Except for the international economic meltdown in 2008, Saudi Arabia’s petrochemical production has had significant progress over the past ten years. From 2001 to 2011, the industry’s revenues have grown at a compound annual rate (CAGR) of roughly 35.2%, aided by resource development and low manufacturing expenses in the face of increasing petrochemical market and costs. Compared to their competitors worldwide, petrochemical firms take advantage of the supply of material at a comparatively inexpensive rate. Additionally, Saudi Arabia is near significant marketplaces in Asia and Europe.
Over the past ten years, petrochemical firms have undertaken large expenditures to take advantage of the region’s oil and gas deposits and construct the highest caliber of petrochemical infrastructure. From 2001 to 2011, capital spending grew at a CAGR of 21.3%. Capex rose before the recession because of favorable costs and market trends, but it slowed down at the end of 2008. In the Kingdom, projects focused on manufacturing more complex downstream petrochemical products are reportedly being carried out. These projects are valued at over $11 billion. For instance, products like ethylene vinyl acetate, low-density polyethylene, ethyl acetate, and butyl acetate are anticipated to be included in Saudi Arabia’s petrochemical production. Additionally, partners of Sahara and Tasnee are working on petrochemical projects to produce acrylic acid and its compounds in the country, including butyl acrylate, glacial acrylic acid, and ultra-absorbent polymers.
By 2015, Saudi Arabia’s petrochemical production was projected to have a 15% share of the worldwide petrochemicals market, up from its present 8% share, as a result of producers’ continued emphasis on growth.
The Saudi economy’s central pillar is the petrochemical market.
The petrochemical field is the largest provider of Saudi Arabia’s non-oil products, accounting for 42% of the Region’s GDP in 2011. The sector requires a lot of work, and downstream development could increase jobs even further. This program has received significant incentives and is consistent with the government’s directive to hire the rapidly growing youthful generation.
SABIC: The dominant Petrochemical Company
The Saudi Basic Industries Corporation (SABIC) manufacturing facilities produce a wide range of top product lines, including olefins, glycols, aromatics, and polymers that include engineering thermoplastics (ETP), such as polycarbonate, polyethylene, polypropylene, polyvinyl chloride, and polystyrene. SABIC products are primarily targeted towards the packaging, automotive, building and construction, healthcare and personal hygiene, and electrical and electronics markets.
Even though COVID-19 still impacted the world market in 2021, Saudi Arabia’s petrochemical production had a successful year. Demand was largely unaffected in other areas, except the car industry, which was hit by a lack of transistors.
Hurricanes in the United States reduced the capacity for producing polyethylene, which caused a scarcity of raw materials in Europe and Africa. Middle Eastern manufacturers like SABIC moved up to meet the requirement. The additionally planned production was further diminished by difficulties with current facilities, possibly because of operational processes being postponed because of COVID-19 and setbacks in capacity-expanding plans throughout 2020 and 2021. However, although other market participants saw some difficulties maintaining a solid production in 2021, SABIC stayed tenacious and dependable in its capacity to satisfy the client’s needs.
Due to a confluence of production shortages and an earlier-than-expected rebound in oil production, oil and petrochemical prices turned out to be quite high, greatly outperforming predictions made at the beginning of the year.
In addition, the September energy cost spike increased production expenses as some equipment was forced to shut down because of the heavy price of fuel sources. The loud amounts of Saudi Arabia’s petrochemical products transported worldwide in 2021 were influenced by supply chain issues, leading to hold-ups and enhanced container endings. These factors also multiplied product costs throughout the year.
Global governments and industries are progressively putting a significant emphasis on climate change issues. The primary environmental issue confronting the petrochemicals sector has long been considered plastic waste. Still, recent technological advancements are opening up new chances to tackle ecological and global warming issues.
SABIC is utilizing its resources and experience to create products that fulfill the demands of the supply chain. SABIC is also keen to invest in internet and artificial intelligence (AI) alternatives to endorse the entire value chain.
Financial Success
SABIC’s earnings from petrochemical products and specializations rose from SAR 100.6 billion in 2020 to SAR 149.9 billion in 2021, a rise of SAR 49.3 billion or 49%. A 50% uptick primarily caused this increase in market values, mitigated by a 1% reduction in sales growth.
World Markets
In 2021, Saudi Arabia’s petrochemical production had a prevailing trend of rising costs and constrained supplies throughout the rebounding market, which finally caused prices to soar to their top levels since 2014. Several factors contributed to this supply shortage, such as lower operating rates brought on by weather catastrophes in the US, provider consistency issues in Europe, tighter environmental safety industry rules, and the forced closure of sustainability principles in Asia due to rising energy costs.
