A new NCB Capital report looks at the impact of changing gas prices which could rise from US$0.75/mmbtu to US$1.5/mmbtu at the start of 2012 on the local petrochemical companies in Saudi Arabia.
According to report, petrochemical producers Sipchem, Safco and Sabic will face the greatest impact by revisions to natural gas prices, while Tasnee and Sahara will face the least.
Facing difficulty
The report states that Saudi petrochemical firms "procure natural gas at one of the lowest prices globally. However they are facing difficulty in gaining new allocations of ethane at the current subsidised price of US$0.75/mmbtu for their capacity expansion plans due to increasing domestic consumption of gas."
Consumption to outpace supply
The report states highlighted the EIU statistics which shows that: "consumption is expected to outpace supply growth and expand at an average rate of 8.7 per cent during 2009-2020."
Greatest impact
Of the eight Saudi petrochemical companies, NCB Capital believes that: "Sipchem's profitability would be impacted the most if the price of natural gas is increased to a level higher than we currently expect." SAFCO would also be affected due to its dependency on natural gas as its single feedstock.
NCB Capital argues that the impact on SABIC will be lower, thanks to the company's diversified feedstock and product mix. However, the impact of the increase in production cost for Tasnee: "is becoming diluted due to a favorable outlook for titanium dioxide prices and demand."
NCB Capital believes that amongst the remaining three companies, Petrochem, Yansab and Saudi Kayan will not be impacted as these firms have secured feedstock at US$0.75/mmbtu beyond 2012.
Sahara's exposure is limited and is only through its associate Saudi Ethylene and Polyethylene Company (SEPC).
