Petchem '03: Middle East economics face challenges

25 September 2003 11:05  [Source: ICIS news]

MONTE CARLO, Monaco (CNI)--The growth of non-Opec oil suppliers and creation of a new Iraq will force fundamental changes in the economics of the Middle East as petrochemicals continue to play a role in the future, a regional expert said here Thursday.


“Growth independent of oil is the breakout strategy. Sustained high oil prices are bringing substantial non-Opec production online,” said Brad Bourland, chief economist at Saudi American Bank in Riyadh, Saudi Arabia.


If the trend continues, Bourland said, it could trigger a series of production cuts by Opec and Saudi Arabia, leaving the Saudis with “a difficult choice – continue to defend price or shift strategy to defend market share.”


As a result of this trend and the potential rise of Iraq as new regional economic power, Bourland said: ”The larger Arab countries face a much more difficult challenge in achieving economic diversification and sustained job-creating high gross domestic product (GDP) growth rates.”


Bourland offered his views during an opening session at this year’s Petchem 2003 conference sponsored by UK consultancy Tecnon OrbiChem prior to the annual meetings of the European Petrochemical Association (EPCA).  This year’s EPCA begins here Sunday.


Although Bourland’s remarks focused more specifically on the region’s connection to oil production, the potential for economic change would have an impact on petrochemicals as well.


He said: “Petrochemical expansion is a natural extension of this diversification. The players in the region will continue to contribute to overcapacity. And we’ll see a pickup in capital investment, much of it petrochemical oriented. The Middle East will expand as a player.”


Describing the situation there as a “perverse reality,” Bourland noted that “bad times politically often equate to good times economically” for that region. He said the Arab world is having one of its best years in more than two decades with strong growth in oil revenues and low interest rates – despite the turmoil of war and terrorism.


Regarding the price of oil, Bourland predicts it will remain at a level of $20-30/bbl into 2004, giving the region an outlook for strong economic performance through next year.


As non-Opec oil production rivals emerge in Russia, Canada and from new discoveries in the Gulf of Mexico, however, he said: “It appears that new non-Opec oil supplies will meet all growth in global demand for oil for the next several years.”


As a result, he warned that $30/bbl oil “will lead at some point to some difficult choices for Opec and Saudi Arabia in particular.”


He said he believes the Arab economies should be larger, given the size of their populations. And now the changes in Iraq have transformed that nation into a wild card for the region. Bourland predicts Iraq could become a $200bn (Euro176bn) economy and rank as the region’s largest based on its human and resource potential.


He said Iraq’s emergence with high gross domestic product (GDP) growth rates should serve more benefit than threat to the region as a whole.


Bourland said: “Iraqi growth will have a spin-off benefit of business and export opportunities for its neighbours, adding modestly to their growth.”


But he predicted it will take two decades to really determine if Iraq will emerge as a “basket case or a showcase.”


He also listed three structural weaknesses that Arab economies will have to address: inadequate job creation, weak fiscal performance; and low levels of capital expenditure in the building of infrastructure by government and business.


He said: “Solutions to these three problems can be achieved, primarily through reforms that unleash Arab world private sectors to the economy independent of oil revenues.”


Citing Qatar, Dubai and Bahrain as role models, Bourland said he believes the Arab world has “diagnosed their economic problems well and have opened up to a robust and freewheeling public discussion of these issues.”


He called this attitude ”an important first step in developing the solutions necessary for long-term growth and enhanced prosperity for the region.”

Petchem 2003 concludes Friday.

By: Gary Taylor
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