THERE is a mood of optimism about future prospects for the region's petrochemicals industry. Saudi Arabia, the UAE, Qatar and Iran are all pressing ahead with ambitious expansion plans, while Kuwait is on course to join the ranks of the region's producers when the Equate complex comes on stream this summer.

Sentiment has been boosted by higher than expected prices this year. Ethylene reached $655 a tonne at the beginning of April in Asian spot markets, compared to $500 a tonne at the start of the year. Polypropylene prices have risen 20 per cent this year, trading at $605 a tonne at the start of April. The dramatic rise has taken analysts by surprise, most of whom had been predicting a year of price stability after the volatility seen since 1994.

A number of factors combined to boost prices in the first quarter of this year. High naphtha prices pushed up the price of feedstock, and this has been reflected in the cost of many products. There has also been an unexpected shortage of supply with the withdrawal of Libyan ethylene from the market. A shortage of spare parts has brought production at the Ras Lanuf Oil & Gas Processing Company (Rasco) to a halt, taking some 300,000 tonnes a year (t/y) of ethylene off the market. The Libyan authorities have said the plant will come on stream again, but no firm date has been set. The impact of the problems in Libya would have been minimal if the opening of a new ethane cracker in India had not been put back from last September to March this year.

Analysts believe the market should correct itself during the course of the year. 'The ethylene market will become a lot softer,' says David Glass, a senior analyst at Chem Systems in London. 'This year new crackers will come on line in India, Singapore, Thailand, the US and Kuwait.' This new capacity is likely to outstrip demand by the end of the year putting a downward pressure on prices.

Aromatic's prices are already reflecting excess market supply. The price of benzene in Asian spot markets fell by 8 per cent in the first quarter of this year. Xylene fell by 7 per cent in the same period. Analysts are bearish about aromatics prices for the rest of the decade. 'A lot more capacity has come on line and prices have taken a beating,' says Glass. 'Prices will remain poor for the next two-three years. There is too much capacity out there.'

Although the long-term prognosis for petrochemicals prices is not particularly bright, Middle East producers will continue to have the competitive advantage of cheap feedstock. They are also focusing their attention on the Asian market, where demand is set to outstrip planned new capacity in the region for the foreseeable future. By 2005, China's annual deficit in polyethylene is expected to rise to 2.4 million tonnes, from 1.5 million tonnes in 1995.

Confidence about the future market for Middle East petrochemicals is reflected in the expansion of the sector throughout the region. Saudi Arabia is leading the way with the expansion of the Yanpet-2 olefins complex by Saudi Basic Industries Corporation (Sabic). Ethylene output will double to 1.6 million t/y, making it one of the largest plants in the world. A 50:50 joint venture aromatics plant between the US' Chevron Chemical Company and the Saudi Industrial Venture Group is also moving ahead with the award of a lump sum turnkey contract to Japan's Chiyoda Corporation. The plant will be Saudi Arabia's first wholly private petrochemicals venture, reflecting the increasing role of the private sector in the kingdom's petrochemicals industry.

In the UAE, the US' Fluor Daniel has been appointed project manager on the Ruwais ethylene complex. Prequalification is under way for the construction of the 600,000-t/y ethane cracker. In Qatar, Qatar General Petroleum Corporation (QGPC) is in the final stages of selecting a foreign partner for a polyethylene complex.

Ambitious Iran

The most ambitious expansion plans are in Iran. The government has approved a 25-year plan involving the construction of 30 new plants at cost of some $12,000 million to enable the country to start exporting petrochemicals. However, questions persist about both financing and, in view of US sanctions, the type of technology available for the proposed plants.

The key development for the region's petrochemicals sector this year will be in Kuwait, when the $2,000 million Equate complex comes on stream. Like similar schemes in the Gulf, the Equate project is a joint venture between a state company and a foreign firm - the US' Union Carbide. The complex has aroused the interest of private finance. A consortium of local, regional and international banks has come together to provide a $1,200 million loan towards the scheme, making it the largest privately- financed project ever undertaken in Kuwait.