While the U.S. cracker wave on the back of the shale gas boom is getting much of the attention, big oil and gas players in the Middle East are lining up megaprojects that could shift the landscape of global petrochemicals from 2025 and beyond.

Driving this push from oil companies is the growing realization that oil demand for transportation fuel will plateau with the electrification of vehicles and improving fuel efficiency.

Thus, the future for hydrocarbons is not in gasoline and diesel but in chemicals, where demand should continue to climb alongside GDP growth.

And it’s clear that “Big Oil” is no longer satisfied simply providing feedstock for the downstream chemical sector.

ADNOC’S Investment Plan

Abu Dhabi National Oil Co. (ADNOC) wants to “stretch the dollar” from the barrel of oil to the maximum through producing chemicals, said CEO Sultan Ahmed Al Jaber.

ADNOC is embarking on a $45 billion investment plan with a goal to more than triple petrochemicals capacity at its Ruwais site from a 2016 base of 4.5 millions tonnes per year (mtpa) to 14.4 mtpa by 2025, and adding new downstream product chains in construction chemicals, oilfield chemicals, surfactants and detergents.

In February 2019, its 50:50 joint venture company Borouge awarded front-end engineering and design (FEED) contracts for the fourth phase of its expansion in Ruwais which will include a 1.8 mtpa mixed feed cracker and add a total of 3.3 mtpa of olefins and aromatics capacity.

The cracker will be the first in the country to use mixed feeds. The feedstock slate will be ethane, butane and naphtha.

“The Middle East is running out of cheap natural gas. All new projects are mixed feed, with a typical mix of about 35% ethane, and 65% propane, butane and naphtha which is not as advantaged as ethane,” said Hassan Ahmed, analyst at U.S.-based investment research firm Alembic Global Advisors.

While ADNOC and JV partner Borealis plan to finalize the downstream configuration within three months of the FEED contract awards, it should include polyethylene (PE) and polypropylene (PP).

Aramco’s COTC And $100 Billion Plan

Saudi Aramco’s planned crude oil to chemicals (COTC) complex with SABIC in Yanbu, Saudi Arabia is perhaps the most watched project on the planet as it could have stunning implications for the petrochemicals sector.

Featuring a budget of around $30 billion and a process to convert 400,000 barrels per day (bbl/d) of crude oil to 9 million tonnes of chemicals and base oils, the mega complex is expected to start operations in 2025.

The initial plan was to convert 45% of each oil barrel to petrochemicals. However, Aramco aims to boost that figure significantly by advancing its proprietary process technology.

Aramco believes it can convert between 60% and 70% of the oil barrel into petrochemicals using this technology.

Petrochemicals are averaging about 10% to 15% of global refinery output, with wide differences between integrated complexes.

“In recent years, refiners have increasingly raised their share of petrochemical output at the expense of traditional fuels. Some of the new refineries in China can convert up to 40%,” according to Stefano Zehnder, vice president of consulting at ICIS.

“In Saudi Arabia, the original base concept is rapidly evolving. It’s clear Aramco is looking to scale up to commercial-size its crude-to-chemicals technologies,” said Zehnder.

“With the potential for further increase from the base 45% yield, this points to even higher petrochemicals and base oils capacities than the 9 million tonnes per year base. The final configuration will be function of the desired balance between petrochemicals, base oil and fuel products,” he added.

Ahmed from Alembic Global Advisors notes that crude oil-to-chemicals is all about “integration and trying to be more efficient both upstream and downstream.”

That’s because “every new facility in the Middle East puts them higher on the cost curve,” a function of the mixed feedstock slate.

Aramco plans to invest an eye popping $100 billion in petrochemicals over the next 10 years, CEO Amin Nasser said at the Gulf Petrochemicals Association (GPCA) annual meeting in Dubai in November 2018.

In October 2018, Aramco and France-based Total signed a joint development agreement for the front-end engineering and design (FEED) of their planned joint venture petrochemicals complex in Jubail, Saudi Arabia.

The $5 billion project, slated for start-up in 2024, will comprise a mixed-feed (50% ethane, 50% refinery off-gases) cracker with 1.5 mtpa of ethylene capacity and downstream units.

