Refining & Petrochemicals Middle East - March 2010 by ITP Business Publishing

NEWS 06 | GAS SUMMIT ARABIA10 | EFFICIENT REFINING 24 | CONTRACTOR FOCUS 26 | FACE TO FACE 32

NEWS, DATA AND ANALYSIS FOR THE REFINING AND PETROCHEMICAL INDUSTRIES

MARCH 2010

HOT STUFF HEAT EXCHANGER MARKET WARMS ON MID EAST PROJECT PIPELINE

SOHAR CALLING

VIEW FROM JUBAIL Sipchem h CEO O says multi l billion b ll dollar d ll projects are keeping k Saudi Arabia’s downstream dreams alive An ITP Business Publication, licensed by Dubai Media City

Ahmad Al-Ohali, CEO Sipchem

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In Print

March 2010

4 EDITOR’S LETTER Downstream producers can expect their strongest quarter in two years, with an optimistic eye on a demand boom come year end.

5 REGIONAL NEWS NAMA to double epoxy output, AOL starts up production, Algeria methanol project on track, JBF and OOC join forces in Oman.

12 SIPCHEM EXCLUSIVE: TEN YEARS ON Ahmad Al-Ohali, CEO of Sipchem talks exclusively to PME and reveals that multi billion dollar contracts will be awarded soon.

16 OMAN’S PETROCHEMICAL PROFILE The southern Gulf country has its sights ﬁrmly set on a thriving diversiﬁed downstream sector by 2020. PME tracks its progress.

22 EXCHANGE GAME Petrochemicals Middle East conducts an industry survey with the leading temperature transfer technology providers.

30 DOWNSTREAM DATA The most important petrochemical products and share prices from the Middle East’s leading listed companies.

22 32 www.arabianoilandgas.com

32 FACE TO FACE Peter Venn, regional director, oil and gas, SAS.

Refining & Petrochemicals Middle East March 2010

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1 Aramco to inject CO2 into world’s biggest oil eld 2 Aramco delays Jubail re nery start up 3 ADCO awards NPCC Bab eld contract 4 Kuwait signs 5 year deal with Royal Dutch Shell 5 PIC says new ole ns plant to cost US$b5 billion

EDITOR’S CHOICE

An eye on Jubail- Exclusive Operating in Iraq - A Guide Arabianoilandgas.com picture gallery takes you behind the scenes of Saudi International Petrochemical Company (Sipchem) in Al-Jubail, with brand new shots of its third phase plants.

Arabianoilandgas.com brings you insights from firms working on the ground helping rebuild Iraq’s embattled industrial sector. Read interviews with businesses based in Baghdad.

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MOVING EAST Exclusive interview with the president of ExxonMobil Chemical, Steve Pryor.

BREAKING NEWS AND VIEWS FIRST

COMPANY ACCUSED OF SMUGGLING

KUWAIT TO REVIEW STALLED PROJECT

A private Saudi petrochemical company has been accused of smuggling petroleum products from King Fahd industrial port to France.

Kuwait will send a stalled project for a 615 000 barrels per day (bpd) re nery to its highest oil policy body for review.

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ARAMCO DELAYS REFINERY START UP

WEB FORUM

JGC WINS $100MN SASREF CONTRACT

Saudi Aramco has revealed the start up of its Jubail oil re nery has been delayed to late 2013, later than the previous target of March 2013.

Japanese contractor JGC has been awarded a US$100mn contract to reduce the carbon footprint of the Sasref re nery in Saudi Arabia.

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Refining & Petrochemicals Middle East March 2010

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4 Comment

Registered at Dubai Media City PO Box 500024, Dubai, UAE Tel: 00 971 4 210 8000, Fax: 00 971 4 210 8080 Web: www.itp.com Offices in Dubai & London ITP Business Publishing CEO Walid Akawi Managing Director Neil Davies Deputy Managing Director Matthew Southwell Editorial Director David Ingham VP Sales Wayne Lowery Publishing Director Jason Bowman Editorial Energy Group Editor Daniel Canty Tel: +971 4 435 6257 / daniel.canty@itp.com Editor Abdelghani Henni Tel: +971 4 435 6239 / abdelghani.henni@itp.com Contributors Contax Advertising Commercial Director Jude Slann Tel: +971 4 435 6348 / judith.slann@itp.com Studio Group Art Editor Daniel Prescott Photography Director of Photography: Sevag Davidian Chief Photographer: Khatuna Khutsishvili Senior Photographers: G-nie Arambulo, Efraim Evidor, Thanos Lazopoulos Staff Photographers: Isidora Bojovic, George Dipin, Lyubov Galushko, Jovana Obradovic, Ruel Pableo, Rajesh Raghav Production & Distribution Group Production Manager Kyle Smith Production Coordinator Devaprakash Managing Picture Editor Patrick Littlejohn Image Editor Emmalyn Robles Distribution Manager Karima Ashwell Distribution Executive Nada Al Alami Circulation Head of Circulation & Database Gaurav Gulati Marketing Head of Marketing Daniel Fewtrell ITP Digital Director Peter Conmy ITP Group Chairman Andrew Neil Managing Director Robert Serafin Finance Director Toby Jay Spencer-Davies Board of Directors K.M. Jamieson, Mike Bayman, Walid Akawi, Neil Davies, Rob Corder, Mary Serafin

Green shoots of recovery? rices of petrochemical products have increased noticeably in the last few months, re ecting a net improvement in market fundamentals. Some product prices have more than doubled, such as ethylene which jumped from US$600 per tonne in February 2009 to $1220 per tonne just one year on. Others have increased signi cantly too. Polypropylene traded at $890 per tonne in February 2009, and is currently trading at arround $1310, a 14 month high. These fascinating numbers will surely appear in higher incomes in the next round of quarterly nancial results of Middle East’s petrochemical producers. However, new capacities from the Middle East are coming on stream, mainly from Saudi Arabia and Iran, which may disrupt the balance of supply and demand, suppressing, or even wiping out any recent gains. On the other hand, aging facilities in Europe and America, and increasing demand from Asia could balance the equation nicely, whilst maintaining a price level most would agree is fair, if not good. Arabianoilandgas.com, the online home of Petrochemicals Middle East held a poll in February which showed that 50% of participants believe that the current prices are fair, while 5.6% thought that the current prices are excellent. Personally, I am with those who believe that prices are indeed fair. Compared to historical averages, the market today mirrors what we last saw in 2006 and 2007 - widely considered great years for the industry. At these prices there will be enough liquidity in the market to fund new regional investments, further cementing the region’s status as the new epicentre of downstream production.

