Gulf petrochemical firms facing further distress

There is more pain in store for Arabian Gulf petrochemical companies.

Revenues are expected to further decline this year after sliding nearly 30 per cent in the 12 months to June because of the oil price slump, an industry official said.

“We think the petrochemical prices will maintain this level in 2015,” said Abdulwahab Al Sadoun, secretary general of the Dubai-based non-profit Gulf Petrochemicals and Chemicals Association.

The international oil benchmark Brent tumbled by more than 40 per cent between June this year and last year because of an oil supply glut and weaker demand from Asia and Europe.

“Our key market is China and it is on a self-sufficiency drive, but this is not going to have an immediate impact,” said Mr Al Sadoun.

“Volume-wise there will be an increase in capacity and this will offset slightly the overall sales revenue [drop].”

China, the market that consumes a major chunk of Gulf output, is trying to build its own petrochemical projects to be self-sufficient. Also the economic slowdown in China is expected to hit petrochemical demand.

Total petrochemical production in all six Gulf states is projected to grow at 7.5 per cent to about 144 million tonnes this year, less than the compound annual growth rate of 11 per cent recorded between 2004 and 2014, he added.

“The growth rate will see some slowdown because there is constraint in the supply of gas,” said Mr Al Sadoun.

All Gulf states, except Qatar, are facing a gas shortage which is set to limit expansion of petrochemical projects, which rely on cheap gas. The Gulf region is boosting investments in gas projects to address this shortage.

As the region’s petrochemical industries compete with power generation and other industries over gas supply, some petrochemical producers are choosing to use the oil derivative naphtha rather than gas, or ethane, as feedstock. Utilising naphtha will help companies produce a more diversified range of products, but at a higher cost that will pit them against other countries in Asia, for example, that use naphtha as feedstock.

“With population growth in our region, power and water in our region becomes critical and so they have taken their share from those [petrochemical] industries, and this has pushed the drive to have a mixed feedstock rather than just ethane,” said Mr Al Sadoun.

The biggest project coming on line this year is Sadara Chemical, a $20 billion joint venture between the US giant Dow Chemical and the state-run energy firm Saudi Aramco.

The project in Saudi Arabia, which will start production this year, will produce 3 million tonnes of petrochemicals a year once fully operational next year. The project uses a mixed feedstock of naphtha and gas.

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Dania Saadi

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