UPDATE 2-Jurong Aromatics delays project on credit crunch

(Recasts with analyst quotes, details)

By Jennifer Tan

SINGAPORE, May 22 (Reuters) - Jurong Aromatics Corp (JAC) has delayed the start-up of its $2.4 billion aromatics project in Singapore until early 2013 from 2011, as it struggles to obtain funding in the current credit crunch.

But JAC dismissed speculation it would suspend or scrap the project, thanks largely to its commitment to companies such as BP (BP.L), in which the energy major would supply feedstock to the Singapore firm and in turn buy the refined products. "We have no intention nor see any reason at this time to suspend the project, although progress has been obviously slow due to prevailing market conditions," the company spokesman said in an emailed response to Reuters queries.

"We have future supply and offtake already fully committed by large reputable multi-national corporations such as BP -- we think it is more prudent to defer the startup of the project."

JAC, which needs about 4.5 million tonnes of natural gas condensate feedstock to run its plant, had earlier hoped to secure financing for the project by end-June, but this will likely be pushed back to the second half of the year, he said.

"Securing project financing in the current credit environment, and given the problems the banks are facing, needless to say, is extremely challenging," he said.

"This has caused us to look to less traditional sources of funding, and review the way we manage project infrastructural costs. As a result, negotiations are progressing slower."

The company is discussing with the Royal Bank of Scotland (RBS.L), West LB, KBC (KBC.BR) and Banca Intecsa, as well as other financial institutions for funds.

"We are also talking to a Singapore government agency in connection with funding part of the project costs -- this is still work-in-progress," he added, without elaborating.

According to local media, it is in discussions with Singapore's Economic Development Board (EDB) and hopes to dip into its Capital Assistance Scheme.

JAC expects construction of the project to start in early 2010 and finish in early 2013, coinciding with the completion of the city-state's underground rock cavern oil storage facility, where "JAC plans to take up the first few caverns", he said.

U.S. MARKET BRIGHT, ASIA DIM

Last week, Singapore scrapped the operational tender for the rock cavern oil storage project and said it plans to re-issue it three years later, adding to a slew of project delays worldwide due to weak economic conditions.

Last month, Singapore industrial landlord JTC Corp awarded a S$890 million ($594 million) tender to South Korea's Hyundai Engineering (000720.KS) to build the 9.5 million-barrel storage facility on Singapore's Jurong Island. The first two storage caverns are expected to be ready by 2013. [ID:nSP124882]

Industry sources attributed the cancellation of the operational tender to the delay or demise of various oil projects on the industrial and petrochemicals hub Jurong Island, including the Jurong Aromatics complex. [ID:nSIN466009]

Oil major Exxon Mobil (XOM.N) has its own aromatics complex, while Shell (RDSa.L) has a stake in an aromatics joint venture, both of which are already located on Jurong Island.

JAC, whose key shareholders include Singapore's Jurong Energy Corp, Swiss oil trader Glencore, South Korea's SK Energy (096770.KS) and Kuwait's Ikarus Petroleum Industries (IKAR.KW), expects the next petrochemical upswing to kick in by 2013.

This coincides with the completion and startup of its complex. It is also unfazed by new capacity emerging in the Middle East and China.

"The Middle East has lots of new plants, but not many produce aromatics products," the spokesman said. "These plants also do not have any competitive geographical advantage, unlike us, when it comes to shipping the final products to China."

Although the outlook for the United States and Mexico remains bright, analysts are less sanguine about market demand in Asia.

Due to its contract with JAC, BP is expected to scale down its U.S. aromatics production capacity, curbing any potential oversupply and keeping demand firm in the Americas.

"BP has already said it will stop paraxylene production in Decatur in the U.S.," said a Singapore-based aromatics analyst.

JAC's main aromatics product is paraxylene. The plant has a nameplate capacity of 800,000 tonnes per year (tpy) of paraxylene, the main feedstock for purified terephthalic acid -- used to make polyester. The facility can also produce 450,000 tpy of benzene and 200,000 tpy of orthoxylene.

But the threat of oversupply looms large over Asia, as new capacity in China and the Middle East comes onstream.

"Supply in Asia will be abundant, especially for benzene. Kuwait and Oman are starting up their aromatics plants, and their main export market will be China," the analyst added. (Additional reporting by Seng Li Peng; Editing by Ramthan Hussain)