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Abdelghani Henni, editor e-mail: abdelghani.henni@itp.com

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Refining & Petrochemicals Middle East March 2010

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News 5

NEWS

MARCH 2010

NAMA to double epoxy plant output New capacity will see firm account for half of all Middle East epoxy resin production NAMA Chemicals said that its subsidiary Jubail Chemical Industries Company (Jana), has received a US$56mn loan from the Saudi Industrial Development Fund (SIDF), to nance the expansion of its epoxy plant located in Al-Jubail last month. The company said it has completed approximately 30% of detailed engineering of the project. The total cost of the expansion project which will double the production capacity of the existing plant is $116 million. “Such support came in the form of granting a project loan of $56mn after review of the overall plans and careful studies of the project, which has clearly proven a strong strategic t and economic viability,” said Abdolmohsin Al Ogaili, CEO of NAMA Chemicals. “In addition to enabling NAMA to maintain its market lead in the region and increase our market share around the world to meet the growing demand of Epoxy products,” he added. NAMA is the only producer of epoxies in the Middle East, and currently produces 60 000 t/y of epoxy from its subsidiary Jana. “We use epichlorohyrin (ECH) and bisphenol-A (BPA) as feedstock for the plant,” Al Ogaili told PME. “We use Huntsman process technology in our plants,” Al Ogaili revealed. Al Ogaili added that the expansion project will be completed in

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Abdolmohsin Al Ogaili, CEO of NAMA Chemicals says NAMA will dominate the market.

two years and will enable NAMA to double its production capacity to reach 120 000 tonnes per year. When completed, the company will control 50% of the Middle East market and 6% of the world’s total epoxy supply. “We are targeting the regional market including the Gulf and Middle East,”

revealed Al Ogaili. “Europe and the rest of the world are also included in our marketing agenda,” he added. “By 2012, the production capacity of our plant will be increased by 100%, which will allow us to be one of the ve largest producers of epoxy in the world,” ob-

served the CEO of the company. “This will positively affect the nancial performance of the company in general by reducing production costs and extending NAMA’s reach globally to meet the increasing demand for epoxy,” Al Ogaili added. Epoxy is used as a raw material for paints and other major industrial sectors such as automobiles, building and construction and engineering, as well as the fast growing wind power industry. NAMA announced in January that it has stopped the expansion of the caustic soda plant, which is operated by its subsidiary Arabian Alkali Company (Soda), due to the shortage of feedstock allocations. The company said that this decision comes after the reduction of feedstock allocation from its supplier, which informed the company it will reduce allocations starting from 2011. “We will resume the expansion once we secure suf cient feedstock allocations,” the company said. NAMA is a listed company and operates four subsidiaries including Jana, Soda, Nama Industrial Investment and Nama Europe.

$9.14mn NAMA posted losses of around $9 million in 2009

Refining & Petrochemicals Middle East March 2010

6 News

RTIP on schedule for 2015

Algeria methanol project on track

Aramco and Dow approach contractors to gauge interest in bidding

The US$1 billion methanol project in Algeria is on track and expected to go on stream in 2013, according to sources close to the Almet consortium. Sonatrach awarded Almet the contract to build a methanol production facility at the Arzew industrial zone in July 2007. The amount of the investment is estimated at $1 billion, and annual production is estimated at 1 million tonnes of methanol, destined for international markets. The consortium comprises Kuwaiti company Qurain, German company Lurgi, Trinidad’s PPSL, Japan’s Mitsui, and Algerian company Sotraco.. Lurgi will be the lead EPC contractor for the plant. The front-end engineering and design (FEED) work was almost completed. Construction work will take 32 months, said the source. Sonatrach will provide the feedstock to the project with a subsidised price, and will hold 51% of the company.

The joint venture project between Saudi Aramco and the Dow Chemical company, the Ras Tanura Integrated Re ning and Petrochemical Complex (RTIP), is set to start up in 2014 or 2015, though the two partners have held back on issuing tenders on the back of reduced EPC project prices, according to Andrew Liveris, CEO of Dow Chemical.

Prices have fallen for Middle Eastern engineering, procurement and construction (EPC) contracts, Liveris said during an earnings conference call. “Saudi Aramco has some very big re nery projects that have just recently seen some substantial decreases in the engineering, procurement and construction contracts,” said Liveris.

However, Ras Tanura is still on track for its rst units to start by 2015, Liveris said. “Ras Tanura is moving ahead nicely on its milestones,” revealed Liveris. The joint venture partners are approaching contractors to gauge their interest in bidding for work on the project in an effort to minimise cost exposure. The joint venture partners made initial inquiries to engineering rms in mid-December over bidding for a bulk-handling facility at the complex, covering tankage, conveyors, packing and port works, which is estimated to be worth more than US$500m.

300

Number of different chemical products to be produced by RITP The RTIP will be the third integrated project in the Kingdom after Petro Rabigh and SATORP.

KSA’s NatPet under offer

AOL starts up production

Alujain Company revealed that it has submitted an offer to National Petrochemical Industrial Company (NatPet) to buy the remainder of the company’s shares. The deal will be completed with a swap of NatPet shares with shares of Alujain through a capital increase of Aljuain. Alujain currently holds 57.39% of Natpet’s shares. Meanwhile, the company said that NatPet has resumed operation at its propylene and polypropylene plants following the power outage in Yanbu industrial city last December. “The power outage has affected some machinery in the complex,” said Marwan Nusair, president of Alujain.

Aromatics Oman LLC (AOL) announced that it has successfully started commercial production in February after completing its commissioning period successfully and is currently operating at full capacity, the company said in a statement. The company started commissioning in September 2009, and exported the rst paraxylene and benzene shipment on December 24 and 30 respectively. AOL produces 819 000 tpa of paraxylene (PX) and 210,000 tpa of Benzene (BZ) which are used to produce a wide range of petrochemical intermediaries. The feedstock to the plant is straight run naphtha which is received

Currently, NatPet operates below 100%. “We produced 35 000 tonne since the beginning of 2010, with an operation rate of 90%” he added. “Since the start of the production last year, we produced 155 000 tonnes of polypropylene,” he revealed.

Much hype surrounds NatPet operations.

Refining & Petrochemicals Middle East March 2010

from Sohar Re nery, with the balance imported from abroad. AOL is a joint venture with Oman Oil Company (OOC –owns 70% of the shares), Oman Re nery & Petrochemicals Company (ORPC – owns 20% of shares) and LG International, Korea (LGI which holds the remaining 10% share). Both OOC and ORPC are wholly owned by the government of Sultanate of Oman.

155 000

AOL’s production of PP since start up (metric tonnes).

www.arabianoilandgas.com

News 7

JBF joins Oman PTA project New multi-million dollar plant slated for Sohar’s industrial port zone India’s JBF Industries has signed a memorandum of understanding (MoU) with the state-owned Oman Oil Company that will see the two companies build and operate a US$680 million purified terephthalic acid (PTA) plant in Oman. The joint venture will have a capacity of 1.2 million tonnes per annum of PTA and will use paraxylene produced by the Oman Oil Company as a feedstock. The project will be co-located in the premises of Oman Aromatics to enable transportation of the paraxylene to the PTA plant by a dedicated pipeline.

$680mn Cost of the new joint venture project in Oman

Oman aims to diversify its economy by establishing strong petrochemical industry.

The new plant would take around 30-36 months to be ready to begin operations. JBF Industries plans to market product from the new plant in the Arab Gulf Cooperation Council (GCC) countries, the

source said, adding that a major part would be sold in the United Arab Emirates and in the Sultanate of Oman. JBF Industries is a Mumbaibased synthetic yarn and polyester chips manufacturer.

Qapco signs ethylene shipping contract Qatar Petrochemical Company (Qapco), and Norwegian shipping company Norgas have signed a contract of affreightment (COA) for the transportation of ethylene from Mesaieed to various international destinations in 2010. “Norgas will transport between 54 000 and 65 000 tonnes of ethylene from Mesaieed in 2010,” Qapco said in statement published in the stockmarket. The quantity could double after the start up of Qapco’s new ethylene cracker at Ras Laffan. The approximate value of the contract for the base volume is US$6.87 million. Qapco’s main products are ethylene, low

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density polyethylene (LDPE) and sulphur. It also produces 410 000 tonnes per year of LDPE and marketed under the Lotrene brand name. Qapco’s current ethylene production capacity reached 800 000t/y. Qapco consumes about 410 000 tonne ethylene for manufacturing LDPE and also supplies about 220 000 tonnes of ethylene to its subsidiary Qatar Vinyl Company (QVC) for manufacturing EDC /VCM and the balance is exported into international markets mainly for customers in Indian subcontinent, Asia and Europe. Qapco will also market and sell the surplus ethylene from

its subsidiary Qato n Company after the startup of the new Ras Laffan Cracker (RLOC) in which QATOFIN is a shareholder with QP and Q-CHEM II. Total ethylene export by Qapco including QATOFIN’s surplus would be in the range of 300 000350 000 tonnes per year.

