30 September 2013 08:07 [Source: ICIS news]
By Aamir Ashraf
DUBAI (ICIS)--The Gulf Cooperation Council’s (GCC) petrochemical industry may face a severe shortage of gas feedstock in two years’ time as demand is scaling up against diminishing supply, while the US shale gas boom is threatening to carve a sizeable slice in its export market, industry sources said on Monday.
The GCC – which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – is a gas-exporting region, but may soon see itself importing the fuel, according to global consultancy firm Booz & Company, in a report issued last month.
It is an "almost contradictory position of having to import gas, when they have exported gas for decades", it said.
The report lists amongst major causes of shortage in local supplies in the region as increasing power consumption, depleting oil fields, gas exploration and long-term gas export commitments.
The hydrocarbon-rich GCC countries face the challenge of competing needs of power generation and feedstock for petrochemicals production. Saudi consumption of energy is growing 8-10% annually.
Robin Mills, head of consulting at Manaar Energy is hopeful that the GCC’s gas shortage can be resolved, but timing for an initiative is crucial.
“Waiting for solutions to materialize might mean that GCC countries will have to burn more valuable liquid fuels to meet demand,” he said.
It requires a whole new strategy, “governments need a mix of short- and long-term measures to address the gas shortage. They need to invest in new developments to increase production, increase local gas prices steadily to encourage efficiency, and expand the use of alternative sources in the energy mix,” Mills said.
Though slipping from the supply to demand side, analysts say the Gulf petrochemicals industry still continues to be the largest producer and exporter in the world, accounting for 11% of the global market as of last year.
“Days of plentiful low-cost feedstock maybe over for the region but still, capacity growth in downstream in the medium term is promising,” said an analyst at a Riyadh-based brokerage house.
In the next five years, the GCC's share in global market will jump to over 17%, according to Al Fajer Information and Services, a Dubai-based research firm.
“Leading petrochemical companies in the GCC countries do not depend on the Middle East market because they export to more than 150 countries worldwide,” said Satish Khanna of Al Fajer.
Rising appetite from Asian countries is helping absorb the surge in production of plastics and petrochemicals by GCC manufacturers. Demand for Saudi and Gulf products will likely stay strong in the medium-term from Asian growth.
With world-class petrochemical complexes in the works, combined with specific structural advantages, the GCC holds high hopes to remain exciting for investors.
After Saudi Arabia, Qatar has the next largest GCC petrochemical plans. Availability of natural gas liquids (NGLs), including ethane, coupled with the drive to compete globally in the petrochemical market works to Qatar’s advantage.
Qatar expects to more than double its current production of chemicals and petrochemicals by 2020 to 23m tonnes/year, said officials of Qatar Petroleum (QP), the Persian Gulf country’s state-run energy company. Its production is estimated at 9.3m tonnes at present.
Next year, QP plans to finance $10bn-13bn (€7bn-10bn) worth of petrochemical projects, and there on will be all set to spend as much as $25bn over the next five years on projects. Most of the planned projects will push up the petrochemical capacity of the tiny gas-rich country, they said.
Saudi Arabia is tipped by the analysts as staying ahead of the other producers, since the country is not only investing in traditional petrochemicals projects, but consciously endeavouring to diversity its portfolio.
Its diversification includes an investment to the tune of up to $109bn in the solar energy industry, with an aim to create a manufacturing sector for the technology, as well as installing up to 41,000 megawatts (MWs) of capacity by 2032, industry officials said.
“While this will help provide much-needed electricity to power industrial production, it will also free up natural gas supplies for the petrochemicals industry,” another analyst said.
However, the shale gas revolution starting from North America is likely to impact adversely the GCC’s petrochemicals industry.
“Downstream investors have nose for feedstock,” said a Dubai based analyst of a foreign bank. “Shale gas will soon attract big US players which in return could hurt future investment in the GCC,” he said. In July, the International Monetary Fund also warned Saudi Arabia that the “shale gas revolution in North America could reduce demand for their products”.
The US sits on 665 trillion cubic feet of technically recoverable shale gas, according to a report from the US Energy Information Administration. This makes the US as having the fourth largest shale gas reserve in the world, after China, Argentina and Algeria.
Kuwaiti energy analyst Kamil Al Harami said shale gas production in the US will affect the petrochemical industries in the Gulf in the near future.
“There is a visible cut in Qatar’s gas exports to the United States due to increased local production,” said Al Harami.
Analysts said shale gas appears also likely to reshape the international fertilizer market, where Gulf producers have invested in some of the world’s biggest plants. The Saudi Arabian firm Ma’aden and Saudi Arabian Fertilizer, an affiliate of petrochemical giant SABIC are among those with expansions in progress.
The Middle East's fertilizer capacity expected to grow to 50.4m tonnes by 2016 from 31.4 m tonnes in 2012. Currently, about half of the fertilizers produced in the GCC are exported, according to the Gulf Petrochemicals and Chemicals Association (GPCA), the region's longest standing trade association.
At a recent fertilizer industry conference in Doha, GPCA secretary general Abdulwahab Al Sadoun said that the size of Gulf firms’ fertilizer plants would help them meet the international challenges.
"As the economy of the Middle East is so closely tied to the oil and gas industry, any global trends associated with it - be it here, or on the other side of the world - cannot be ignored," Al Saduon said, while adding that the shale gas developments will have an impact on the entire competitive market.
North America buys 1.7m tonnes a year of fertilizer from GCC producers, second only to East Asia. But thanks to a flood of cheap feedstock, it has announced more than 25 fertilizer projects in recent years and it has the potential to restart older plants.
($1 = €0.74 / $1 = CNY6.14)
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