Economics of Petrochemical Production in Saudi Arabia and Western Canada

Published September 1985

The new, world-scale production facilities in Saudi Arabia and Western Canada represent significant additions to the global capacity for basic petrochemical production; for ethylene derivatives, the new Saudi facilities represent about 4% of estimated 1990 world capacity, with the Canadian facilities accounting for a somewhat smaller percent. Given the continuing global overcapacity for most petrochemicals, established producers have voiced much concern about this new production, most of which is dedicated to export and much of which will be coming on the market In 1985-1986. It is therefore timely to reexamine the economics of petrochemicals production in these new locations.

This study presents an in-depth look at the major components of both plant construction and overall production costs in Western Canada and Saudi Arabia. In addition, we estimate representative transport costs and applicable duties to illustrate delivered costs and netbacks for products sold in Western Europe, the United States, and Japan. Direct analysis with respect to third-party markets is outside our scope here. However, SRI Is also analyzing competition in the petrochemical industry in a major multiclient study. That analysis is based on supply curves (i.e., plant-by-plant cost profiles of the industry), and the coverage is worldwide.

We have prepared this report in part by relying on published articles and studies, and in part on nonconfidential information from Industry sources. We would particularly like to thank both client and nonclient companies in Canada and Japan for their willingness to discuss issues of concern with us and to share some of their insights.