring and its impact on MENA downstream projects The Arab Spring took a major toll on downstream activity across North Africa. However, as stability returns, the focus is beginning to turn back to delayed projects and potential growth By Ashok Dutta A number of plants in Libya and neighbouring countries were shut down because of feedstock shortages Downstream projects in Saudi Arabia saw little impact, remaining stable There remain challenges when investing in North Africa; however, appetite appears to be there





Also, QP recently signed an initial agreement with fellow petrochemical producer Qapco to build a facility of capacity 1.4 million tonnes per year of ethylene, 850,000 tonnes per year of high-density PE, 430,000 tonnes per year of linear low-density PE, 760,000 tonnes per year of PP and 83,000 tonnes per year of butadiene.

“There is a resurgence of petrochemical activity in the GCC and we would expect this to grow further. QP is due to sign a deal with Total of France for a world-scale cracker and the third phase of expansion of Borouge [Abu Dhabi Polymers Company] will go ahead,” McKenzie pointed out.

North Africa In North Africa, the scenario is somewhat unclear despite the high

potential that exists. Statistics from the Algerian Plastics

Association – Plast Alger – show the lack of downstream domestic production in petrochemicals and highlight that with an annual domestic plastic consumption of around 1 million tonnes per year, 50% is still imported from Asia and Europe.

“The Algerian plastics market has an enormous potential,” Plast Alger said on its website.

According to Eckart Woertz, director of economic studies at the Gulf Research Centre in Dubai, both Algeria and Libya stand to gain from investment in the petrochemical industry, as they have available oil and gas resources.

“There is room to expand,” he told NewsBase. “Egypt as well has plentiful feedstocks that would give a competitive advantage to petrochemical producers,”

he added. Despite the challenges of investing in

petrochemicals in North Africa, a project is moving forward for a Polyethylene Terephthalate (PET) resin plant in Egypt in a partnership with India’s Dhunseri Petrochem and Tea Limited.

The foundation stone has been laid for the US$160 million project to be built near the Gulf of Egypt.

With a nameplate capacity of 420,000 tonnes per year, the plant is due to be commissioned by the end of 2012.

As some form of stability is returning to North Africa, companies have already begun lining up to help the region tap its potential as a petrochemical producer, and it can be expected that the area will begin to flourish into a major player in the sector.

Of all the petrochemicals projects being built throughout the Middle East and North Africa, Saudi Arabia’s Sadara is the biggest. A 50:50 joint venture between Saudi Aramco and the US’ Dow Chemical, the Sadara Chemical Company will oversee the construction and operation of the largest chemicals production complex ever constructed in a single phase.

Sadara, originally known as the Ras Tanura Integrated Project (RTIP) – and once termed ‘The Beast’ by bankers awed by the scheme’s size and expense – was moved to Jubail Industrial City II because of escalating costs, and will now be located around 100 km north of

Dammam City. Insurance and guarantees from export

credit agencies (ECAs) from around the world will bear the brunt of its financing, to the tune of around US$13 billion. Aramco and Dow will jointly fund the remaining US$7 billion of the US$20 billion that the mega-project is expected to cost.

An initial public offering (IPO) is scheduled to be offered during 2013-14 to raise this equity.

In late-November 2011, a source close to proceedings told NewsBase that “the nine ECAs backing Sadara had their second meeting in early November – they have all committed to back exports

to the project from their own countries.” According to Project Finance

International (PFI), this list has since been cut down to seven – JBIC, Kexim, K-Sure, US Exim, the UK’s ECGD, Hermes and Coface.

PFI said that the project was expected to look at tapping the 144a and local sukuk bond market in addition to the ECAs and the local and international commercial banks.

ECAs from Japan, North America, France and Germany – as well as Saudi Arabia’s Public Investment Fund – are also thought likely to back a financing package to cover around 60-70% of Sadara’s capital costs.

OVERVIEW

SAUDI ARABIA

Sadara – changing the game The Beast is taking shape, and changing the playing field at the same time By Ian Simm Export credit agencies are backing the project, which is expected to cost around US$20 billion Sadara will use ethane and naphtha from the SATORP refinery in Jubail as feedstock First production will begin in the second half of 2015, with 45% of exports aimed at Asian markets





Products Sadara will produce: ethylene (E); propylene (P); aromatics; methylene diphenyl diisocyanate (MDI); toluene diisocyanate (TDI); polyether polyols, propylene oxide (PO); propylene glycol (PG); elastomers; linear low-density polyethylene (LLDPE); low-density polyethylene (LDPE); glycol ethers and amines.

The source said: “The capital costs of the project are continuing to come down, which have been helped by the competitiveness of the contract award process, and will add to the cost savings made via the move from … Ras Tanura. All of this will help with the financing process.”