Aramco: Prominent Saudi Arabian Petrochemical Company
The Kingdom of Saudi Arabia is undoubtedly one of the world’s largest net exporters of petroleum and is home to over 17% of the world’s estimated oil reserves. The world’s second-largest recognized oil resources are in Saudi Arabia. The two main segments of Saudi Aramco’s business are upstream and downstream. Saudi Aramco is one of the world’s most immense integrated energy and chemicals companies. 10.4 mmbpd of hydrocarbons, including 9.2 mmbpd of crude oil, were produced on average by Aramco in 2020. In contrast, Aramco produced 11.6 mmbpd of hydrocarbons on average in the first half of 2021, of which 8.6 mmbpd came from the supply of crude oil. Saudi Arabia’s production increased with the gradual increase in OPEC quotas; as of June 2022, Saudi Arabia was exporting 10.3 mmbpd of petroleum. Oil costs recovered in 2021 and proceeded to rise in 2022 after the financial crisis and erratic oil prices of 2020. Saudi Arabia is reinvesting this surplus in its 2030 Economic Diversification Plan. Aramco has pledged to an audacious goal of net-zero emissions by 2050, under Saudi Arabia’s statement at its Saudi Green Initiative event last November, to reach net-zero emissions by 2060.
Top Upstream Subindustries
The Upstream business of Saudi Aramco, which includes exploration, development, and production of petroleum, condensate, natural gas, and NGL, is where the company is focusing investments as it maintains its significant expansionary phase. According to Aramco, most of its investment will go toward upstream efforts to keep its status first in crude oil production. Aramco’s core and showpiece oilfields remain the most significant traditional onshore oil production (Ghawar) and the most prominent traditional offshore production. The natural gas, condensate, and crude oil generated here are either refined for usage at its refineries or shipped to its exportation terminals. The Abqaiq complex, owned and run by Aramco, is the world’s giant crude oil stabilizing plant and its most extensive oil refining facility. With an overall estimated daily hydrocarbon output of 12.4 mmbpd, including 9.2 mmbpd of crude oil, Aramco retained its status as one of the leaders in the extraction of crude oil and gas in the world in 2020.
Subsoil and Planning, Sourcing, and Production agreements for $10 billion are among the newly granted Jafurah projects; capital spending at Jafurah is anticipated to exceed $68 billion throughout the first ten years of development. With approximately 200 trillion cubic feet of unprocessed gas, Jafurah is known as Saudi Arabia’s most giant non – conventional and non-associated gas field. The gas it produces can be used as a feedstock for Saudi Arabia’s petrochemical production and metallic industries.
Downstream
Aramco’s entire downstream business operates worldwide and primarily consists of Saudi Arabia’s petrochemical production, distribution, procurement and trade, and refining. This sector includes industries like base oil, lubricant, and retail businesses. Sadara, which was started in 2011 as a partnership with Dow and is regarded as the most extensively diversified Saudi Arabia’s petrochemical production facility globally, is Aramco’s premier downstream project. By combining its oil and gas activities to maximize productivity along the hydrocarbon chain, boost the crude oil and gas market, and make it easier to put its crude oil, Aramco’s downstream expenditures broaden its earnings.
Within its downstream division, Aramco also has a unified Saudi Arabia’s petrochemical production company that aims to give it access to additional profits in the hydrocarbon supply chain. The chemicals division of Aramco produces anything from simple chemicals like aromatics, olefins, and polyolefins to more complicated goods like polyols, isocyanates, and synthesized fibers. Aramco keeps making additional investments to expand Saudi Arabia’s petrochemical production markets. Aramco finalized the $69.1 billion purchase of a 70% share in Saudi Basic Industries Corporation (SABIC) in June 2020. This significant achievement supports Aramco’s policy for downstream development. By clearly defining SABIC’s position as focusing on Saudi Arabia’s petrochemical production and Aramco as focusing on petroleum products in 2021, Aramco concentrated on incorporating SABIC into its business. These adjustments led SABIC to lead Aramco’s chemicals division, which is consistent with its long-term goal.
Within the first quarters of 2022, Aramco also made headway with its downstream growth, increasing its foothold in Asia and Europe with intentions to buy a 30% investment in a 210,000 barrels per day refinery in Gdansk, Poland, together with exclusive possession of such a related retail company. Other contracts involve taking 50% ownership in a partnership between BP and a Polish company that markets jet fuel and the construction of a sizable combined refinery and Saudi Arabia’s petrochemical production project in China.
Crucial Development Elements
Saudi Arabia’s petrochemical production has seen rapid expansion in recent years.
Obtain Inexpensive Material
The Saudi government has supported ethane supply costs for petrochemical manufacturers and set a ceiling at $0.75/mmBtu. In addition, prices for alternative supplies, such as propane and butane, are lower than those on the market. As a result, Saudi Arabia’s petrochemical production is regarded as among the most cost-effective businesses worldwide. Additionally, compared to their international counterparts, manufacturers are better able to resist any decrease in pricing or market.
