Arabian Gulf investors are pouring billions of dollars into petrochemicals in South East Asia as they chase new consumers outside a flagging China.
Thanks to bumper years of high oil prices that buoyed oil and petrochemical revenues, companies from Abu Dhabi to Qatar have a pile of cash to spend in countries with growing populations and low labour costs.
This week Qatar Holding announced it would invest up to US$5 billion (Dh18.36bn) in a Malaysian petrochemicals complex to rival Singapore's in scope, and Dubai's Drydocks World agreed to build a $2.5bn maritime complex catering to the industry in Indonesia.
Meanwhile, Saudi Aramco is evaluating a refining and petrochemical complex in the Indonesian province of East Java, Qatar Petroleum (QP) is taking a stake in a $4bn Vietnamese petrochemical complex and Abu Dhabi's Borouge is opening plastics sales offices throughout the region.
"Basically you've got a bunch of cash-rich oil and petrochemical companies - Aramco, Sabic, QP - so they've got plenty to invest," said Tony Potter, a managing director at IHS Chemical, a consultancy to the industry.
The migration of Gulf dollars to South East Asia follows a period of blossoming deals in China. Sinopec, Saudi Aramco and ExxonMobil agreed in 2007 to invest $5bn into upgrading a petrochemical complex and build 750 filling stations. A year later Sinopec signed a strategic cooperation agreement with Saudi Basic Industries Corporation (Sabic). Borouge, which is owned by Abu Dhabi National Oil Company and Austria's Borealis, opened its first resin plant in China in 2010 and decided to build a second the same year.
"They want to establish a base in their major market, and over 60 per cent of the total petrochemical exports from the Gulf region are destined for China and South East Asia," said Abdulwahab Al Sadoun, the secretary general of the Gulf Petrochemical and Chemical Association in Dubai. "So that's logical to establish a base, whether it is a logistic hub or a manufacturing facility."
But as China's middle class has grown, so have incomes. The factories that petrochemicals manufacturers catered to have started looking south.
"One of the descriptions of Vietnam is that it's China's China," said Mr Potter. "The West has gone to China for manufacturing or cheap labour, and now China is looking at Vietnam for cheaper labour."
China has also not been immune to the global economic slowdown, with its GDP growth shrinking from a peak of 12.1 per cent in the first quarter of 2010 to 7.8 per cent last year. In response to slowing consumer growth, Borouge is shifting its focus from crafting plastics for cars and packaging to infrastructure such as pipes and cables.
South East Asian petrochemical manufacturing is fuelled by a growing hydrocarbon industry, with investors including Abu Dhabi's Mubadala Petroleum and Kuwait Petroleum. The promise of fresh feedstock is an enticement for Gulf manufacturers who have enjoyed expansive supplies of cheap natural gas in their home countries, but are now facing tighter supplies as governments redirect gas to power generation and producers look to more technically challenging sour gasfields.
"It's not like you could build another 10 petrochemical complexes here, because the feedstock isn't there," said Mr Potter. "Wherever there is interesting feedstock, people are having a look."
American companies that invested in Chinese complexes are also re-evaluating investments, but for another reason. A rush of cheap gas unlocked from American shale has ignited a boom in industrial investment in the US, the world's biggest market for petrochemicals above China and Europe.
"All the major US companies who invested in China building their facilities, now with the access to cheap supply of natural gas they are reconsidering their plans for expansion in China," said Mr Al Sadoun. "Because the market is there."
