Gulf faces gas shortage and challenge to dominance from US: GPCA

23 November 2012 12:18  [Source: ICIS news]

Abdulwahab Al-Sadoun, Secretary General, GPCALONDON (ICIS)--Chemical producers in the Gulf region will have to fight to secure adequate supplies of natural gas-based feedstocks against a backdrop of increased competition from the resurgent US, a leading figure in the Gulf Petrochemicals and Chemicals Association (GPCA) said on Friday.

The sector will be competing against many other industries plus growing demand from its domestic population, whilst at the same time having its place as the world’s most cost-competitive location for chemicals production challenged by the shale gas-fuelled US chemicals industry, according to Abdulwahab Al-Sadoun, secretary general of the GPCA.

In an article published online in ICIS Chemical Business ahead of next week’s GPCA Annual Forum in Dubai, he says: “The feedstock cost advantage of Gulf petrochemical producers used to be somewhat obvious. 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.”

He believes 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.

He adds: “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... 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.”

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, he added.

He illustrates what he calls the “scramble for gas” by highlighting global gas consumption which has reached a plateau over the past 12 months, whereas 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.”

The 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, according to Al-Sadoun.

“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.”

He said the Gulf region also needs to prioritise sustainability at a time when the environmental performance of the manufacturing sector is under closer scrutiny than ever before.

“The [challenge] that might eclipse them all, at least in the short term, is the question of ensuring reliable access to natural gas,” he added.

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.

By: Will Beacham
+44 20 8652 3214

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