Petrochemicals

The Middle East is seeking a gradual movement away from its dependency on oil and gas production to diversify its economy and create a positive environment for the development of its plastics industry, according to a new report by industry intelligence company GlobalData.

The new report suggests that the region has been witness to the emergence of an impressive upstream petrochemicals industry in the last decade, which is now the most competitive in the world thanks to its low-cost feedstock advantage. Aggregate capacity for basic petrochemical products in the Middle East grew at a CAGR of 11% over the last decade to reach 47 million tons per annum. This capacity is now expected to serve as a feedstock provider for the downstream industry, with its cost advantage directly transferred to the downstream industry. Several governments, especially Saudi Arabia and UAE are providing a range of benefits to downstream petrochemical industry, including soft loans, setting up cluster programs, etc.

Link: http://www.zawya.com/story/Oil_Loses_Out_to_Plastics_as_Middle_East_Diversifies_its_Economy-ZAWYA20120419145557/loklok145500120419/

The Gulf Petrochemicals and Chemicals Association (GPCA) has said the volume of annual production of plastic industries in the GCC countries is set to grow by 73% in 2015 from the current levels of 13.6 million tonnes to 23.6 million tonnes, Arab News has reported. The share of Saudi companies is expected to fall from the current 75% to 66% by 2015, while the share of Abu Dhabi is set to increase to 4.2 million tonnes from its current level of 3 million tonnes, representing a CAGR rate of 71%, said GPCA secretary general, Abdulwahab Al-Sadoun. Abu Dhabi's total plastic production will grow by 18% to overall GCC production in 2015, thus doubling its current rate of 8%, he added.

Link: http://www.ameinfo.com/292934.html

GCC is the fastest growing region for downstream petrochemical industry in the world. In a new study conducted by UK-based Ispy Publishing (and summarized by gulfnews in the link below), the plastic industry is projected to grow 30% annually over the next 5 years, spurred by factors including lower feedstock, rising consumer spending and high level of government incentivization.

Led by Saudi Arabia, the Gulf accounts for 11% of the $600 billion (Dh2.2 trillion) global petrochemical industry. Over the next five years, the Gulf's market share of the global petrochemical industry will jump to over 17 per cent—highlighting the importance of this industry as the second biggest source of income for Gulf countries after oil, the report said.Plastics packaging, with a global value expected to reach $180 billion in 2011, will dominate the industry's growth in the Middle East, the report said.

Link: http://gulfnews.com/business/general/petrol-to-plastics-bagging-the-future-1.952591

For the past three decades, the Gulf petrochemicals industry has seen phenomenal growth. The center of gravity has now shifted from the traditional producing regions of North America, Europe and Japan to the lowest cost producing region of basic petrochemicals – the Gulf. The significant cost advantage on feedstock and logistics enjoyed by Gulf petrochemical producers offers a congenial environment for petrochemical industry growth in the Gulf.
 
However, availability of natural gas as a feedstock for petrochemical production is experiencing a shortage because of a combination of the following reasons:
 Increased domestic consumption in alternative areas such as electricity generation
 Decrease in oil production limits availability of associated gas
 Increasing demand for gas based feedstock as the industry is opened to the private sector

This has resulted in initiatives being taken in the petrochemical space by governments in the Gulf, one of which is to grow the downstream processing sector.

The National Industrial Clusters Development Program has been authorized by Saudi Arabia’s Council of Ministers to develop new industries and to diversify the national economy. This will encourage a shift from export oriented base petrochemical materials to manufacturing of value added products for supply to domestic industries such as automotive, packaging, consumer durables and construction. The program also links the allocation of feedstock to investment in downstream projects by the basic petrochemicals producers.

It is imperative that with new upstream capacity coming on stream a concerted effort be made to expand the downstream processing base to add value right here in the Gulf instead of exporting the raw materials to China and other parts of Asia and bringing back the value added products in the form of imports.

HBG has established a petrochemical platform, Polyvest Middle East, specifically with the objective of participating in the growth of the downstream processing sector by investing in key industrial domestic industries mentioned above.

The global petrochemical industry is rapidly changing with the Middle East rapidly increasing its share of global capacity. There are not only a growing number of petrochemical ventures but state-owned firms are continuing their expansion internationally even as global demand falls sharply. According to a recent article in Trends magazine [Fertile Ground] the Middle East is on its way to cornering the global petrochemical industry.

According to Chemical Markets Associates, Inc. ('CMAI') Middle East, the decline in global demand is mainly due to sharp falls in take-up for durable fittings, but 70% of business is “non-durables” where demand is flat. Nevertheless the drop in demand has pushed western petrochemical companies into survival mode making them interesting strategic targets for GCC businesses. In the current circumstances, most firms will find it difficult to fund acquisitions but sovereign wealth funds could end up supporting these acquisitions to enable access to foreign markets and proprietary technology.

The Petrochem industry in the Gulf capitalizes on its competitive advantage of cheap and readily accessible hydrocarbon inputs (mainly natural gas, 40% of global reserves). The cost advantage in the Gulf remains intact despite sharp declines in oil prices because hydrocarbon inputs cost 60 to 70 percent less to local producers as compared to Asian counterparts. With growing economies of scale and proximity to emerging markets, the Gulf is expected to become a global center for this industry.

Mega projects like Saudi Kayan complex in Jubail - the world’s largest integrated petrochemical facility at an estimated cost of US$8 billion - and the new Borouge facility in Ruwais costing US$5 billion will significantly expand the GCC’s share of the global market. In addition to capacity building a number of polymer processing facilities are being built to achieve higher value add in the region.

We will wait to see how many foreign acquisitions actually take place and the impact of weakened international partners on local projects. It is still too early to say whether state-owned Gulf organizations will be able to complete some of the world’s biggest petrochemical projects and subsequently dominate the global market. Whatever happens, the inherent competitive advantage will remain.

Source: Fertile Ground by Scott MacMillan Dubai