He added that there was still no final capital figure for the Sadara scheme, but that estimates of US$20 billion continued to be bandied about.

Input and output Sadara will use ethane and naphtha derived from oil and natural gas liquids (NGL) as feedstock, which will then be cracked into propylene (P) and ethylene (E) at the cracker units.

It will be supplied from the Saudi Aramco Total Refining and Petrochemical Company’s (SATORP) Jubail refinery, which is currently under construction. This unit is due to be fully operational in late 2013.

Chemicals Technology reported that the feedstock for the propylene oxide (PO) unit would be supplied by a new hydrogen peroxide plant to be constructed by a 50:50 joint venture between Sadara and Solvay.

Sadara will produce polyeurethanes, PO, propylene glycol (PG), elastomers, linear low-density polyethylene (LLDPE), low-density polyethylene (LDPE), glycol ethers and amines. First production units are anticipated to come on line in the second half of 2015, while all units are expected to be up and running in 2016.

Contract awards In early March, the JV announced that it would award all major contracts for the complex by the third quarter of 2012.

An official statement cited Sadara CEO Ali Abuali as telling a Saudi conference that 66% of the awards had already been made.

All engineering, procurement and construction (EPC) contracts were already expected to have been awarded by the current quarter, but no final announcement has yet been made.

In mid-February, US-based conglomerate Foster Wheeler was granted an EPC contract for a PO project to integrate Sadara. The contract was awarded by Saudi Aramco’s subsidiary Aramco Overseas Co. and Dow Europe.

The project is an extension of the front-end engineering design (FEED) contract awarded to Foster Wheeler by Aramco and Dow in 2008. The PO project is scheduled to be on stream in the first quarter of 2015.

Foster Wheeler’s chief operating officer, Umberto della Sala, said: “A key factor in this win was the outstanding Foster Wheeler performance delivered on previous work for Saudi Aramco and Dow.”

According to Arab News, the PO unit will be managed by Foster Wheeler’s Thai operation, following the completion of a new PO facility in Thailand for the Dow-Siam Cement Group joint venture.

In early April, technology group Linde was awarded a long-term contract to supply Sadara with carbon monoxide (CO), hydrogen and ammonia.

Seven international companies have

lined up to submit both technical and commercial bids by May 31 to build a major tank farm facility for the storage of petrochemical products from the facility.

Estimated to be worth US$500 million, the scope of works for the engineering, procurement and construction (EPC) contract includes building 37 storage tanks with a total capacity of 330,000 cubic metres. A handling unit will also need to be constructed, as well as berth facilities, substation, fire-fighting facilities and truck loading and unloading facilities.

The tender is expected to be released by the end of April.

NewsBase understands that those interested in bidding are: Larsen and Toubro (L&T) and Punj Lloyd, both of India; Hanwha Engineering and Construction, Hyundai Engineering and Construction Company and SK Engineering & Construction, all of South Korea; Petro-Steel of Singapore and China’s Sinopec.

Earlier awards The second half of 2011 saw Sadara bestow several contracts.

In July, it awarded a US$920.3 million EPC contract for the project’s main mixed feed cracker to South Korea’s Daelim. The flexible cracker will break the naphtha and ethane feedstock to produce around 3 million tonnes per year of chemical products and plastics – part of the overall 8 million tonnes per year of specialised chemicals manufactured from the scheme, which will represent the largest plastics and chemicals production complex ever built in a single phase. It is also indicative of Saudi Arabia’s moves to diversify its petrochemicals industry.

Daelim is also reported to be the lowest bidder, against Samsung Engineering, for building parts of the other production units at the Sadara complex. “The Koreans have done really well, gaining some quite juicy contracts by undercutting everything else by as much as 30-40%,” said the source.

Indeed in October, fellow Korean firm Daewoo Engineering & Construction was awarded two packages for tank farms at Sadara.

SAUDI ARABIA





The firm will carry out the EPC for the main tank farm, as well as the specialist cryogenic tanks at the facility. Daewoo’s combined bid was around US$300 million, at least US$200 million less than was estimated.

In August, US-based Fluor Corp. was awarded a US$2 billion engineering, procurement and construction management (EPCM) contract for developing all the offsite work and utilities (O&Us) at the site.

The scope of work will include development of associated infrastructure and pipework arrangements to allow the construction of the complex.

In mid-October, ABB was awarded the main automation contract for the complex. As part of the contract, ABB will build process automation and safety systems for the unit and also provide project management, project engineering and commissioning assistance services.

Post-delivery site support, training the technicians for maintenance and operation are also part of the contract.

Early November saw the award of another key contract, when Jacobs Engineering was announced as the winner of an EPCM contract for the Chemicals 1 Envelope.

