UAE emirates compete for petrochemical downstream investments

Focus story by Muhamad Fadhil

ABU DHABI (ICIS)–The seven emirates in the United Arab Emirates (UAE) are competing with each other to secure downstream investments, as the country looks to bump up its petrochemical output, industry sources said on Friday.

“All the emirates compete for downstream investments. With more output, downstream industries will grow. The big question for companies is: which emirate should they base, move or expand [their operations at]?,” a UAE-based petrochemical trader said.

The seven UAE emirates are federal capital Abu Dhabi, Dubai, Fujairah, Ras al-Khaimah, Sharjah, Umm al-Quwain and Ajman.

Borouge is set to welcome the third phase (Borouge 3) of its petrochemical project in Abu Dhabi this year.

Borouge 3 will raise the company’s olefins and polyolefins capacity to around 4.5m tonnes/year from 2m tonnes/year currently.

The Gulf Petrochemicals and Chemicals Association (GPCA) estimates current UAE chemical output to be at 2.9 million tonnes/year.

Abu Dhabi and Dubai are considered established hubs “with a long history of petrochemical downstream operations”, a major UAE buyer said.

With lower electricity bills for downstream operators, the UAE capital is seen as more cost friendly than Dubai.

“Power costs are cheaper in Abu Dhabi, as the capital is blessed with oil. Dubai is more expensive in terms of manpower and electricity costs,” according to a separate UAE-based trader.

The UAE holds the seventh-largest proven reserves of oil in the world at 97.8bn barrels, with 94% of total reserves located in Abu Dhabi, according to Energy Information Administration (EIA) data in late 2013.Dubai is seen as a “more glamourous” option, as the emirate gears up to host the 2020 World Expo, a global trade convention.

“A Dubai office address is always sought after. Most multinational companies (MNCs) are already based there,” according to a source close to a global petrochemical supplier.

Reliable and efficient operations at Jebel Ali port also makes Dubai “an emirate of choice” for downstream operations, the supplier said.

Jebel Ali port handled 13.6m twenty-foot equivalent unit (TEU) in 2013 and will handle 19m TEU by 2014, according to operator DP World.

Despite the reliability offered by Dubai and Abu Dhabi, downstream operators are looking to base their upcoming factories or warehouses at the other five emirates, as they seek lower costs.

“More operators are moving out of Abu Dhabi or Dubai, or looking to invest outside the two emirates. Cost of production in the other emirates are [significantly] cheaper,” according to a petrochemical source based in Sharjah.

The cost of production in the other five emirates, including manpower, electricity and rent, can “sometimes be 30% lower than Dubai and Abu Dhabi”, according to a separate source close to a UAE supplier.

Sharjah is actively promoting the Hamriyah Free Zone as a cost friendly base to do business, while Ras al-Khaimah Free Trade Zone offers lower office rents and larger warehouse spaces, according to a petrochemical distributor in Dubai.

Fujairah is also keen to get more downstream petrochemical investments, given its strategic location as a bunkering hub.

“Fujairah is ideally located. It already has a competitive advantage of being a port city,” according to a petrochemical supplier in the Middle East.

Umm al-Quwain and Ajman are also expected to compete with the other emirates, although their exact plans to secure petrochemical downstream investments remain unclear.

“At the end of the day, cost will win out for most operators. But, each company will need to decide the best option for itself,” a petrochemical source based in Abu Dhabi said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections