Product category:
Oil, Gas, Petrochemical Industry News
News Release from: SABIC
Edited by the Processingtalk Editorial
Team on 27 October 2003
GCC Overview of Petrochemical
Opportunities
A presentation by Yousef A Al-Zamel, Vice President - Basic Chemicals of Sabic to the recent Middle East Petrochemicals Conference
A presentation by Yousef A Al-Zamel, Vice President - Basic Chemicals of Sabic to the recent Middle East Petrochemicals Conference These are the best of times for the refining and petrochemical sectors in the GCC
This article was originally published on Processingtalk on 18 Jul 2003 at 8.00am (UK)
Related stories
Air separation plant contract for Air Products
National Industrial Gases Company, Saudi Arabia, has awarded a turnkey contract for the engineering, procurement and construction of an air separation plant to Air Products
Middle Eastern Petrochemical industry growth
Mohamed H Al-Mady, SABIC CEO, discusses the evolution of the Middle Eastern petrochemical industry at the National Petrochemical and Refiners Association Conference 2004
Production rates and profits have never been higher.
For these, and many other good reasons, the GCC member states -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- are now some of the world's first choices for new petrochemical production, and perhaps the world's best choices for investments in the petrochemical industry.
Before I discuss the advantages of locating petrochemical production in the Gulf region, let's first look at where we've been, before we talk about where we are going.
Further reading
Ethylene and propylene project on Red Sea coast
Saudi Basic Industries Corporation has signed a Letter of Intent with Technip for the engineering, procurement and construction of an ethylene and propylene plant at the YANSAB Complex in Saudi Arabia
Petrochemicals industry trends and challenges
SABIC explain that the petrochemical industry is undergoing major structural changes with particular respect to feedstocks, geography and demographics
Robot army for Land Rover
ABB, the global power and automation technologies group, announced today that it has won an order from Ford Premier Automotive Group to supply 186 industrial robots to Land Rover
After all, past experiences are often good guidelines for future activities.
When Saudi Arabia embarked on petrochemical projects in the early 1980s, the reaction of our critics was swift and harsh.
They made dire predictions that such large capacities - "large" by prevailing standards at the time - would result in the demise of related industries in the world's industrialized nations, especially in Europe.
Doubts were also cast on the "abilities" of our region to build, operate, and manage large petrochemical industries.
The fact that none of these "predictions" have come true, illustrates yet another gap between perception and reality.
What has really happened in the last twenty or so years? The capacity build-up continued in the Gulf.
At the same time, capacity additions were also made in Asia, the Americas and Europe.
It is interesting to note -- as just one example -- that ethylene capacity build-up, from 1990 to 2000, in the Middle East, was a mere 3.3 million metric tons.
Compare that to the build-up elsewhere in the world - 10 million tons of additional annual capacity in the United States, 5.7 million in the European Union, and 9 million in Northeast Asia.
Aside from the shutdown of marginal, uneconomic units -- which would have been shutdown anyway -- no supply disruptions occurred in the industry as a whole.
The markets for petrochemicals kept up, at a brisk pace, absorbing all the increased outputs from various regions.
Even after two decades of steady build up, the member nations of the Gulf region can only claim that they have, at best, placed their names on the industrial map for petrochemicals.
The Gulf region has about 5 million tons of ethylene production - a good barometer of petrochemical activity - compared to total global capacity of more than 100 million tons.
That's only 5 percent of world capacity -- which cannot, by any stretch of the imagination, be "destructive" as once predicted.
And with all our advantages, the Gulf region still has a long way to go! So, what does the future hold for petrochemicals? Europe and the Americas will remain the world's biggest chemical markets.
The average annual growth rate, of petrochemical industries in those mature economies, will continue to pace their annual GDP growth rate of around 2 to 3 percent.
However, the world's fastest growing market is Asia, overall, and China in particular.
Asia, with an annual growth rate of 5 to 6 percent, will continue to play a decisive role in the future of the global petrochemical industry.
The average growth rate in Asia for petrochemicals in general, and polyolefins in particular, is expected to be 4 to 5 percent.
This translates into additional demand for ethylene of about 5 million metric tons every year, in the foreseeable future.
I cannot think of any other region in the world that is better placed in terms of raw materials, location and infrastructure, to meet Asian demand than the Gulf region.
What does the Gulf region have that others do not? Long ago, the British philosopher Bertrand Russell observed, "The world has shrivelled into a walnut." This is now truer than ever before.
Great distances have been shortened with the advent of high-speed transport and instant communications.
The world is truly a global village in which we all live together and trade with each other.
Barring unfortunate over-build situations - such as the one that now exists for polypropylene - serious demand and price disruptions can be avoided.
The GCC offers the best current and future feedstock price advantage, as well as a strategic location on major trade routes to all of Asia.
And unlike some parts of Asia, the GCC also offers an established industrial infrastructure, a well-trained and motivated workforce, and governments that actively encourage industrial expansion and foreign investment.
With minor differences, most of the GCC countries can claim: - Large proven reserves of hydrocarbons.
Competitively priced feedstock.
- Well-developed infrastructure - road, ports, communication etc - Stable currency, fully convertible - Financial incentives, including majority ownership of joint ventures - Managerial participation - Proximity to growth markets in the East - Northeast Asia, Southeast Asia, etc - Competitive shipping costs The member nations of the GCC, and their neighbours, boast the world's largest proven reserves of hydrocarbons, both liquid and gases.