Under the terms of the contact, Jacobs is providing front-end engineering design (FEED) and detailed engineering services, in addition to procurement, inspection and delivery of equipment and bulk materials, as well as the overall construction management.

Changing the game Another major milestone, the JV shareholders’ agreement for Sadara, was signed by Aramco and Dow in early October 2011, bringing nearer to fruition a scheme that will be instrumental in Saudi Arabia’s strategy to not only become a strategic chemicals and plastics producer but also a hub for future downstream manufacturing.

Saudi Arabia’s ethylene and propylene capacities are expected to rise by 2015, with Saudi Kayan’s commercial

operation in 2011 set to contribute the most to the increase.

With the addition of Sadara, this upturn will continue skyward. Production from the first Sadara units is due to begin in the second half of 2015, and all units should be up and running in 2016, after which annual revenues of roughly US$10 billion are anticipated within a few years of operation, with around 45% of exports targeted at Asia.

Amrita Sen, assistant vice president of Commodities Research at Barclays Capital the Middle East, told NewsBase: “the Middle East petchem expansion is gaining pace and will continue to remain a key pillar of global growth. The region’s petchem demand is soaring, a function of growing population and rising standards of living.”

As the largest oil producer in the region, Saudi Arabia will play a major role in turning the Middle East into a global petrochemicals hub, with Sadara the jewel in the kingdom’s crown.

As one of the world’s largest oil and gas countries with both deep-rooted upstream and downstream interests, Qatar will hold a special place for the Royal Dutch/Shell Group for various reasons.

It was Shell who first hinted in the 1980s to Doha’s ruling Al-Thani family that the tiny Gulf Arab state and smallest producer in the Organisation of

Petroleum Exporting Countries (OPEC) was perched on the North Field – the world’s single largest reserves of non-associated natural gas.

Yet despite that ‘revelation’, Shell was not part of the original team of international oil companies (IOCs) that kick-started Doha’s ambitious natural gas development programme and made

liquefied natural gas (LNG) a reality. A similar story was repeated a decade

later, when Qatar General Petroleum Corp. (now known as Qatar Petroleum (QP)) launched its new series of gas-based downstream ventures, with Shell being left out of the loop once again.

SAUDI ARABIA

QATAR

Shell finally enters Qatar’s petrochemicals sector Qatar Petroleum’s new petrochemical venture with Shell indicates both are keen to make up lost ground By Ashok Dutta Shell has added to its Pearl GTL facility in Ras Laffan by signing a deal for a new mega petrochemical plant The move is the company’s first into the Qatari petchem sector as it looks to make up lost ground It is thought the project will help Qatar emerge as a mega producer of a new range of downstream products





Looking up But it was not all doom and gloom for Shell, however. In between, the company was successful in signing up with QP to build Qatar’s second gas-to-liquids (GTL) plant – Pearl GTL – at Ras Laffan, after South Africa’s Sasol took the plunge and constructed the Oryx facility with an initial capacity of 34,000 barrels per day.

“Our relationship with Shell has been one of missed opportunities since the 1980s,” Abdullah Hussain Sallatt, a former technical advisor at Qatar’s Ministry of Energy and Industry, told NewsBase in an interview from Doha. “When we started our LNG programme, it was the Japanese [Chubu Electric Power Company, Marubeni and Mitsubishi Corporations] and the US’ ExxonMobil who came to our aid. While the former signed up as launch customers for Qatargas [Qatar Liquefied Gas Company], built our first fleet of LNG carriers and also extended financial credit, the latter assisted with the technology to build the first gas liquefaction train. Shell was not there to help us, as they were probably not willing to share the risk of developing a grassroots LNG industry. We were disappointed.” According to Sallatt, in the late 1990s when QP was drawing up the blueprint to set up its new petrochemical projects at Ras Laffan – that would utilise the natural gas from the mammoth North Field as feedstock – preference was given to ExxonMobil and Total of France.

“Total had helped in setting up the first generation of petrochemical projects [Qatar Petrochemical Company (Qapco) and Qatar Fertiliser Company] in the late 1970s at Mesaieed,” he hastened to add. “We always said it was not too late for Shell to jump onto the bus, but our first preference had to go with those IOCs who stood by us initially,” Sallatt noted.

Bandwagon Thus, when Shell recently signed a heads of agreement (HoA) to develop a petrochemicals plant at Ras Laffan at an estimated cost of US$6.4 billion, it came as a surprise to some in the industry.

In late December 2011, QP announced the signing of a deal with Shell to build a world-class petrochemical plant. It will be 80% owned by QP, with Shell retaining the remaining 20% shares.

