Published on March 24, 2014
In 2013, Gulf’s petrochemical sector’s revenues were at USD 97.3 billion, despite various issues. The region’s export revenues were about USD 52.7 billion in the previous year.
The petrochemical industry witnessed a significant rise in capacity to 130 million tons per year. Saudi Arabia’s production capacity rose to 87.5 million tons and petrochemical production is said to have crossed 17.5 million tons.
In the fourth quarter, this sector’s earnings increased by 7.2 per cent quarter on quarter, and 18.4 per cent year on year. Fourth quarter performance of listed petrochemical companies was mixed as a result of rise in prices of petrochemical products while the price of fertilizers dropped significantly. Companies like SABIC, IQ, SAFCO get significant share of their income from fertilizer operations and the prices of their products declined by double digits.
Natural gas is vital for the petrochemical industry and easy access to this feedstock in the Middle East strengthened the industry’s hold. However, with the U.S. shale revolution the dominance of Gulf regions is under threat. The availability of cheap natural gas, and that too in abundance, has revived the industry in North America and is giving a tough competition to Mideast dominance in the global market.
The emergence of North America as a new competitor and shortage of natural gas is the major challenge. Middle East producers are placing more emphasis on adding value to basic petrochemicals due to lack of much needed to feedstock.
Companies are now keen on investing in North America as well as the emerging markets in Asia. Petrochemical producers in the Gulf region are lagging behind U.S. and European players, especially in terms of innovation. They fear that soon the West’s technical expertise will leave Gulf producers redundant.
In the Gulf region, only Bahrain and Qatar have sufficient gas supplies to meet the increasing demand for gas. Some members of GCC are struggling to fulfil the increasing demand with current supply, while some others have been forced to rely on pipeline gas or LNG imports, or use crude and refined products to supplement gas as a feedstock to produce electricity. The rising demand for natural gas combined with delay in starting gas development projects will further aggravate the supply situation in the Gulf region, except Qatar.
The petrochemical industry requires more natural gas, and in a state of shortage the Gulf states have made massive investments that involve increased use of natural gas for generating electricity.
Geopolitical variables and commercial aspects, including subsidized domestic energy prices, has prevented development of reserves and regional transport infrastructure.
BP is planning to produce 1 billion cubic feet per day (bcfd) of gas and 25,000 bbl/day of gas condensate from Khazzan field in Oman. While Saudi Arabia is looking to develop 1.2 billion bcfd Arabiyah gas field and the 1.3 bcfd of gas from the Hasbah field. Saudi is also setting up a 2.5 bcfd Wasit Gas Plant. The Gulf region has a number of projects in hand to expand natural gas and natural gas liquids processing capacity from 9.3 bcfd to 12.5 bcfd at Khursaniyah, Hawiyah, Yanbu and Khurais.
Lack of sufficient feedstock has forced the governments of the region to support subsidiaries or joint ventures of national energy group for feedstock allocations, which has put independent chemical companies in a rut desperately searching for raw materials. Merging businesses has become a common practice which helps to cut costs, scale up and diversify their petrochemical contributions.
The region will have to increase its natural gas output in order to meet the rising demand brought about by increasing investment in the petrochemicals sector.
SipChem ‘s polybutylene terephthalate (PBT) project is nearing completion and is expected to produce 63,000 tons of PBT resin. Saudi Aramco and Dow Chemical are setting up a USD 20 billion Sadara joint venture project. Qatar is keen on investing USD 25 billion over the next five years to expand its petrochemical industry.
The Gulf region will have to increase its natural gas production capacity and invest in foreign firms in order to maintain and strengthen its foothold in the global petrochemical industry.
