27 November 2013 17:11 [Source: ICIS news]
By Nurluqman Suratman
SINGAPORE (ICIS)--The Gulf Cooperation Council (GCC) petrochemical industry needs to intensify research, technology development and innovation to compete globally amid heightened competition, increased protectionism and the small size of its local and regional markets.
This will require a concerted effort in building an ecosystem involving governments, academia and private enterprises to cultivate and nurture the growth of innovative strategies that can address the region’s future challenges.
These were the key messages that emerged from the 8th Gulf Petrochemical and Chemicals Association (GPCA) annual forum in Dubai, the United Arab Emirates, on 19-21 November.
Petrochemical players in the GCC, as well as the wider Middle East region, are currently facing converging trends that are dramatically changing the landscape of their markets. The GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).
This includes the regional shortage of natural gas as well increased competition from North America players due to the ‘shale gale’ that is rapidly contributing to petrochemicals and plastics output growth in the US.
GCC polyethylene makers, for example, could face a significant drop in revenues following the petrochemicals revival in North America, according to GPCA secretary general Abdulwahab Al-Sadoun.
"The availability of large volumes of hydrocarbons in the US will drive cost competitiveness amongst domestic petrochemical companies, and also increase exports in plastics to Europe and Asia, two key markets for GCC petrochemical producers,” he added.
The Middle East needs to embrace manufacturing as a central economic driver, “working hand-in-hand with innovation-led strategies to diversify an economy that has been traditionally dependent on oil & gas revenues,” Dow Chemical’s executive vice president for feedstocks and performance plastics in Asia and Latin America, Jim Fitterling, told delegates at the forum last week.
“This is not just about steel in the ground. This is not just about building downstream. It is not just about capturing foreign investments. It is about adapting and directing the region's emerging manufacturing economy to what the world wants and needs. In short, it is about using a market-first mentality to dictate our investments and growth," he said.
Fitterling cited Dow's joint venture with Saudi Aramco, the Sadara Chemical Company (Sadara), as an example of this market-led approach. The new Sadara complex, currently under construction in Saudi Arabia, will produce performance, value-added chemicals and plastics.
"Sadara is the ultimate proof point that the region has more to offer than simple hydrocarbons," Fitterling said.
Prince Abdulaziz Bin Salman Al-Saud, assistant minister at Saudi Arabia’s Ministry of Petroleum and Mineral Resources, reiterated the importance for regional petrochemical companies to capture additional value through full value chain investments and through product diversity.
“An integral part of this strategy is the development of industrial parks and clusters around the petrochemical industry,” he told delegates at the forum, citing the example of Saudi Aramco’s Sadara and Petro Rabigh projects.
“Extending the value chain will help achieve multiple objectives. It will create new jobs, diversify economic and export bases, capture more value added for local economies, and expand the knowledge base of the GCC economies by developing their capacity to make a large variety of products of higher complexity,” he added.
Beyond the manufacturing front, the petrochemicals industry will need to fight against protectionist measures “under all circumstances”, ExxonMobil Chemical president, Stephen Pryor, told delegates at the GPCA forum.
Around 400 new protectionist measures had been introduced in countries around the globe each year for the past four years, he said.
“This protectionism is only set to intensify as the number of petrochemical players grows and as more countries roll out ambitious plans to develop their own petrochemical industry,” said Prince Abdulaziz.
“The recent increase in anti-dumping measures against petrochemical exports poses a serious concern for the Kingdom [Saudi Arabia]. Such protectionist policies have adverse effects on the regional and global industry: they increase the cost for consumers and reduce global economic welfare; they decrease the productivity of the industry; and they restrict trade flows,” he added.
The rise of protectionist measures, however, is not expected to make any significant dents in capacity additions in the Middle East in the short or medium term.
The GCC region by itself will add 54m tonnes of chemicals production capacity over the next five years, growing at an average of 7.3% annually, partly due to a surge in new fine chemicals and fertilizer capacities
The chemicals production capacity in the GCC will grow from 129.2m tonnes/year in 2012 to 183.6m tonnes/year in 2017, Al-Sadoun said.
In terms of innovation, the seeds of change are apparent in the GCC, said vice chairman and CEO of Saudi Arabia's SABIC, Mohamed Al-Mady.
This is evident from the emergence of major new knowledge institutions such as KAUST in Saudi Arabia and the Masdar Institute of Science and Technology in Abu Dhabi, the UAE, according to Al-Mady.
GCC patent applications also passed the 3,000 mark in last year, which represents about 60 applications per million people versus a global average of less than 30 per million, he said.
“We can say that we are making remarkable progress, but the availability of natural resources is not the same as it was and breakthrough chemistries and achieving excellence in our operations are not negotiable if we are to continue this progress,” Al-Mady added.
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