Changing the Petrochemical Playing Field
Petrochemical capacity in the Middle East is rising sharply. However, as China ramps up internal capacity, today's supply and demand fundamentals are changing fast. Muriel Axford reports.
Across the Middle East some nine million metric tonnes of ethylene capacity came on stream between the first quarters of 2008 and 2009. With more material becoming available in the region through 2009 and into 2010, this is a large amount in the midst of difficult economic times by anyone's standards.
Being driven by demand growth from Asia and China, plans were put in place several years ago for new production in countries such as Saudi Arabia, Kuwait, Iran and Qatar. The rich stream of accessible feedstock and good access to the growing markets meant that petrochemical producers and investors were eager to make the billion-dollar investments needed to establish integrated chemical complexes and associated facilities.
In these tough times, however, are companies taking fright and scaling back or even pulling out of major construction projects? In the Middle East, at least, it seems not. In fact, many producers are looking at the situation as part of the ongoing cyclical nature of the petrochemical industry.
Speaking at the most recent Gulf Petrochemical and Chemical Association forum in Dubai, Qatar's Deputy Prime Minister, Energy Minister and chairman of Qatar Petroleum Abdullah Bin Hamad Al Attiyah said that the situation today is nothing that the industry hasn't seen before. "The industry has worked through many issues and emerged stronger," he said.
The Middle East construction boom created such demand that contractors and engineers, along with much-needed raw materials, were in short supply, leading to spiralling labour and material costs. In this sense, the downturn actually benefited some construction projects. "Some projects have been delayed as investors are waiting for construction costs to come down further before starting work on new plants," said Al Attiyah. "However, we hear that many projects are being delayed but not cancelled."
Among the most recent plans made public is Abu Dhabi National Chemicals Company's (ChemaWEyaat) intention to build a complex with an output of 10 million tonnes/year of petrochemicals. To be built in Abu Dhabi and located in the ChemaWEyaat Industrial City, it will include a world-scale cracker, propylene and ethylene derivative units along with glycols, phenol and derivative units. The front-end engineering and design contract was awarded to Finland's Neste Jacobs.
With a mood of cautious optimism prevailing and Middle East companies wanting to ensure that they are ready to meet the anticipated upturn, will those traditional Asian markets be in need of all this new imported material?
Not if the findings of a new study are to be believed. The latest report from Beijing company SRI Consulting, China Report: Chemical Product Trends, says that while China will remain a large import consumer for some time, this is likely to change.
SRI Consulting's regional vice president Guangdong Qu says that China holds the key to how the global petrochemical industry will recover from the current economic crisis. "Since China is poor in oil and gas, the building blocks of chemicals, the question is whether it will continue to install its own new petrochemical capacity, or will import chemicals and polymers from the feedstock rich areas of the Middle East," he explains.
"Our conclusion – that China will continue to build up its own petrochemical plants – has implications for the worldwide petrochemical industry, which is likely to face a glut of capacity at a time of weak demand. Government stimulus of consumption in China will certainly help to absorb some of the excess capacity at home, while a large percentage of the Middle Eastern capacity will have to find buyers in other regions of the world."
Qu says that China's self-sufficiency in olefins will continue to grow and output will jump dramatically over the next decade. In turn, polymer imports will flatten. In addition, the start up of new plants will enable the chemical industry to improve its overall efficiency and to move to higher value-added product slates.
There are major petrochemical projects beyond the Middle East and one of the most significant is being developed by Petrobras in Brazil.
The $8bn Comperj complex will lead to the construction of a 150,000bbl/day refinery, providing feedstock for a 1.3 million tonne/year cracker, downstream units and other facilities.
Construction began during the first quarter of 2008 and it is scheduled to be operational by the beginning of 2012. The petrochemical units are expected to come online by the end of the same year.
While it is anticipated that the timing of the project may slip, it remains a key element of Brazil's economic development plans.
The consensus remains that demand from developing nations will continue to spur growth. The rise in oil price, despite the slump in western consumption, indicates that there is demand being driven in part by the combined relative strength of Brazil, Russia, India and China. These countries are now said to account for more than 20% of global GDP. It would seem that petrochemical producers have good reason to remain optimistic.