Nitrogen+Syngas 373 Sept-Oct 2021
30 September 2021
Middle East nitrogen exports
MIDDLE EAST
Middle East nitrogen exports
Although the stranded gas boom that led to the construction of the region’s nitrogen capacity in the 1980s-2000s may be largely over, the Middle East remains the largest nitrogen exporting region in the world.
During the 1990s and 2000s, the Middle East, particularly the Arabian Gulf, became the favoured destination for new investment in ammonia and urea capacity. With access to the markets of both India and, via the Suez Canal, Europe, plentiful and cheap natural gas supplies and a favourable investment climate, national oil companies, sometimes partnered by western producers and investors, developed a large and efficient export-oriented nitrogen industry, based on what was often then regarded as “stranded” natural gas, with limited alternative values and, in the case of oil-associated gas, potentially negative costs associated with flaring. Low, fixed gas prices were the norm, with good margins for ammonia and urea producers.
The region still has the legacy of this capacity, and as a result remains the largest exporting region for ammonia and urea. However, the rapid development of the international gas market, as pipelines and liquefied natural gas (LNG) terminals have proliferated, and the equally rapid urbanisation of the region, requiring more power and more gas to generate that power, have both complicated the regional dynamics. Gas availability has fallen and prices – while often still controlled for existing projects – have risen sharply for new developments.
While the region as a whole is still gas rich, as Table 1 shows, and claims 38% of the world’s natural gas reserves, most of that is concentrated in two countries; Iran and Qatar. Elsewhere a number of countries, including Kuwait and the UAE, have moved into gas deficit, even though the UAE still exports LNG from Das Island, off Abu Dhabi.
Barriers to growth
Rising gas consumption ended the era of cheap gas in the Middle East. Demand growth was driven by low, subsidised gas prices which were intended to spur economic growth and encourage energy-intensive industrialisation. But the countries were a victim of their own success as low gas pricing and a young demographic profile moving into the region’s rapidly growing cities led to demand increases year on year of up to 6-7% in some countries, while at the same time, low prices meant low or negative returns on gas exploration and development, discouraging the exploitation of new resources. In several countries, such as Kuwait and Saudi Arabia, gas production has also been tied to associated oil production, with OPEC oil quotas limiting volumes of gas that could be recovered as well. In Saudi Arabia and the UAE this has led to the development of large non-associated sour gas fields, which have been technically challenging and hence expensive. Increasingly, therefore, countries in the region are having to look at their longstanding policies of subsidising gas pricing, and this has made building new gas-based industrial capacity more difficult.
Political troubles have also loomed large for the region, such as the upheavals of the ‘Arab Spring’ that led to political instability in Egypt and the collapse of Syria and Yemen into civil war. Saudi Arabia and some of the other GCC states have tried to sanction Qatar in 2017 for its alleged support of terrorism, although an accommodation was reached earlier this year and restrictions are being eased. Meanwhile, the lingering fallout from the US intervention in Iraq in 2003 and the ongoing dispute with Iran over its nuclear energy and nuclear weapons programmes have also encouraged investors to look elsewhere to find a home for their money.
More recently, the increasing focus on reducing global carbon emissions has put the entire future of fossil fuel-based chemical production into some doubt. With an eye both to this and the region’s abundant availability of solar energy, there are now many pilot projects in the region looking at the production of ‘green’ or ‘blue’ ammonia.
For the time being, however, regional production will remain largely gas-based and, in the absence of any significant local demand for fertilizer, the Middle East will continue to be a dominant force in world ammonia and urea markets.
Saudi Arabia
Saudi Arabia continues to expand its gas production as part of a plan to replace oil burning in power stations with gas and renewables and to become a net gas exporter by 2030 by expanding unconventional gas production, possibly including shale gas production from the Jafurah basin, east of the Ghawar field (Baker Hughes estimates the country’s gas shale resources at 18 tcm). Some of this is coming from sour gas fields, processed at gas plants like Fadhili. At the moment, however, there are no plans for additional downstream urea/methanol output.
