Petrochemical production to rise despite weaker prices

The chief of the region’s petrochemical industry body predicts production will rise this year despite weaker prices.

Petrochemical production in the Arabian Gulf is forecast to grow at a compound annual growth rate of 7.5 per cent this year as states ramp up their output despite falling oil prices.

A weak oil price usually hurts regional producers by eroding their comparative pricing advantage over rivals in Europe and North America that use oil-derived feedstocks such as naphtha to make petrochemicals.

Petrochemical production in the six Arabian Gulf states, which reached 149 million tonnes per annum last year, is not growing as fast as in the past decade because of limited availability of gas as feedstock, said Abdulwahab Al Sadoun, secretary general of the non-profit Gulf Petrochemicals and Chemicals Association (GPCA).

“Growth is slowing down from double digits in the last decade,” said Mr Al Sadoun at a petrochemicals conference in Dubai.

“This is linked to the constraint in the supply of natural gas due to the competition from other energy-intensive industries, namely power generation, water desalination and metal processing,” he added.

Despite the halving of Brent oil to about $60 per barrel from last June, Gulf petrochemical producers are forecast to reach 199.5 million tonnes per annum by 2018, according to GPCA estimates.

Gulf producers are forging ahead with petrochemical projects to develop downstream industries and create jobs as part of a drive to diversify from oil income.

The biggest project coming on line this year is a $20 billion joint venture between the US giant Dow Chemical and the state-run energy firm Saudi Aramco called Sadara Chemical.

The project in Saudi Arabia will produce 3 million tonnes of petrochemicals a year and will be the world’s largest such facility built in a single phase.

Gulf countries may not be adding capacity in double-digit percentages, but they are trying to derive more value from their products to boost the industry’s worth from the current $97bn.

“We are moving to speciality products, value-added products like industrial rubber, and acrylics. Those products are challenging a little bit because technology is proprietary and we are making it through other partnerships we are developing,” said Mr Al Sadoun.

Gulf countries are not investing enough in technology to help boost the value of their products. Investments in research and development reached $400 million last year, which is less than 1 per cent of the global investment in chemicals, he added.

The region’s chemical research and development centres increased from 10 in 2010 to 14 last year, according to the GPCA.

Mergers are needed among petrochemical companies to create enough critical mass to invest in research and development, according to Moayyed Al Qurtas, chairman of the GPCA research and innovation committee.

“One of the main challenges is that our industries are still growing. They are relatively small,” Mr Al Qurtas said. Separately, Kuwait’s petrochemical firm Equate is studying possible expansion plans.

The firm is a joint venture between Dow Chemical, Kuwait’s state-run Petrochemical Industries Company, Boubyan Petrochemical Company and Qurain Petrochemical Industries Company.

“Our aspiration is to go beyond with what we have. We are in dialogue with our shareholders,” said Mohammad Husain, chief executive of Equate. “It doesn’t have to be Kuwait. It could be outside Kuwait.”

Currently the firm is the process of expanding production at its polythene unit, which is expected to reach one million tonnes per annum during 2016 from the current 825,000 tonnes per annum. Total petrochemical capacity is in excess of 5 million tonnes per annum.

The drop in oil prices has affected petrochemical prices, which have fallen between 20 to 30 per cent, depending on the product, he added.

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