OUTLOOK '10: Mideast expansion to put pressure on Europe chems

29 December 2009 10:26  [Source: ICIS news]

By Franco Capaldo

LONDON (ICIS news)--Rapid expansion of production capacities in the Middle East's chemical industry is expected to have a significant impact on the European market's competitiveness, industry experts said.

Europe’s Middle Eastern chemical rivals have an abundant supply of cheap oil and gas reserves, and have capitalised on their access to natural resources at discounted prices.

At the 4^th Gulf Petrochemicals & Chemicals Association (GPCA) summit in Dubai in December, Abdulwahab Al-Sadoun, the association’s secretary general, said that Middle Eastern petrochemical capacity was projected to jump by 85% to 115m tonnes/year by 2015.

Al-Sadoun added that the 53m tonne/year increase would give the region a 16% share of global petrochemical capacity.

Petrochemical producers in Saudi Arabia will have even more access to natural gas feedstock next year following the country's oil minister Ali Al-Naimi’s announcement that Saudi Aramco had discovered 5,000bn cubic feet of non-associated gas.

SABIC affiliate Yanbu National Petrochemical was expected to begin commercial production at its new high density polyethylene (HDPE) plant at Yanbu, Saudi Arabia, in January next year.  

Meanwhile, the Borouge II project in Ruwais, Abu Dhabi, United Arab Emirates - a joint venture between Borealis and state-owned oil and gas major Abu Dhabi National Oil Co, which consists of a 1.5m tonne/year cracker, a 540,000 tonne/year polyethylene (PE) plant and an 800,000 tonne/year PP (polypropylene) plant at the same site - was due for start-up in mid-2010.

Other start-ups include Morvarid Petrochemical’s 500,000 tonne/year gas cracker at Assaluyeh, Iran, which was expected to be online by November-December this year, while Eastern Petrochemical Co (Sharq) was due to achieve commercial production at its new 1.3m tonne/year cracker at Al Jubail in January 2010.

Due to significant increases in ethylene and ethylene derivative capacity, the Middle East was expected to be a major player in the polyolefins industry in the next five years.

"In the short term in 2010, creeping capacity additions from the Middle East are unlikely to result in a major price change in European markets - as demand remains subdued and some of the projects will be delayed," said Martin Evans, head of European chemicals research ay investment bank Cazenove. 

"However, longer term there could well be potential subtle downward pressure on petrochemical prices as Middle East exports head for Asia in particular," Evans added. 

As the chart below illustrates, the balance of power has been shifted from west to east, with a steady decline in European capacity accelerated by the economic crisis.

New Middle Eastern polyolefins capacity was certainly expected to pose a challenge for European chemical producers.

Permanent capacity closures at the Wilton chemical site in the UK, and LyondellBasell shutting down a PP line at its site in Wesseling, Germany, has highlighted the threat to vulnerable chemical sites across Europe.

European chemical companies need to consider new ways to remain competitive, including innovation, offshoring and mergers and acquisitions.

Anton de Vries, LyondellBasell's president for Europe and International, said he expected the supply-demand balance to worsen next year as more polyolefins production capacity came on stream in the Middle East.

De Vries said a key component of the company’s strategy was now to grow its presence in the feedstock-advantaged region.

Tom Crotty, INEOS Olefins & Polymers' CEO, said earlier this year that despite the commodity petrochemicals business  improving, the industry was wary of the expected trough driven by new production capacity and foresees a slow, steady recovery in 2010.

And ExxonMobil Chemical president Stephen Pryor said the emergence of the Middle East as the biggest net exporter of petrochemical products in the world meant the energy giant remained on the lookout for more projects in the area.

Pryor said that over the next 10 years, he expected world trade of petrochemical products to double and that the Middle East would capture as much as 75% of the net exports.

Shell has also said it hopes to start a chemicals project in Qatar sometime in the future as it looks at new investment avenues with partner Qatar Petroleum.

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By: Franco Capaldo
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