“Both parties plan to sign a final joint venture agreement [JVA] by the end of 2012 or early 2013,” Qatar’s Energy and Industry Minister Mohammed al-Sada told reporters soon after the signing ceremony, adding that the project would be completed in 2017. The HoA sets the scope and commercial principals for the project, which will include a steam cracker and a mono-ethylene glycol (MEG) plant with a capacity of 1.5 million tonnes per year. The complex will be designed to produce 300,000 tonnes per year of linear alpha olefins as well. “We have been holding discussions for a long time with ExxonMobil, Total and Shell for the facility, as there is a growing demand in Asia and the Far East for such exotic products,” Sallatt said.

“The Shell project signals our entry into the next generation of chemical products,” Sallatt added.

The next stage in the project implementation will be the completion of a pre-feasibility study and the launch of tenders in early 2013 for the front-end engineering and design (FEED) package, Jay Ibrahim, senior vice president of business development with Australian engineering firm WorleyParsons in Abu Dhabi, told NewsBase.

“The FEED contract will result in finalising plant output and also final cost estimation,” he said. “The main EPC

[engineering, procurement and construction] tenders will be issued by mid-2013.” More downstream project activity is planned by QP.

“The Shell venture would not replace the one that ExxonMobil proposed two years ago, and we plan more petrochemicals projects,” Al-Sada said.

Evidence was at hand in mid-February, when QP put pen to paper on yet another HoA with Qapco to develop a new, mega-petrochemical complex at Ras Laffan. The complex will include a world-scale steam cracker and produce 1.4 million tonnes per year of ethylene, 850,000 tonnes per year of high-density polyethylene (HDPE), 430,000 tonnes per year of linear low-density polyethylene (LLDPE), 760,000 tonnes per year of polypropylene (PP) and 83,000 tonnes per year of butadiene. The project is scheduled for completion in 2018. QP will hold 80% equity interest in the facility, with Qapco taking up the remaining 20% stake.

“QP and Qapco have been working together for the past few months to plan the development of the project, which will contribute to meet the continuously growing global demand for various petrochemical products. These products will be marketed primarily in high-growth markets in Asia, Africa and Latin America,” Al-Sada informed.

With the ball now rolling with Shell and Qapco, at long last Qatar is set to join the super-league of petrochemical producers in the Middle East and Asia.

“Sabic [Saudi Basic Industries Corporation] has already started producing speciality chemicals. With the Shell project, we too will emerge as a mega producer of a new range of downstream products,” Sallatt commented.

With a planned capital expenditure of US$6.4 billion, for its part the Shell facility will also signify one of the largest potential investments made in Qatar’s downstream business by IOCs in the past few years. The last major investment was an estimated US$18-19 billion for the Pearl GTL facility, which is also owned by Shell.

QATAR





Abu Dhabi’s flagship Borouge 3 expansion project in Ruwais will extend the emirate’s reputation in advanced plastics for the infrastructure (pipe systems, and power and communication cables), automotive and advanced packaging markets.

Abu Dhabi Polymers Company (Borouge), a joint venture (JV) between Abu Dhabi National Oil Company (ADNOC) and Austria-based Borealis, is already a significant global player.

With joint bases in the United Arab Emirates (UAE) and Singapore, it employs around 1,600 people and serves customers in more than 50 countries across the Middle East, Asia-Pacific, the Indian sub-continent and Africa.

The JV has successfully brought together ADNOC’s competitively priced

feedstocks with Borealis’s Borstar polyolefins (PO) technology to provide a strong market advantage.

Marching on And recent years have seen steady growth, which the Borouge 3 expansion will build on. In 2010, the company tripled its annual production capacity in Abu Dhabi to 2 million tonnes with the launch of the Borouge 2 project, which is now in full production.

An additional 2.5 million tonnes per year will be introduced by mid-2014 via the Borouge 3 project to create the world’s largest integrated PO plant.

The intention is to take total annual capacity at the Ruwais site to 4.5 million tonnes by mid-2014.

According to project insiders, the

multi-billion dollar project remains well on track, a point echoed by Borouge CEO Abdulaziz Abdulla Alhajri himself at the turn of the year.

Bechtel is providing overall management support for the implementation of the project.

In 2009, Tecnimont was awarded the front-end engineering and design (FEED) contracts for the entire Borouge 3 venture, which it completed at the start of 2010.

Update Speaking at a conference on March 27, Jasem Ali Al Sayegh, head of ADNOC’S refining division, said that work was “progressing on schedule with a 60% completion rate.”

The company is hoping that the added supply from Ruwais will more than cover current domestic demand, allowing it to export refined products. So far, it has not released figures for the volumes that it expects to be released on to the world market. In total, the expansion will be developed in eight packages, including crude distillation and sulphur recovery facilities, a residue fluidised catalytic cracker, offsites and utilities, storage tanks, infrastructure work, marine works, and two separate packages for the site preparation works.

