GCC petrochemical industry faces changes

The global petrochemical industry has faced many changes in the past few years.

We have seen an increase in challenges: prices of crude oil and gas have soared and continuous to do so; petrochemical margins in GCC touched record levels while the plants in the West are facing tough times; economies of China and India continues to grow and have substantial impact on the market and prices of petrochemicals, etc are a few worth mentioning here.

And another challenge is the overheated EPC contract market which is pushing the project costs to record levels.

According to the estimations of the Gulf Organization for Industrial Consulting (GOIC), it is expected that chemicals and petrochemicals industries grow in GCC member states to reach an investment size of US D 120 billions within the coming five years. In 2006, Investment size in this sector reached some US D 70 billions (compared to US D 52 billions in 2000). The Kingdom of Saudi Arabia owns the largest share of some 63% of total investments, while Qatar comes second with a share of 14% of the total investments. The number of working companies in this sector is 1969 company, employing some 155,000 workers.

Participants in the global petrochemical industry must consider the impact of the capacity growth in the GCC and the Middle East on global markets. According to a report lately issued by GOIC the countries of the Middle East will, by the year 2010, produce above 20% of the world's basic petrochemicals and polymers, such as ethylene and polyethylene.

Feedstock prices vary by country in GCC, but they all provide feedstock at attractive prices that provides an incentive to invest in the hydrocarbon production. This enables a Gulf-based producer to manufacture and deliver petrochemicals, say, polyolefins at a price typically below 75% of that of cost in China and elsewhere. But the demand comes mainly from China and to less extend from India.

Opportunities for continued and future petrochemical development include exploiting the energy advantage to a greater degree. This means that more capacity in energy intensive chemicals. The development further along the petrochemical value chain will be driven by an export orientation.

In addition, GOIC mentioned that Most of the GCC countries like Saudi Arabia, Kuwait, Qatar, UAE already in place healthy and growing base chemical production that utilizes methane, ethane, and gas liquid feedstock in petrochemical units. These plants are of global size and utilize best and modern technologies. With base and secondary chemical production already flourishing, producers have begun exploring tertiary industries. This can offer diversity and better value addition to the industry. They are actively collaborating with petrochemical industry participants to gain access to technology and expertise.

Good infrastructure can be found in large industrial cities, such as Jubail, Yanbu´, Messaieed and Ras Laffan. The GCC country governments have made the investments in ports, roads, and buildings to promote the industrial growth, as mentioned by GOIC. However, space in the existing industrial cities is becoming limited due to high growth rate witnessed recently, and additional development will be necessary to support future growth.

On the financing side, strong growth has occurred in the Middle East banking sector in the past decade. The equity markets have also emerged in all GCC countries. With regards to Foreign direct investment (FDI), another important economic driver, GOIC reported that it has grown modestly during the past decade. It can be evidenced from joint ventures formed with foreign companies such as Shell, ExxonMobil, Dow, Total Petrochemicals, and ChevronPhillips.

According to GOIC, the Middle East will exert an increasing influence on global petrochemical markets over the long term due to its advantaged feedstock position. Further petrochemical development will lead to growth in tertiary, energy-intensive and export-oriented conversion industries.

The conference is held under the patronage of Crown Prince of Abu Dhabi, Sheikh Mohammed Bin Zayed Al Nahyan, with the attendance of the ministers of industry in the GCC member states.

The conference is to create a vision of the petrochemicals industry in the GCC in 2020. 11th Industrialists' Conference is distinguished -further to its open dialogue session with ministers of industry - by the participation of prominent international keynote speakers.