Petrochemical investments in MENA region: $33bn for projects currently under execution

Petrochemical investments in MENA region: $33bn for projects currently under execution
Published: 12 June 2019 - 7 a.m.
By: Martin Menachery
Investments in the petrochemical sector in the MENA region continue to rise, as per the 2019 APICORP forecast. This is the largest increase in committed investments relative to the APICORP 2018 Outlook. Egypt alone accounts for just under half the investment.

Completing the remaining list of committed investments in petrochemicals are Iran and Saudi Arabia, and Oman’s $6.7bn Liwa plastics plant. Orpic estimates that around $1.5bn of the project costs will support the in-country value (ICV) development programme – reinforcing and developing businesses by achieving authenticated ‘Made in Oman’ products and ensuring at least 30% Omanisation in the companies working on the project.

Projects also increased in size and complexity. The first crude-oil-to-chemicals (COTC) in MENA will be the $20bn Saudi Aramco-SABIC complex, with nine million tonnes per annum (mtpa) olefins and 20mtpa in refining capacity, likely to be commissioned in 2025. It is expected to significantly alter the global supply and demand balance of major petrochemicals, despite an emerging drive for plastics recycling.

Primary chemicals drive investments
Petrochemicals demand remains strongly linked to GDP growth, unlike transportation fuels. The GDP elasticity of major petrochemical products is between 1% and 2%. Demand for primary chemicals is growing fast, particularly in the emerging markets, to fulfil end-use demand for plastics and fibres. That has boosted the investment benefits of refining and petrochemicals integration in recent years.

There are different crude-to-chemicals schemes. In the first COTC in MENA, Saudi Aramco, partnering with Chevron Lummus Global (CLG) and CB&I (now McDermott), plans to commercialise its thermal process that aims to convert 70%-80% of crude oil to chemicals.

Given its large scale, COTC is expected to significantly alter the global supply and demand balance of major petrochemicals in the years to come. Despite an emerging drive for plastics recycling, oil demand for petrochemicals is still expected to add a solid 3-4mbpd by 2040.

There is consensus that oil will retain its dominance in transport, thanks to increasingly efficient internal combustion engines, its utilisation in freight and heavy duty vehicles, and the slow deployment of infrastructure for competing fuels. For chemicals, the key to profitability will be to continue to deliver low-cost feedstock (ethane, LPG, naphtha, or crude) that will determine the market share of the different products.

Chemical plant construction
Most of the chemical plants recently built and under construction worldwide are based on conventional design and construction, but the engineering departments at chemical companies and EPC (engineering, procurement and construction) contractors are about to make major changes to the engineering process.

Growth creates a size imperative. The Sadara mega-project, which was completed in Jubail in Saudi Arabia in the autumn of 2017, marks an additional milestone in the global chemical boom. By making a $20bn investment, the project partners Saudi Aramco and Dow Chemicals have positioned themselves to exploit the increasing demand for chemicals. According to market research estimates, the annual increase in demand for chemical products over the next 20 years will be in the 4%-4.5% range.

In response, chemical companies continue to invest, and to some extent, the size of the investments is also increasing. The oil company Saudi Aramco, together with the French energy company Total, is planning to spend $5bn on construction of an ethylene-propylene plant. ADNOC, the Abu Dhabi state oil company, has announced plans to increase its petrochemical production capacity by a factor of three to 11.4 million metric tonnes by the year 2025.

Trend towards increased local content
The presence of a local service organisation provides an operating base which can be used by a local sales team to acquire new projects and for other activities in the regions.

There is an ongoing trend towards increased local content in construction projects. This includes equipment procurement, often based on a best cost country sourcing strategy, as well as local recruitment for project work such as installation and project management.

Local content is often a requirement imposed by customers. This is frequently the case in the Middle East where companies are state-owned, and it is used as a means for stimulating the local economy.

Digitalisation as a key enabler
The engineering and services company Bilfinger estimates that by 2020 there will be more than 11,000 chemical and pharmaceutical plants in Europe, North America and the Middle East that are more than ten years old and will require modernisation. The service business provides an opportunity to increase turnover, and that is one factor which makes it attractive to EPCs.

Besides services, EPCs have identified digitalisation as a possible differentiator to help ward off the competition. In a study on opportunities for Industry 4.0 in the EPC market, VDMA reports that 72% of EPCs see digital products and services as a means for generating additional turnover. Seamless, standardised interfaces in the trans-disciplinary engineering process are also seen as a way to improve efficiency.

The lack of seamless data architectures remains a problem in chemical plant engineering. The IT landscape is heavily diversified, and interface management requires an enormous amount of effort. Process flows also vary significantly from company to company. This makes collaboration more difficult, and it is harder to create the standards, which are essential for effective digitalisation.

EPCs such as Thyssenkrupp Industrial Solutions realise that engineers spend 40% of their time at installation sites looking for material and documents. Data inconsistency and changes cause 20% of cost overruns and delays. The engineering companies want to exploit these opportunities and use digitalisation to create new business models. One approach is to analyse existing databases.

The chemical plant construction industry is operating in a changing environment. In response to more intense competitive pressures, EPCs are adjusting their business models, and service will play a greater role over the plant life cycle. New project management methodologies and business process digitalisation are also being introduced. The latter will also provide the basis for new future business models.

(This feature is with inputs from APICORP’s MENA Annual Energy Investment Outlook 2019, and a trend report from DECHEMA for ACHEMA 2018.)

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