Tenders and contracts Borouge 3 includes an ethane cracker, two polyethylene (PE) units and two polypropylene (PP) units, as well as a low-density polyethylene (LDPE) unit.

UAE

Borouge 3 expansion project set for late 2013 start Abu Dhabi’s Borouge expansion in Ruwais is set to come on line late next year, bringing together ADNOC’s competitively priced feedstocks with Borealis’s Borstar polyolefins By Martin Clark An additional 2.5 million tonnes will be introduced by mid-2014 to create the world’s largest PO plant Work is on schedule and around 60% has so far been completed Once engineering work is ready, further budgeting will take place for the project’s completion





Tecnimont and Samsung Engineering landed two key contracts, collectively worth US$1.65 billion, for the two engineering, procurement and construction (EPC) lump sum turnkey contracts covering the multiple PO units package – which includes two low/high-density PE (LD/HD-PE) units and two PP units – and the LDPE package.

The LD/HD-PE units and PP units will utilise Borealis’s Borstar technology.

The two plants will each have a capacity of 540,000 tonnes per year, while the two PP plants will each have a maximum capacity of 480,000 tonnes per year. The LDPE unit will utilise the Lyondellbasell LupoTech T process, associated with Borealis’ LDPE W&C (Wire and Cable) process, and will have a capacity of 350,000 tonnes per year.

South Korea’s Hyundai Engineering and Construction also netted a contract worth US$935 million for the offsite and utilities (O&U) facilities.

In October 2011, the JV awarded a contract to Cyprus’ privately owned Hyperion Systems Engineering for the Borouge 3 Information Technology Strategy and Borouge 3 Information Technology FEED to support the major expansion. Hyperion is executing the IT FEED project in collaboration with India’s Infosys Corp., which undertook

the sub-contract for the IT Strategy component of the project. The project is well under way, and on schedule, though financing such a venture is an immense task, requiring careful financial planning.

“The status now is once these companies are done with their engineering work and studies, Borouge will work out the final cost and then go for budget sanction,” an Abu Dhabi engineering source close to the project told NewsBase. The total project has been estimated to cost in the region of US$4.5 billion, with the third-phase plant completed by the end of 2013 and fully operational the following year.

With all systems go, and the project in full swing, financing the remaining elements of the expansion should not be too complex a task for Borouge, though accountants will need to budget carefully to ensure no cost overruns.

Abu Dhabi’s deep pockets from the rich oil sector ensure plenty of support for such landmark new energy projects.

Project scope The Borouge 3 project is immense in scale, effectively doubling output at the Ruwais site.

A new – and third for Borouge – ethane cracker will produce 1.5 million tonnes per year of ethylene and is being

built by Germany’s Linde Group at a contract value of US$1.075 billion.

Other notable contracts in the early stages were awarded in order to clear the way for full project implementation.

Abu Dhabi’s al-Asab General Transportations and Contracting Establishment was hired for the preparation of the Borouge 3 site, a 3.6-square km plot east of and adjacent to the existing facilities. Germany’s Alpine Bau Deutschland also landed a US$111 million contract to construct the non-process buildings for the project. While much of the larger tenders have now been issued for the expansion, Borouge 3 will continue to generate future opportunities in Abu Dhabi’s downstream sector, as it evolves. The Borouge JV is developing an innovation centre in Abu Dhabi, to put the emirate among the Gulf’s regional downstream leaders going forward.

In addition to the Ruwais 3 expansion, Borouge is also investing in facilities and logistics hubs in its overseas markets, notably Asia, as it grows its downstream business. When the project sparks into life at the tail end of 2013, and enters full production mode during 2014, it will massively enhance Abu Dhabi’s emerging downstream profile around the world.

A desire to extract the most value from its substantial gas reserves have led Algeria to plan a number of downstream projects, including the industrial cluster

at Arzew, near Oran. According to information from Sonatrach, projects under way at the site include a liquefied natural gas (LNG) plant, three liquid

petroleum gas (LPG) facilities, ammonia and urea plants and an ethane cracker.

UAE

ALGERIA

Eyeing up Algeria’s Arzew Algeria wants to retain the value of its natural resources by increasing its downstream infrastructure, but lack of clarity has slowed progress at the flagship Arzew ethane crackerBy Ed Reed Work on the ethane cracker has been driven by Total but there are a number of hurdles Feedstock supply and pricing is a cause for concern Algeria has proved to be a tough destination for investments and contract stability is essential





The ethane cracker – where work is being masterminded by Total – showcases the opportunities available in Algeria, but also the difficulties of working on such a large-scale project in country widely recognised as challenging for foreign investment.

The creation of an “integrated petrochemical industry” is one of Algeria’s top priorities, said a person with knowledge of the matter recently.