Briefs Kuwait Aromatics (KARO) is expected to raise the operating rates at its 820 000 tonne/year paraxylene (PX) unit in Shuaiba to 100% as soon as the early-March. The company lifted the force majeure on both PX and benzene supplies from 7 February and had already notified downstream purified terephathalic acid (PTA) makers. Dow Chemical Company reported revenues of US$12.5 billion for the fourth quarter of 2009, an increase of 15% compared to the corresponding period of 2008. The company also reported full 2009 revenues of $44.9 billion, down from $57.5 billion in 2008. US super major ExxonMobil has announced that its 2009 profits have plummeted from US$45.22 billion in 2008 to US$19.42 billion, a year-on-year decrease of 57%. Exxon said lower prices for oil and gas compared to the previous year as well as a slump in global demand for hydrocarbon products were the reasons for its worst performance in seven years. Qatar Fuel Additives Company (QAFAC) is likely to take its MTBE and methanol plant offstream for scheduled maintenance. The maintenance turnaround would take 40 days starting from early April. The MTBE plant and the methanol plant have a capacity of 610 000 tonnes per year and 1 million tonnes per year respectively.

Mesaieed serves as an export hub in Qatar.

Refining & Petrochemicals Middle East March 2010

8 News

Snapshot Kuwait to spend US$15 billion upgrading refineries The head of the state-owned Kuwait Petroleum Corp, Abdulaziz Al Attar, said that the Gulf state is planning a US$15 billion veyear investment programme for its existing oil re neries . Al Attar said that Kuwait is looking to signi cantly increase its re ning capacity to 1.4 million barrels per day (bpd) from its existing level of 940 000 bpd. Kuwait recently announced that it plans to spend $87.6 billion on its hydrocarbon sector over the next two decades.

Borouge reconsiders expansion Abu Dhabi Polymers Company (Borouge) is considering a fourth phase of expansion according to sources close to the company. “We are still thinking about this step, nothing is of cial yet,” said the source, who requested anonymity. “Currently we are completing the second expansion, and starting the third expansion,” he added. If approved, the feasibility study for the plant would be launched in early 2011, but, it seems that the project would face many challenges mainly in sourcing the feedstock, as it will require allocation from Adnoc. The company said earlier that it expects the commissioning of Borouge 2 in the rst half 2010, while the third expansion would start production in 2013. Borouge production will reach 4.5 million t/y by 2013.

Yansab starts up production Commissioning of eight plants of the complex started in July 2009 The chairman of Yanbu National Petrochemical Company (Yansab) has said that the company is set to start full commercial production of its petrochemical products from March 1. Mutlaq Al-Morished said that the $5.65bn project started commissioning in July 2009, and exported the rst MEG shipment to European market in September. The rst MEG shipment was of 5000 metric tonnes. The Yansab complex comprises eight world-class plants and will have a total capacity of more than 4 million metric tonnes per annum (mtpa) of petrochemical products when fully operational. The facility will produce 1.3 million mtpa of ethylene, 400 000 mtpa of propylene, 800 000 mtpa of polyethylene (both low and high-density), 400 000 mtpa of polypropylene, 770 000 mtpa of ethylene gly-

col, 250 000 mtpa of benzene, and a mix of Xylene and toluene, 100 000 mtpa of combined of butane-1 and butane-2, and 25 000 mtpa of MTBE.

Yansab is a Saudi joint-stock company controlled by Saudi Basic Industries Corp (SABIC) (51%) and the rest is oated on the Saudi stock market.

Al-Morished said that Yansab has exported its first commercial shipment of MEG to Europe.

SABIC plans to expand its PTA affiliate Saudi Arabian Basic Industries Corp (SABIC) plans to expand its af liate Arabian Industrial Fibers Co (Ibn Rushd), its chief executive said. SABIC, the world’s top chemical company by market value, holds 47.2% of Ibn Rushd, according to its 2008 annual report, while the rest is controlled by private Saudi shares holders. Ibn Rushd’s complex in Yanbu, on Saudi Arabia’s Red Sea coast, produces aromatics, puri ed terephthalic acid (PTA), which is used in making polyester, and polyester staples. After the expansion, Ibn Rushd’s PTA capacity would rise to 700 000 t/y from 350 000 t/y

Refining & Petrochemicals Middle East March 2010

currently, chief executive Mohamed al Mady said. The expansion would also increase output capacity of polyethylene terephthalate (PET) to 750 000 t/y from 330 000 t/y as well as boost aromatics capacity to 600 000 t/y from 350 000 t/y, Al Mady said. “We are doing this (expansion) to improve the economic basis of the project,” Al-Mady told reporters in Riyadh. “We are working on the engineering studies now… and we will go to the market (for bids) afterwards,” he added. The engineering work is being handled by a number of rms as various technologies would be implemented.

State controlled SABIC plans to boost total production to 130 million tonnes of petrochemicals by 2020, up from 56 million tonnes in 2008. It is focusing now on growing its business in the kingdom, China and the Far East, Mady said in December. SABIC bene ts from access to cheap energy feedstock in the world’s top oil exporter, giving it a competitive advantage over global rivals.

350 000

The current capacity of PTA produced by Ibn Rushd plant.

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10 Gas Arabia Summit

GAS CRUNCH DOMINATES UAE SUMMIT Subsidised prices for gas are hampering much needed investment in local gas markets. Abdelghani Henni reports from Abu Dhabi

Refining & Petrochemicals Middle East March 2010

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Gas Arabia Summit 11

he Gas Arabia Summit held in Abu Dhabi in last month attracted senior executives and industry experts to discuss the availability, supply and demand of gas in the GCC. The combined gas reserves in the GCC is about 1 500 trillion ft³, but much of the reserve is associated gas and expensive to extract, according to Yousuf Al Ojaili, CEO of the state-owned Oman Gas. Speaking at the event, Al Ojaili said that the GCC countries have enough cash and gas to develop a regional gas pipeline network, but only if prices rise to justify the necessary level of investment. “Governments have to start accepting that the gas price will have to be higher. They are going to have to be much higher than US$5/mn btu,” he said. Production costs of deep and mildly sour gas projects in the Gulf are between $5-6/mn btu, but domestic sales prices range from $0.75 to $2, with negligible prices for households. “The result of this market distortion has forced Gulf countries to burn diesel in power plants at a cost equivalent $7-8/mn btu, look at importing coal at $10/mn btu equivalent and launch a nuclear power programme – which is even more expensive,” he added. Qatar, the Gulf’s only net gas exporter, is reluctant to sell more gas to its neighbours when it can get $10/mn btu in the Asia Paci c LNG market. Its last direct sale contract to another Gulf country was to the UAE and Oman via the Dolphin Energy pipeline at $1.35/mn btu, setting a precedent for low intra-Gulf prices. The UAE and Oman sell