Saudi Arabia remains the world’s fifth largest urea exporter, with 4.4 million t/a of domestic urea capacity, most of it in the hands of Safco, the Saudi Arabian Fertilizer Company, at its al Jubail site, although there has been no new capacity built since the delayed start-up of Safco V in 2015. Instead, Saudi Arabia has been diversifying into phosphate production over the past two decades, and mining company Ma’aden has built three large new ammonia plants (the third is due to begin operations in early 2022), but these are aimed at feeding mono- and diammonium phosphate production at the Ras al-Khair phosphate hub on the east coast, north of Jubail. These plants have at times provided some merchant ammonia capacity in between the start-up of the ammonia plants ahead of the associated DAP plants, but there is no long-term increase in net ammonia or urea capacity planned at present.
Bahrain
Bahrain’s Gulf Petrochemical Industries Co (GPIC), which has 450,000 t/a of ammonia and 650,000 t/a of urea capacity at Sitra, has long looked to expand production at the site, but has been hampered by lack of gas availability from its mature and declining fields. However, in 2018 Bahrain announced the discovery of the Khaleej al-Bahrain field, its largest oil and gas find since 1932, off the island’s west coast, which is estimated to contain at least 80 billion barrels of tight (shale) oil, and the Pre-Unayzah gas field, where reserves may be as high as 10-20 tcf. With production at the former due to begin at the end of 2022, plans for expansion of Sitra have moved back onto the front burner, and last year Saipem was awarded two feasibility studies to look at either a 15% increase in ammonia, urea and methanol production at Sitra at an estimated cost of $390 million, via debottlenecking and efficiency increases, or the construction of a new large-scale ammonia/urea plant with a capacity of 726,000 t/a of ammonia and 1.1 million t/a of urea respectively, which is expected to cost between $1.65 -2.2 billion.
Egypt
Egypt went on a considerable capacity building spree in the 1990s and 2000s, ending up with major complexes at Alexandria (AlexFert and Abu Qir), Damietta (El Delta and MOPCO) and Suez (EBIC and EFC). There is also the 650,000 t/a Helwan plant near Cairo, and there has also been replacement of old capacity at KIMA at Aswan in the south of Egypt, which began operations in 2019. In total, this brings Egypt’s urea capacity to 6.9 million t/a, with production running at 93% in 2019, and turning Egypt into the largest exporter of urea in the region after Qatar.
Like Saudi Arabia, Egypt has also begun expanding domestic phosphate production, and there is another new fertilizer complex under development at Ain Sokhna to include 440,000 t/a of ammonia, 380,000 t/a of urea and 300,000 t/a of calcium ammonium nitrate (CAN) capacity, due for completion in 2022.
Oman
There are two nitrogen producers in Oman. The first complex, built in 2005, is operated by the Oman India Fertilizer Company (OMIFCO), a joint venture between the Oman Oil Company and two Indian fertilizer cooperatives, the Krishak Bharati Cooperative and the Indian Farmers Fertilizer Cooperative. It operates two ammonia-urea trains with a total capacity of 1.7 million t/a at Sur (debottlenecked to 1.9 million t/a). There is also the privately owned Sohar urea plant at Sohar, completed in 2009, with a further 1.2 million t/a of capacity.
Oman is continuing to develop gas fields and expand its LNG export capacity, but some expansions are to balance declines in mature fields. No new nitrogen capacity is currently foreseen.
Qatar
Qatar has the world’s third largest gas reserves, via its huge offshore North Field, and has turned itself into a gas superpower over the past two decades, focusing mainly upon gas exports, via the Dolphin pipeline to the UAE, and especially via the huge LNG export complex at Ras Laffan at the northern tip of the peninsula. Until 2020, when it was overtaken by Australia, Qatar was the world’s largest LNG producer and exporter.
On the nitrogen side, Qatar is also the world’s second largest exporter of urea, after Russia. The Qatar Fertilizer Company has a large complex at Mesaieed with six ammonia and urea trains with a total capacity of 3.8 million t/a of ammonia and 5.6 million t/a of urea, the most recent of which came on-stream in 2012. Fertilizer giant Yara was originally a 25% stakeholder in Qafco, and this lasted until 2020, when it was bought out by Qatar Petroleum, whose holding was then merged into Industries Qatar. The latter has said that it intends to make investments to keep the plants operating efficiently – some are of considerable vintage – but there are no plans for new capacity. Indeed, for several years from 2008 Qatar maintained a virtual moratorium on new North Field gas-based developments, with the sole exception of the Barzan LNG development, although continuing delays to that project mean that it only began initial production in April 2021. Qatar has now ended the development moratorium and is looking to expand LNG capacity once more, with the aim of increasing output by 40% to 110 million t/a by 2026. In August this year Spain’s Tecnicas Reunidas was awarded the EPC contract for the North Field expansion.
