HIGH OIL prices has certainly changed the investment climate in the Middle East and the number of projects involving air separation plants is significantly rising. However, not all is good news for our industry as we have seen recently the “postponement” of major GTL projects which would have boosted demand of oxygen to near on 100,000 tpd in Qatar alone.
Currently, the Middle East accounts for about 2 percent of the total value of the industrial gases business. We define the region as Turkey, the East Mediterranean Countries and the Arabian/Persian Gulf States. The largest sized market is that in Saudi Arabia, which according to John Raquet is about $325m in size (see Figure 1). However, this is very much boosted by the large on-sites business that exists in Al Jubail and in Yanbu and managed by NIGC, a SABIC subsidiary. This sector will determine the size and growth for industrial gases over the next 10 years and is worth particular attention.
On-site supply schemes
Most interest in the region, particularly from the major international gas companies relates to the supply of oxygen and nitrogen to petrochemical, chemical and refining operations spread across the Gulf. In most countries, it has been traditional for such plants to be sold to the end-users and operated as a “captive” plant. The first change in this started in Saudi Arabia way back in 1984, when the Al Jubail petrochemical complex was first being developed. A specific company was set up to supply the complex – NIGC – a SABIC subsidiary but with 30% ownership of privately owned companies in the Kingdom. According to Raquet’s definition, if a company develops a pipeline system and invoices for the supply of gases and services, then it is an on-site – even if 90% of the customer base is a parent company or its subsidiaries.
So the Al Jubail on-sites facility has been present for over 20 years. NIGC evolved this to the second petrochemicals complex in Yanbu in the late 1990s and now owns and operates two pipeline supply networks in the Kingdom.
Turkey, the second largest market has very few on-site supply schemes – much of the demand for gases actually comes from the steel sector, that in the past, has preferred to buy their own plants. In most other countries, spanning Iran through to Jordan, there has been a tradition that companies have preferred to “make” their own gases rather than “buy”.
However, the evidence in the region is that, in general, this is changing. For example, In Kuwait, the largest ASU currently operating Is owned by Equate – the petrochemical company producing ethylene and derivatives. However, the expansion of Equate (Equate 2 project) has essentially agreed to outsource the supply of gases to a jv involving KOAC and Air Liquide (Shuaiba Oxygen). While the majority ownership exists with the Kuwaiti based petrochemical company – Air Liquide and KOAC have 40% ownership and ultimately will have responsibility in running the plant (ASU).
In Oman, Air Liquide has formed a jv with MH Darwish to participate in the supply of industrial gases to the Port Authority of Sohar and the associated petrochemical facilities being constructed there. Another jv was formed by Air Liquide to supply the petrochemicals and steel complexes in Qatar, in Umm Saaid.
It is not just Air Liquide that has been active in the Middle East in the on-site supply schemes. Air Products has formed two jv’s with Abdullah Hashim to supply customers in both the UAE and in Oman (Sohar). This is the first real activity Air Products has had in the region other than trading or equipment sales. As we go to press, Linde announced a jv to supply ANDOC’s new petrochemicals facility In Abu Dhabi.
Dr Aldo Belloni, Executive Board Member of the Linde Group addressed the very question – make v buy? – at the gases conference in Dubai. He appreciated that in some cases there was no sense to outsource supply to the gas companies. Two examples he used were the two GTL projects in Qatar in which both Air Products and Linde sold plants – the latter being the largest ever single order for ASUs ever seen. In both cases, these were large and expensive projects with only one real customer in each case and the gas companies would have effectively become a “bank” in financing the assets rather than being an active supplier of gases and services. The consensus of the audience in Dubai believed that any future GTL projects were likely to do “captive” in the foreseeable future.
What about the future direction. Raquet believes there will be a mix of on-site supply projects and sale of equipment (SOG) taking place across the region. “There are significant plans to build petrochemical complexes or expand existing ones in the Kingdom of Saudi Arabia and other Gulf states. This will give rise to ASU projects – some will remain captive, others we expect to involve major international gas companies and local partners. What is missing are the opportunities in HYCO that have not been realised yet.
