The installation of world-scale investments in Saudi Arabia, as well as in other Gulf States, has been exerting enormous pressure on both workforce and equipment availability, according to the Middle East Economic Digest. At the same time, soaring commodity prices, notably for steel, are providing a further constraint on current and planned investments.

Moreover, the fallout from the boom is now affecting other projects, as Sabic Europe acknowledged when it revealed that it was putting back not one but two major investments; one on its own behalf, one in conjunction with members of a consortium.

Speaking to the press before Christmas, Frans Noteborn, chairman of Sabic Europe, said that the company, formed by Sabic's take-over of DSM's petrochemical division in 2002, was slowing its so-called Europe 1 project, a $1.5 billion programme involving additional cracking and polymerisation capacity at its sites at Geleen, in the Netherlands, and Gelsenkirchen in Germany. Until recently, Noteborn acknowledged, a final decision to go ahead with the programme was to have been taken during the first quarter of this year. But the company has now put back this final verdict, although it still expects to be able to hit its target start-up date of 2009.

The Europe 1 project has been on the drawing board for several years and the cost of fulfilling it was one of the reasons why DSM sold its petrochemical division to the well funded Saudi group. The project involves a major expansion to the existing steam cracker at Geleen, close to the spectacular new Sitthard headquarters building taking shape near Maastricht. It also includes three new downstream polyolefin plants; two at Geleen and one at the Gelsenkirchen site in Germany, where DSM acquired major polymer interests from Huls several years ago.

The ambitious project also features technology designed to deal with the growing imbalance in Europe between ethylene and propylene availability. The conventional European cracker, fed by the naphtha fraction from the refinery, has been ethylene driven, an influence indicated by the way the capacity is always designated in ethylene terms. Propylene has been the less significant olefin, with a smaller output figure.

However, driven by expanding polypropylene consumption as well as other higher growth outlets, propylene has been overtaking ethylene, whose uses are growing more slowly. For example, in Europe, Sabic predicts, while polypropylene is expected to grow by 3.1 per cent a year, propylene supplies only look like advancing by 1.3 per cent a year.

As Bas Kostering, olefins director at Sabic Europe puts it, “Propylene, the forgotten monomer, will not be tight, it will be very tight”. Between 2005 and 2009, Kostering forecast recently, an increase in demand of 14 million tonnes will only be met by 5 million tonnes from crackers, leaving a major gap. This has to be filled by methods of winning more propylene from the cracker by a process known as metathesis, together with dehydrogenation of propane gas and drawing on refinery-sourced propylene.

Sabic Europe's solution is to put metathesis technology into its new cracker capability, using a process already employed by competitors Equistar, BASF/Fina, Mitsui and BP/Secco, with combined capacity of 1 million tonnes a year. However, the technology, in which ethylene and the aromatic stream are combined to boost the output of propylene, is unproven in Europe as yet, the only existing facilities being located in the US or China.

Central to Sabic Europe's plans is a new pipeline to transport the scarce propylene between major facilities in the same way that the longstanding ARG grid does for ethylene. But here too, it is encountering the effects of inflationary pressures in the construction industry, which have taken costs up to the $300 million mark from an initial estimate of $240 million. Meanwhile, there is now expected to be some attrition of the original eight-strong pipeline consortium comprising Sabic, Shell, BASF, BP, Celanese, DSM, Sasol and Degussa.

As a result, Sabic Europe acknowledges that the timing of the project, which has won some $54 million of subsidy from individual European governments, is likely to be extended from its planned 2007 start-up.

The aim of the EPDC propylene pipeline, in which Sabic Europe and its partners each has a 12.5 per cent stake, is to carry the feedstock between Antwerp, Rotterdam and Germany, where it will serve the Gelsenkirchen site among others.

European olefin users have seen their supply base showing little growth in recent years, as investments in the costly steam cracker facilities on which they rely has dwindled. Since the last expansion by BASF at Antwerp in the mid 1990s, there has been no greenfield investment in Europe as the emphasis has swung increasingly to the Middle East.

The outcome is that, on average, West European crackers are nearly 30 years old against an equivalent figure for the Middle East of just ten years. The poor economics of many smaller European units have been addressed with a number of closures in recent years; but analysts believe that further whittling away of these uncompetitive operators is necessary if European olefin production is to remain viable in the face of the growing advantage that Middle East producers enjoy. Once oil moves much beyond the $20 a barrel level, producers in this region begin to enjoy an advantage which is greatly amplified at today's figures.

John Whitehead
LME eRingsider
Edition 4, Spring 2006