Market Intelligence: Mideast strategy shift
Producers in the Middle East, keen to expand capacities and help satisfy growing demand in the region, in Asia and, over the coming years, in Africa, will not realise their ambition easily. So much needs to be achieved in terms of operational and logistics capability. The challenges are daunting.
Comments from Saudi Aramco and Abu Dhabi’s national oil company ADNOC at this year’s Gulf Petrochemicals and Chemicals Association (GPCA) meeting were striking but really were covering old ground. They were also very short on specifics.
ADNOC’s CEO and UAE minister of state, Ahmed Al Jaber, said on 28 November that the company expects to boost its petrochemical production capacity by 2025 to 11.4m tonnes/year from 4.5m tonnes/year today (see page 12). He also spoke about the “seamless” integration of the Abu Dhabi state-controlled oil company’s refining and petrochemical operations.
Saudi Aramco is planning also to almost triple its overall petrochemicals production capacity, to 34m tonnes/year by 2030 from 12m tonnes/year last year, business line head Abdulaziz M Al-Judaimi, told the GPCA audience (see page 12). Alongside the plan to double its global refining capacity by 2030, Saudi Aramco must integrate much more to realise better hydrocarbon stream transfers and petrochemicals capacity growth.
Saudi Arabia and the Gulf state both need skilled workers to complete the job and this is where pinch points could lie.
Saudi Aramco is talking about taking a cluster approach to creating manufacturing and conversion locations, or parks, similar to those that successfully add value in Europe and North America.
Aramco has said it intends to become the world’s largest producer of aromatics. Al-Judaimi said the petrochemical industry in the GCC should continue to expand in differentiated chemicals and put a focus on innovation and technology.
Producers will have to do that to remain competitive. The regional feedstock picture continues to change. Abu Dhabi has talked for some time about building a chemicals park which would integrate liquids and gas-fed crackers downstream into plastics conversions. A first phase was the country’s Tacaamol Aromatics Project, or TAP, and the development of the Madeenat ChemaWEyaat Al Gharbia (MCAG) site.
The GPCA meeting in Dubai addressed competitiveness
Al Jaber on 28 November said the greatest opportunity is the shift of economic growth from west to east. But as gas supply becomes tighter, Abu Dhabi will shift from ethane to liquids, including naphtha. “This will, without question, change our cost base but we will drive operational efficiencies and optimise resources at every step of our production process,” he added.
The UAE’s minister of state also suggested that partnerships are more important than ever before for GCC producers. “Partnerships are more critical than ever before… The sheer growth and scale of petrochemicals demand requires us to shape partnership models that are best suited to seize the moment,” Al Jaber said.
That idea was expanded on by GPCA chairman and SABIC CEO Youssef Al-Benyan who suggested that GCC players were exposed by strong demand growth and the sheer size of chemical industries in other parts of the world.
“The competitive landscape is shifting beneath our feet… The fundamentals are changing not only for the GCC but customers as well,” he said. The major change is that ready and cheap feedstock availability is no longer a key advantage in the Middle East.
But chemical complexes in the region stand alone and the sector certainly does not benefit from the type of integration that is pre-eminent in the US and Europe. Most of the new crackers and downstream units under construction and planned in the US will benefit from existing pipeline, rail, road and port links.
Countries in the Middle East, like Saudi Arabia, are acutely aware that a lot of existing logistics infrastructure needs to be upgraded or better integrated.
Chemical producers need a much greater degree of flexibility in their plants and operations than that required only a few years ago. Middle East players will have to learn to be adaptive and flexible, possibly through mergers and acquisitions (M&A) or consolidation, so as to have the operational and the financial capabilities to invest and grow successfully in a world likely dominated by a “lower for longer” oil price.
The nature of the global chemical industry has changed to reflect the importance of demand pull from a better understood array of end market uses.
The more “market first” approach does not belie the fact that petrochemicals can and do grow with industrial production and GDP. And that in a slower growth world they potentially provide a growth premium that is not being found upstream in fuels. So petrochemicals are taking a larger proportion of growth from the oil barrel and from the gas field. The point is not lost on players in the feedstock rich parts of the world.
GPCA secretary general, Abdulwahab Al-Sadoun said earlier in an interview with ICIS that petrochemicals demand will grow at 4.0-4.5% despite the slowdown in some important developing markets. Petrochemicals demand growth will remain at double the global GDP average, he said.
A rate of growth of that magnitude is hugely attractive to oil and gas producers. Oil demand for petrochemicals is, according to the International Energy Agency (IEA), likely to grow by about 3%/year between 2015 and 2021.
MIDDLE EAST PROJECTS
The clamp down on oil and gas exploration and production investment in the lower oil price environment has not necessarily been reflected globally in petrochemicals because companies see the superior growth opportunities.
The $6.5bn Al Karaana project in Ras Laffan in Qatar was an early casualty of the oil price slump but companies have begun to look again at projects. Also, as some seek to capitalise on intermediates, the shift in feedstock away from very cheap ethane to more expensive gas liquids and to liquids from crude, again makes strategic planning more difficult. Al-Sadoun believes, however, that companies can take advantage now of lower construction costs, because of cheaper steel, in the GCC countries.
Despite a growing number of consumers regionally, projects still are built primarily to serve export markets. The stance the US takes, therefore, on global trade is of critical importance. Developing a business and negotiating through the shoals of a world that seems to be bent on giving up on globalisation present a new series of challenges.
Additional reporting by Nurluqman Suratman and Muhamad Fadhil