Algeria is planning “two important downstream projects – one is the ethane cracker at Arzew with 1.4 million tonnes per year of capacity,” he said. “We have the raw materials and we will be able to provide intermediate products” to the world.

In a report provided to NewsBase, PFC Energy flagged a number of potential sticking points for the Arzew facility.

The project has stalled on feedstock shortages, which require an additional gas pipeline to supply the plant, driving up costs, PFC said. Other problems cited by the consultancy include the corruption scandal that engulfed Sonatrach in 2010-11 – leading to the removal of a number of high-level officials – and concerns on the outlook for petrochemical demand in

the project’s main market of Europe. Should the scheme move forward, PFC

said, it is unlikely to be completed before 2015, but should “delays persist and continue to hamper the development of the project, its cancellation is not to be excluded.”

Ethane excitement In mid-2007, Total announced it had been selected to build a petrochemical plant at the site, in partnership with state-owned Sonatrach. The scheme covers the construction of an ethane cracker and three product lines.

Talks began on the project in 2005 and Total signed a memorandum of understanding (MOU) in mid-2007. It reached a framework agreement on the plant in December of that year. The Total-Sonatrach joint venture was approved by the European Commission in August 2008.

The Algerian company said at the time that the contracts had been awarded based on the amount of dividends that partners had agreed to pay Sonatrach from the projects. Total agreed to pay a maximum rate of 70% from its ethane cracker, exceeding the bid offered by

Saudi Arabia’s Sabic, which had pitched 55.12%.

The cracker will be able to handle 1.4 million tonnes per year and produce around 1.1 million tonnes per year of ethylene. This will be processed into 410,000 tonnes of monoethylene glycol (MEG), 350,000 tonnes of high-density polyethylene (HDPE) and 450,000 tonnes of linear low-density polyethylene (LLDPE). Products are primarily expected to be exported, with the French company saying output will go to Europe, North and South America, and Asia.

The size and integration of the project, coupled with cheap feedstock and low labour, should allow production to give it an advantage over facilities in Europe.

Total said its ethane cracker investment was in line with its strategy of securing world-class facilities and preferred access to feedstock. The French company declined to provide any information on the project to NewsBase.

Talking terms The plant was originally due to start up in 2013, but official estimates have pushed this back to 2014.

A petrochemicals consultant, Aman Amanpour, told NewsBase that the date had been postponed because of insufficient feedstock supply.

A note from Middle East-based investment bank Rasmala, in October 2011, estimated 550,000 tonnes of capacity would come on line in 2015, with another 550,000 tonnes starting up the following year. Rasmala implied the 2015-16 start-up was optimistic, given that the plant was still in “the early stages of planning.”

One factor complicating negotiations on the plant is uncertainty over gas pricing, the bank said. Previous projects in the country have managed to lock in prices as low as US$0.6 per million British thermal units (US$16.6 per 1,000 cubic metres) but these are creeping up and have passed the US$2 per million Btu (US$55 per 1,000 cubic metre) mark. Feed gas is to be supplied by Sonatrach.

ALGERIA





Gas for the cracker will be supplied from fields in Algeria’s south. Total, in 2007, reckoned the plant would carry a price tag of around US$3 billion and thought it would be commissioned within five years. In 2008, price estimates climbed to US$4 billion.

Rasmala, though, predicted the price tag might reach US$7 billion.

Another project planned for Arzew, a methanol plant being developed by Almet, has also run into difficulties. It had been due to start in 2012 but this has been deferred to 2014. Officially, the delay was intended to avoid the anticipated glut of petrochemical products expected in 2012, but there has been talk that it has been caused by Algeria’s tough negotiating stance.

A presentation from Qurain Petrochemical Industries Co. (QPIC) in April 2011 said Sonatrach had “requested

significant changes to the framework agreement. Therefore, [QPIC] is re-evaluating its position in the project.” The company said the project was worth US$700-800 million.

Sonatrach holds a 49% stake in the ethane cracker, while the French super-major took 51%, under the 2007 agreement. Subsequently, though, Algeria decided to tighten its control of the energy sector and required its foreign partners to settle for minority stakes. As such, Total reached a deal in August 2010, cutting its stake to 41%, transferring 10% to Qatar Petroleum.

Amanpour said the question of resource nationalism was less important in the petrochemical industry than in the upstream, noting that the government had a “vested interest” in adding value to the resource, instead of exporting raw materials.

Methanol in my madness At the same time that Total was awarded its ethane cracker work, Algeria also assigned construction of a methanol plant to a consortium of companies: Kuwait’s Qurain, Germany’s Lurgi, Trinidad’s PPSL, Japan’s Mitsui & Co. and a local company, Sotraco.

