GPCA ’22: INSIGHT – Green issues dominate annual meeting as Saudi Arabia bets big on petchems

Tom Brown


RIYADH (ICIS)–Green chemicals and the energy transition topped the agenda at this year’s Gulf Petrochemicals and Chemicals Association (GPCA) annual meeting as regional players start to step up their investments in the space and start to consider decarbonisation plans.

Nearly every panel over the three-day event, the first time it has taken place in Saudi Arabia, was devoted to decarbonisation, environmental, social, and governance (ESG), or green chemicals.

The circular economy was discussed, but decarbonisation and green chemicals attracted the most interest.

Saudi Arabia has strong potential in both respects. The weather is extremely suited to the rollout of solar power, which feeds into extremely economic production dynamics for green hydrogen.

With solar panels feeding energy directly into electrolysers, salt water can be converted into green hydrogen cheaply.

The King Abdullah Petroleum Studies and Research Center (KAPSARC) has estimated that hydrogen production costs could fall to $1.50/kg or lower by 2030, compared with current prices of $2.42/kg.

Currently, the industry average price is $2-7/kg.

The speed and intensity of Saudi Arabian government reforms tends to wax and wane with oil price, gathering speed when values are low and relaxing to an extent when prices are high and the cash is flowing.

But if the Saudi government bets heavily on solar power, the country could stand to become a global power in clean hydrogen and ammonia production.

Another feature of the conference was European speakers lamenting the fortunes of other regions compared to their own.

Germany’s chemicals major BASF’s CEO, Martin Brudermuller, took aim at the regulatory stick brandished by the European Green Deal, compared to the more generous carrots of the US Inflation Reduction Act (IRA).

Swiss producer Clariant’s CEO, Conrad Keijzer, contrasted Saudi Arabia’s green hydrogen advantage compared to Europe.

The mood among the Europeans was bleak.

“If you look at Europe right now, there are lots of announcements from green hydrogen players but, without subsidies, most of these are not very competitive,” Keijzer said.

Despite the green tinge to the GPCA summit, Gulf producers are still betting on huge increases in regional capacity for olefins, polymers, and basic chemicals over the next few years, as governments in the region look to diversify key national industries.

Saudi Arabia is expected to see substantial growth in basic chemicals over the the period, building on a growing trend towards large clusters of vertically integrated facilities across the region, particularly in Jubail, as well as in Egypt, Qatar, and Iran.

SATORP, the joint venture between Saudi Aramco and Total, is currently developing an expansion that is expected to add 1.5m tonnes/year ethylene capacity.

According to US credit rating agency Fitch, it will also have 500,000 tonnes/year of propylene capacity, as well as 2.7m tonnes/year in derivatives, by 2024.

SABIC is building a new petrochemicals complex with projected nameplate capacities of 1.5m tonnes/ year of ethylene and 500,000 tonnes/year propylene.

The company expects it will help drive competitiveness through integration with existing polyethylene (PE) and polypropylene (PP) units.

A new complex being developed by AGIC is expected to add 1.15m tonnes/ year of ethylene and 800,000 tonnes/year of propylene by 2025.

These three projects alone are expected to add a total of 4.15m tonnes/year of new ethylene capacity and 1.8m tonnes/year of propylene capacity by 2026, all in Jubail.

This represents a nearly 25% increase in installed Saudi production capacity in the space of three years, to 20.83m tonnes/year and 7.85m tonnes/year, according to estimates from Fitch.

As is the case in most parts of the world right now, economic growth in the Middle East is hampered by steadily-increasing interest rates as central banks attempt to tackle inflation.

Despite standing as one of the few regions expected to post GDP growth in 2022 at 5%, up from 4.5% in 2021, according to the World Economic Forum (WEF) as the region benefits from higher commodity prices.

2023 is set to look bleaker, however. GDP growth for the Middle East is expected to fall next year to 3.6%, and interest rates are also firming in the region.

The UAE, Qatar, and Saudi Arabia all hiked interest rates by 75 basis points in the wake of the US Federal Reserves increasing its core rates in September.

Oil prices have fallen substantially this week, dropping around $100/bbl since last Friday on the back of expected strong US Federal Reserve rate hikes and weaker than expected fuel consumption in the country.

Standing at $77.61/bbl for Brent and $72.55 for WTI as of midday European trading on Thursday, prices have fallen dramatically since the $120/bbl highs of mid-2022.

In fact, prices are close to the Saudi average 2022 oil break-even price, according to the US Federal Reserve (Fed).

The profit point is expected to fall further in 2023, to a little over $66/bbl; this will mean the Saudi economy is likely to remain resilient, if not booming.

The export-oriented Gulf Cooperation Council (GCC) economy is likely to slow in 2023, and inflation is set to remain an issue.

However, the energy crisis and the looming European recession seemed much more distant in Riyadh than they did at October’s European Petrochemical Association (EPCA) annual meeting in Berlin, with the gaze set much more firmly to the future.

Front page picture: The GCC’s official logo showing its six members: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE
Picture source: GCC

Insight article by Tom Brown


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