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Kuwait Petrochemicals Report Q3 2010
Business Monitor International, May 2010, Pages: 52
The Kuwait Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Kuwait's petrochemicals industry.
Plans for a third olefins complex in Kuwait are faced with significant hurdles, particularly in relation to uncertainties in feedstock supply and the price differential between the country’s naphtha resources and the ethane used by regional peers, according to BMI’s latest ‘Kuwait Petrochemicals Report’. PIC has outlined plans to build a third olefins plant costing US$5bn, which is US$2bn higher than an initial estimate by the Oil Ministry. The facility is being planned with an estimated production capacity of over 1mn tpa ethylene and is scheduled for operation in 2015. Plans are expected to be finalised by the end of 2010. PIC’s current capacity at olefins I and II is about 1.65mn tonnes per annum (tpa) of ethylene and its derivatives. In Q110, the plan was in the initial study phase.
BMI believes the plant will likely utilise naphtha feedstock derived from its refineries, but progress on the stalled al-Zour project will be necessary to ensure a steady supply. The al-Zour refinery was originally expected to start operations in 2012. Continual internal arguments over cost inflation and the cancellation of an international tender in February 2009, as a result of submitted bids coming in far above the expected budget, have helped stall the project indefinitely.
A third olefins complex would further Kuwait’s aim of adding value to its domestic hydrocarbons resources and securing a foothold in the Asian petrochemicals market. In line with regional peers, most progress has been concentrated on olefins, intermediates and basic polymers rather than downstream plastics and chemicals industries. Kuwait will be competing for markets in Asia, particularly China, with Qatar and Saudi Arabia that are relying on ethane as feedstock, which in recent history has been priced far lower than naphtha that follows oil price trends. Kuwait’s competitive disadvantage as the spread between ethane and naphtha grows could undermine the case for a third olefins plant, although by sourcing naphtha from domestic resources the country still has an edge over most Asian producers. However, if the plant were to rely on the country’s untapped gas resources, either in an ethane-fed or mixed feed cracker, it may become a more attractive proposition. Moreover, after the debacle with the merger with Dow and uncertainties over feedstock availability, BMI does not believe the project will be completed before 2015, if it is completed at all.
By the end of 2009, Kuwait had ethylene capacity of 1.7mn tpa feeding downstream units that included 825,000tpa LLDPE. It also has 370,000tpa of benzene, 822,000tpa of xylenes, 1mn tpa of EG, 765,000tpa of EO and 145,000tpa of PP capacity. In the fertiliser sector, Kuwait has capacities of 1.04mn tpa urea and 885,000tpa ammonia. Levels of olefins and polyolefins capacities are unlikely to be increased before 2015 with the main expansion projects completed in 2009.
In the past quarter, BMI has revised down Kuwait’s petrochemicals rating by a modest 0.1 point to 58.5 points due to a change in its overall country risk rating. This has not affected its rank in BMI’s Middle East Petrochemicals Business Environment Rankings, which remains third place, just 0.1 point ahead of the UAE and 5.7 points behind Qatar. Although Kuwait’s score has been boosted in recent months due to the rapid growth in petrochemicals capacity, it has been undermined by uncertainty over the future of the Al-Zour refinery, which has attracted considerable controversy over its tendering process. Kuwait’s score has also come under pressure in recent months due to deterioration in country risk caused by the economic downturn coupled with the declining investment environment following the cancellation of Kuwait Petroleum Corporation’s planned JV with the Dow Chemical Company, although its country risk ratings have rebounded as the country’s outlook has improved.
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