Qatar Petrochemicals Report Q2 2012

Qatar is likely to see two new petrochemicals projects come on stream in coming years, which will tighten feedstock availability. In anticipation of increased demand, Qatar’s gas price has risen to US$3-4 per million btu, which is higher than the US$1/mn btu currently charged by many Middle East producers, although BMI believes that differential is likely to narrow if not be eliminated over the forecast period. The country is pressing ahead with downstream facilities, and petrochemicals production capacity across the Gulf region is set to rise by more than 40% to more than 160mn tonnes per annum (tpa) by 2016. Qatar should take a significant share of this contribution as it accounts for 14% of the world’s total gas reserves.
In December 2011, Shell and Qatar Petroleum (QP) signed an agreement for the development of a petrochemical production joint venture (JV) in Qatar with total investment of an estimated US$6.5bn. Shell will have a 20% stake in the JV, with QP holding the rest. QP and Shell plan completion in 2017. The complex under consideration includes a world-scale 1.5mn tpa steam cracker sourcing feedstock from natural gas projects in Qatar, an ethylene glycol plant of up to 1.5mn tpa and a 300,000tpa linear alpha-olefins facility. Output will be mainly marketed in Asia.
Aside from its partnership with Shell, QP is considering two alternative proposals for a second complex at Ras Laffan, one with Qatar Petrochemical Company (Qapco), a JV in which Industries Qatar holds 80% and Total Petrochemicals 20%, and one with Chevron Phillips Chemical (CPChem).
Doubt was cast on the future of a cracker project planned by QP and ExxonMobil by QP’s deputy chairman, Hamad Rashid al-Mohannadi, in December 2011. Al-Mohannadi stated that ExxonMobil was out of the competition for a cracker project with Qatar restricting foreign shareholding in future projects to 20%. They had signed an agreement to progress the joint development of a petrochemical complex in Ras Laffan Industrial City with capacities of 1.6mn tpa ethylene, 1.3mn tpa polyethylene (PE) and 700,000tpa ethylene glycol. There are also doubts over plans by Total for a petrochemical complex with 1.6mn tpa ethylene, two 650,000tpa PE plants and a 700,000tpa ethylene glycol plant. BMI believes that both projects are unlikely to come on stream before 2015.
Qatar maintains its third place rank in our Q212 Middle East and Africa Petrochemicals Business Environment Ratings with 60.5 points, down 1.5 points since the previous quarter owing to deterioration in both petrochemicals markets risks and long-term financial market risk. This puts it 4.5 points behind the UAE and 2.9 points ahead of Iran. Qatar’s progress in raising its petrochemical capacity could still falter due to rising construction costs and tightening lending conditions as well as the rising cost of feedstock as gas resources come under pressure. Nevertheless, Qatar’s petrochemical-specific ratings are strong, with cracker capacity set to increase significantly over the next five years and the country hosting the second largest polyolefins production capacity in the Gulf Cooperation Council after Saudi Arabia.
Underpinned by one of the highest levels of GDP per capita in the world and no history of political tension, Qatar remains a bastion of stability in a highly turbulent region. Qatar’s weakness is its relative lack of economic diversification compared with other countries in the region.