(ICIS) – Saudi Arabia is so important to the oil industry that within minutes of the news of the death of its king the price of Brent crude oil changed 2%.
Paradoxically, Saudi Arabia is also a country that has not yet fully developed its petrochemical industry and until recently relied heavily on gas.
The ambitious start-up of the Sadara project is looking to change that trend with a rich portfolio of petrochemicals expected to be in full production by the end of 2016.
Sadara’s Value Park manager Mohammad Alazzaz is confident the joint venture (JV), established in 2011 between US-based Dow and Saudi Aramco, will change how petrochemical business is done in Saudi Arabia.
“The main driver for the project is the development and promotion of downstream petrochemicals locally. We will be developing many markets and industries down the chain,” Alazzaz said.
A $20bn investment, Sadara will be the first chemical complex in the GCC [Gulf Cooperation Council] area to use refinery liquids such as naphtha as feedstock.
A mixed-feedstock producer, Sadara will also use natural gas liquids (NGL) as raw material for some its products.
Based in Jubail Industrial City, the complex will include a 1.5m tonne/year cracker and 26 new plants. Of those 14 will be introduced for the first time in Saudi Arabia, including polyolefin elastomers, isocyanates and polyols plants.
Sadara will also produce amines, glycol ethers, polyethylene, and propylene glycol.
More than 75% of the project has been now completed and Alazzaz says it is all going as per plan:
“Everything is on track and this is a huge project. We are putting a lot of plants together – there will be a sequence and the plants will be integrated,” he said.
The phased startup will begin with the ethylene and polyethylene envelope, followed by ethylene oxide and propylene oxide, with the final phase covering polyols, isocyanates and the rest.
“It is a very complex plan that needs a long time to be developed from franchise to full production and we expect to start producing some of the petrochemicals in the second half of 2015 and to be truly completed by the end of 2016. We are talking about 18 months from start to finish,” Alazzaz said.
Sadara is building the largest chemical complex ever to be built in the world in a single phase.
A project of such scale has quickly turned into one of Dow’s main priorities. The company last year announced it is increasing its divestiture target to $7.0bn-8.5bn by mid-2016, including JV equity reductions, and has entered into an agreement to sell Angus Chemical – one of its previously announced divestment targets.
Introducing the concept of cracking naphtha and producing some of the products for the first time in Saudi Arabia sound not only like a lot of work, but also like a lot of effort to convince downstream industries to switch away from their established practices.
However, Sadara seems to have it all under control, as the project also involves building an industrial park, called PlasChem Park. It is a JV between Sadara and the Royal Commission for Jubail and Yanbu and is where many of Sadara’s domestic customers will be located.
Separately, Sadara has secured a three-way deal with Saudi Kayan Petrochemical and Saudi Acrylic Acid Co (SAAC) to create Saudi Butanol, which too will be located in Jubail.
This will be the largest butanol plant in the world.
There is also Saudi Hydrogen Peroxide, a JV between Sadara and Belgium’s Solvay Group. The 300,000 tonnes/year plant is scheduled to begin production in 2015 and will be one of the world’s largest hydrogen peroxide propylene oxide (HPPO) plants.
“So that’s what we are planning to do, ultimately shape the market and increase the availability of feedstock on the input side,” Alazzaz said. “And then on the output side, it is important for us to enable the downstream industries in the kingdom.”
The products that Sadara will produce will go into a variety of industries, including coatings, medical, electrical, consumer products and many other applications.
Sadara will be focused a lot on developing the GCC region, but will also be supplying its products to the global markets.
This will work with Sadara marketing to the Middle East zone, while the rest of the world will be handled by the Dow marketing team.
Alazzaz stresses on the importance Sadara will have on developing the downstream industries and creating jobs in the Middle East area. He also believes the region’s economic growth and vast population promise healthy demand for Sadara’s products.
“We are focusing on creating value for the kingdom through our products, we want to work with manufacturers across different applications – auto components, paint, coating, construction material- all those will eventually more and more rely on products that will be produced by Sadara.”
The project seems to be enjoying popularity, as Alazzaz added: “A lot of small companies come and approach us. We are in active negotiations with over 20 other companies for projects at PlasChem and many of them are from outside the kingdom.”
The launch of the Sadara project will coincide with major industry shifts.
In January 2015, the price of Brent crude oil has fell below $50 its lowest level since early 2009. The naphtha price has seen a similar plunge. As much as a producer can benefit from a cheap feedstock, the low crude oil price puts a question mark over Saudi Arabia’s future economic growth.
Alazzaz said: “It’s not such a linear relationship between feedstock and end product, you cannot say that if naphtha goes down, your margins will go down. The finished products will be driven by GDP and this is still forecasted to grow.”
Some researches already suggest the country’s economic growth is likely to slow down over the next two years.
Despite this, it looks like with the support of strong European partners and confirmed buyers down the chain, the Sadara mega project is likely to make Saudi Arabia even more important to the oil industry than it was.
By Yana Palagacheva