LNG to Asia Paci c at market price, making Qatar’s exports to them a bad deal for Doha. Ojaili says the Gulf will have to link its prices to LNG if it wants to increase supplies – Kuwait, Dubai and Bahrain all import or are considering importing gas. People in the region are used to getting subsidised energy prices, and many feel they have a right to cheap energy. “The whole political system is based on providing subsidised services, including gas to the people,” said JBC Energy’s managing director Johannes Benigni, at the conference. Supply insecurity, due to project delays, and political uncertainty have also hampered gas project development. Bahrain is in LNG talks with Qatar, Egypt, and Russia and its oil minister visited Tehran on February 2nd, aiming to resume stalled talks over importing 500mn ft³/d of pipeline gas from Iran. Oman also hopes to import pipeline gas from Iran to Oman’s LNG trains. “We are only using 8mn t/yr of their 11mn t/ yr capacity,” Brian Buckley, Oman LNG’s chief executive said. Oman also faces project delays to its planned 1.5bn ft³/d BP-operated BP Khazzan and Makarem tight gas elds, which won’t reach full output until 2017, back from the original goal of a 2010 start up, although the expected amount is now 500mn ft³/d more than originally planned. “Oman’s production meets demand, but in future it will be tight,” said Buckley. Kuwait is also struggling to ramp up production at its planned 1bn ft³/d northern elds non-associated gas development. “Production is stuck at 155mn ft³/d,” said Mohammad Husain, deputy chief of state-owned KPC’s upstream planning division. The project, which had an original target of 2015, is 18 months behind schedule due to engineering problems in the processing plant. KPC cannot say when the problems will be overcome. Abu Dhabi’s state-owned ADNOC produces 6bn ft³/day, of

Gas Arabia was held in Abu Dhabi last month.

which 2bn ft³/day is reinjected into oil elds, 600 – 700mn ft³/d is exported as LNG for which there are no plans to change export quantities - and the rest sold as sales gas. The ADNOC group subsidiaries GASCO and ADGAS provide 90% of the UAE’s gas production. The country imports 2bn ft³/d from Qatar and faces a de cit of 2bn ft³/d during the peak summer season. It is estimated the UAE will need a further 5bn ft³/d for extra power capacity by 2019. Hasan Al Marzouqi, ADGAS deputy general manager said that his company produces 5.4mn t/yr of LNG and the rest is natural gas liquids. “LNG is primarily sold through term contracts, mainly to Japan and Korea, though occasionally some quantities of LNG are offered for sale on the spot market,” he said. “We are exporting 350 000 tonnes to 400 000 tonnes of lique ed petroleum gas (LPG) each year,” he added. Iraq also boasts signi cant reserves which could one day be piped around the region. “The current Iraqi gas reserve is around 3.1 tcm (112tcf),” said Dr Jennifer Coolidge, executive director of CMX Caspian and Gulf Consultants. “About 2.2tcm (71%) of the reserves are associated, 620 bcm (20%) are non-associated, mainly in Kurdistan region,” she added. The majority of attendees agreed that GCC governments should intensify investments to develop the region’s gas elds to meet increasing demand from domestic and industrial sectors.

“OUR LNG IS PRIMARILY SOLD THROUGH TERM CONTRACTS IN ASIA, THOUGH OCCASIONALLY SOME QUANTITIES ARE OFFERED FOR SALE ON THE SPOT MARKET” HASAN AL MARZOUQI, ADGAS DEPUTY GM (PICTURED LEFT) www.arabianoilandgas.com

Refining & Petrochemicals Middle East March 2010

12 CEO Interview

N O S R A E Y 10

ali l Oh A d e Ahm

EO ry, C ast a s r e nniv iddle E a h t ten icals M s t i s em brate Petroch e l e c hem sively to c p i As S ks exclu spea

ompetition between private Saudi petrochemical producers is intensifying. One of the fastest growing companies in the kingdom is Saudi International Petrochemical Company (Sipchem), which completed its first decade of existence in December. Ahmad Al-Ohali, CEO of the company talked exclusively with

Refining & Petrochemicals Middle East March 2010

Petrochemicals Middle East, and revealed what he sees as his major achievements with the company after its first ten years, along with its future expansion plans. “At the time of its formation in December 1999, Sipchem had a modest paid up capital of US$133m (SR 500m). This has now grown to $880m (SR 3.3bn). During the first ten years our employees, who form the backbone of our success, grew from just a handful to more than 700,” says Al-Ohali. The company’s operations have grown in three phases. The first phase was a

methanol and butenol plant which started commercial production in 2004, while the most recent phase is set to go on stream by 2013. “The successful implementation of phase-I (methanol and butanediol plants) which started up in 2004 and 2005 respectively, followed by the recent start up of the Phase 2 (acetyls complex) make us proud and confident about our strategy and its execution. Phase 3 is progressing very well with start up planned for 2013,” explains Al-Ohali. The CEO of Sipchem also revealed that Sipchem is in the process of building a corporate product application and technology centre in Dhahran. “The state-of-the-art world-class technical centre, that is scheduled to start in 2013, will support the development of the

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CEO Interview 13

products and the process technology of the polymer and other products of Sipchem,” notes Al-Ohali. Sipchem was the last company to receive subsidised ethane gas feedstock from Saudi Aramco in 2007. Looking ahead, Sipchem anticipates awarding the

contracts related to its joint venture project with Hanwah from South Korea by the end of 2010. “The projects being considered with Hanwha are targeted to be awarded in late 2010 and early 2011. Other projects under consideration could be awarded in a similar time frame,” says Al-Ohali. “The projects are progressing as per plan with engineering work and preparation for tendering the EPC work,” he reveals. The joint venture with Hanwah is set to produce 200 000 t/y ethylene vinyl acetate (EVA) plant and a 125 000 t/y of polyvinyl products. Sipchem will hold a 75% stake in the joint venture, with Hanwha holding 25% of the company. Financing the joint venture project is expected to come in the form of procured senior debt commitments from SIDF, PIF, ECA’s, and commercial banks. “The

financing plan is being developed,” says Al-Ohali. “Whereas some equity for this project was procured in the March 2008 rights issue, additional equity funds will be required for this project and other Sipchem projects being considered. The amount of funding required as equity for Phase III projects is expected to be finalized in the first half of this year as the projects being considered are approved by the board of directors,” Al-Ohali adds. The company inked in May 2009, a deal for mutual cooperation on new plants worths $4bn. “The agreement with Saudi Arabia Basic Industries Corporation (SABIC) is a positive move in the Kingdom toward rationalisation and use of the installed assets and right synergies,” explains the CEO. “The ministry of petroleum and minerals resources is behind this concept as there are several crackers in Al-Jubail industrial city that are not fully utilised to the maximum capacity,” he reveals. Under the MoU, SABIC will implement seven plants worth $3.2bn, while Sipchem

“THE PROJECTS BEING CONSIDERED WITH HANWHA ARE TARGETED TO BE AWARDED IN LATE 2010 AND EARLY 2011. OTHER PROJECTS UNDER CONSIDERATION COULD BE AWARDED IN A SIMILAR TIME FRAME” Ahmed Al-Ohali, CEO of Sipchem.

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AHMED AL-OHALI, CEO OF SIPCHEM

Refining & Petrochemicals Middle East March 2010

14 CEO Interview

Sipchem used King Fahd industrial port in Al-Jubail industrial city to export the ﬁrst commercial shipment of acetic acid to Asian markets in December 2009.

“THE DUTY ON METHANOL IS STILL UNDER INVESTIGATION, BUT WE ARE CONFIDENT THAT THIS MATTER WILL DISAPPEAR SHORTLY” AHMED AL-OHALI, CEO OF SIPCHEM will build two plants worth $800m. “The idea is to utilise idle capacity in existing crackers to process or crack ethane for other users. Both parties will end up benefiting from this arrangement as it adds value to the cracker owner and the user,” he observes.

