Industry Analysis: Chemicals and Petrochemicals

In line with this increased demand, Gulf companies increased production by 13.5% from 2010 to 2011 (from 102,075 million tonnes in 2010 to 115,994 million tonnes in 2011). Sales growth from this increase stands at $100bn (Dhs3.6bn) half of which can be attributed to SABIC (Saudi Arabian Basic Industries Corporation) with revenues of $50.64bn (Dhs186bn) and net profits of $7.8bn (Dhs28.6bn) in 2011.

In fact, the Gulf petrochemical industry formed the region's second biggest export commodity in 2010. Globally, chemical exports accounted for $1705bn (Dhs6263bn) in 2010 with Gulf exports experiencing a 12% rate of growth in this market between 2005 and 2010. In the UAE, expected output from 2010-2015 has been estimated at 10mmt (million metric tonnes), placing the Emirates fourth in terms of expansion behind Saudi Arabia (at 24mmt) Iran (at 14mmt) and Qatar (at 11mmt).

The UAE's capital Abu Dhabi is home to the country's petrochemicals activities: the Emirate boasts a majority of the olefin (including ethylene and propylene) and polymer production facilities and capabilities. However, 70% of the UAE's foreign trade in petrochemical products originate from Dubai. Current production rates are broken down into ethylene at 3.05mmt; polyethylene at 2.24mmt; polypropylene at 0.85mmt; and all others comprise 4.14mmt of the UAE's petrochemicals production.

Factors affecting the UAE's petrochemicals industry include the ethane feedstock shortage, which affect extraction and processing. The region is therefore focussing on specialised chemicals, diversifying and optimising its feedstock sources, turning to crude oil derivatives including naphtha (a refined crude oil product), liquid petroleum gas (LPG) and natural gas liquids (NGLs). However, using crude oil derivatives as feedstock are set to have a direct knock-on effect on crude oil exports and differing/lower price advantages are already being experienced by regional producers.

This regional ethane feedstock shortage coupled with a prospective increase in food demand has also prompted the UAE to focus on its urea and ammonia production, for the knock-on increase in demand for fertilisers. Urea export forecasts from the Gulf reached 12 million tonnes in 2011 and are forecasted to grow to 17 million tonnes by 2016, with capacity expansion in Qatar and Saudi Arabia as well as the UAE. The UAE's slice of this urea pie has been forecast as 1.8 million tonnes to be prospectively produced between 2014 and 2016.

New rafts of anti-dumping tariffs, which are expected to be introduced, also pose a threat to the region's petrochemicals industry. While India has enforced anti-dumping duty on polypropylene imports from Saudi Arabia, Oman and Singapore; China intends to take similar measures against methanol imported from Saudi Arabia, Malaysia, Indonesia and New Zealand; while Europe is considering taking measures against the UAE (amongst others).

In terms of future expansion, Abu Dhabi will see the most activity of the Emirates. The $20bn (Dhs73.5bn) ChemaWEyaat - a joint venture between the International Petroleum Investment Company, Abu Dhabi Investment Council and Adnoc - is set to include a naphtha cracker with a capacity of 1.4mt/year. Downstream business is also set to get a boost from the project's propylene and ethylene derivatives plants as well as proposed xylene, benzene, cumene, phenol and derivatives units.

Based in Ruwais, Abu Dhabi, the Borouge 3 project expansion of its petrochemical plant is set to increase production from 2.5mt/year to 4.5mt/year. The project includes an ethane cracker, two polyethylene units, two polypropylene units and a low-density polyethylene unit. Expansion for Borouge 3 and the construction of ChemaWEyaat are both slated for completion in 2014. However, the latter is yet to begin construction.