Positive Double Whammy Demand Backs Mid-East Refinery and Cracker Project Construction

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). At a time when the pundits of the oil industry appear to be torn between blurring the edges of all possible theories on the oil price, while at the same time praying for a new star opinion maker to lead them out of a morass of truisms and in-the-box thinking, the resource rich states in the Middle East appear to be putting their investments where their mouths are, when it comes to new refining capacity.

Saudi Arabia and its OPEC associates have said that the lack of gasoline refining capacity is at the heart of the price pressure in the well-to-pump supply chain, adding that the oil majors do not seem to be rushing to fill the perceived refining gap by building new capacity. Other industry observers say, with what seems to be a rare whiff of practical economics in the condensate, that the global boom in new industrial and consumer market-orientated ethylene and mid-stream chemical cracker plants using gas- and oil-based feedstocks is the second part of the double-whammy keeping demand and prices buoyant. Business is doubly good, while it lasts, and both China and India maintain headlong growth, with their respective feet on the gas pedals.

Saudi Arabia has announced plans to build five new refineries, in a move to assist in the processing of heavy sour crude. The refining capacity controlled by the country is to be increased by the new refineries, with a capacity of 300,000 to 400,000 bpd in a period covering 2006 up to 2016. Currently Saudi Arabia has eight refineries, with a total capacity of 2.1 million bpd. The state's Saudi Aramco (Riyadh) has announced that existing plants will be upgraded, and, in April, announced plans to build a 400,000 bpd export-orientated refinery in Yanbu on the Red Sea with an investment of between $4 and $5 billion.

Saudis will invest in new refinery capacity, both inside the country and abroad, with foreign investment participation being targeted. Oil minister, Ali Al Nami, said that the country's petrochemical and refining plans were sustainable, as long as prices of U.S. crude stayed above $35 per barrel, which, under current conditions, looks like a solid base to work from. For related new item see - May 3, 2004 - Million Ton Cracker in Saudis Look at North American Petrochems Base in Mexico

Saudi Arabia also been pursuing a vigorous expansion policy in petrochemicals production, with at least seven million tons of new ethylene and polys capacity coming on stream at Yanbu and Eastern Petrochemical by 2008, a new linear olefins plant at Jubail, to be completed in 2006, and plans to build a world-scale styrene plant to increase production by 60% and become the world's largest single complex producer of the product. In addition to these projects, the world's largest single-line methane plant in Jubail will be expanded to five million tons per year capacity.

A condensate refinery project is going ahead in Qatar, with the signing of a $670 million contract between Qatar Petroleum and a South Korean consortium consisting of GS Engineering and Construction Company and Daewoo Engineering and Construction. The refinery and storage and export facilities will be built at Ras Laffan industrial city. This plant project is related to a plan between Qatar and Kuwait to set up petrochemical projects worth $2 billion in Qatar and a $2 billion undersea gas pipeline to take Qatari gas to Kuwait, which project Saudi Arabia is stonewalling at present. The pipeline would cross Saudi territorial waters.

The refinery is scheduled to go into operation in mid-2008 and will process 146,000 bpd of North Field condensate to produce LPG, naphtha, kerosene, and gas oil for export. Qatargas will operate it in a joint venture with Qatar Petroleum, ExxonMobil (NYSE:XOM)(Irving, Texas) and France's Total (NYSE:TOT). (Paris, France).

In response to increasing local consumption, rising exports into the region, and rising LNG processing, Qatar has brought forward by ten years its plan to produce 24 billion standard cubic feet of gas a day. At present it produces up to eleven billion scf of gas per day and had previously targeted the 24 billion total for 2020. Although it has stalled some LNG and GTL projects in response to 40% to 50% rises in prices charged by services companies on gas projects, it is proceeding with the Oryx I project with Sasol (2006) and the Pearl project (2009) with Shell. The other projects will come back into the frame in three years' time, as downstream petrochemical exports and gas-based fuels opportunities grow.

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