Chinese tax breaks Though the company’s methanol and butandiol products are subject to anti dumping duties in China, the company is con dent that these measurements will be lifted soon.“The duty on methanol is still under investigation, but we are con dent that this matter will disappear shortly. However, in a signi cant and positive development, China’s ministry of commerce has recently announced a reduced antidumping duty of 4.5% instead of 20.0% on butanediol (BDO) imported from Saudi Arabia (KSA),” says Al-Ohali. “We are eager

Refining & Petrochemicals Middle East March 2010

to continue working with Chinese regulatory authorities to reach a better terms than the 4.5% that allow free trade between the two countries,” he adds. Even with the huge capacities coming on stream from the region, the CEO of the company remains con dent about future of the industry in the region due to the abundance of the feedstock across the region. “The downstream industry in the region remains poised for more growth despite the recent downturn trend of product cycles. The Middle East region feedstock pricing provides an opportunity for local companies to get creative on new or expansion downstream products during the bottom of a product cycle as there is the opportunity to build plants at a lower construction cost,” he says. A positive future ahead for producers in the region, according to Al-Ohali. “New plants will increase supply but this will be

offset by increased demand as the product cycle reverses. Additionally, older plants are removed from the supply curve as they become less competitive which will reduce supply for the new plants coming on line,” he concludes.

Sipchem’s new project will strengthen its position in KSA.

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16 Oman Country Proﬁle

Oman’s 2020 vision Government support and strong logistics links are helping drive Oman’s downstream diversiﬁcation plan

hen oil prices fell below $10 per barrel in 1998, the Omani authorities launched a diversi cation programme known as Vision 2020, which involved gas sales to nance infrastructure projects. In the meantime, Oman has opened a high-tech transshipment seaport to tap container traf c like in Salalah and Sohar, as a part of its long term ambition to attract international petrochemical producers to the Sultanate to bene t from the well developed logistics infrastructures. Oman used to export gas to the UAE starting from 1994, but since 2008 this situation been reversed, after it started importing gas from Qatar via the UAE through the Dolphin Energy pipeline to meet the increasing domestic demand. “We have been supplying Ras Al Khaimah with offshore Omani gas from 1994, and then we signed three years contract in January 2004 to supply it with gas from our onshore gas eld,” says Yousuf Mohamed AL Ojaili, CEO of Oman Gas Company.

“This was necessary to cover gas requirements in the UAE till Dolphin gas started operation,” he adds. But the growing demand for gas in Oman from the industrial and the domestic sectors, led the Sultanate to import gas from Qatar. “We started importing gas from Qatar using the existing export pipeline of the Dolphin project,” he adds. “The Dolphin gas complements Oman’s domestic gas consumption, and is also consumed in Sohar’s large industrial complex,” he explains.

Refining & Petrochemicals Middle East March 2010

Early Dreams

Yousuf Mohamed AL Ojaili, CEO of Oman Gas Company.

Oman has been keen on having a petrochemicals industry since the early 1990s. But in view of the huge costs and

“THE PORT OF SALALAH AND THE SALALAH FREE ZONE (SFZ) ALSO PLAYED A MAJOR ROLE IN OUR DECISION TO INVEST IN OMAN” NICOLAS BARAKAT, OCTAL PETROCHEMICALS

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Oman Country Proﬁle 17

market risks involved, along with the feedstock limitations, the Sultanate has been extremely cautious on this. It had a big setback in October 1999 as BP Chemicals pulled out of a JV with Oman Oil Company (OOC) to have a polyole ns complex built at Sohar. BP withdrew mainly because OOC was insisting that it build and own a costly gas separation plant nearby to provide the complex with ethane feedstock. Since then, the scale of investment in the petrochemical industry has increased, Oman Oil Company plays a major role in the sector, investing in many petrochemical projects inside the Sultanate as well as outside its national borders. The start up of the Oman Polypropylene’s 340 000 tonne per year grassroots facility in 2006 was the rst of more than half a dozen petrochemical projects under development at Sohar industrial port, in what the government hopes will be a vibrant petrochemicals cluster and a key element in its diversi cation drive, Propylene feedstock for Oman Polypropylene is supplied by Sohar Re nery Company (SRC), which is currently constructing a new 116 000 barrels per day deep steam conversion re nery on an adjacent site. Oman Polypropylene is typical of the model used for the rst round of investments in the regional petrochemical grassroots projects. The shareholder structure OP is a mix of government and international companies, Oman Oil Company has 60%, South Korea’s LG International (LGI) 20% and Kuwait based Gulf Investment Corporation controls the remaining 20%; the product marketing is split between Oman Polypropylene and LGI, about 35% to 40% of the polypropylene to be produced is destined for China and about a third for European markets.

116 000 bbl/day of crude oil

The capacity of Sohar Reﬁnery Company

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Octal’s state of the art facility in Sohar uses patented process technology to improve both efﬁciency and overall PET quality.

Foreign presence Though Oman can’t compete with Saudi Arabia and other GCC countries from a feedstock price perspective, some foreign companies prefer the Sultanate for other reasons, especially for those whose primary feedstock is not based on gas. “Government support to industries, the strength of the rule of law, strong contractual laws, property rights, and the Free Trade agreement between Oman and the United States are all important factors that contribute to the value of OCTAL’s location in Oman,” says Nicholas Barakat, managing director, OCTAL Petrochemicals. “We selected Oman because it offers a strategic location for receiving raw materials from the Middle East and Asia, and access to key markets in Europe and the US,” he explains. “The proximity of the location to the trade routes was critical, as the position of Salalah outside the Straits of Hormuz allows for ready access to international shipping lanes circling the globe,” he adds. “The port of Salalah and the Salalah Free Zone (SFZ) also played a major role in our decision. Less congested than typical import-export ports, the port of Salalah has faster turnarounds for OCTAL shipments and fewer delays from where it can access most markets within 14 days,” Barakat explains.

But, the logistics element for the petrochemical industry is not as vital as feedstock. The whole industry is based on feedstock availability. “The production cost depends heavily on gas price,” says Sanjay Sharma, Dubai-based project manager at US petrochemicals consultant Chemical Markets Associates Incorporated (CMAI). “Oman has varied gas pricing for different projects unlike Saudi Arabia,” he adds. “Oman ports like Salalah do boast a strategic location, but I do not believe any investment decision is driven by port location alone, though it does form an integral part of decision making; for majority of commodity petrochemical products logistic costs are too low to in uence the investment decision. Large petrochemical investments are driven mainly by feedstock pricing” he added.

Major Petrochemical Investments of Oman Oil Company Investment

Country

OOC Share

Aromatics Oman (AOL)

Oman

70%

La Seda De Barcelona

Spain

Oman India Fertilizer (OMIFCO)

Oman

50%

Oman Polypropylene (OPP)

Oman

40%

PTT Chemical (PTTCH)

Thailand

1.12%

Qingdao Lidong Chemical

China

30%

Salalah Methanol (SMC)

Oman

100%

Source: Oman Oil Company

RefiningPetrochemicals & Petrochemicals Middle Middle East East February March 2010

18 Oman Country Proﬁle

The Fisher control valve solution from Emerson. OCTAL plans to become the world’s largest producer of amorphous (transparent) polyethylene terephthalate (APET) sheet packaging, with a 20% market share. (Photo taken 2009).

Integrating downstream projects Omani companies try to overcome the problem of high cost of the feedstock, by integrating their project with re neries such as Oman polypropylene. “The Oman Polypropylene (OPP) plant and the Sohar

Re nery which produces its feedstock were conceived as value addition to the crude and long residue from existing re nery,” says Dr Hamed Al-Dhahab, CEO of Oman Polypropylene. “The OPP plant is also meant to serve as a platform for further downstream polypropylene converting industries to create jobs and business opportunities,” he adds. Boosting this trend, Oman is currently considering building a large re nery and petrochemical complex at Al Duqm in southern Oman, which would be geared toward export markets. Duqm Re ning & Petrochemical Complex is also expected to include a cracker, one of the world’s largest polypropylene plants and mixed feedstock aromatics facilities. Commercial production is planned for 2012.

