Price Downturn Warning for Mideast Petrochems, No Deterrent for Taiwan Project

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Researched by Industrial Info Resources (Sugar Land, Texas). At a time when Apicorp (Arab Petroleum Investments Corporation) has reported that soaring construction costs, dwindling feedstock supplies, and failing product process may delay petrochemical projects in the Middle East, Taiwan’s Kuokuang Petrochemical Technology Company, led by the state oil company Chinese Petroleum (Taipei), is considering moving a $12 billion chemical project to the Middle East from the preferred site in Yunlin in western Taiwan.

The Yunlin project planned for the construction of a 300,000 barrels per day (bpd) crude oil refinery and an ethylene plant with an annual capacity of 1.2 million tons per annum. Strong and sustained opposition from conservationists and fisherman against the project has resulted in the failure to obtain government clearance or acquire land for the project. Now, the company is said to be considering sites in Saudi Arabia, Oman and Abu Dhabi, which would have the added advantage of cheaper feedstock supply, lower costs for land acquisition, and quicker completion and commissioning of the project. Currently, Taiwan imports almost 100% of its crude oil requirements and over 90% of its natural gas supplies.

The problems facing the Middle East may be tempered by the size of the potential Taiwanese investment. Apicorp reports that the petrochemical industry may face a price downturn in the medium turn and depending on the depth and length of the down cycle, project sponsors may well review timing and magnitude of their investment. But the Taiwanese Group has a long-term need to construct the plant to compete with Formosa Petrochemical, a Formosa Plastics Group company, which has newer refining units and petrochemical plants.

Apicorp, which is jointly owned by Mid-East states to help finance oil and gas projects in the region, says that oil prices, which the price of petrochemicals are linked, may fall as much as 40% by 2011. This would make chemical production less profitable. Natural gas shortages may also raise the cost of production. Apicorp reports that anecdotal evidence suggests some countries are likely to be facing dwindling high quality and low cost gas supplies.

In December, SABIC (Saudi Basic Industries Corporation) reported that shortages in ethane feedstock and expanding capacity in the global chemicals industry could squeeze the profit margins of Gulf petrochemicals companies. Ethane shortages would force the industry to use heavier feedstocks such as propane and naphtha with corresponding increases in costs.

On the supply upside, Apicorp reports that Saudi Arabia may up supplies of ethylene to 10 million tons by 2011, Iran may produce over 5 million tons and Qatar over 4 million.

Taking into consideration the lead time needed to construct the petrochemical plant and pressures from the home market there are positive indicators for the Taiwan company to site the project in the Middle East where, with partners, it could include production of polyvinyl chloride (PVC) and ethylene glycol needed for the construction and bottle manufacturers in the Taiwanese domestic market.

For related news item see February 6, 2006 – Taiwanese Companies Planning Over $18 Billion Ethylene and Petrochem Investments at Home and Abroad.

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