The Gulf states enjoy huge benefits over petrochemicals producers in Europe or the US, where many producers are closing facilities.
Cheap gas gives local producers a major advantage over rival emerging producers in Asia, delegates at the opening day of the Gulf Petrochemicals 2007 conference were told yesterday.
However, by concentrating on just a few product areas, they are vulnerable to market cycles, industry executives heard at the two-day event, organised by MEED and being staged at the Ritz-Carlton Bahrain Hotel and Spa.
"The regional industry is unbalanced - the current structure is heavily reliant one type of gas and the current structure of the industry is focused on commodity petrochemicals," said Saudi General Investment Authority (Sagia) director general of energy Abdulawahab Al Sadoun.
Commodity chemicals - bulk products which need to be converted to make everyday products such as plastics or fertilisers - still make up 95 per cent of local production, he said.
As a result, Saudi Arabia intends to expand its range of products as it invests further in the industry.
The Saudi petrochemicals industry is entering an era of unprecedented expansion, said Mr Al Sadoun.
"Between now and 2012, more than 11 million tonnes a year of ethylene capacity will be added - this is equivalent to 10 per cent of global capacity in 2006," he said.
In the next few years, propylene capacity is expected to quadruple to 6.1m tonnes a year, while ethylene and benzene production will also soar.
The kingdom's ethylene producers are enjoying compound annual growth rates of about 15 per cent - just ahead of the regional average of 12.8pc, and streets ahead of competitors in Asia, where ethylene production is expanding at about 7pc a year.
Middle East companies are also looking to expand their global operations.
Leading Saudi chemical producer Saudi Basic Industries Corporation is currently negotiating a joint venture in China, said Mr Al Sadoun.
he company in May bought European producer GE Plastics in a deal worth $11.6 billion.
Despite fears of a repeat of the late 1990s, when the petrochemicals industry slumped after a similar round of investment, industry executives remain upbeat about the prospects for Middle East producers.
Not only are developing countries taking up some of the slack from the ailing Western chemicals industry, but an increase in cross-border mergers and acquisitions is bringing some order to the market, said Basell Polyolefin president Volket Trautz.
However, regional producers should be wary about overexpansion,
he said.
"In the Middle East, you are building an empire on petrochemicals, but empires can crumble is they are mismanaged. If you overdo it, you create costs that eat into your competitive advantages."
Some key factors determining the success of the regional industry are also beyond the control of local producers, including demand from Asia, said Mr Trautz
"China is by far the biggest single market in the world, and I believe that, despite all the linear projections for demand you are seeing, China is unlikely to increase its imports of particular chemicals," he said. "Instead, you may see demand for most products levelling off.
"This could be very decisive for our industry, and very decisive for the global economy."
Gulf Daily News
by DIGBY LIDSTONE
Middle East
Petrochemicals
