Watch Out!

It is time for the Indian chemical industry to wake up to the threat of increased flow of downstream chemicals from the Middle East.

Countries such as Saudi Arabia are aggressively pushing for the development of a petrochemicals industry that goes beyond olefins and polyolefins. State-owned and private companies are busy planning a host of derivatives.

Tasnee Sahara Olefins Co and Rohm and Haas have signed a 75:35 joint venture agreement for the production of 200,000 tonnes/year acrylic acid in the Kingdom. The Saudi Arcylic Monomer Co is likely to be operational by 2011. Rohm and Hass would take the majority of the output while Tasnee has the right to sell some of the production in the GCC.

This project raises questions on the future of two planned acrylic acid projects in India. The first is by Essar Chemicals with Arkema and the second by Reliance Industries with Rohm and Haas.

And Tasnee is looking well beyond acrylic acid. One of the products being considered is acetic acid. India is again an importer of this product.

PetroRabigh, the joint venture between Sumitomo Chemical and Saudi Aramco, are studying a host of derivatives (styrene butadiene rubber (SBR), MMA, PMMA and EPDM to name a few) for their second phase. The first phase, which includes a cracker and polyolefin and MEG plants, is set for commissioning at the end of this year.

Saudi Aramco’s mega joint venture with Dow Chemical includes propylene oxide, polyurethane, epoxy resins, polycarbonate, amines and glycol ether.

And Abu Dhabi’s multi billion dollar Chemicals Industrial City is likely to house plants for phenol, cumene and other derivatives.

I was at a petrochemicals conference in Bahrain earlier this week and the desire as well as the government pressure to move beyond upstream petrochemicals to speciality chemicals was clearly evident.

Putting together these projects is not easy. The Middle East does not have a large enough home market and so the burden of logistics costs will be high. Getting skilled manpower is a problem that shows no signs of easing. Technology for many of the derivatives is closely held and getting western companies to part with them is another challenge. Some of the foreign companies present at the conference were also not impressed with the economics of these projects in the Gulf. Their current focus remains China but they admitted that they would be keeping a close watch on opportunities in the Middle East.

So what does this mean for India? With an FTA being planned with the GCC the threat of cheap exports of a wide variety of chemicals is very real. The growing Indian market will be an obvious destination for many of the projects.

Yes, the GCC countries face many hurdles in going downstream but there is a strong government commitment. And importantly these countries have the money to ensure that the strategy works.

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