Bloomberg News

Saudi Arabia Said to Keep Lid on Prices for Chemical Makers

June 15, 2011

June 15 (Bloomberg) -- Saudi Arabia may keep unchanged for another year the comparatively low prices it charges local petrochemical producers for ethane and other feedstock, a government official with knowledge of the matter said.

“There have been talks on raising the feedstock prices for some time, but we can’t confirm that this might take place next year,” the official said, declining to be identified because the discussions are confidential.

State-run energy company Saudi Aramco, the nation’s sole producer of ethane, may start charging higher prices in the first quarter of 2012 in response to anti-dumping concerns raised by European countries, according to Al Rajhi Capital, the investment arm of Al Rahji Bank, the largest Saudi lender by market value. The Ministry of Petroleum and Mineral Resources, which determines feedstock prices and allocations, has no one designated to speak to media and offered no comment about the pricing discussions.

Current prices for propane and butane, set more than a decade ago, are due to expire this year, and the government can extend them until it makes a final decision, the government official said on June 12. Prices for ethane, the main feedstock for Saudi producers, and for methane date from the mid-1990s, the official said.

The government charges Saudi petrochemical companies an ethane price of 75 U.S. cents per million British Thermal Units, or one thousand cubic feet, according to Al Rajhi Capital. The average global market price for the gas is six times higher at about $4.50 per million BTU, Al Rajhi estimated in a June 12 report.

Petrochemical Investment

Saudi Arabia, the world’s biggest oil exporter and holder of a fifth of known crude reserves, plans to invest $100 billion by 2016 to boost its petrochemicals output to more than 80 million metric tons a year. The Persian Gulf nation now produces about 60 million tons a year, Mohammed ibn Ibrahim Al-Suwaiyel, a Saudi Aramco board member, said on June 6.

Ethane comprised 70 percent of total feedstock for Saudi petrochemical makers in 2010, according to Al Rajhi. This share is likely to decrease to 65 percent by 2014, the bank said, as producers consume more propane and naphtha, which yield more diverse products than ethane though they cost more.

Most of the ethane produced in Saudi Arabia is a by-product of associated natural gas found with crude oil. Aramco, the nation’s sole producer of ethane, increased output of ethane to 1.33 trillion BTU last year from 1.11 trillion BTU in 2009, the company said in its annual review for 2010, issued on June 6.

--Editors: Bruce Stanley, Mike Anderson

To contact the reporter on this story: Wael Mahdi in Khobar at wmahdi@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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