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Oil, Gas, Petrochemical Industry News
News Release from: SABIC | Subject: MIDDLE EAST PETROCHEMICAL INDUSTRY
Edited by the Processingtalk Editorial
Team on 01 April 2004
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
Excerpt from a speech by Mohamed H Al-Mady, Vice Chairman and Chief Executive Officer Saudi Basic Industries Corporation (SABIC) in Riyadh, Kingdom of Saudi Arabia presented at the National Petrochemical and Refiners Association 2004 International Petrochemical Conference San Antonio, Texas March 29, 2004 The structure of the petrochemical industry has been evolving throughout its 150-year history, and drivers of the more recent changes have been present for many years
This article was originally published on Processingtalk on 18 Jul 2003 at 8.00am (UK)
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The foundations of today's petrochemical industry were laid in Germany and England as spin-offs of the 19th century Industrial Revolution.
After the Second World War, the industry's focus shifted immediately to North America, and later to Japan.
Over the past 30 years or so, the global petrochemical industry has also been undergoing some dramatic structural changes.
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In North America and Western Europe, insufficient supplies of competitive raw materials led investors to position their new assets away from established industry bases.
The trend really started more than 25 years ago when major oil and petrochemical companies started joint ventures with companies such as SABIC in the Middle East.
Similar investments, in the same timeframe, were also made in Southeast and Northeast Asia.
Only recently, however, has the essence of this change become readily apparent and widely acknowledged: The petrochemical industry has, and always will be, driven by the availability of competitive raw materials first coal, then oil, and now natural gas.
In recent years, we've seen policy decisions result in very real structural changes.
Policy decisions in North America, for example, caused the US industry to back away from methanol production, and will likely end US production of MTBE altogether.
MIDDLE EAST PETROCHEMICAL OPERATIONS SET TO GROW.
Oil-producing countries in the Middle East are expanding their petrochemical operations in an effort to diversity their industries and strengthen their domestic economies.
In terms of future industry development, the Middle East is at the centre of strong global growth.
At the same time, these countries are developing export-oriented projects both government-owned and/or private sector to gain larger global market shares in basic petrochemical products.
In the Arabian Gulf region, the cumulative total investment in the petrochemical sector amounted to 37 billion US dollars by the end of 2002.
Another 40 billion dollars of new investments are expected by 2010.
Ethylene capacity in the Middle East has grown steadily, from 3.9 million metric tons or 5.4 percent of world capacity in 1993 to 9 percent of world capacity in 2003.
Various industry estimates suggest that ethylene capacity in the Middle East could reach almost 18 million tons or around 15 percent of global capacity by 2010.
From 1998 to 2002, the Middle East added 4.5 million tons per year of ethylene capacity.
Of that total, Saudi Arabia accounted for slightly more than half of that growth with capacity expansions of 2.3 million metric tons a year.
Among the GCC countries, Saudi Arabia is expanding its petrochemical business as planned and the countries of Qatar, Kuwait and the UAE have begun to expand their presence in the field.
Oman and Bahrain are planning ethylene projects as well.
Outside the GCC countries, Iran's current ethylene capacity of 720 thousand tons per year could reach 3.8 million tons by 2006.
Iran is considered by some industry observers to be "the one to watch," as Iran could very well emerge as a leading petrochemicals producer in the Middle East second only to Saudi Arabia.
By 2006, we expect to see Gas-To-Liquids or "GTL" projects begin commercial production in Qatar, Iran and Egypt.
These projects will produce sulfur-free fuels diesel, kerosene and dimethyl ether (DME) as well as petrochemical feedstocks with a high ethylene yield.
ETHYLENE PRODUCTION GREATER THAN REGIONAL DEMAND.
It is a fact that ethylene production in the Middle East will almost always be greater than regional demand.
In Basic Chemicals, for example, the region's ethylene surplus was 520 thousand tons in 2001.
Actual ethylene exports are not expected to increase from 2001 levels as the region's ethylene surplus levels off to 470 thousand tons per year by 2006.
At the same time, however, exports of ethylene-based products are forecast to grow from 5.7 million tons in 2001 to 11.5 million tons in 2006.
Exports of propylene-based products are forecast to triple in 2006 from 2001 levels of 450 thousand tons.
Also by 2006, extra capacities of benzene and para-xylene based products are forecast.
In Intermediates, annual increases are forecast for ethylene glycol, styrene monomer, ethylene dichloride, methanol, and MTBE.
In Polyolefins, exports through 2006 of more than 12 million tons a year are expected for LDPE/LLDPE and HDPE.
Saudi Arabia's share of ethylene based derivative exports will rise to 6.7 million tons in 2006.
KEY TO SUCCESS IN THE PETROCHEMICAL INDUSTRY.
Just as the three most important things in real estate are location, location and location the key to success in the petrochemical industry has always been access: * Access to feedstock, * Access to technology, and * Access to the right markets.
Access to competitive feedstocks and access to state-of-the-art process technologies have enabled petrochemical producers in the Middle East to exceed local demand and focus their attention on "access to the right markets." Europe and the Americas will remain the world's biggest chemical markets, and their growth rates are expected to pace their annual GDP growth rates.
However, as the industry's center of gravity moves from West to East, petrochemical producers in the Middle East are looking at the world's fastest growing markets in Asia, overall and in China in particular.
ASIA - A BOOMING PETROCHEMICAL MARKET.
Asia is already a booming market for all chemical products, and it will continue to play a decisive role in the future of the global chemical industry for many years to come.
A third of the world's major industries are located in Asia.
