The oil price boom of the past decade sparked a wave of investment in petrochemicals projects. That is now coming to a close.

The Middle East accounted for more than 40 per cent of global ethylene capacity additions between 2008 and 2011, but beyond this period it will contribute little, due to a combination of a lack of ethane feedstock and global oversupply.

The region is expected to add only two new ethane crackers over the next five years, compared with eight crackers added in the past 12 months alone.

The region’s producers are now looking to differentiated and specialty chemicals to provide future growth. These are produced in much smaller quantities than bulk chemicals due to their specialised nature, but the sale prices are much higher.

Consequently, the economics of such chemicals rely on long-term contracts with customers and are at their best when production is located close to end-consumers. The problem for the Gulf states is that their domestic manufacturing industries are underdeveloped and, with the exception of Saudi Arabia, their populations are too small to generate significant local demand for petrochemicals.

There are strong arguments in favour of producers diversifying their product range through liquid feedstocks. Although basic petrochemicals manufacturing creates more jobs than the oil industry, many more employment opportunities are created by moving further down the product chain – and job creation is a key policy objective for governments. But for the move downstream to be successful it needs to be accompanied by the establishment of a local manufacturing industry and this is still a long way off from happening. As much as specialty chemicals are attractive, the lack of a customer base could delay the shift downstream for several years yet.