22 November 2012 20:24 [Source: ICB]
Hundreds of senior executives representing the petrochemical industry in the Gulf and international markets have blocked their diary to attend our seventh Annual Forum this week. They will be asking the same question as the majority of business leaders right now, regardless of their profession: namely, how do we stay competitive?
Al-Sadoun: moving downstream will entrench benefits
Natural gas provides the building blocks for fertilizers and other commodities we take for granted, as well as an avenue for Gulf countries dependent on volatile oil revenues to diversify their economies. It is also a convenient power source for local industry, and much cleaner than crude oil.
And with Gulf countries holding around 20% of the world's proven natural gas reserves, the cost competitiveness of Gulf-based petrochemical producers would appear to be secure.
But changes in the global economy are challenging previously held assumptions. The shale gas boom in North America promises to provide fresh impetus to petrochemical producers there. A cooling Chinese economy may also reduce demand for Gulf exports, while the eurozone offers limited growth opportunities amid the current financial crisis.
At the same time, wage inflation and rising raw materials costs, incurred as the global economy edges out of recession, are having a knock-on effect on the bottom line of the Gulf Cooperation Council petrochemical sector.
The most worrying problem of all is also the most ironic: a region with an estimated 1,496.2 trillion cubic feet (42.3 trillion m3) of natural gas, according to the latest BP Statistical Review of World Energy, appears to be running out of it.
More and more industries besides petrochemicals are now competing for natural gas. The Gulf's rapidly growing population is also placing ever-increasing demands on gas for electricity generation and water desalination. Moreover, price controls are deterring further exploitation of existing reserves, to the extent that Gulf countries may account for 20% of proven global gas reserves but only 11% of total output.
The scramble for gas is perhaps best summed up by the latest consumption data. While global consumption has reached a plateau over the past 12 months, gas use in Saudi Arabia has jumped by more than 13%, the highest annual increase after China.
Gulf-based petrochemical producers recorded a 13.5% increase in production capacity between 2010 and 2011 and a 29% improvement in sales. But such impressive growth might be compromised if a natural gas supply squeeze at home is compounded by increased access abroad.
Every year our Annual Forum reminds policy makers that the Gulf petrochemical sector is among the most efficient consumers of natural gas, providing as many local jobs as other sectors of the economy if not more and an appreciably higher uptick in GDP.
These benefits will multiply if the industry continues its shift further downstream, producing more high-value finished goods besides basic chemicals. To do that, we need further investment in innovation and more training of the local workforce tasked with guiding the industry through the next phase of its development. We also need to prioritise sustainability at a time when the environmental performance of the manufacturing sector is under closer scrutiny than ever before.
So, in fact, the question of sustaining competitiveness gives rise to a host of related questions, which will be occupying our members in the coming days.
But the one that might eclipse them all, at least in the short term, is the question of ensuring reliable access to natural gas.
The 7th Annual Forum of the Gulf Petrochemicals and Chemicals Association takes place in Dubai, the United Arab Emirates, at Madinat Jumeirah from 27-29 November.
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