Big plans for petrochemicals: Private and state-led initiatives to dramatically expand the sector

Although Egypt’s petrochemicals production capacity is small by regional standards, the country is one of the larger African players in the industry. Furthermore, capacity – which leverages the country’s large gas reserves – has grown rapidly over the past decade and is set to expand even more quickly in coming years. Ethylene capacity alone should increase around six-fold between 2013 and 2017, assuming that current plans proceed according to schedule. Major new projects are slated to come on-line under the country’s 20-year state-backed petrochemicals master plan, which aims to reduce imports and increase exports as well as to create new downstream product production clusters, and private players are also posed invest heavily.

BACKGROUND: According to state-backed petrochemical holding firm, Egyptian Petrochemicals (ECHEM), the first petrochemicals firm to be launched in Egypt was Al Ahleya Plastic, which entered into operations in 1945. Several fertiliser operations as well as a nylon factory were established in subsequent decades, and 1980 saw the launch of state-owned polyvinylchloride producer Egyptian General Petrochemical, with a capacity of 80,000 tonnes per annum (tpa).

A major development for the sector was discovery of large quantities of natural gas in Egypt in the 1990s. This was followed in 1997 with establishment of the country’s first ethylene and polyethylene (PE) producer, Sidi Kerir Petrochemicals (Sidpec), with an initial ethylene production capacity of 225,000 tpa. The company uses gas from the country’s Western Desert as feedstock supplied at below-market prices, though these have risen in recent years (see overview).

In 2002 ECHEM was created with the responsibility of overseeing overall industry planning and development. The firm, which holds stakes in several of the country’s petrochemicals producers, has seen its revenue grow impressively in recent years, from LE360m ($53.7m) in 2010 to LE625m ($93.2m) in 2012. Profits for 2012 stood at LE215m ($32.05m). Output has also been on the up, increasing 27% in the 2012/13 financial year.

CURRENT CAPACITY: According to the General Authority for Investment and Free Zones, the petrochemicals sector represents around 12% of Egyptian industrial output. Thanks to new projects coming on-line as part of the petrochemicals master plan, total production capacity increased from around 600,000 tpa in 2002 to 3.15m tpa in 2012, and according to ECHEM, is due to rise to some 5.37m tpa by 2015.

Following expansions at Sidpec, Egypt currently has production capacity of 330,000 tpa of basic petrochemical ethylene. In addition to ethylene, high-density PE and linear low-density PE, Sidpec also has the capacity to produce 50,000 tpa of butane and 10,000 tpa of butane-1. The firm has been traded on the Cairo Stock Exchange since 2005. It posted profits of LE869.6m ($129.7m) in 2012, down 2.25% on 2011. Profits in the first half of 2013 doubled compared to the same period the year before, up 99.4% to LE661.5m ($98.6m), according to unaudited results.

GLOBAL CONTEXT: Unsurprisingly, given the greater oil and gas reserves of Gulf states like Saudi Arabia that provide cheaper feedstock for petrochemicals production at lower prices than Egypt can offer, Egyptian petrochemicals capacity is relatively small by regional standards. The Arabian Petrochemicals Complex in Jubail in Saudi Arabia alone can produce 2.25m tpa of ethylene, nearly seven times Egypt’s national capacity. Total capacity in the Middle East and Africa stood at 26m tpa as of January 2013, according to the Oil and Gas Journal (up from 24.6m tpa in 2012, and representing around 18% of global production capacity of 143.4m tpa), of which Egyptian capacity was equivalent to just 1.3%. Saudi Arabia accounted for the bulk of the total, with capacity of around 13.2m tpa, followed by Iran with 4.7m tpa, and Kuwait, Qatar and the UAE, with 1.65m tpa, 2.5m tpa and 2.05m tpa, respectively.

Still, Egypt is the second-largest producer in North Africa, narrowly behind Libya’s capacity of 350,000 tpa and far ahead of the Algerian figure of 133,000 tpa, despite both countries having considerably larger oil and gas reserves than Egypt. It is the third largest in all of Africa, with the other major producers on the continent being South Africa, with 585,000 tpa of capacity, and Nigeria on 300,000 tpa.

MASTER PLAN: Capacity is set to expand dramatically with the 20-year National Petrochemicals Master Plan that began in 2002 and is managed by ECHEM, as well as separate private sector projects. The plan envisages 14 petrochemicals complexes, comprising 24 plants and 50 production units, at an investment cost of about $20bn. The plan consists of three phases: a first phase intended to run from 2002 to 2008 with an investment of $6bn; a $7bn second phase from 2009 to 2015; and a $7bn third phase from 2016 to 2022. However, development appears to be running behind schedule. An estimated 100,000 jobs are due to be created, and petrochemicals production expected to rise to 15m tpa, generating revenues of $15bn a year.

Phase one of the plan involved investment of LE45bn ($6.7bn). Projects completed under the phase included establishment of a 100,000-tpa linear alkyl benzene plant at a cost of $532m, known as Egyptian Linear Alkyl Benzene, and the Egyptian Propylene and Polypropylene Company, launched in 2011 at an investment cost of $410m, which has production capacity of 400,000 tpa for each product. November 2012 saw the launch of a $400m polystyrene plant at the Port of El Dekheila in Alexandria owned by Egyptian Styrenics. The first phase has also seen the launch of a 1.3m-tpa methanol plant at Damietta Port by EM ethanex, and the 600, 000-tpa (due to be expanded to 1.8m tpa) Misr Fertilisers plant, also at Damietta. Also under construction is the Egyptian-Indian Polyester plant, being built at a cost of $253m and due to have 420,00 tpa of PE terephthalate production capacity.

NEW PLANTS: One of the major projects under the master plan is the creation of the Ethylene and Derivatives Company (Ethydco), which will more than double the country’s ethylene capacity with an additional 460,000 tpa at an investment cost of around LE8bn ($1.2bn). The complex will also include a 400,000-tpa PE plant and a 20,000-tpa butadiene extraction plant. The engineering, procurement and construction contracts for both the ethylene and PE plants have been awarded to Japanese firm Toyo at a cost of $600m and $400m, respectively. The project is due to begin operations in late 2014, with the PE plant to come on-stream in 2015.

The second phase of the master plan includes construction of a gas-to-olefins complex, which will have around 1m tpa of combined ethylene and propylene capacity, and around 1m tpa of combined PE and polypropylene (PP) capacity, with an investment of around $4bn. There are also plans for a $1.75bn aromatics complex, which will have a production capacity of 530,000 tpa of para-xylene and 350,000 tpa of benzene. The final phase of the plan includes construction of another propylene and PP plant, a third olefins complex and a styrenic complex. The plan also envisions downstream clusters that will produce final products from plastics and other petrochemicals materials.

PRIVATE PLANS: Private firms are also active in expanding the segment, with Egyptian firm Carbon Holdings, for example, planning to launch a $3.7bn petrochemicals complex, to be known as the Tahrir Complex, in 2017 (see overview). The project includes 1.3m tpa of ethylene production capacity, which will nearly triple existing ethylene production capacity, even taking into account Ethydco having already come on-stream. Together the two new projects should increase national ethylene capacity to around 2m tpa, bringing Egypt into the ranks of mid-sized Middle Eastern producers.