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At the end of December, Platts reported that Saudi Arabia increased the price of gasoline, domestic gas for power generation and ethane feedstock in its 2016 budget, part of a broader program to cut subsidies and reduce its budget deficit. As a part of this, the ethane price more than doubled from the long-standing fixed price of $0.75/MMBtu to $1.75/MMBtu, according to the official Saudi Press Agency.

So what does this mean for Saudi Arabia’s position as the world’s lowest-cost ethylene producer?

Setting the stage

According to Platts Analytics, Saudi Arabia has 13 steam crackers currently operating with a total ethylene capacity of 15.7 million mt/year. For 2016, we expect capacity to reach 16.9 million mt with the start of the 1.5 million mt/year Sadara cracker.

Additionally, the country will have a full year of production from the Petro-Rabigh unit 2 cracker, which started up in mid-2015. The largest facility in the country is the 2.45 million mt/year Petrokemya steam cracker in Al Jubail. The facility has a naphtha-based cracker with a capacity of 700,000 mt/year (Unit 1), an ethane/propane mix cracker with a capacity of 950,000 mt/year (Unit 2), and an ethane-based cracker with a capacity of 800,000 mt year (Unit 3).

Approximately 62% of the ethylene produced in Saudi Arabia is from ethane, followed by 25% from propane, 10.8% from naphtha, and 1.4% from butane according to Platts Analytics. By 2024 we expect the percent of ethylene produced from naphtha to increase to 17%.

The question of competitiveness

How will this affect the competitiveness of Saudi ethylene producers in the region and the world moving forward? As reported by Platts, Saudi Arabia will remain the world’s lowest cost ethylene producer despite the significant increase in the cost of ethane. In order to compare regional prices we must look at everything on...