The project is being developed by Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company. The future of the Duqm re nery had been in doubt because of rising costs. In 2007, it was feared that its planned capacity of 300 000 bbl/day would be slashed to 150 000 bbl/day. However, government support for the project is strong. It is the fourth economic zone to be developed, after similar projects at Sohar, Salalah and Muscat. Last October, Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company announced agreement to assess feasibility to develop Duqm complx. “We anticipate commissioning the necessary studies, including important feasibility and

“WE ANTICIPATE COMMISSIONING THE NECESSARY STUDIES, INCLUDING IMPORTANT FEASIBILITY AND MARKETING ANALYSIS FOR DUQM, IN THE VERY NEAR FUTURE” Nicholas Barakat, managing director, OCTAL Petrochemicals.

Refining & Petrochemicals Middle East March 2010

AHMED AL WAHAIBI, CEO OF OMAN OIL COMPANY

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Oman Country Proﬁle 19

marketing analysis for the project, in the very near future,” said Ahmed Al Wahaibi, CEO of Oman Oil Company, during the signature of the agreement. Ambition of Oman doesn’t stand in investing only inside the country, as Omani companies are also investing in gas rich countries, such as in Algeria, where Suhail Bahwan Group has entered into a joint venture with Sonatrach for a world scale fertiliser plant in Algeria. The 2020 vision will certainly put Oman on the right track and reach its ambition in building an oil independent economy.

300 000

Annual capacity of Octal’s $350mn PTA plant (tonnes p/y) Strong port and overland links have been decisive in downstream ﬁrms choosing Oman for new downstream projects.

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Refining & Petrochemicals Middle East March 2010

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BRIDGING THE GAP

Fingertip Facts Company: AspenTech Founded : 1980 Regional of ce in the Middle East: Manama, Bahrain. Products: Process Solutions

Technology can improve efficiency and help overcome a shortage of new engineers in the petrochemicals sector

Processing feedstock to another building block product is the core business of petrochemical and re ning industries. This operation requires tight control and optimisation of the energy used during the process as well as a customizations of work ow to increase pro tability of the plants. With the booming downstream industry in the Middle East, process control equipment providers are ocking to the region looking for a slice of the action. AspenTech has recently opened its rst branch of ce in the region, and says more will follow. “We offer several range of products to petrochemical companies including process engineering tools in terms of process optimisation and simulation, from the early phase of the project design to

Frederic Gobin, business consulting director at AspenTech.

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Gobin says multi-million dollar savings can be made.

detailed equipment design and engineering,” Frederic Gobin, business consulting director at AspenTech told Petrochemicals Middle East. “We also have business unit focusing on what’s going inside the plant in terms of data history, advanced data control, real time optimisation and also looking into the supply chain.” The company has been serving major clients in the region for many years without having an of ce in the region.“We have worked with a number of Middle East customers such as Saudi Aramco and SABIC. Aramco has used our cost estimation software for more then 20 years,” said Gobin. “Both companies use our process simulation tools such as Aspen Plus,” he said. The company’s new of ce in Bahrain is strategically located so the team can be close to that Saudi Arabian market. Gobin says it also aims to expand and enhance its presence in the region. “We will soon open of ces in the UAE and in Qatar to be nearer our key clients,” he revealed.

The company provides integrated solutions that are set to tackle inef ciencies end-to-end throughout engineering, planning and scheduling, and plant operations processes. Recently the company revealed the results of South Korean’s LG Chem Company deployment of aspenONE advanced process control. “In a single plant - the Daesan ethylene facility - the AspenTech services team’s implementation of aspenONE APC delivered a 2% increase in ethylene and propylene production, and reduced total energy consumption 1.5% while meeting plant constraints,” said Gobin. “The solution helped LG to save US$4 million annually,” he added.

Knowledge Transfer One of the challenges facing petrochemical companies is related to the skills shortage. Thousands of engineers are on the verge of retirement and there is a a shrinking pool of labour with suf cient skills to replace these employees. AspenTech also faces the same problem. “The shortage of engineers is one of the challenges that we face. It is a major issue for us and for our customers as well,” he explained. To optimise knowledge transfer from one generation of engineers to the next, the company has developed a simpli ed “expert-in-a-box” training sessions and offers 90-minute “lunch and learn” sessions. “Automated knowledge transfer solutions that effectively close the skills gap and deliver a powerful combination of rich functionality and ease of use are likely to become ever more popular,” he concluded.

Refining & Petrochemicals Middle East March 2010

22 Heat Exchangers

EXCHANGE GAME

The temperature transfer technology market is heating up again on the back of strong project pipelines in the Middle East ownstream production necesitates heat transfer to process uids and gases into nal products. Controling that critical process falls to heat exchengers which are often tailor-made for individual projects. “Heat exchangers are custom built equipment used for the processing of various uids and gases by increasing or decreasing their temperature and or phase,” explains Moiz Jetpurwala, sales director at Dolphin Heat Transfer. There are various types of heat exchangers including shell and tube type, air cooled, plate and frame, reboilers, waste heat recovery units, heat pipes, direct contact heat exchangers, classi cations based according to ow arrangement. Shell and tube heat exchangers (S&T) are the most popular type in petrochemical processing. These work by passing one uid through the tubes, with the other uid passes through the shell. The design is ideal for downstream processing because it can handle extreme operating conditions such as very high pressures and temperatures. Plate heat exchanger (PHE), are made of plates pressed in complex patterns which form ow channels. When set against each other, the arrangement is highly ef cient and much more compact in size than S&T or air cooled heat exchangers. However, PHE’s can usually only be used at comparatively lower pressures (up to 30 bar), and need frequent cleaning to prevent fouling. “Plate heat exchangers are suitable for offshore platforms or areas where space is at a premium,” says Uttam Vishwasrao, service manager at Tranter Heat Exchanger.

Buyer’s Guide Heat exchanger procurement is a complex process. Units are typically custom built and it is vital that the correct process data

Refining & Petrochemicals Middle East March 2010

Moiz Jetpurwala, sales director, Dolphin heat transfer urges end users to provide manufaturer with correct data to design HE.

“THERMAL DESIGN IS THE MOST IMPORTANT ASPECT OF A HEAT EXCHANGER AS THIS PROCESS DETERMINES THE SIZE AND CONSTRUCTION DETAILS” MOIZ JETPURWALA, SALES DIRECTOR AT DOLPHIN HEAT TRANSFER and speci cations are provided so that the manufacturer can carry out the thermal and mechanical design of the heat exchangers. “Thermal design is the most important aspect of a heat exchanger as this process determines the size and construction details like tube size, length, quantity, baf e quantity, location, shell diameter and length,” says Jetpurwala. Mechanical design is important because all the components have to withstand the operating pressures and temperatures

without failure. “The purchaser should also verify the credentials of the manufacturer like certi cations, previous experience, in a prequali cation process,” says Jetpurwala. Heat exchangers can be manufactured from carbon steel, stainless steel, copper and nickel alloys, and more exotic materials such as titanium. “Each metal has its own characteristics which require different handling and hence the past experience and track record of the manufacturer is very important,” adds Jetpurwala.

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Heat Exchangers 23

Dolphin Heat Transfer’s shell and tube heat exchanger is popular in downstream processing.

12.7bn The annual global market size for heat exchangers by 2012 (in US dollars). Source: Global Industry Analysts. Heat exchanger’s are typuically custom built for petrochemical clients and represent a signiﬁcant investment in new projects.

“Price and delivery schedules always play an important role and need to be included in the overall evaluation, as this has a direct effect on the budgets and completion schedule of the projects,” he adds. Maintenance of heat exchangers is necessary as it prevents unplanned down time, and keeps plants running ef ciently.

