Abu Dhabi ahead in the race?
Source of picture: www.gulftrackservices.com
By John Richardson
The global basic chemicals industry is likely to end up under the dominant control of the Middle East, and possibly Asia, within the next 3-5 years, a senior chemicals industry source told this blog.
"We have known for a long time that the centre of gravity is shifting from West to East, but the economic crisis has accelerated this whole process.
"It was easy credit that enabled the West to keep on growing despite high oil prices with some of that credit going into speculation that helped drive energy costs higher.
"Now that the credit bubble has burst we are left with deeply entrenched and very long-term problems, while the Middle East is sitting on a hydrocarbons cash-pile thanks to the extraordinary global economic growth of 2005-2008."
The only barrier to acquisition of a lot more Western assets - including quite possibly high-value technology positions that have to date remained off the table - was politics, he said.
But a second source added: "While I agree that the shifting of ownership has been speeded up by the crisis, I think the West will keep hold of technology positions - especially in downstream specialities.
"Chief executive officers (CEOs) of US and European countries are under pressure to move away from basis chemicals, and so differentiation needs to be preserved.
"But it is true that we have already seen transfer of very valuable polymer technologies."
SABIC's acquisition of GE Plastics was one such transfer with the renamed SABIC Innovative Plastics now seeking to buy high-end polycarbonate (PC) technologies.
The economic recovery, which the second source believed would be sustained, would also give the CEOs some breathing space to negotiate better terms with prospective buyers of basic petrochemicals.
These comments came after ICIS reported that the Abu Dhabi-based International Petroleum Investment Co (IPIC) was in talks with Bayer MaterialScience and four other global petrochemical groups.
But an IPIC spokesman later said: "At present there are no firm plans to do anything with Bayer MaterialScience, or any other chemical company. A number of initiatives are under consideration internally, but nothing has been decided."
IPIC has already acquired Canadian-based polyolefin major Nova Chemicals and is planning the huge Chemaweyaat chemical city in the new Mina Khalifa Industrial Zone.
It also has a 64% of Austria-based polyolefins group Borealis.
"What's interesting about the Chemaweyaat project is, first of all, its sheer scale (it includes several crackers, including a 1.45m tonne/year one due to start-up in 2012) and the fact that the range of derivatives downstream will be more diversified than is already common in the Middle East," the first source added.
"On a straight cost competitiveness basis, you might think that liquids cracking, which is going to happen at Chemaweyaat, doesn't make sense. But this is more than being about straight economics - it's about economic development and job creation."
And my colleague, Nigel Davis, recently wrote: "Dow Chemical on 12 November laid its cards on the table regarding its so-called 'asset light' strategy.
Dow is working through an arbitration process following its failed deal in Kuwait. The company says it is now talking to two potential partners for a proportion of it olefins assets and its polyethylene business. "
The future ownership of US petrochemicals assets in the US is also attracting a great deal of interest because, despite what could be deeply ingrained economic problems, it's a huge polymer and chemicals market.
And as Nubuo Tanaka - executive director of the International Energy Agency (IEA) - said in a presentation in Singapore earlier this week, shale gas had resulted in a "silent revolution" in US natural-gas supply since 2007.
With 70% of US ethylene production based on natural-gas liquids, according to the American Chemistry Council (ACC), the ground has shifted thanks to this unconventional shale-gas supply.
"Gas supply has become tight in the Middle East and abundant in the US perhaps for the long term, meaning that US petrochemicals is not dead and buried," claimed the first source.
"I expect export competitiveness from the US to be strong for at least the next three years on the comparatively low prices of natural gas over naphtha."
Thermoplastic exports from the US rose by 16% in the year-to-date as a against a 14% decline in domestic sales, said the ACC in its latest weekly report.
SABIC's GE Plastics acquisition gave the Saudi giant a foothold in this huge market, where handling and distribution costs can act as an effective trade barrier.
There have also been unconfirmed reports of Reliance Industries being interested in acquiring LyondellBasell.