The attack on Saudi crude oil plant has the greatest impact on PE and EG

The shutdown of Saudi Arabia's Abu Ghaig and Hurice crude oil processing plants not only reduced crude oil production by 5.7 million barrels per day (about 7% of global production), but also substantially reduced the supply of petrochemical raw materials in the country. Analysts at IHSMarkit say ethylene value chains, especially polyethylene (PE) and ethylene glycol (EG), are most affected.

In the early morning of September 14, the polyethylene and ethylene glycol installations in Amy, Saudi Arabia, were attacked by UAVs and missiles, and then the installations were shut down to reduce losses. Shale oil gives people a false sense of security, as if our crude oil supply is a lot and a lot, said Roger Diwan, vice president of IHS Markit Financial Services. Now this sense of security has disappeared, and it has returned to an era full of risks. We must consider oil supply in an era of drones and missile attacks everywhere, knowing that any facility in the Middle East could be attacked. Now we basically don't have safe facilities in the Middle East. Abu Ghaig's device is a very well-defended infrastructure, but it has disappeared.

Several chemical producers in Saudi Arabia have reported significant reductions in their raw material supply, including Sadala (16%), Yanbu National Petrochemical Company (30%), Kayan Petrochemical Company (50%), Saudi National Industrialization Corporation (41%) and Saudi International Petrochemical Company (40%). Dewey Johnson, Vice President of IHS Markit Basic Chemicals Market Research, said: "It is often difficult to determine the priority of raw material supply, such as how much to supply to the production of chemicals and how much to meet other domestic needs. If the interruption rate of crude oil production is expected to be 50% and Saudi Arabia's crude oil production capacity is affected by 50%, then ethylene, polyethylene and ethylene glycol will be the most affected.

Johnson pointed out that Saudi Arabia's ethylene production capacity is 18 million tons/year, accounting for about 10% of global total production. "Ethylene is only one step from a balance between supply and demand to a tight supply," he said. Therefore, how much capacity is available is crucial. "

Saudi Arabia is also a major producer of ethylene derivatives, its polyethylene production capacity accounts for about 6% of the world's total, and ethylene glycol production capacity accounts for 16% of the world's total. Ethylene glycol is the main raw material of polyethylene terephthalate, which is used to produce polyester and PET resin. As Saudi Arabia is also a major exporter of such derivatives, its impact on the global market of polyethylene and ethylene glycol has been further magnified. In 2018, Saudi Arabia met nearly 8% of the global PE demand and up to 23% of the ethylene glycol demand. Propylene production in the country accounts for 5% of global production and 9% of downstream polypropylene production. In addition, its methanol production capacity accounts for about 5% of global capacity.

Diwan said: "Saudi Arabia is making difficult choices about how to allocate crude oil and oil supply. They need to decide whether to store crude oil in Refineries or export it. The same is true for oil and gas: should it be supplied to power plants? Is it for the chemical industry? The supply of LPG raw materials in Saudi Arabia is heavily dependent on crude oil production. Kurt Barrow, vice president of IHSMarkit's downstream operations, points out that the vast majority of Saudi Arabia's annual production of about 22 million tons of liquefied petroleum gas is associated gas. He estimates that if the country's crude oil production is reduced by 50%, the annual production of liquefied petroleum gas will be reduced by up to 9 million tons.

Barrow said: "Most LPG is supplied to the domestic chemical industry as raw materials for the petrochemical industry. But there are also a lot of exports. Therefore, if crude oil production continues to decline, liquefied petroleum gas production will be impacted. Then we need to decide how to cut the supply of liquefied petroleum gas: to reduce exports or to reduce the supply to the local petrochemical industry. According to Barrow, Saudi Arabia's total annual production of ethane is about 12.5 million tons. Its output could be reduced by up to 5 million tons after the incident.

He said: "From Monday morning's market price data, we have actually seen in the market that the reaction of the LPG market is stronger than that of the crude oil market."

Diwan said that how to price these risks would be a major issue in the future. "What do you think of a crude oil market that no longer has a safety net? Abu Geiger's crude oil processing unit is the spare capacity of the entire crude oil supply system, but we are losing it now. When we talk about spare capacity, we're actually saying,'We have Abu Ghaig', but it's gone now.

So far, the impact of the attack on the market has not been significant

Except for the aromatic hydrocarbon market, the impact of the attack on the market is relatively small. On Monday, the price of pure benzene rose sharply in the U.S. market, but the price of olefins rose little. The polymer market has yet to respond significantly to weekend drone attacks.

Pure benzene was negotiated at 267-275 cents/gallon in October, up from 258 cents/gallon on Friday. On the New York Mercantile Exchange, WTI traded at $62.90 a barrel, up $8.05 a barrel, or 19 cents a gallon; pure benzene rose only about 13 cents a gallon. Prices of other aromatic hydrocarbons such as MDI and TDI depend on shipments from Sadala to China, and global prices are expected to rise.

Texas's ethylene price rose slightly as the price of ethane in the United States rose slightly on Monday. Ethylene traded at 25.25 cents a pound in September at the NOVA Centre in Monteberville and closed at 23 cents a pound on Friday. Ethylene prices in Louisiana also rose, trading at 26.25 cents a pound in October at the Chocto Center yesterday morning. But the price has gone up.