Change in Saudi Arabian pricing for ethane, LPG, naphtha could affect competitiveness of investments

18-Mar-10

Saudi Arabian feedstock pricing arrangements for ethane, liquefied natural gas (LPG) and naphtha could change in 2011, affecting the competitiveness of existing and future investments as per ICIS. Ethane is currently still priced at around 75 cents/mBTU and there is a formula for LPG, based on a discount from prevailing CFR Japan naphtha prices. LPG discount available to Saudi Arabia's mixed-feed crackers and its propane dehydrogenation (PDH)-to-polypropylene plants has been reduced by one percentage point per year since 2003. The current formula for naphtha pricing is not immediately available, but naphtha use for petrochemicals is minimal in Saudi Arabia. However, the Kingdom continues to deal with an ethane gas shortage due to dwindling additional supplies via associated gas. Rising demand for natural gas for power generation is also an issue for Saudi petrochemicals, as is the case across the Gulf Cooperation Council (GCC) region. The economics of cracking naphtha in Saudi compared with natural gas is being questioned compared with the alternative of shipping the feedstock out to naphtha crackers in Asia. This might now change in either direction. Another source pointed that even if ethane and LPG prices are adjusted, Saudi's gas cracker and PDH competitiveness - especially in a high oil price environment - will remain very strong.