The petrochemical complex will be downstream of Aramco and Total’s joint venture SATORP refinery and the companies expect an additional $4 billion in investments in petrochemicals and specialty chemicals capacity from third-party investors.

Aramco is also in the process of merging with Saudi Arabia-based petrochemicals and polymers giant SABIC.

Megaprojects Worldwide

Aramco and Abu Dhabi’s ADNOC are not only plowing investment dollars in their backyards but setting up mega complexes around the world.

The most ambitious among these is the memorandum of understanding (MOU) signed in June 2018 between Aramco, ADNOC and a consortium of Indian oil companies (Indian Oil, Hindustan Petroleum, Bharat Petroleum) to build a $44 billion refining and petrochemicals complex in India with 18 mtpa of petrochemicals capacity.

Aramco and ADNOC would jointly own 50% of the project, with the Indian consortium owning the other half.

The Indian government expects construction to start in 2020 in Raigad, India, with completion of the project by 2025.

Alembic Global Advisors’ Ahmed cautions on raising expectations from MOUs.

“The Crown Prince of Saudi Arabia went on a tour across Asia and many MOUs were signed. But MOUs sometimes don’t materialize. Until we see steel in the ground, we typically don’t take them too seriously,” said Ahmed.

China is another target for Middle East oil companies. In February 2019, Aramco signed an agreement with China’s NORINCO Group and Panjin Sincen to develop a $10 billion-plus fully integrated refining and petrochemical complex in Liaoning, China, with start-up expected in 2024.

The partners will create a new company, Huajin Aramco Petrochemical (Aramco 35%, NORINCO 36%, Panjin Sincen 29%), as part of a project that will include a 300,000 bbl/d refinery with a 1.5 mtpa cracker and a 1.3 mtpa paraxylene (PX) unit. Aramco will supply up to 70% of the crude oil feedstock for the complex.

SABIC Merger To Bring Projects

And Aramco would inherit two additional megaprojects if its planned merger with SABIC goes through.

SABIC and China’s Fuhaichuang Petrochemical are planning to jointly build a petrochemical complex in Fujian, China, a source from Fuhaichuang said in late February.

The project to be located at Gulei in Zhangzhou would include a 1.8 mtpa cracker, a 600,000 tonne per year propane dehydrogenation (PDH) unit and derivatives units, according to the Fuhaichuang source. An official deal has yet to be finalized.

However, one SABIC megaproject is already underway. On the U.S. Gulf Coast, SABIC and ExxonMobil are building a 1.8 mtpa ethane cracker in San Patricio County, Texas, with a monoethylene glycol (MEG) plant and two PE units downstream.

Project completion is expected by fourth-quarter 2021 and start-up in the first half of 2022.

Beyond the potential merger between Aramco and SABIC, Middle East oil companies could seek to acquire Western petrochemical assets.

Aramco acquired Germany-based LANXESS’ synthetic rubber business by buying out the latter’s 50% stake in their ARLANXEO joint venture in December 2018, while SABIC took a nearly 25% stake in Switzerland-based specialty chemicals and catalysts company Clariant in September 2018.

Earlier major deals included SABIC’s acquisition of U.S.-based GE Plastics in 2007 and Abu Dhabi’s IPIC (now Mubadala) buying Canada’s NOVA Chemicals in 2009.

“They would be still be interested but we would not expect them to go too far from their comfort zone in olefins and polyolefins, and possibly in polyurethanes. We think they would look to the U.S. rather than Europe,” said Ahmed from Alembic Global Advisors.

It’s clear Middle East oil companies have giant ambitions in petrochemicals with plans to bring on massive amounts of capacity in 2025. However, it remains to be seen what projects actually start up and in what timeframe.

“The devil’s in the details in terms of what gets built, delayed and cancelled. We all know the game of companies throwing down big numbers to prevent competitors from overbuilding,” said Ahmed.

ICIS editors Nigel Davis, Nurluqman Suratman, Niall Swan and Fanny Zhang contributed to this report.

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