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Mideast Moves Downstream
December 19, 2011 | By ROB WESTERVELT
The theme of the Sixth Gulf Petrochemicals and Chemicals Association (GPCA) Annual Forum, held earlier this month in Dubai, sums up the direction and challenge ahead for Mideast producers: ‘Moving Downstream: Creating Added Value and Sustainable Growth.’ The meeting drew 1,600 attendees, up more than 20% from one year ago.
The Mideast industry is undergoing a gradual but transformative shift as it moves away from a core strategy that has driven rapid development over the past 30 years: the monetization of cheap and abundant natural gas, mainly through conversion to ethylene, polyethylene, and ethylene glycol.
The region’s portfolio is heavily skewed toward basic commodities. The share of ethylene and methanol in the basic chemicals product mix was 71% in 2010, and it is projected to drop to 66% by 2016 as producers in the region start to crack heavier feedstocks, GPCA secretary general Abdulwahab Al Sadoun says.
Gas has become scarce and more expensive. And governments in the region, which control access to feedstocks, are demanding that petrochemical producers help diversify Mideast economies by driving industrial development and employment. Feedstock allocations are increasingly tied to factors such as downstream development in countries like Saudi Arabia.
The Mideast will still enjoy a substantial, if reduced, cost advantage but heavier feedstocks will push producers beyond basic chemicals and into higher-value products.
Heavier cracking brings more differentiated product streams including higher-value specialties, and a need to build or link with markets that can use them. That will require a shift in skills and strategy. Technology and customer focus become more important as the share of differentiated products grows. Mideast producers will have to build—or acquire—these capabilities and will need to take aggressive steps to do so over the next few years. Mideast producers can no longer rely on a low-cost position and must now develop markets.