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The MENA region´s petrochemical industry cannot rely on past cost advantages and must
invest and innovate to meet the growing competitive threat coming from a shale
gas-driven petrochemicals revival in the US and new coal-to-chemicals
technology from China.

In the face of these threats, top industry executives gathering in Dubai for the annual
Gulf Petrochemical Association GPCA Forum 2014 called for a number of
responses, including investment in more sophisticated plants and encouragement
of entrepreneurship and a small and medium-sized enterprise culture.

With pressures on the industry coming from lower oil and gas prices, and the
development of coal-based polyethylene-based products in China, “there is a
growing need to become more innovative, to get more competitive”, said Mohammed
Al Sada, Qatar´s energy minister and chairman of Qatar Petroleum.

That sentiment was echoed by many other executives. “To date, our advantages on
cheap feedstock have carried us through, but the existing model will not carry
us through as the global industry landscape is changing and creating stronger
competition,” Khalid Al Falih, the chief executive of Saudi Aramco, said in a
key note address.

Driven by the relatively cheap shale gas, “North American plastics and chemicals
production will nearly double over the next decade and they will export to
markets that we have assumed over the years were ours for the taking. To the
east, in Asia, things are changing also as Japan rationalizes its petrochemical
industry and China experiences a relative economic slowdown and places more
emphasis on coal.”

In China this year, Wilson Clean Energy successfully used technology licensed from
Honeywell Company to convert methanol derived from coal into ethylene and
propylene, two of the most widely used petrochemical derivatives.

China and other emerging markets will account for 60 per cent of petrochemicals demand
over the next decade, according to McKinsey, because average annual incomes
there are approaching US$ 10,000, the point when demand for plastics tends to
be at its highest.

Mr. Al Sada of Qatar said the Gulf region´s petrochemical industry had grown tremendously
and would continue to do so. But innovation is lagging as of today to face
future challenges. Although the industry spent US$ 380 million last year on
research and development that accounted for less than 1 per cent of the global
total and patents granted to GCC firms was less than 0.4 per cent of the global
total. And even of those patents, three-quarters were geared towards existing
processes rather than new chemistry.

Mr. Al Falih said one of the main objectives of Aramco – which should be supported by
others in the GCC – is an effort to use more plentiful naphtha as a feedstock
and to work towards bypassing refining altogether by developing processes to
convert oil directly into chemicals (Crude to Chemicals). He said that a
company had already been chosen to conduct a pilot oil-to-chemicals project.
Petrochemicals demand is growing at 4 to 5 per cent a year and no matter what
happens with shale, gas as a feedstock will not be enough.”


Aramco also is partnering with Dow Chemical to build the largest chemical complex in the
world in Jubail (KSA), with start-up expected in the middle of next year. The
Sadara plant in Jubail “is not just a basic chemical plant but is the hub for
building multiple products, multiple business”, that would create more
much-needed jobs, said Andrew Liveris, chief executive of Dow Chemical.

All these activities will have tremendous influence on the global petrochemical supply
chain. The flow of basic petrochemical products from the Middle East into the
APJ and EMEA region will decline over the next years, leaving room for China´s
basic petrochemical industry, becoming a net-exporter in the near future, but
also petrochemical producers from Russia or other emerging countries out of the
CIS might fill the gap.

For the MENA region this means heavy investments into Manufacturing Assets, Research
& Development as well as Sales & Marketing capabilities and business
processes and definitely a strong impact on future M&A activities.