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Middle East Social Pressures & Gas Supply

Business, China, Company Strategy, Economics, Middle East, Olefins, Polyolefins, Sustainability
By John Richardson on 27-Mar-2011

By John Richardson

THE blog held a fascinating discussion with a very well-placed industry observer last week, further underlining some of the key challenges facing the Middle East..

These include the well-documented feedstock shortages that will result in a dearth of new capacity post 2012 – and the difficulty in executing the few projects that are going ahead.

Social stability is a key concern right now across the Middle East as a result of the virtual civil war in Libya and major unrest in Bahrain and Syria.

Just a few weeks ago nobody really worried that much about the push for democratic change spreading to Saudi Arabia. But that was then and this is now.

The consequences for the global economy are almost too frightening to contemplate if the Kingdom, the world’s most important “swing” oil producer, was to face significant political and social upheaval.

He told us that only one new cracker project would go ahead in Qatar by 2015 due to limited gas availability for petrochemicals. The three-way tussle between Shell, ExxonMobil and Total for this gas allocation therefore continued, he said.

“I also doubt that some of the other projects in the region – in Saudi Arabia and Abu Dhabi – will go ahead on schedule because financing is a long way from being secured.”

Another theme we discussed was the increase in Saudi oil production, which he believes has been from 8.4m barrels a day to 9.4m barrels a day (we discussed this last week).

This will surely result in more pressure on Asian polyolefin markets already struggling with moribund Chinese demand.

But the big issue we kept returning to was Saudi Arabia and the possibility of unrest.

“It is now being seriously discussed because of what we have seen in Bahrain etc,” he said.

This linked back to the gas shortages limiting new projects that we mentioned at the beginning of this post.

Soaring demand for gas for power generation is one of the reasons why petrochemicals is being short-changed on supply.

“For social stability reasons there is no way that electricity costs will now be increased in Saudi and elsewhere in the Middle East,” he added.

This is a region where power is so cheap that air-conditioning units are left switched on when people go on holiday in order to keep houses cool for when they return.

Without conservation driven by price, and with new reserves of gas likely to be more expensive to extract, the cost and availability of the feedstock for petrochemicals seem certain to remain under great pressure.