GCC countries are blessed with large, proven reserves of hydrocarbons, which will be available for use both as a fuel and chemical feedstock.
With infrastructure that already exists, and regularly upgraded, these advantages are unavailable in most other parts of the world.
Major feedstocks - such as methane, ethane, propane, butane, light naphtha and other natural gas liquids are all components of associated natural gas production.
Efforts are also underway in the GCC to build LNG facilities, to export natural gas.
Most of the GCC countries have adopted a meaningful and realistic approach to pricing of the feedstock.
The "trapped" gases, mainly methane and ethane, are available at very competitive prices - from 75 cents (US) per million Btu in Saudi Arabia to around 1 dollar and 25 cents per million Btu in Iran.
To encourage local industries, some GCC countries pass along savings to their local consumers that would otherwise be spent for export-related expenses - shipping, handling, refrigeration and so forth.
This translates into a savings of nearly 30 percent on the netback realization for various products such as propane, butane and light condensate.
Beside the competitive advantages of our raw materials, the infrastructure available in the GCC region rivals modern facilities anywhere in the world - including those in so-called "developed" nations.
GCC facilities are upgraded regularly to meet the increasing needs of local industries.
The electric power supply in GCC countries is excellent, and is being increased to meet expanded demands.
Overall, GCC utility costs are low and attractive.
It is easy to see the advantages.
A GCC location is highly competitive for all utilities except fresh water.
GCC countries are well known for their stable currencies.
The uncertainties of fluctuating currency values in many countries do not affect businesses in this area.
Hence an investor need not fear adverse effects of currency fluctuations.
The currencies are freely convertible and can be repatriated without taxes or restrictions.
All GCC countries are constantly rewriting their laws to favour foreign investment, and encourage new investment.
Majority ownership, which was once a stumbling block, is now allowed in many of the member countries.
Soon, ventures in the GCC that are wholly owned by foreign investors will become a reality.
Historically, most of the joint ventures have benefited from the managerial and marketing skills of the JV partners.
With the experience gained over the last two decades, many of these functions have since passed into the hands of the local citizens.
However, the foreign investor still has a significant say in all matters concerning the operation of the JV, to the mutual benefit of all partners.
This "cooperation" is highly valued by the host countries.
Summing up, GCC countries offer excellent opportunities for an investor interested in petrochemicals.
We have abundant and competitively priced feed-stocks, as well as financial, logistical and infrastructure advantages.
As a specific example, the Kingdom of Saudi Arabia offers many opportunities for investors in the petrochemical sector.
Saudi Arabia is a pioneer in the Middle East petrochemical sector.
Over the last 20 years, Saudi Arabia has transformed itself, from a net importer, to a major exporter of petrochemicals to more than 100 countries.
In fact, more than 80percent of the petrochemical exports from the GCC are shipped from Saudi Arabia.
As the largest oil producer in the world, Saudi Arabia has a vast potential to support petrochemical industries.
It also has tremendous and untapped reserves of non-associated natural gas.
We believe the time is near for very large quantities of non-associated gas to become available for commercial utilization.
This gas can be used as fuel for power generation and desalination, as well as feed-stocks for fertilisers, methanol and other gas-based industries.
Saudi Arabia actively encourages foreign investment in various core industries, and majority foreign participation in selected industries.
Build-own-operate efforts are encouraged.
For example, a SABIC affiliate recently awarded a contract to local and foreign investors, to build and operate a major cogeneration unit.
The primary effort to build Saudi Arabia's petrochemical industry has been spearheaded by SABIC.
SABIC' state-of-the-art production facilities won numerous environmental and safety awards.
SABIC also recognized the need for Research and Technology to support its competitive position in the industry and world markets.
We are performing coordinated and integrated R and T at Riyadh and Al-Jubail, as well as locations in the United States, The Netherlands, and India.
R and T has generated more than 300 patents for the company and the invention of several important process technologies.
SABIC is the largest non-oil industrial company in the Middle East, and currently the world's largest producer of granular urea, the second largest producer of ethylene glycol, methanol and MTBE.
With the recent acquisition of the DSM petrochemical business in Europe - the first in our global expansion plan -- SABIC has become the world's third largest producer of polyethylene, sixth largest producer of polypropylene, and we now rank as the 11th largest petrochemical company in the world.
SABIC's near-term ambition is to be among the 10 largest global petrochemical companies.
We continue to seek additional overseas opportunities that fit with our core activities and make sense.
This strategy may involve acquisitions, joint ventures or venture capital start-ups.
Let me conclude with a word of caution to current and future petrochemical producers in the Gulf Region: Our feedstock advantages, and all the other advantages we enjoy, give us a heavy burden of responsibility.
The global petrochemical markets are very sensitive to the threat of a supply surplus, and markets can be destabilized by over-capacity and over-production.
If timed poorly, the construction or expansion of petrochemical plants, that otherwise make economic sense, could cause havoc in the global marketplace and depress world prices to unsettling levels.
It is the duty of all GCC producers to exercise caution and restraint in planning additions and expansions.
This is in the best interest of the GCC, as well as the best interest of the industry as a whole.
In closing, I would like to thank all of you for your contributions to our industry, and for the economic vitality and growth you help create for our region.
Please accept my best wishes for the success of this conference.
And, I thank you all, for your patient attention.
• SABIC: contact details and other news
• Email this article to a colleague
• Register for the free Processingtalk email newsletter
• Processingtalk Home Page