I believe that the opportunities are growing significantly and it is merely determining whether the opportunity for gas companies are delivered in the form of on-sites supply schemes. It appears that all major international gas companies have businesses or representative offices here in the region”.
“You just have to look at the commitment that companies like SABIC and Saudi Aramco are making to realise that the opportunities exist throughout the region”. SABIC’s vice chairman and CEO Mohamed Al-Mady speaking at the second Gulf Petrochemicals Meeting in Dubai confirmed his company’s commitment to expanding petrochemical capacity with investments totalling $20bn.
While the regional opportunities are dominated by petrochemicals – let us not forget that there is a metals industry and also investments being made in the glass sector as well. There have been a few float glass factory installations in the region (e.g. UAE) – these have moved towards on-site supply. Steel output is growing and the three major producing countries in the Region – Turkey, Iran and Saudi Arabia – are all up grading steel mills and need additional quantities of oxygen and other gases. This is a sector that has been also very much a SOE market for the gas companies but opportunities exist to “convert” these to on-site supply schemes.
The Merchant market
In general, one can say that the merchant gases business has been underdeveloped because there has not been the presence of the majors to “push” technology and application know-how out into the end-user markets. The merchant market is still very packaged gas orientated (see Figure 2). Majority of bulk business is associated with liquid nitrogen for oil & gas services and some liquid oxygen for medical applications and back-up to steel demand from on-sites or captive plants.
The merchant CO2 market has suffered from the high level of combustion plants that have been installed throughout the region. This was done for self sufficiency purposes and also because the fuels used were low in cost. This has limited the growth in CO2 but this may change. The “environmental” aspect of burning fuel and generating CO2 is not a good image. Soft drinks manufacturers such as Coca Cola and PepsiCo are becoming environmentally conscious. There are benefits in recovering CO2 from larger by-product sources (such as chemicals, metals etc.) and having consistent supply standards. There are in fact cost advantages (depending on scale of course) and in some countries fuel is rising in cost. This is presenting opportunities for gas companies that have an alternative source of CO2. In the UAE, most of the combustion plants have been closed and replaced with trucked in liquid CO2 supplies.
The use of liquid nitrogen is dominated by the oil and gases sector, as a purging medium in its gaseous form. There are growing opportunities to develop more liquid nitrogen applications in the region. One problem is that extra storage capacity is needed in liquid nitrogen because when the oil & gas services companies need nitrogen – they need a lot and at short notice. John Grover emphasised this in his presentation at the conference.
Growing infrastructure projects and petrochemical complexes is significantly boosting the demand for welding and cutting gases. “The region has certainly moved on since I was first in the Middle East” explains John Raquet. “In 1993, most local companies saw argon/carbon dioxide shielding gases as “special”. Now you look around at the cylinder filling facilities of most of the larger regional players and they have state of the art filling facilities with gas mixing capability beyond that of welding gas mixtures”.
“At the time virtually all special gas mixtures were imported into the region – even simple light bulk gas mixtures. Air Products established a special gas trading and distribution facility for the region in Jebel Ali (UAE) many years ago. Now Abdullah Hashim has established one special gas mixing facility in Jeddah and is building a second in Al-Jubail”. Rick Kowey of Matheson Tri-Gas recently stated that the costs for setting up a mixing facility are not that great (c $1m - depending on the equipment and mixtures needed). However, it is not the investment cost it is how you run the facility that is important and quality ands certification are key.
“Back in 1993/4, I was discussing the need for calibration mixtures with a leading refiner in Saudi Arabia. That refinery manager stated that cost was not an issue to them – it was the “seal of approval” or certification that was important. He could not afford a $1.5bn refinery to shut down because a calibration gas was incorrectly mixed and so preferred to import from the major players. This resistance is certainly lessening these days”.
Both Linde and Spiritus expect high growth rates for the region. Linde stated they expected to see 20%+ growth in the GCC region and Spiritus is expecting a 14-15% CAGR for the whole of the Middle East (including Turkey and Iran). So the outlook over the next 5-10 years is very good in the region.
Petrochemical uses will lead the way but other applications such as stell, aluminium and glass will boost demand for most gases over the next 5-10 years.