Abdulwahab Al Sadoun, the secretary general of the Gulf Petrochemicals and Chemicals Association, talks to The National about the outlook for the sector.
What is the outlook for growth of Arabian Gulf petrochemical production this year?
The petrochemical industry has been on a growth trajectory since the early ‘80s and it is continuing this growth trajectory, although the annual rate of capacity additions is slowing down a bit due to the fact that the industry is moving or diversifying the product portfolio from commodity driven [chemicals] to speciality and performance chemicals driven. Those speciality chemicals are normally produced on a much smaller scale compared with the commodity petrochemical, which was and is still the bulk of product output. The move toward speciality and performance chemicals is also associated with the fact that throughout the region there is a drive to stimulate the development of downstream industries. This is to add value and create job opportunities in the region.Growth year-on-year over the past decade or so was to the tune of 7 to 8 per cent. Last year we had a growth of 3.7 per cent, still above the global industry average which is 2.2 per cent.
What factors will fuel growth and increase profitability of the sector this year?
There is a surplus in some products and this has put pressure on prices and on the profitability as well. Profitability is not only linked to feedstock prices, but it’s linked to demand and there is a very competitive landscape within the global chemical industry due to the fact the shale gas in the US has revived the US petrochemical industry. China, the world’s largest chemical producer and consumer, has also developed technologies to utilise the abundant supply of coal. This is leading to more supply, so the supply demand balance is tilted a bit.
Many companies are turning to launching projects outside the Gulf. Do you expect this trend to continue and why?
Yes … the reason is it’s a push and pull strategy: push because there is a constraint in the supply of the gas, so there is limited option for the producer to expand their production capacity within the region; and a pull because normally when you develop the petrochemical business you either locate you production facility close to the supply of feedstock or close to the key markets. An example of those who are located close to feedstock is our region, and Houston in the US. The other categories of production facilities located next to the markets is Asia, Europe. These are key markets but they don’t have close proximately to the supply feedstock. They rely on liquids, which is naphtha. Similarly, in the case of the US many global leaders are exploring opportunities associated with shale gas.
What will be the most influencing factor for the petrochemical industry in the Gulf this year?
We export 80 per cent of our output overseas. Any geopolitics or any issues that have an impact on the growth of the global economy will have an impact on the industry. For us, we are emphasing the need for investing in developing the local capabilities, in developing our innovation capabilities, in ensuring we optimise the supply chain because we have the longest supply chain on a global level. Our customers are not here, our customers are located overseas far from our region. Any optimisation in terms of cost will reflect on the bottom line for our producers. One of the key issues which is prevailing with the developments in China and in the US is the fact that there is a need for consolidation of the business to enhance competitiveness and reduce cost. It has become a top priority for decision-makers to seek the creation of critical mass. Without critical mass, it will be very difficult to sustain the pressure in the future. In the US, when they start up their production facilities they will target the same markets. They will target Asia and China. It will be a very competitive landscape for us and the small players will not survive unless they have the critical mass. We managed to become global players taking advantage of access to favourably priced feedstock, but this is no longer the case. We are no longer the only region that has this competitive edge. US and China have access to favourably priced feedstock. The winner in this race is really those who have critical mass, who have excellent innovation capabilities, and human capabilities that will lead them to continue and sustain their growth.
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