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Market News

 April 11, 2007
Saudi Arabia: Pollution Control Equipment

 Over the next five years, the Saudi Government will be gradually and consistently enforcing regulations to control factory emissions in line with its commitments as a signatory to the Kyoto Protocol.

The Government's plan to diversify the economy and privatize a number of government agencies will entail spending and investments in projects across the board, especially, in the oil, gas, petrochemicals, water and power generation, and cement factories, thus, offering good prospects for manufacturers and suppliers of air pollution control equipment and air quality monitoring systems.

Market Demand

Industry sources estimate Saudi annual imports of air pollution control and monitoring equipment at around $50 million, with companies from the United States leading other country suppliers at $37.5 million, almost 75 percent of total imports.

Industry sources expect an average annual growth of 7-8 percent for this sector brought about by mega projects in the petrochemical field, oil and gas, power generation, and water desalination industries.

The Presidency of Meteorology & Environment (PME), an offshoot of the Ministry of Defense & Aviation, is the supervising Saudi authority (www.pme.gov.sa) in charge of controlling and enforcing environmental regulations. In October 2001, the Saudi Government issued the first draft of Saudi regulations pertaining to air, water, waste, hazardous materials, and noise pollution control, however, these regulations are still not being implemented.

On the other hand, the Royal Commission for Jubail and Yanbu (RCJY) issued the "Royal Commission Environmental Regulations (RCER)", which are adopted by industries at the industrial cities of Jubail and Yanbu. Any facility operating or planning to operate in any of these cities, is required to comply with these regulations, which are updated periodically to reflect the environmental needs at Jubail and Yanbu, adopting the latest pollution control technologies (www.rcjy.gov.sa).

Following RCJY's environmental guidelines, petrochemical plants in Jubail and Yanbu are required to monitor the level of released nitrogen dioxide and sulphur dioxide. New and expansion projects at the industrial cities of Jubail and Yanbu will present ample opportunities for manufacturers/suppliers of air pollution control and air monitoring equipment.

Since its inception, Saudi Aramco, the largest oil company in the world, has been the leader on environmental protection in Saudi Arabia, operating and monitoring any environmental threat and risks and following very strict international standards.

Saudi Aramco has developed a broad array of operational requirements, engineering, and performance guidelines to direct its commitment to the environment. These include sanitary codes; project environmental assessments, air and water quality standards, occupational health regulations, hazardous material transportation and handling, waste management procedures, and vital oil spill contingency plans.

The company has reported that it operates a number of sophisticated air monitoring stations throughout Saudi Arabia to ensure that its facilities meet national and company air quality standards. These stations record parameters such as sulphur dioxide, inhaled particulates, ozone, nitrogen oxides, carbon monoxide, and hydrogen sulphide. Collected meteorological data support routine operations and assist in the planning of new facilities.

Saudi Aramco also monitors facility emissions at their sources using stack testing and process control monitoring. Many advanced technologies are used to measure or control the level of atmospheric emissions from its industrial facilities. Air dispersion modeling is another important tool used by Saudi Aramco to determine the nature and extent of needed facility controls to reduce emissions to a level that comply with applicable standards.

The company's Master Gas System has greatly reduced the need for flaring, helping to recover more than 3,500 metric tons of elemental sulphur per day from gas produced in association with crude oil.

Existing petrochemical plants, chemical reactors, oil refineries, and cement plants are major end users of air quality monitoring equipment, and air pollution control equipment. Usually, these industries are directly ties with foreign licensors, who in turn, provide necessary air pollution control equipment. For example, local cement plants are mostly sourced in Europe, especially from Germany, and as such the air monitoring and control equipment are also sourced from the same German company.

Air pollution control specialists said that local power generation, and water desalination industries (www.swcc.gov.sa) are unlikely to commit themselves and fully implement PME emission control regulations, while the Saudi Electricity Co. (www.se.com.sa) still has 120 stacks without proper pollution control equipment.

Market Data & Best Prospects

There is no local manufacturing of air pollution control and air quality monitoring units/systems.

