The profitability of Saudi Arabia's petrochemicals companies could be reduced this year if the government increases its gas prices, NCB Capital says.
Natural gas is currently offered to producers at a fixed subsidised rate of 75 US cents per million British thermal units even as consumption outweighs supply. The price, however, was set at 1998, when crude was at US$13 a barrel, compared with more than $100 today. The petrochemicals sector is part of Saudi Arabia's government strategy to diversify the economy and reduce its dependence on petrodollars. The government has been unable to provide sufficient quantities, however, to keep up with the needs of a growing economy.
"The ministry of petroleum and mineral resources and Saudi Aramco are jointly working towards revising the price at which natural gas is supplied to producers," said Tariq Al Alaiwat, an analyst at NCB Capital, based in Riyadh.
Saudi International Petrochemical Company's profitability would be affected the most if the price of natural gas was increased, the Mr Al Alaiwat said. "Next would be Safco [Saudi Arabian Fertiliser Company] due to its dependence on natural gas as its single feedstock. Yansab, Saudi Kayan and Petro Rabigh, which operate on mixed feed crackers using ethane, propane and butane, will not be affected, Mr Al Alaiwat said.
Saudi Aramco is increasing production to boost output to 15.5 billion standard cubic feet per day by 2015, from 9.4 billion in 2010. Consumption, however, is expected to outpace supply and expand at a compounded annual rate of 8.7 per cent through to 2020, he added. "The secure availability of feedstock at a low cost has offered a competitive edge to the Saudi producers when compared to their global peers," Mr Al Alaiwat said.
Saudi petrochemicals firms have faced increasing charges of anti-dumping from countries such as China, India, Pakistan and Turkey. India imposed anti-dumping charges for a period of five years on polypropylene imports from Saudi Arabia two years ago. "Saudi producers are charged duties ranging from $51 to $323 per tonne on polypropylene exported to India," Mr Al Alaiwat said.