GPCA ‘21 – INSIGHT: Climate challenge needs forward-looking flexibility from Mideast petchem players

Nigel Davis

08-Dec-2021

LONDON (ICIS)–The annual Gulf Petrochemical Association (GPCA) meeting is bringing into sharp relief the market, technical and financial challenges facing not just regional sector players.

Companies of all types, and all sizes, active in petrochemicals have to be forward-looking and flexible enough to be able to move with rapidly changing times.

The oil and, some believe, the natural gas age, is giving way to something that looks from today’s perspective as though it will be very different.

One can argue back and forth whether it will be the market for petrochemicals and plastics, the regulator, or companies themselves, that will drive this change. But at this juncture, it seems certain that change will come. Indeed, it is already upon us.

One can argue also that petrochemical and polymer producers in the region, in a position to continue to capitalise on oil and gas feedstock and energy abundance, will do so: new project announcements made around the time of the meeting, being held live in Dubai, underscore that.

But these companies are being driven to change. The climate crisis is recognised widely enough, and competent, effective reaction to it is expected as much from the companies that must continue to provide the products that consumers worldwide need, as from nation states.

It may be time to press the accelerator again following, hopefully, the worst of the COVID-19 pandemic, as SABIC CEO, Yousef Al-Benyan, said in a keynote address at GPCA 2021 on Wednesday.

But his point is that tension is building. “Utilities companies across the world anticipate growth below global GDP growth, while consumer industries forecast growth above GDP,” he said.

“This tension between upstream and downstream will have to rely on the competitiveness of chemicals companies, and the companies unable to navigate that tension will disappear in coming decades,” he added.

It will be very much a question of survival of the fittest: meaning the companies that are best fitted to provide, cost effectively, the products that consumers want.

Around 80% of the world’s GDP is generated in countries that have pledged to carbon neutrality, Al-Benyan stressed. And there is a clear policy direction, as well as capital allocation, attracting decarbonisation upstream in oil and gas, he said.

Regional chemical producers can be expected to change with this transition. And as revenues from oil and gas diminish, greater, more sustainable returns from them might be expected.

This, largely institutionally driven pressure for change is accompanied by a radical shift in the pull from the market.

“Our customers are insisting on more sustainability in our business and in everything we do. Banks and other lenders [are also questioning] how we are managing our sustainability. On top of this, there are global macroeconomic challenges, which will affect the global supply chain and encourage more protectionism” he added.

All this represents a shortening of the so-called ‘energy transition’, the move away from oil and gas as the primary energy source globally, towards renewables and hydrogen. The chemical industry, as a large energy and hydrocarbons consumer, is swept up in the transition. It is challenged to provide the materials that the world still needs, but possibly in very different or radically reconfigured ways.

Technically, sector companies are pressing to develop the processes that will possibly give them advantage as refineries are reconfigured. They are also pushing hard on the chemicals processing front (eg looking to greater electrification and to use, or sequester, CO2).

Of vital importance for the region is the development of a global market for hydrogen and, probably, ammonia as a hydrogen carrier.

In an ICIS quarterly review prepared for the Association, GPCA secretary general Abdulwahab Al-Sadoun says that energy transition conversations became commonplace in the second half of 2021 and technology advancements are supporting many new announcements for a push to adopt hydrogen as the fuel of the future.

He adds that the next big climate change conferences, COP 27 in Egypt, and COP 28 in the UAE, will build on what was achieved in COP 26 in Glasgow to get us closer to carbon neutrality.

Better technologies will be needed to “galvanise our assets”, Al-Benyan, who is the current GPCA chairman, said in Dubai. That means wider use of digitalisation to lift plant and overall process efficiency and reliability, and to help get product to market.

Companies in future will need to do more with feedstocks that may or not be optimal and with different energy flows while new market opportunities beckon.

Insight by Nigel Davis

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