This makes the entire region an important market, as these industries require a broad range of chemicals from commodities to specialties, petrochemicals to plastics and electronic chemicals, to crop production and food additives.
According to the World Bank, global GDP in 2004 should grow by an average of 2.5 percent, while this year's GDP growth rate in China will be three times greater (7.5 percent).
Let me share one example from a recent study.
In 2002, China's polyethylene consumption accounted for 8.3 million tons, or 52 percent of the Asia-Pacific regional total.
Linear Low-Density Polyethylene film, used in agricultural and packaging applications, represents almost 55 percent of the total Chinese consumption.
And, LLDPE consumption is still expected to grow at a double-digit rate for the next five years in China.
Another factor contributing to recent polyethylene growth in the Asia Pacific region has been the increased amount of polyethylene products being exported to other regions.
For example, inter-regional exports of polyethylene sacks and bags from China amounted to 470 thousand tons in 2002, more than double the 210 thousand tons exported in 1998.
GROWING POLYETHYLENE CAPACITY DEFICIT.
By 2005, China will have the world's only polyethylene capacity deficit of 4.5 million metric tons.
Other studies predict that by 2010, you can add North America and Western Europe to the short-list of regions with polyethylene capacity deficits.
The outlook for polypropylene is even more dramatic.
Between 2005 and 2010, PP consumption in Western Europe and North America will increase by a third and by almost half in China.
At the same time, PP production capacities in those three regions will not increase much at all.
By 2010, the PP capacity deficit in Western Europe, North America will increase to just over 3 million tons a year and China's PP capacity deficit will soar to 8 million tons.
OPPORTUNITY FOR THE MIDDLE EAST.
For the petrochemical industry in the Middle East, this means access and close proximity to the booming markets in the Asia Pacific region makes GCC member states the world's first choice for new petrochemical production facilities, and perhaps the world's best choice for investment in the petrochemical industry.
The GCC states offer current and future feedstock price advantages, 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, an educated and motivated workforce, and governments that actively encourage industrial expansion and foreign investment.
Beside the competitive advantage of raw materials, the infrastructure available in many GCC nations rivals modern facilities anywhere in the world including those in "developed" nations.
Saudi Arabia is a pioneer in the Middle East petrochemical sector.
The Kingdom has transformed itself, in just 20 years, from a net importer of petrochemicals to a major exporter of petrochemicals to more than 100 countries.
Last year, more than 80 percent of petrochemical exports from the GCC were shipped from Saudi Arabia, where SABIC has been a leading player in the global petrochemical industry.
This phenomenal growth was only possible with the participation of joint venture partners, mainly from the West.
SABIC - A GLOBAL PLAYER.
Seventy years ago, the Kingdom's first oil production and oil exports, were made possible with the help of British and American companies.
And, less than 30 years ago, SABIC and its American, Asian and European partners set the foundations for development of a Middle East petrochemical industry.
SABIC's foreign partners include Shell, Exxon Mobil, Mitsubishi, Celanese, Neste, Ecofuel and others.
These partners provide not only their capital but also their technical expertise and training for the Saudi workforce that now operates all of our major facilities in the Kingdom.
With the active participation of our foreign partners, SABIC's growth, in the last twenty years, has been nothing short of spectacular.
SABIC's total assets at year-end 2003 reached 29 billion dollars, and production totaled 42.3 million metric tons.
Revenues for 2003 were 12.6 billion dollars, yielding a net profit of 1.8 billion.
SABIC is now the largest non-oil industrial company in the Middle East, and currently the world's largest exporter of granular urea, and the world's second largest producer of ethylene glycol, methanol and MTBE.
With the recent acquisition of DSM's petrochemical business in Europe, the first in our global expansion plan, SABIC has become the world's third largest producer of polyethylene and the sixth largest producer of polypropylene.
Overall, SABIC is the world's fourth largest polyolefin producer.
Two years ago, SABIC began its global expansion.
Soon after acquiring DSM's petrochemical business, in late 2002, SABIC bought Owens Corning's 50 percent share in StaMax BV, a joint venture originally formed with DSM in 1999.
StaMax produces reinforced polypropylene used by the auto industry to make parts for Mercedes-Benz, BMW, Volkswagen and other fine cars.
Six months after the DSM petrochemicals acquisition, SABIC opened a new polypropylene plant in Geleen, Netherlands.
Also in Geleen, SABIC's growth plans include a third ethylene plant.
Last October, SABIC announced plans to build its new European headquarters building in Sittard, Netherlands, scheduled for completion in late 2005.
Last March, SABIC and Sud-Chemie AG formed a 50:50 partnership to acquire Scientific Design of New Jersey a world leader in process and catalyst-related technologies for the EO/EG business.
SABIC continues to seek additional overseas opportunities that fit with our core activities and make sense.
This strategy may involve acquisitions or grass-roots investments.
Future centres of innovation and knowledge in the petrochemical industry The Middle East Industry, as well as those in other areas of the world, have benefited greatly from the centres of innovation and powerful technologies in the West.
A real issue for the industry as a whole is where the future engines of innovation will be found.
Will the North American and European centres of excellence continue to invest in new technology development within an industry undergoing global re-structuring? >From our earliest days, SABIC made a commitment to the development of technical expertise.
In the past 15 years we have made excellent progress and now have technology centres in Riyadh, Jubail, Houston, Geleen, and India.
We intend to continue that investment in the future, but we also recognize that developing world-class centres of excellence takes time and patience.
SABIC represents a convergence of opportunities and ideas that brought the right people, and the right events, together at the right time as the petrochemical industry's centre of gravity moves towards the best-cost areas with ready access to high growth markets.
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