Saudi Arabian petrochemical producers are considering altering supply routes for some polymer sales to Africa because of worsening security conditions in the Mideast Gulf.
Saudi producers have grown increasingly concerned about the security of shipments loading from the production hub of Jubail, on the country's Mideast Gulf coast, following last week's incidents involving two tankers in the Gulf of Oman.
The 13 June attacks on the two tankers — one carrying a cargo of petrochemical feedstock naphtha from the UAE to Taiwan, and the other loaded with methanol — have been blamed by the US on Iran, which denies responsibility.
Petrochemical cargoes from Jubail typically pass through the Gulf of Oman on route to Asia-Pacific, Africa and Europe. But the heightened threat to shipping in the region has led Jubail-based polymer producers to consider instead transporting cargoes 1,400km across the country by road to the Red Sea port of Jeddah, before shipping them across the Red Sea to Africa.
Polymers, a solid product, would be the most viable petrochemical derivative to be moved by trucks across the country. Liquid petrochemicals are not being considered for the route, given a lack of supply chain infrastructure to facilitate the journey. Saudi suppliers are also reluctant to move large volumes of flammable liquid petrochemicals over long distances.
Polymer railcars are not available in Saudi Arabia and the wider Mideast Gulf, unlike in the US. Construction is underway on a 2,200 km railway network linking the six Gulf Co-operation Council (GCC) countries, including Saudi Arabia.
Cost concerns
It takes around one day to move polymers by truck from Jubail to Jeddah, and then a few more days to ship cargoes to east Africa. Petrochemical companies are typically unwilling to use the route, given the negative impact of heavy vehicles on Saudi roads. But the route would be quicker than shipping from Jubail to Africa, which requires more transshipments.
And Saudi petrochemical producers have been telling customers privately in the past few days to expect longer voyage times, as the threat of supply disruptions in the Gulf of Oman remains high.
Polymer trucking costs from Jubail to Jeddah are estimated at $30/t at least, given a lack of vehicle availability in the country's eastern province. Local trucking costs are typically higher during the hot summer months, when temperatures typically reach nearly 50°C.
Polymer producers also need to factor in additional freight costs between Jeddah and east Africa, which can vary significantly from $40-70/t, depending on vessel availability. By comparison, container freight from Jubail to east Africa ranges from $50-70/t, while freight from Jubail to west Africa is typically at $90-100/t.
Security of supply is the main reason petrochemical producers are considering the new route, but costs and the impact on profit margins are also a factor, particularly in a competitive and oversupplied polymer market. Saudi producers are under severe pressure in Africa, where US companies have been selling more polyethylene resins to convertors after the start-up of new plants last year.
Polymer producers with facilities in Jubail include state-owned Sabic and its many affiliate companies, fellow Saudi firms Tasnee, Sipchem and Advanced Petrochemical, and the Saudi Chevron and Sadara joint ventures.
Risk premiums
The 13 June tanker incidents are leading to higher risk premiums for shipping companies, which may make it more expensive to ship products from Jubail port to Africa, Asia and Europe. Shipowners have been expressing serious concerns over the security of their container vessels for more than a month, since four vessels were targets of a sabotage attack off the UAE on 12 May.
This leaves Saudi polymer producers looking to sell to Africa with an unwelcome decision: to ship via Jubail and pay higher risk premiums, or bear additional trucking costs from Jubail to Jeddah.
Shipping risk premiums for polymers quoted by shipowners could be as high as 5pc of total freight costs, given current tensions. Saudi polymer producers are pushing back hard against attempts to raise freight costs, and consider the Jeddah land route to be more attractive in the short term.
The land route to Jeddah is only being considered for sales to Africa. Jubail-based producers are equally cautious about moving product bound for Asia-Pacific or Europe from Jeddah across the Red Sea and then through the Gulf of Aden, given the Saudi-Yemen conflict. Houthi rebels from Yemen launched a strike near a desalination plant in southern Saudi Arabia earlier this week, without causing damage or casualties.
Polymer producers such as PetroRabigh and Natpet operate facilities in western Saudi Arabia and continue to ship material via the Red Sea route to Asia.
