GULF SHIFTS FOCUS TO PETROCHEMICALS

The GCC petrochemical market is looking forward to low-cost energy and feedstock. Earlier, the GCC was spending a major part of its revenue on developing infrastructure for hydrocarbon reserves. As the focus is now on low-cost energy and feedstock, the market will move eastwards and the spending will be on diversified industrial requirements. Even then, oil and gas production will continue to play a leading role.

To facilitate the production of low-cost energy and feedstock, local producers are planning to spend around USD 330 bn on downstream facilities during this decade. Due to this, Western countries will have to struggle to compete with the low-cost facilities in the Middle East. The recent financial crisis which forced many Western countries to cut down production and close some facilities, helped the growth of petrochemical capacity in the Middle East. Most of the additions took place in ethylene production, which is the basis for many chemicals.

Based on the analysis of the Gulf Petrochemicals & Chemicals Association (GPCA), four million tons a year (t/y) of ethylene capacity was added in the Middle East in 2009. Seven million t/y capacity will be added in the next five years, with the addition of nine crackers by 2013-14. Among the nine, five of them will be in Saudi Arabia, two in Iran and one each in Qatar and Abu Dhabi. By 2014, Middle East will have 25 percent of the global ethylene capacity.

By 2015, Middle East producers are expected to have a 16 per cent share of the global chemical market, and by 2020, it will be 20 per cent. The manufacturers are shifting their interest due to a growing shortage of gas. However, the increase in ethane facilities, is not enough to meet the demand. The demand worldwide for ethylene, and the forthcoming petrochemical projects planned for the region aim to create higher value and more diverse products.

Substitutes like butane, propane and naphtha, are being used as feedstock. The Middle East, which is rich in oil, lacks gas supplies, and experts believe that naphtha is a feasible solution. Compared to gas, naphtha is expensive. To cut down costs, the manufacturer needs to integrate with refineries.

Speaking at the GPCA Forum in Dubai in December, Khalid Al Falih called on producers to move away from gas-based feedstock, and to look at integrating refineries with petrochemical plants, stating that such a move offered product diversification and value addition.

“This business has considerable room for development in the Gulf and Saudi Aramco intends to take an active role in realizing those prospects,” he added.

The production of chemicals by Naptha cracking generates more bi-products and thus involves more downstream processing, which in turn creates more jobs in petrochemical industries. Being the largest economy, Saudi Arabia is stepping up its development plans. This results in petrochemical production which has increased around 6.3 percent in 2009.

The two main petrochemical companies SABIC and Saudi Aramco, are planning a string of megaprojects in the next five years.

Sabic is ranked number four among the world’s leading petrochemical manufacturers, and it plans to become number one by 2020. By 2020, it is aiming to produce 130 million t/y. As per listing details at the Saudi Stock Exchange, the Saudi government owns 70 percent of Sabic shares.

By joining hands with Sabic’s competitors, Saudi Aramco is planning to build a strong downstream facility. Through its joint venture with Dow chemical, Aramco is planning a project costing USD 15 bn in the eastern Province of Jubail. In addition to that, Aramco also has a partnership with the Japanese firm Sumitomo Chemicals and the US’ ExxonMobil Chemical.

Aramco is planning to manufacture products like polyurethane building blocks, metallocene-based elastomers, glycol ethers, solution polyethylene, methyl/polymethyl methacrylate, nylon, and ethylene propylene rubber.

In this way, the Saudi government is preparing a strategy to develop its gas fields apart from petrochemical industries.

Other GCC countries cannot match the chemical capacity of Saudi Arabia, although they too are thinking of increasing their production. For example, Abu Dhabi is planning to double its petrochemical exports in the next five years. Tacaamol, a petrochemical complex will go on-stream in 2014 and will have a production capacity of 10 million t/y. It will have a 1.45-million t/y naphtha cracker, and will be supplied feedstock from the Ruwais refinery. The second phase will produce value-added products like polycarbonates using propane and butane.

To increase employment opportunities, most GCC countries follow an economic model which promotes industry. In line with this, companies set up industries close to production facilities. The Abu Dhabi Polymers Park has 60-65 plots where local and international investors can build their own plastic plants. By 2015, it is aiming to produce nearly 1.4 million t/y of plastic goods. Saudi Arabia will also have a 2.7 million sq.m industrial park, known as PetroRabigh, which will have similar industries to convert its plastic output into semi-finished or finished goods.

Saudi Aramco CEO Al Falih wants Middle East countries to use petrochemicals as their growth driver in the next decade. “The time has come for chemicals to take their rightful place as a pillar of industry by growing petrochemicals downstream … to rapidly expand and diversify our economies,” he told the GPCA Forum.

He asked the region’s petrochemical industry to aim for expansion from the current level of USD 40 bn to USD 150-200 bn by 2020. He also suggested that industries should strengthen their Research and development efforts to increase sales growth from 1.5 per cent to 5 per cent.

By joining hands with Sabic’s competitors, Aramco is planning to build a strong downstream facility. Through its joint venture with Dow Chemical, Aramco is thinking of a project costing USD 15bln in the eastern province of Jubail. In addition to that, Aramco also has a partnership with the Japanese firm Sumitomo Chemicals and the US ExxonMobill Chemical.

The delegates at the conference expressed cautious optimism regarding the views of Aramco’s Chief Executive Officer. However, some experts doubted whether it is possible to achieve the projected growth within such a short span of time.

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