The aim is to establish a body involving companies from the Gulf and beyond where information and knowledge can be exchanged. The context is a forecast 100 per cent increase in Gulf ethylene capacity to about 30 million tonnes in 2010 from about 15 million tonnes this year. According to industry consultant Nexant, Middle East countries will soon dominate the world market for commodity petrochemicals, with total net exports of more than 40 million tonnes in 2012. In less than a decade, the GPCA could become the world's most influential petrochemicals industry body.

The key factor driving this trend is the unbeatable cost advantage Gulf producers with access to ethane have over those outside the region. In the US, you have to pay about $400 a tonne for ethane. In Europe, it costs more than $300 a tonne. The average for the Middle East is under $100 a tonne. In Saudi Arabia, petrochemical companies get ethane for less than $50 a tonne.

The Gulf's other advantage is proximity to high-growth Asian markets. They will require more than 20 million tonnes of polyethylene by 2015. Most will come from the Middle East.

It might appear that Gulf petrochemicals cannot go wrong. But serious challenges are emerging that the GPCA will have to address. The first is the new Gulf capacity that will come on stream by the end of this decade. As many as 15 olefin crackers are scheduled to open in the region in 2008-11. Even the most positive projection of market trends suggests this will lead to significant oversupply that could lead to a price slump.

Feedstock availability cannot be taken for granted. The Gulf has abundant natural gas, but limited amounts of high-value ethane. Saudi Arabia is carefully rationing future allocations and is indicating prices will be significantly higher after 2012. As Equate president Hamad al-Terkait told the Gulf Petrochemicals conference, the era of cheap feedstock is over.

Higher feedstock costs are being compounded by the huge increase in the cost of building petrochemical plants. According to Contax chief executive officer Tony Bury, engineering, procurement and construction (EPC) prices have doubled in the Gulf since the start of 2003. And as massive new volumes of solid and liquid chemicals are exported from the region, shipping costs will inevitably rise.

It is becoming increasingly obvious that Gulf petrochemical plants completed at the wrong time are likely to cost much more than budgeted and earn less than expected. That is why some are advancing more slowly than originally envisaged. Postponements and even cancellations are possible.

This prospect is encouraging new thinking. Altering the specifications of projects to produce more products that command premium prices is a sensible option. Alliances with international companies with access to the final consumer look increasingly attractive. Building flexibility into designs will help control capital costs. There will be more revamps of existing petrochemicals units.

But the big idea is integrating petrochemicals with refining. The Oman Polypropylene plant, which is to be supplied with feedstock from the Sohar Refinery, opens later this summer. Work has started on the Petro-Rabigh integrated refining and petrochemicals complex and initial designs are being prepared for a similar scheme involving the Ras Tanura refinery.

With at least half a dozen Middle East refineries being planned, it is likely that more integrated projects will be unveiled soon. Some forecast power stations that burn low-value heavy refinery residuals will be added to create new energy complexes larger than anything previously attempted.

Combined petrochemical, pow