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Natural-Gas Squeeze Means Mideast Fuel Switch: Energy Markets
2010-07-29 08:22:08.133 GMT
By Anthony DiPaola and Ann Koh
July 29 (Bloomberg) -- Persian Gulf petrochemical producers
are turning to naphtha as a feedstock for the first time amid
growing power-plant demand for natural gas.
Abu Dhabi plans to build the Middle East's first plant that
will only use naphtha to make plastics. Saudi Arabia may develop
similar units as part of two refinery ventures, according to
state-run Saudi Aramco, France's Total SA and Sumitomo Chemical
Co. of Japan, the partners in the projects.
While naphtha, a product of refining crude oil, is used to
make petrochemicals around the world, countries in the Middle
East have traditionally preferred cheaper home-produced natural
gas. Now, new power plants are competing for those gas supplies,
stoking demand for alternatives. That's being exacerbated as the
United Arab Emirates and Saudi Arabia expand petrochemicals
production to cut dependence on crude exports.
"They are running short of gas, especially in the U.A.E
and in Saudi Arabia, where they require gas for power generation
as well," said Siamak Adibi, head of the Middle East gas team
at Facts Global Energy Inc. in Singapore. "The more available
alternative would be naphtha for future projects."
Rising demand for naphtha may end a slump in refining
profits. The difference in price between naphtha and Dubai crude
oil, or crack spread, may rise to $2 a barrel by 2013 from an
average of $1.03 this year, according to Jit-Yang Lim, the
Singapore-based head of price analysis at Facts Global.
Market Glut
The spread, a measure of returns from naphtha production
relative to Dubai crude, dropped to minus $5.32 a barrel July
15, the biggest deficit since Oct. 15, according to data
compiled by Bloomberg. The profit was as high as $13.87 a barrel
on May 15, 2007.
Petrochemical producers are taking advantage of a glut of
naphtha on global markets, according to Sriharsha Pappu, a
petrochemicals analyst at HSBC Holdings Plc in Dubai.
India's net exports rose 12 percent to 8.18 million metric
tons in the year ended March 2010, according to the government's
Petroleum Planning and Analysis Cell.
Naphtha, distilled from crude or gas condensate, can be
blended with gasoline for auto fuel or used to make chemicals
for plastic bags to toys and washing-machine casings. It's fed
into a cracker, which breaks it down to create the chemicals.
The Middle East already has some mixed-feed crackers that can
use naphtha along with other products.
Excess supply has allowed buyers in Japan and Korea to cut
the costs of obtaining cargoes. Abu Dhabi National Oil Co. is
currently offering to sell naphtha for a year starting October
at premiums of between $11.50 and $12.50 a ton over benchmark
prices, two traders with knowledge of the talks said yesterday.
It set premiums for its July term contract at $22 to $24 a ton
during negotiations in May.
'Naphtha Necessity'
Middle East energy use may rise 60 percent in the next 20
years, according to the Paris-based International Energy Agency.
Kuwait began importing LNG from suppliers such as Royal Dutch
Shell Plc in 2009. State-run Qatar Petroleum sells gas to the
U.A.E. and Oman through the Dolphin Energy Ltd. pipeline, which
Abu Dhabi built with Total and Occidental Petroleum Corp.
Naphtha supply will increase this decade as the Middle
East, India and China expand refineries, said Utpal Sheth, a
Dubai-based analyst at Chemical Market Associates Inc.
Abu Dhabi is more than doubling capacity at its 400,000
barrel-a-day Ruwais plant to 9.6 million tons a year in 2015,
according to company data. State-run Abu Dhabi National Oil Co.
is offering naphtha to Asian buyers in October for the first
time, three traders with knowledge of discussions said July 21.
Raising the use of naphtha is "a necessity if you want to
grow in petrochemicals," Sheth said.
For Related News and Information:
For more Energy Markets Columns, see: NI NRGM <GO>
Main Middle East News: TOP GULF <GO>
For a map of Aramco refineries: BMAP 17321 <GO>
Oil market news: NI OILMARKET <GO>
Top energy and oil stories: ETOP <GO> and OTOP <GO>
Energy assets search menu NRGA <GO>
--Editors: Raj Rajendran, Stephen Voss
To contact the reporters on this story:
Ann Koh in Singapore at +65-6212-1509 or
akoh15@bloomberg.net;
Anthony DiPaola in Abu Dhabi at +971-4-364-1033 or
adipaola@bloomberg.net
To contact the editors responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net;
Clyde Russell at +65-6311-2423 or
crussell7@bloomberg.net