Industry sources estimated the market at $50 million in 2006 and expected to grow an average of 8 percent annually over the next couple of years. There is ample opportunity for manufacturers/suppliers of stationary and mobile ambient air quality monitoring stations, stack testing equipment, air filtration systems, source emission reduction equipment, end-of-pipe exhaust gas treatment systems, and emission monitoring and control equipment.

Key Suppliers

Major third-country suppliers include Sick, Maihak, and Siemens from Germany, Horiba from Japan, and Servo Mix from the U.K. Since there are no accurate trade figures, industry sources estimate that U.S. companies lead the market with a 75 percent share, while others, including European and Japanese companies account for the balance.

A letter of credit is the norm to conduct business with foreign principals. A 60-90 day LC is common and usually it gets extended once a good level of trust and business relations are established. Competitive prices and after-sales service are essential to winning in the market.

Regular visits by company's representatives is very important to keep abreast of developments and maintain a good working knowledge about the market idiosyncrasies and business conduct. Holding technical seminars at clients' premises has also proven indispensable to the success of foreign companies in this market.

Prospective Buyers

Planned and on-going expansion projects valued at billions of dollars in the above industries constitute excellent market opportunities for manufacturers/exporters of air pollution control and air quality monitoring equipment.

Major end-users of air pollution control and air quality monitoring systems in Saudi Arabia are petrochemical plants, mostly owned and managed by Saudi Basic Industries Corp. (SABIC) www.sabic.com, the Royal Commission for Jubail and Yanbu www.rcjy.gov.sa, Saudi Electricity Company www.se.com, Saudi Arabian Oil Company (Saudi Aramco) www.saudiaramco.com, and the cement industry.

The majority of end-users follow International Organization for Standards ISO 14001 2004 Environmental Management Standard.

SABIC is expanding capacity at various subsidiaries including Sharq, Al-Razi, Ibn Zahr, United, and Hadeed, while the company is also building new plants at Yansab and Saudi Kayan. All of these plants will require control and air monitoring systems.

The national oil company, Saudi Aramco is also expanding capacity and building mega refineries and petrochemical plants. Two new oil export refineries will be built by Total at the Jubail Industrial City, and another by ConocoPhillips in Yanbu on the Red Sea.

Procurement and contractual arrangements are highly defined at buyers such as Saudi Aramco, SABIC, the Royal Commission for Jubail and Yanbu, and Saudi Electricity Co. These end-users abide by their own standards, and provide for a scale of allowed profit margins for local suppliers/agents and foreign manufacturers. Price, quality, and expedited delivery will usually make or break a sale.

Competition among local suppliers/vendors of air pollution control equipment is strong, and generally the lowest bidder is most likely to get the purchase order. In cases in which all of the quotes are high, end-users will usually re-tender the bid to get a more suitable offer.

Saudi Aramco uses a code numbering system for each product/service; the company also has a classification, approval, and pre-qualification system for local and foreign manufacturers, vendors and engineering companies. Depending on the company's need for a certain product, a foreign manufacturer can either sell directly to Saudi Aramco or through a local agent.

In recent years, Saudi Aramco is gradually shifting to E-business through local delivery order and receipt (LDOR). Through E-commerce, the company goes directly to its approved vendor/s, places the order with that vendor and requests the vendor to deliver the goods to the site where the goods are needed. After the goods are delivered, Saudi Aramco pays the vendor through an open account after 14-28 days.

Market Issues & Obstacles

Saudi Arabia became the 149th member of the World Trade Organization (WTO) on December 11, 2005. Accession to the WTO will impact trade barriers and regulations as Saudi Arabia comes into compliance with WTO requirements.

As of the date of this report, Saudi Arabia does not have regulations and/or government restrictions impeding import and sale of air pollution and air quality control equipment, parts, and services. Certain components such as electrical motors must meet the standards and specifications of the Saudi Arabian Standards Organization (SASO). For information please visit www.saso.org.sa

The new foreign investment law encourages foreign companies to establish industrial and nonindustrial ventures in Saudi Arabia. Foreign investors interested in setting-up a facility to manufacture air pollution control equipment have to apply for a license and a commercial registration. Additional information can be accessed at www.sagia.org.

Excerpts from "Saudi Arabia: Pollution Control Equipment", U.S. Commercial Service, February 2007.