Sven Royall, global vice president for intermediates at Shell says the super major's growth strategy for the Middle East is underpinned by its downstream investments in Saudi Arabia and Qatar
As one would expect of a global leader in the downstream business, Shell is present in a number of major projects across the Middle East, including petrochemical, refining and gas to liquid (GTL) projects.
The company possesses the vital technologies and know-how necessary to establish mega-projects and has seen willing national oil companies in the region queue up to select Shell as their partner of choice.
Thanks in part to the strategic location of the region, Shell has invested in several operating companies, mainly in Qatar and Saudi Arabia. "Shell has been in the region for long time," says Sven Royall, vice president global for intermediates at Shell. "Because the region is very well placed, in addition to the competitive feedstock, we opted to invest in the region," he says.
"Logistically, the region is well placed to go both to the European market and the Asian market, and that's what we do," he says. "From a production point of view, the Middle East is one of our key regions to hit the circle of major export markets which includes Europe and Asia Pacific, particularly China," he notes.
Shell operations in the region are mainly with major national oil companies including Saudi Aramco, Qatar Petroleum, and Saudi Arabia Basic Industries Corporation (SABIC). "Our first production units in the Middle East began operating in 1984, through the Sadaf joint venture with SABIC," Royall says.
Sadaf is a 50/50 joint venture between SABIC and Shell Chemicals Arabia, an affiliate of Royal Dutch Shell. It produces ethylene, crude industrial ethanol, styrene, caustic soda, ethylene dichloride and MTBE. The company started commercial operations in 1985.
In addition to Sadaf, Shell is involved in a refining business in joint venture with Saudi Aramco, through Saudi Aramco Shell Refinery Company (Sasref). Sasref is located in Jubail industrial city, and has a processing capacity of 305 000 bpd.
In Qatar, Shell is involved in two major projects, the Pearl GTL project, and the recently announced $6.5bn petrochemical project in joint venture with Qatar Petroleum.
"We have signed a heads of agreement with QP that sets the scope and commercial principles for the development of a world-scale petrochemicals complex in Ras Laffan," Royall says.
The scope under consideration includes a world-scale steam cracker, with feedstock coming from natural gas projects in Qatar; a mono-ethylene glycol plant of up to 1.5 million tonnes per annum using Shell's proprietary OMEGA (Only MEG Advantaged) technology; 300 000 tonne per year of linear alpha olefins using Shell's proprietary SHOP (Shell Higher Olefin Process); and another olefin derivative.
"Our OMEGA technology is an extremely advantageous way of converting ethylene into MEG. The yield of a tonne of ethylene is typically 30% higher compared to other technologies," he claims. "It also offers a significant lower energy consumption and production of waste water."
Qatar Petroleum will have an 80% equity interest in the project and Shell 20%. The company expects to start awarding contracts related to its JV with QP within a year.
"For this type of project, it always takes at least one year or so to get front end engineering and design (FEED) scope out and also decide on which contracting strategy should we take-whether LSTK or open basis," Royall explains.
In addition to the JV with QP, Shell also has a potential plan to expand the Sadaf JV with SABIC. "We are looking for opportunities to expand our presence in the region even further, including Sadaf project, but this is still in very earlier stage," he notes.
While the Saudi Arabian government aims to increase the cost of feedstock supplied to petrochemical companies, Shell is confident that such decision won't have a strong impact on its investments in the Kingdom. "Sadaf is extremely robust project, it's been on stream since 1985, and from that point of view, we are confident that it will continue to be very robust operation in KSA," he says.
All of Shell's projects in the region are in joint venture with national companies. Over the years it has become a preferred partner for these companies thanks to its reputation in the downstream sector.
"I think the value proposition from our side is the capability to design and deliver project on time, on budget with the right functionality and safety. We've done that with several projects around the world including the Pearl GTL project in Qatar." Royall claims. "What we offer to our local partners is a full-spread added value of their hydrocarbon reserve, through a well-designed project that is delivered as advertised, and the ability to pre-market the end products," Royall says.
In joining hands with local partners in the GCC, Shell aims to help oil producing nations to diversify their economies.
"The ability of raising local capabilities and bringing more specialised products and new industries to the region, is what makes developments over the next ten years so exciting," Royall adds.
Speaking about the difficulties and challenges Shell faces in the region, Royall says that the challenges are mainly related to the size of projects, which are common to all mega-projects that the company is involved in across the world. "I don't think we face other challenges in the region different from those in other regions," says Royall.
"Major projects have their own challenges from making sure that you have sufficient details of the designs, negotiating with the right contractors, being able to manage them to come in," he notes.
"To be able to coordinate the all the people working on a project, especially when a project is at peak and there is more than 20,000 people on-site with different languages and cultural differences, managing where they are going to live and to be fed," he explains. "These challenges exist wherever you built those major challenges. I think the challenge exists in the opportunity one has with the feedstock availability," Royall claims.
Looking ahead, Shell is very optimistic about the growth of its projects in the region, and the overall performance of the downstream sector in the Middle East. "For the Middle East, our growth strategy is to progress the projects that we have, to maintain the time-line and ensure that they move smoothly towards start-up later in the decade as scheduled," he reveals.
"Currently, the petrochemical industry is rather volatile, but we are confident that it has extremely strong prospects in the Middle East," he concludes.
Copyright 2012 ITP Business Publishing Ltd.Syndigate.info, Al bawaba.com. All Rights Reserved.
(Originally published April 4, 2012, on ArabianOilandGas.com.)