Worldwide Economic Resurgence
Petroleum-based materials are primarily used in both commercial and industrial goods. So, the need for petrochemicals follows the expansion of the world economy. The financial outlook across the world is still very unpredictable. According to the IMF, the actual global GDP will grow by 3.5% in 2012, down from 3.9% in 2011. Since China is the world’s biggest end client for Saudi Arabia’s petrochemical production, the expected downturn in the Chinese GDP worries petrochemical companies everywhere. The IMF predicts China’s real GDP to expand by 8.0% in 2012 compared to 9.2% in 2011.
However, as governments in developing countries concentrate on reducing budget shortfalls and heavily laden European nations attempt to preserve debt levels within sustainable bounds by implementing austere policies, market situations are projected to recover over the long run. With a predicted yearly development rate of close to 8% between 2013 and 2017, growing nations in Asia, which were the main consumption destinations for Saudi Arabia’s petrochemical production, are anticipated to take the top spot in the rebound.
Asia, where there is high demand, particularly from China and India, is where most of Saudi Arabia’s petrochemical production goes. In 2010, the region was responsible for 55% of the country’s exports of petrochemicals. China and India made up around 37% of the world’s people in 2010, and petrochemical consumption is projected to be high in both nations. The need for plastics is expected to rise over the next few years, including the GCC countries’ big demographic bases and increasing expendable cash. India presently consumes only 6 kilograms of food per person, much less than the typical worldwide intake of 24.6 kg. Although China’s per-capita polymer usage has risen to roughly 22.8 kg, continued GDP development offers additional room for expansion. China and India are increasing their domestic petrochemical production capabilities to decrease reliance on imports. However, it is anticipated that further capacity expansion would not stay current with the faster market increase.
Stable Oil Prices
Since naphtha, the most often used material, closely follows changes in oil costs, Saudi Arabia’s petrochemical production price is mainly driven by market oil price levels. Reduced oil costs will impact petrochemical pricing, and a predicted decline in consumption shortly is the reason for worry. Nevertheless, any global economic rebound should increase oil prices, and coupled with the low cost of production, profits for petrochemical manufacturers are anticipated to increase over time.
A Large Queue of Projects
With a sizable project pipeline and recent quick growth, Saudi Arabia’s petrochemical production is poised to maintain its expansion by adding downstream products.
Petrochemical projects worth about $11 billion in Saudi Arabia have been started. It includes the $6.7 billion Phase 2 expansion of Petro Rabigh, which will increase the range with 17 additional products.
Positive Governmental Actions
To increase Saudi Arabia’s petrochemical production of value-added goods, the Saudi government is aggressively pushing the sector’s diversity and more considerable downstream expansion. This action is anticipated to increase the competitiveness of regional businesses and create job prospects for a sizable youthful population. Major commercial seaport cities like Jubail and Yanbu are the perfect environments for expanding petrochemical firms because of the Kingdom’s savvy economic policy. Due to the cheap taxes and land registration fees, Saudi Arabia is a popular investing location among overseas investors. The government provides project finance via specific government lending organizations like the Saudi Industrial Development Fund. The ability to carry deficits forward forever creates a significant inducement for investing in industries with a lengthy gestational period. The government waives customs duties on foreign equipment and technology intended for industrial use to increase commercial activity.
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Saudi Arabia’s Petrochemical Production’s Prospects
Saudi Arabia will keep increasing its hydrocarbon and gas output depending on its highly effective recent times. Because they also possess an abundance of hydrocarbons offered at competitive costs, nearby nations like Qatar, Kuwait, and the United Arab Emirates (UAE) present rivalry for investments in the area. The Saudi Arabian government has started a manufacturing plan to concentrate development and capital expenditure on five essential industry sectors: minerals and metals, automobile industries, polymers and packaging, household appliances, and renewable power. This program aims to help Saudi Arabia compete effectively in this dynamic environment.
These five industries were selected due to their tremendous development possibilities and depending on the country’s plentiful supply of raw materials, energy, and natural resource. Each of the hubs is dependent on Saudi Arabia’s petrochemical production in such cases:
- To create high-quality minerals and metals, treatment fluids with oil- and chemical-based products
- To lower vehicle weight and provide the essential parts, automakers use a growing number of polymers and composites (tires, etc.)
- For casings and other various components, household appliances need high-tech polymers like acrylonitrile butadiene styrene (ABS) and nylon.
- Polymers in solar cells include ethylene vinyl acetate (EVA) film.
- The polymer conversion sector is necessary for the packaging industry.
By offering guidance, statistical data, market analysis, guidance in creating a business case, availability to relevant government agencies and businesses, and guidance in locating areas, distributors, and employees, the government is encouraging both new and seasoned industry players to put money in the country.
Future growth and expansion of Saudi Arabia’s petrochemical production sector are anticipated. Industrial compounds and polymers from inexpensive fuel sources obtained from oil and gas will see a large portion of the expansion. The government’s manufacturing plan is to propel the industry’s intended horizontal growth into several converting sectors.