According to Sonatrach, the plant will be able to produce 1 million tonnes per year of methanol and requires an investment of US$1 billion. The facility should be ready in the first quarter of 2013. Almet’s stake was also reduced to 49%, with Sonatrach upping its interest by 2%.

Almet agreed to pay the state-owned Algerian company 76.09% – seeing off bids of 68.01% from Middle Eastern-Japanese group and 73.51% offered by Man Ferrostaal.

Refining and petrochemical projects throughout the Middle East will see the region’s capacity rocket in the next decade. With this in mind, a wide range of ventures is under way to open up export routes for their output.

The recent spike in crude and petroleum product prices, which can be strongly attributed to Iran’s threats to close the Strait of Hormuz amid Western sanctions and the European Union’s announcement of an oil embargo, is an

excellent example of just how the perceived delicate balance between supply security and demand can alter global energy markets. Pipelines have provided long-term stability in terms of constant supply. However, as we have seen repeatedly in Egypt’s Sinai Peninsula, for example, these too can be difficult to protect and the impact of attacks can incur great costs for importer economies – in this case Israel and Jordan.

Avoiding the Strait A combination of greater political stability and energy sector maturity has made the lower Gulf the region’s export project hotbed. However, while much of the lower Gulf remained relatively untouched by the Arab Spring, these countries were made acutely aware of problems on their doorstep when Iran threatened to close the Strait, raising concerns about access to around 40% of the world’s oil supply.

ALGERIA

EXPORT OUTLETS

Middle East export projects key to expansion Iran’s recent threat to close the Strait of Hormuz has highlighted the pinch point’s vulnerabilities – but several new schemes will give exporters the option of bypassing the narrow sea passage By Ian Simm Saudi Arabia is intending to improve its infrastructure and export facilities on its Red Sea coast UAE and Oman are increasing export capacity with projects just outside the Strait Iraq is in the process of ramping out export capacity with 4 new floating terminals





Saudi Arabia – which, according to the US Energy Information Agency (EIA), exports around 8.65 million net barrels per day of crude, most of it by sea – already has several major ports. The country’s Red Sea coast gives it the option of bypassing the cluttered Hormuz pinch point, and it is looking to improve local infrastructure to allow for greater export capability via the ports of Jeddah, Yanbu and Jizan.

The ports are all sited “close to the main east/west sea trade routes to Europe, the Far East and Arabian Gulf,” according to the Saudi Ports Authority.

In late April, ABV Rock’s local operation was awarded a contract to build port control facilities at Yanbu, while Saudi Aramco said its Yanbu Aramco Sinopec Refining (Yasref) project would be ready to ship its first cargo in the fourth quarter of 2014.

In the throat of the Gulf, Saudi Arabia’s Jubail-based Sadara Chemical – a 50:50 joint venture between Saudi Aramco and the US’ Dow Chemical – is preparing to tender for the tank farm package to be built at Jubail Port by the end of April. (See: Sadara – changing the game, page 3)

To the east, the UAE is looking to build the Abu Dhabi Crude Oil Pipeline (ADCOP), running from the oilfields of Habshan to the port of Fujairah, on the Gulf of Oman, just outside the mouth of the Strait. The pipeline, an initiative by Abu Dhabi’s International Petroleum Investment Company (IPIC), has suffered several setbacks despite having been completed in March 2011 at a cost of US$3.3 billion. It is now not expected to be operational until summer 2012. It was designed to supply the refinery and oil export terminal in Fujairah.

In early April, Gulf Petrochem Group announced that the emirate’s storage terminal – capable of storing 1.2 million cubic metres of oil – was on the verge of completion after previously supposing that it would begin operations in October this year.

At the time, Sanjeev Sisaudia, the firm’s CEO, told Kaleej Times: “We are open to signing contracts to lease our capacities.”

Other developments out of the grasp of Hormuz tensions include Oman’s Sohar Port – where a US$1.8 billion engineering, procurement and construction (EPC) contract to expand the capacity of the Sohar Refinery will be floated before the end of the year-end – and Duqm Port & Drydock.

The latter will host a planned US$6 billion refinery with a capacity of 230,000 bpd. Oman Oil – which owns a 50% stake in the venture – recently announced it would soon appoint a project manager to oversee the greenfield scheme. The refinery is due to be completed by the end of 2017. In mid-April, the port received its first project cargo at its commercial quay.

Northern Gulf On the north side of the Gulf, activity has been somewhat more sluggish.

However, on April 21, Iran’s Fars News Agency quoted Iran Oil Terminals Company’s (IOTC) managing director Pirouz Moussavi as saying that the country’s terminal storage capacity would “soar” to 100 million barrels from the current 24 million barrels by 2015.