Iran
Across the Gulf, and sharing the giant North Field with Qatar (Iran calls this the South Pars field), Iran has the largest gas reserves in the world. The country embarked upon a major development programme for its gas reserves in the 1980s and 1990s, and then began another development spurt in the mid to late 2000s. The latter however became mired in difficulty due to disagreements with the US and its allies over Iran’s nuclear programme. The subsequent sanctions regime made transfers of money and equipment/technology difficult and on occasions impossible, and Iran’s development of several large new ammonia/urea complexes has stalled. Nevertheless, some of the projects continue to inch forward, with Shiraz 3 completed in 2016 and Pardis in 2018. Last November Iran announced the final mechanical completion of the 1.1 million t/a Lordegan urea plant. Any relaxation of sanctions could fairly quickly bring a considerable amount of Iranian capacity back onto the international market.
Kuwait
Kuwait’s lone foray into syngas-based industries was the Petrochemical Industries Corporation (PIC), which operated three ammonia-urea trains at Shuaiba. However, ongoing shortages of natural gas – Kuwait became an importer of LNG in 2009 – led to the production gradually being shut down. The last urea train ceased operation in 2018. Although Kuwait has reserves of gas in the Jurassic formation, it uses a lot of natural gas for enhanced oil recovery (EOR) and there are no plans for any further downstream petrochemical developments.
UAE
The UAE’s nitrogen production is in the hands of ADNOC Fertilizers, at Ruwais in the west of the country, where there are two ammonia-urea trains, the first becoming operative in 1983, the second in 2013, with a combined capacity of 2.1 million t/a. ADNOC bought out Total’s share of the fertilizer business in 2018, and in 2019 entered into a partnership with OCI; Fertiglobe, to trade fertilizers worldwide and look at further development opportunities.
The UAE is a major gas consumer via the megacities of Abu Dhabi and Dubai, but the Emirate of Abu Dhabi holds all of the oil and gas reserves. The UAE imports natural gas along the Dolphin pipeline from Qatar, but also exports LNG from the Das Island terminal. Abu Dhabi has announced its intention to become self-sufficient in gas by 2030 by expanding its non-associated sour gas production from the existing Shah field, as well as new onshore and offshore developments at Bab, Hail and Ghasha.
Consumption
The region’s nitrogen demand is relatively small, with an estimated consumption of about 7 million t/a of urea in 2019, most of this coming from Egypt and Iran, as shown in Table 2. The Middle East is largely an arid region, and the development of its agricultural sector has been hindered by many factors such as small farm sizes, weak infrastructure, soil deterioration, and water scarcity. Although some growth in this is foreseen over the coming years, the region is likely to remain a huge net exporter for the foreseeable future.
Green and blue ammonia
Perhaps the most striking development of the past year or so have been the number of project proposals for ‘blue’ and ‘green’ ammonia production; the former using exhausted oil and gas reservoirs for carbon capture and storage, the latter using mainly solar-based renewable energy to electrolyse water for hydrogen production.
As noted in our News section (see page 8), Fertiglobe is looking to build 1.0 million t/a of blue ammonia capacity at Ruwais for sale to Japan, while there is a 20,000 t/a green ammonia pilot plant planned at Kizad. Oman has talked of 10 million t/a of green ammonia by 2038, beginning with a 790,000 t/a wind and solar powered plant at Duqm with construction scheduled for next year. NEOM in Saudi Arabia plans 1.2 million t/a of green ammonia production from 2025. Sabic already claims to have sent a ‘blue’ ammonia shipment to Japan, and is looking at further conversion of existing capacity to blue production.
Further announcements are sure to follow, and the region certainly has a winning combination of high solar incidence and many exhausted oil and gas wells that can be used for carbon capture and storage, as well as experience at dealing with the corrosive effects of carbon dioxide on pipework. While the region’s natural gas boom may be running down, green and blue nitrogen capacity may provide a boost for future development.
