A resurgence in the US chemicals sector and China’s relentless industrial expansion could force firms to think carefully before committing to major petrochemicals projects in the Middle East.
The Gulf has undertaken an unprecedented expansion in chemicals capacity over the past 10 years as it looks to benefit from burgeoning demand in emerging Asian economies. But market dynamics are now shifting. The pace of China’s economic growth is likely to slow over the coming years and the country continues to add domestic petrochemicals capacity.
Taking ethylene as an indicator of chemicals production, China is making progress towards self-sufficiency and will continue to shrink as a market for global chemical exports. China Petrochemical Corporation is expected to become the number one producer within four years, overtaking Saudi Basic Industries Corporation (Sabic) and German giant BASF.
At the same time, the increasing use of cheap shale gas-based feedstocks has boosted the US petrochemicals sector and American companies are now looking to expand. Since the start of the shale gas boom, there has been an estimated 10 million tonnes of new ethylene capacity being planned in the US, which is more than half the current capacity of the Gulf.
While the region still has a geographical advantage over the US and Europe in supplying Asia, this cannot sustain all the new planned projects. Gulf producers will need to focus on specialty chemicals to meet the needs of specific customers, following the model developed by Western firms. This could be achieved through more joint greenfield projects with overseas groups or the acquisition of smaller companies to add technological knowhow.
For the first time, there is not enough demand worldwide to justify all the new cracker projects being planned in the region.