He said that four storage facilities – with a total capacity of 1 million barrels – were under construction on Kharg Island. Moussavi was quoted by Oil Ministry website Shana as saying that facilities with a capacity of 10 million barrels had also been planned for construction in the area around Bandar-e Genaveh.

He said that the IOTC had exported 900 million barrels of oil and 170 million barrels of gas condensates in the last Iranian calendar year to March.

Iran’s export potential was further buoyed on April 17, when Iran’s Mehr News Agency reported that the country had procured a new oil tanker with a capacity of 2.2 million barrels – one of the world’s largest – to join its fleet within the next few days. The unit is a floating storage and offloading (FSO) vessel, valued at around US$300 million, according to the Iranian Offshore Oil Company’s (IOOC) managing director Mahmoud Zirakchianzadeh.

The National Iranian Tanker Co. (NITC) is expanding its tanker fleet, with the first of 12 supertankers to be delivered from China in May.

Each capable of carrying 2 million barrels of crude, the tankers add much-needed capacity to NITC’s fleet, while the number of maritime firms willing to transport Iranian crude has gone into freefall amid the sanctions push.

In December 2011, Zirakchianzadeh announced that 21 new tankers would be added to the national fleet by the end of 2013, taking Iran’s crude transportation capacity to 180 million tonnes per year.

While the West continues to hit Iran in the pocket, Tehran appears prepared to do whatever is necessary to outmanoeuvre sanctions, recently ordering NITC captains to disable the black box transponders used to monitor vessel movements.

EXPORT OUTLETS





These onboard vessel-tracking systems are required by the International Maritime Organisation (IMO). These systems are only allowed to be switched off for safety reasons, when granted permission by the ship’s flag state.

It is thought that Iranian exports dropped from last year’s rate of 2.2 million bpd to 1.9 million bpd in March, based on calculations by the International Energy Agency (IEA), but Rostam Qasemi, the country’s oil minister, said that they had remained at around 2.2 million bpd.

However, with most of the country’s 39 tankers off the radar, it is almost as tough to judge accurately the levels moving through Kharg Island – the country’s main terminal, as it has become to buy and ship oil from Iran.

In early April, neighbouring Iraq announced that its crude exports had risen to their highest level since 2003 in March, increasing to 2.317 million bpd from February’s 2.014 million bpd level.

Falah Alamri, head of the country’s State Oil Marketing Organisation (SOMO), said that the exports had brought revenues of US$8.4 billion at US118 per barrel.

He added that exports had been aided by a new floating export terminal, the first of four being built by Australia’s Leighton Offshore, which was operating at a capacity of 300,000 bpd.

On April 24, Reuters reported that Iraq had shipped its first cargo from its second floating export terminal.

Each of the Single Point Mooring (SPM) terminals will have a capacity of 850,000 bpd when fully operational, and these are expected to more than double Iraq’s export capacity.

The media agency quoted an official from the state-run South Oil Co. (SOC) as saying: “After bringing a second export terminal on line, we are confident that we’re ready to deal with exporting more crude in the future.”

While Iran tries to find ways to

manoeuvre around Western-imposed sanctions, it appears that Iraq is going from strength to strength after having had its production slashed by war, and the country is anticipated to become the world’s biggest supplier of new oil production in the next few years.

It has become apparent that Iran will not attempt to close the Strait of Hormuz. However, as is often the case, Tehran’s sabre-rattling can set pulses racing and give the global energy markets cause for concern.

The sheer volume of oil, gas and petroleum products that are shipped through the Strait every day makes it very likely that swift action would be taken on any country attempting to block it.

This being said, with Iran at odds with the West, there is always the chance of further instability in the region, but with such major investments both ongoing and planned, the Gulf’s riches clearly continue to be worth the risk.

EXPORT OUTLETS

MENA Petchem Projects April 2012 Back Page

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HEADLINES FROM A SELECTION OF NEWSBASE MONITORS THIS WEEK

Oil and Gas Sector

AfrOil Anadarko has been disappointed by wells offshore Sierra Leone and Cote d'Ivoire.

AsianOil Santos’ first-quarter revenue rose 50% year-on-year to US$778 million.

ChinaOil Beijing has approved Sinopec’s purchase of a 30% stake in Galp Energia’s Brazilian unit.

FSU OGM Gazprom intends to launch the second leg of the Nord Stream gas pipeline in October.

GLNG Pakistan is talking to Algeria to source affordable LNG supplies.

LatAmOil Argentina’s newly nationalised oil company YPF aims to drill 1,000 wells in 2012.

MEOG Seven firms are bidding to expand Dolphin Energy's Ras Laffan gas compression facility in Qatar.

NorthAmOil The EU has postponed its vote on Canada's oil sands until 2013.

Unconventional OGM Several major energy companies have submitted bids for two shale gas fields in Ukraine.

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