Rise in ethane prices in Saudi Arabia could erode petrochemical competitive advantage

Saudi Arabia's petrochemical competitive advantage will be significantly eroded if ethane feedstock prices are increased, said Jamal Malaikah, president and chief operating officer of National Petrochemical Industrial Co (NATPET). The industry will be less profitable, attract fewer investments, and growth will slow down," Malaikah said in an interview with ICIS on the sidelines of the Gulf Petrochemicals & Chemicals Association (GPCA) Plastics conference. "If feedstock prices go up, this will definitely result in higher raw material prices for the conversion industry as well, making it less competitive. This will have an adverse impact on the government's efforts to increase employment opportunities for the Saudi youth, so that means we are shooting ourselves in the foot," he said. Ethane crackers in Saudi Arabia had in the past enjoyed the discounted rate of 75 cents/MMBtu. A possibility exists of Saudi ethane prices increasing to US$2-3/MMBtu- in future, Saudi crackers will be more costly than US crackers. Feedstock cost for new crackers in the kingdom will be around US$6/MMBtu as there's not enough ethane availability, so cracker operators will have to use more propane than ethane. This cost will be much higher than the US gas price which is currently at $3.5-4/MMBtu but will be reduced to US$2 once there is increased production of shale gas. In 2012, the cost of propane in the US was 23% lower than that of discounted Saudi propane.
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