By ANTHONY DIPAOLA

Saudi Arabian Oil Co. and its partner Dow Chemical Co. plan to start production this year at their $20 billion Sadara chemicals joint venture as other projects being planned in the region face the obstacle of falling crude prices.

Ethylene and polyethylene will be the first products of Sadara Chemical Co., Khalid Al Hamid, manager for engineering and technology, said in Dubai. Full output is set for late 2017.

Saudi Arabia, the world’s largest crude exporter, started the petrochemical project in 2011 when oil averaged $111/bbl. Prices have since slumped about 45%. 

Qatar Petroleum and Royal Dutch Shell ended plans last month to build a $6.5 billion petrochemical plant, saying it was “commercially unfeasible” in the current energy market.

“Middle East chemicals projects are facing stiff review,” said Sanjay Sharma, vice president for Middle East and India at Englewood, Colorado-based IHS Inc. “Industry does not need to react to the short-term swing and needs to look long-term for projects as the market will return.”

Middle Eastern petrochemical plants, which use natural gas, are becoming less competitive than plants that use oil after crude prices declined, Sharma said. Chemical prices are also falling because of lower oil prices, he said. 

Sadara will be the first plant in the Middle East to use naphtha, a refined oil product, Al Hamid said.

Saudi Arabia is boosting capacity to refine oil and produce chemicals to meet domestic fuel demand and make materials used to manufacture consumer goods. The kingdom plans to build refineries and chemical plants to help diversify the economy and reduce dependence on crude exports.