“Good maintenance of heat exchangers would prevent the eventual breakdown and improve the heat transfer between the exchangers,” says Mike Watson, managing director of Tube Tech International. As with any equipment used in the energy sector, heat exchangers are subject to a number of speci cations dictated by a host of international organisations. This includes the ASME (American Society of Mechanical Engineers), AD-Merkblatter, and API Standards. “CE certi cation is also very popular and in fact it is mandatory for all heat exchangers that are exported to European Union countries. European standard pressure equipment directives are also frequently used here,” says Jetpurwala. In addition to these international standards, upstream companies such as Saudi Aramco and ADNOC standards will often have their own standards.

countries like US, Europe, Japan dropped signi cantly which has slowed down the pace of new projects as well as expansion projects,” he adds. However, demand is expected to pick up again from the second half of 2010 as energy prices have bounced back smartly from their 2009 lows, and several new projects and large contracts have been awarded recently by the major companies based in the GCC and Africa.

Demand is bouncing back

Shell and tube heat exchanger being lowered into place.

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The heat exchangers market is expected to cross the US$12.7 billion threshold in 2012. “The market was very buoyant until the beginning of 2009, after which it has been impacted quite hard due to the recession and a steep fall in energy prices,” reveals Jetpurwala. “The demand in the major user

Mike Watson, managing director at TubeTech International.

Refining & Petrochemicals Middle East March 2010

24 Energy efﬁciency

Introducing energy efﬁciency programmes drives down cost, reduces harmful emissions and improves production says Abdelghani Henni

etrochemicals producers are struggling to reduce greenhouse gas emissions and production costs, and implementing major energy efficiency initiatives is delivering tangible results according to the industry’s leading technology providers. Energy is a significant cost factor in downstream business. “The petrochemical industry is responsible for 70% of the chemical industry’s expenditures on fuels and 40% of the expenditures on electricity,” explains Shunsuke Takagi, planning group, Mitsubishi Heavy Industries. “The costs of energy and raw materials make up roughly two thirds of the total value of shipments of the petrochemical industry. Because energy is such an important cost factor, energy efficiency is a very important opportunity for cost reductions,” he adds. Throughout the production process, feedstocks are converted to olefins, polyolefins and other products at high temperatures, requiring huge energy consumption. “A lot of the chemical conversions are exothermic but in many cases, the reaction heat can be recovered to be used elsewhere in the plant,” says Takagi. These separation steps consume electricity and heat. “Heat is either supplied by direct heating or by steam produced in stand-alone boilers or via cogeneration of electricity and heat,” he explains.

Refining & Petrochemicals Middle East March 2010

Shunsuke Takagi, Mitsubishi Heavy Industries.

Efficiency Opportunities A large variety of opportunities exist within the petrochemical industries to reduce energy consumption while maintaining or enhancing the productivity of the plant. Studies by several companies in the petrochemical industries have demonstrated the existence of a substantial potential for

energy ef ciency improvement in almost all facilities. “Improved energy ef ciency may result in co-bene ts that far outweigh the energy cost savings, and may lead to an absolute reduction in carbon dioxide and other fuel-related emissions,” says Takagi. “Major areas for energy-ef ciency improvement are utilities (30%), red heaters (20%), process optimisation (15%), heat exchangers (15%), motor and motor applications (10%), and other areas (10%),” says Rexi Chacko, project manager at Toshiba. “Of these areas, optimisation of utilities, heat exchangers and red heaters offer the lowest investment opportunities for improving energy ef ciency. Experiences of various chemical companies have shown that most investments in the eld of energy ef ciency are relatively modest. However, all projects require operating costs as well as engineering resources to develop and implement any ef ciency initiative. “Every petrochemical plant will be different. Based on your unique situation the most favourable selection of energy-ef ciency opportunities should be made,” says

“AN EXTENSIVE ENERGY MANAGEMENT PROGRAMME CAN BE EXPECTED TO YIELD BENEFITS OF BETWEEN 10% AND 25% REDUCTION IN ENERGY CONSUMPTION” ANDY COWARD, HONEYWELL PROCESS SOLUTIONS

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Energy Efﬁciency 25

Shojiro Ishigaki, overseas business division at the Tokyo based Xenesys. Energy use is the major source of emissions in the petrochemical industry, making energy-efficiency improvement an attractive opportunity to reduce emissions and operating costs. “Energy efficiency should be an important component of a company’s environmental strategy. End-of-pipe solutions can be expensive and inefficient while energy efficiency can be an inexpensive opportunity to reduce pollutant emissions,” says Ishigaki.

GPIC Experience In the Middle East, Bahrain’s Gulf Petrochemicals Industries Company (GPIC) has adopted a wide-ranging energy ef ciency initiative at its complex and is the rst petrochemical company in the Middle East to use a carbon dioxide (CO2) recovery plant, in order to recycle carbon emissions. “The recovery unit can capture 450 metric tonnes of CO2 per day, one of the world’s largest capacity units for the chemical application,” says Abdulrahman Jawahery, GPIC general manager. “Captured CO2 will be used as feedstock for urea and methanol synthesis processes. The technology can recover approximately 90% of the CO2 in ue gas,” he explains.

Solutions Introducing new process technologies and integrating utilities help producers to reduce the greenhouse gases emissions,

Rexi Chacko, project manager, Toshiba.

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GPIC is the ﬁrst petrochemical company in the Middle East to intoduce a carbon recovery plant at its complex.

whilst at the same time improving production. “One of the major bene ts we are capable of offering is setting up an integrated energy solution across industrial sites (including buildings, utilities, plants and power plants) which provide optimum solution levels in a single, holistic approach,” says Andy Coward, advanced solutions sales manager, Honeywell Process Solutions (HPS). “An extensive energy management programme incorporating both software technology and focused hardware upgrades can be expected to yield bene ts of between 10% and 25% reduction in energy consumption. For a re nery this can easily equate to millions of dollars per year,” Coward adds. The cost of installation varies depending on the scale of the implementation. “A reasonable rule of thumb is that control and automation projects will typically have a payback period in the order of 9 months to a year for an investment of between US$200 000 and $1 million. Energy ef ciency projects that require capital investment will typically have a somewhat longer payback period,” reveals Coward. Toshiba offers other vehicle for payment. “If we save a particular company one million dollars per month, we would take a percentage of that saving as payment for our services,” says Chacko. Although technological changes in equipment

conserve energy, changes in staff behavior and attitude can have a great impact. “Staff should be trained in both skills and the company’s general approach to energy ef ciency in their day-to-day practices. Personnel at all levels should be aware of energy use and objectives for energy ef ciency improvement. Often this information is acquired by lower level managers but not passed to upper management or down to staff,” says Chacko. “Though changes in staff behavior, such as switching off lights or improving operating guidelines often save only very small amounts of energy at one time, taken continuously over longer periods they can have a great effect,” he observes.

Abdulrahman Jawahery, general manager, GPIC.

Refining & Petrochemicals Middle East March 2010

26 Contax Partners Report

Market analysis

Evolutionary theory The changing subcontractor landscape in the Gulf region

JAIVIME EVARISTO, BUSINESS ADVISORY PRACTICE, CONSULTANT, CONTAX PARTNERS With 8 years of consulting and research experience, Jaivime is a consultant in the Business Advisory Practice at Contax Partners. He has worked with globally renowned companies such as GlaxoSmithKline. In addition to his FMCG experience, he has a strong background in the energy, utilities, construction sectors within the Middle East.

