Shell's Iraq petchem move a worry for CEE producers: analysts

13 November 2013 16:08  [Source: ICIS news]

LONDON (ICIS)--The growing competitive threat posed by giant Middle East investments to central and eastern Europe's (CEE's) commodity petrochemical industry has been underlined by Iraq's announcement of a planned $11bn (€8bn) project with Royal Dutch Shell, analysts said on Wednesday.

With CEE petrochemical players already having to face up to the anticipated early-2014 launch of the 2.5m tonnes/year Borouge 3 olefins and polyolefins expansion project in Abu Dhabi, news broke earlier on Wednesday that Iraq’s government is set to finalise a contract with oil and gas major Royal Dutch Shell for the construction of an $11bn giant (€8bn) petrochemicals facility.

“[The Iraq project] looks dangerous from the point of view of CEE petchem players,” said Dominik Niszcz, an analyst at Austria-based Raiffeisen Centrobank.

“The worst thing is that some CEE companies still make money on exports to Asia, exports that may no longer be possible after these Middle East investments, plus a threat from imports into Europe may appear,” he added.

Weighing up what the growing Middle East commodity petrochemical capacity – largely based on comparatively cheap ethane feedstock – could mean when it comes to Poland's decision on whether to go ahead with a multi-billion euro petrochemical complex in Gdansk, Niszcz said: “The strategists in Poland now have difficult decisions to take”.

Tamas Pletser, an analyst at another Austria-based bank, Erste Group Bank, said the Iraq project announcement demonstated that there is a definite trend of the refining and petrochemical industries moving geographically closer to crude oil and gas sources.

Iraq has signed a memorandum of understanding with Anglo-Dutch energy giant Royal Dutch Shell to carry out a technical and economic feasibility study toward establishing the petrochemicals plant with an ethane-cracking unit.

Borouge is a joint venture between the Abu Dhabi National Oil Co (ADNOC) and Austria-based petrochemical producer Borealis, 36% of which is held by Austrian oil, gas and petrochemical group OMV.

Asia has been defined as the primary export target of Borouge, but the company also plans significant exports to Europe.

Analysts say CEE producers can respond to the threat to their commodity petrochemical production posed by cheaper producers by moving into more specialist production lines.

($1 = €0.74)

By: Will Conroy
+44 20 8652 3214

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