Kuwait: Petrochemicals resurgence

Thanks to growing global demand for plastics in 2011, Kuwait’s petrochemicals companies reported improved financial results last year. Moreover, the sector looks set to expand, with the government investing in new facilities and taking steps to ensure that the industry has a sufficient supply of natural gas.

Development of the petrochemicals business in Kuwait continues to be largely driven by state-owned Petrochemical Industries Company (PIC), a subsidiary of Kuwait Petroleum Company (KPC). In February, Yousef Al Ateeqi, the deputy managing director at PIC, announced that the company’s third cracker – known as Olefins III – will open by 2017. This facility, which is expected to produce 4.1m tonnes of ethylene per year, is being developed in cooperation with Equate Petrochemical Company and will cost about $5bn to build.

One challenge facing the development of Olefins III has been finding a location for the plant. To date, Kuwait’s petrochemicals sector has been centred on the Shuaiba Industrial Area near Kuwait City, but congestion at the site has compelled PIC to look at other potential locations for its new facility.

The coastal Al Zour area in the south of the country could be an attractive option, Hamad Dakheel Al Sebaie, the corporate planning manager at PIC, told OBG, given its proximity to a new refinery currently under development by Kuwait National Petroleum Company.

However, the country’s supply of natural gas, which is used as a feedstock in the manufacturing process, could limit expansion of petrochemicals production. In recent years, Kuwait has increasingly relied on natural gas to fuel its power plants, creating high demand.

While this has created some shortages – particularly during the summer months – the extraction of natural gas is expected to increase in the coming years, as the government looks to tap into the country’s extensive reserves located in northern Kuwait’s Jurassic fields.

Indeed, in January, Mohammad Al Busairi, Kuwait’s minister of oil, told state news agency KUNA that the new gas project under development in the northern part of the country is expected to increase that region’s daily output from about 140m cu ft to around 600m cu ft. However, he cautioned that it is still too early to project volumes with precision.

“The gas project in the north will be much clearer in 2017. It is an ambitious project and there are promising excavations that reveal signs of a considerable amount of reserves. But time is needed for more accurate readings,” he said.

While development of the Jurassic fields could help boost production of petrochemicals in the future, the recent financial results from the major players in the sector suggest the industry is already doing well. In January 2012, for example, PIC announced that the company’s profits for 2011 amounted to KD227m ($815.61m).

PIC is also part owner of Equate, earning about $450m from its stake in the petrochemicals company, according to a statement by Al Busairi in January. According to the oil minister, Equate, which was set up in 1995, has become the “one of the backbones” of the petrochemicals industry, accounting for about 80% of the country’s non-oil exports. Each year Equate manufactures more than 5m tonnes of petrochemical products, which are sold throughout the Middle East, Asia, Africa and Europe.

Meanwhile, the Kuwait Styrene Company (TKSC), a joint venture between Kuwait Aromatics Company (in which PIC owns a 40% stake) and Dow Chemical Company, announced in January that its net profits for 2011 hit $99m, an increase over the $81m earned in 2010. Similarly, Qurain Petrochemical Industries Company (QPIC), which is 10% owned by PIC, reported early in the year that its profits for 2011 amounted to just over KD18m ($64.67m), a substantial improvement over its results in 2010, when the company lost nearly KD2m ($7.19m).

QPIC is also expanding outside of Kuwait. The company announced in December 2011 that its plans to build a $1bn petrochemicals complex in Saudi Arabia were moving ahead and appointed consulting firm IHS to advise on the planning and development of the project. The integrated polyethylene terephthalate (PET) plant, which will be located at Al Jubail industrial city in Saudi Arabia, will benefit from paraxylene feedstock from a local refinery.

Once operational, the facility is expected to produce some 800,000 tonnes of PET, in addition to around 1m tonnes per year of purified terephthalic acid (PTA). While some of the PTA will be sold to local markets, the majority will be converted to PET resin for downstream production.

While the major players in the petrochemicals sector in Kuwait did well in 2011, there is some uncertainty regarding the outlook for the global market in 2012, with some players – such as Saudi Basic Industries Corp (SABIC), the world’s largest chemical maker by market value – cautioning that a slowdown may be on the horizon.

“The petrochemical industry is following the GDP of each region...but the growth will not be the same as last year, at least for the moment,” said Mohammad Al Madi, the vice-chairman of SABIC, when speaking with Dow Jones in an interview in January. With exploration for new gas reserves showing positive signs, the country is well positioned to remain an active player in the global petrochemicals market.