Refining & Petrochemicals Middle East March 2010

2009 marked the bicentenary celebration of the birth of English naturalist, Charles Robert Darwin, who postulated that: It is not the strongest of the species that survives… nor the most intelligent that survives. It is the one that is the most adaptable to change. As with many great 19th century thinkers, perhaps, Darwin too did not expect that his works would transcend the boundaries of natural science and seep deep into the crevices of economics. At no point in recent times can this be seen more evident than the impact of the Great 2008-2009 Recession to businesses and their struggles for survival. In the GCC hydrocarbon sector, for example, the impact of c.US$30-35bn worth of capital projects that have been cancelled or put on hold following the crisis, which was severely felt in Q3/Q4 2008, cannot be overstated. Aggravated by cash ﬂow constraints that seem to worsen as one goes down the EPC value chain, the 80/20 principle could in no circumstance be neglected. The emphasis grows more profoundly especially in small and mediumsized contractors who by nature need to defend themselves from bad debts by expanding their customer base and thus reduce dependence on limited sector clientele. Hence, in recent months we have seen market trends where traditional subcontractors have carefully extended their wings into relatively new disciplines and functions by employing either vertical (inter-functional) or horizontal (inter-disciplinary) integration strategies.

Inter-functional Integration Specialty discipline contractors such as Kentz and Larsen & Toubro (L&T) have recently proved themselves highly capable of carrying out full EPC projects. With project values in the range of US$50-250mn, Kentz and L&T appear well positioned to capitalize on their in-house engineering capabilities in the execution of relatively small-sized EPC projects. The value proposition for the project owner is straightforward and simple: reduce the client-contractor interface complexity and risk through a single-point EPC responsibility. Conversely, the contractors beneﬁt from the approach as it enables them to capture more of the pie and move up the value chain by building their full EPC capabilities albeit on a relatively more specialised and smaller scale. The timing for a single-point responsibility value proposition appears most suitable in the conditions that have shaped the GCC Capex market in the last 14

$79bn Current Saudi Arabian private sector investment in energy projects. Source: www.sagia.gov.sa

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Contax Partners Report 27

15%

GCC operations and maintenance market is expected growth 15% each year to US$17.7bn by 2014 - more than double its current level of $8.8bn. Source: Contax Partners

Contractors are meeting the new challenges by employing vertical or horizontal integration strategies.

months. On a business development level, whilst both Kentz and L&T have shown great strides in fortifying their respective full EPC capabilities, the performance to date suggests that neither has a “strike anywhere” approach. In fact, the strategic intent of their business development efforts looks clear: Kentz wishes to carve a niche in specialist EPC services for onshore modular production, turnkey temporary and O&U facilities with focus in upstream oil and gas sectors; L&T, on the other hand, looks bent on maximizing the economies of scale in the execution of power sector projects, particularly substations and transmission lines. Similarly, other contractors have expanded further downstream in the vertical value chain of industrial facility development, particularly in the area of Operations and Maintenance (O&M). Contax Partners has long communicated that the next growth market for contractors in the GCC will be in the operations and maintenance of existing and future oil and gas assets. It is estimated that the GCC O&M market will grow by a CAGR of 15% to c.US$17.7bn by 2014 from c.US$8.8bn this year, driven largely by new assets in Saudi

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Arabia, the UAE and Qatar. To take advantage of this, we have recently seen the likes of Athens-based CCC forming a JV with UK’s Wood Group covering the GCC and Yemen. In addition, Qatar’s Black Cat early this year formed a joint venture with international engineering and project

management company, AMEC, to offer local asset support services, still in the O&M sector. The growing attractiveness of the GCC O&M market to contractors is also reflected in project owner trends elsewhere worldwide. Globally, recent results from a study conducted by US-based FMI entitled Inflection Point: Defining the Future of the Worldwide Construction Industry found a 30% increase in outsourcing O&M activities by project owners since 2006. The trend is more likely to increase further between now and 2014. Although the propensity to outsource O&M in the GCC varies largely by country and by project owner, potential opportunities are in no doubt up for grabs in the coming years. Local contractors with high quality resources on the ground, which are able to forge partnerships with well-

The multi billion dollar petrochemical projects in Abu Dhabi have attracted international contractors.

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28 Contax Partners Report

reputed international service providers, will no doubt lead the pack within the upcoming GCC O&M market.

Inter-disciplinary Integration Although not all contractors have the capability of integrating vertical functions such as engineering, procurement, construction, operations and maintenance quickly, others are pursuing horizontal expansion and integration by developing new capabilities across disciplines. Some contractors specialized in mechanical installation and fabrication have recently expanded into offshore marine and E&I. Conversely, others that are traditionally focused in E&I are now considering expanding its mechanical and piping capabilities to complement the existing suite of E&I services. Moreover, other contractors that used to subcontract non-core disciplines out are now considering carrying out multi-discipline activities in-house either through “synergies” with respective contractors that belong to the same holding company or investing in assets that, on a more long-term scale, provides the basis for further integration. These trends support the level of innovation that ﬁrms are undertaking in the hope of achieving economies of scope and improved market power over competitors.

Local contractors with high quality resources on the ground need to join forces with foreign partners.

“The only thing constant is change” Firms resort to a myriad of combinations in trying to maximize the value of horizontal and vertical integration. Some streamline their focus to gain superior advantage in a given niche while others broaden their portfolio to spread risks more evenly and enhance their bottomline from different revenue streams. Whichever route a ﬁrm decides to take, its ability to acquire critical

market information, identify scenarios and analyse the implications of each option, formulate strategies and value propositions that are aligned to the customer needs and and execute tactical and strategic plans flawlessly with a high degree of flexibility could well stand the practical definition of business adaptation, specifically in the context of the ever changing EPC market in the GCC. Whether the aforementioned contractor trends will shape the future of the prevailing projects market in the GCC, or if the market is only responding to the needs of the times, is a worthy topic of debate. Whichever market force comes first, it is clear that what remains pragmatically compelling is the fact of nature which favours those that are “adaptable to change”.

To further discuss how the Contax Partners’ Business Advisory Team can help you fully understand the current subcontracting environment and support you in planning for and executing your Capex projects successfully, please contact Ann-Marie Carbery at AnnMarie. Carbery@contaxpartners.com. Operations and maintenance outsourcing by project owners has increased 30% since 2006.

Refining & Petrochemicals Middle East March 2010

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The Middle East Downstream Week 11th Annual Meeting Abu Dhabi UAE 路 22-25 March 2010 The Middle East Downstream Week (MEDW 2010) is a unique concept combining five events over four days. At MEDW 2010, you will get access to: 2-day strategic conference s 1-day fuels symposium s Refining seminar s Refinery and petrochemical master-class s Ruwais site visit It will bring you together with the entire downstream community, to discuss and debate the key issues, to identify and compare business strategies and to meet the people you need to, to drive your organisation forward.

Key panel members include: Jasem Ali Al Sayegh, General Manager ABU DHABI OIL REFINING COMPANY (TAKREER) Salem Shaheen, President and Chief Executive Officer SAUDI ARAMCO TOTAL REFINING COMPANY (SATORP) Bryan Chen, Executive Director, MASHAEL GROUP Guruswamy Raghunathan, General Manager, Refinery EMIRATES NATIONAL OIL COMPANY (ENOC) Maurice Bannayan, Senior Vice President, RELIANCE INDUSTRIES Saleh Fahad Al Nazha, President and Chief Operating Officer NATIONAL INDUSTRIALISATION COMPANY (TASNEE) Ebrahim Talib, General Manager, Refining Division THE BAHRAIN PETROLEUM COMPANY (BAPCO)

MEDW 2010. The meeting place for the Middle East Downstream community. For more information visit www.wraconferences.com/medw11 or call +44 (0)20 7067 1800 CO HOSTS: