The statistics illustrating the windfall are staggering. Saudi Arabia's ethylene margins in August stood at around $980 a tonne, representing a pre-tax return on capital of 60 per cent, according to a September report by UK-based Jacobs Consultancy. Margins on mono-ethylene glycol (MEG) were $1,278 a tonne. And the trend continues. With oil prices at record levels, the region's comparative feedstock advantage is being felt as never before. While regional producers continue to enjoy access to low-cost, fixed-price ethane feedstock, their counterparts in Asia, Europe and the US have watched in horror as spot naphtha has tracked rampant crude prices, slashing producers' margins. US plants based on natural gas have similarly seen profits eroded over a period of several years as prices have travelled relentlessly north. For all producers the current margins in the propylene/polypropylene (PP) chain remain poor, with only integrated PP and propane dehydrogenation (PDH) ventures - found chiefly in Saudi Arabia - garnering sustainable returns.

'At current prices for ethylene derivatives, everyone makes a profit, but North American producers struggle to export as they can never sell as cheaply as their Middle Eastern competitors,' says Roger Newenham, group manager at Jacobs. 'So what we're going to see by the end of the decade is a big shift in global production towards the Gulf.' Jacobs estimates that if all the planned projects come to fruition, by 2010 the GCC and Iran will account for 20 per cent of global ethylene capacity, 17.5 per cent of polyethylene (PE) capacity and 13 per cent of PP capacity, meeting more than half world demand growth up to 2011.

Two worlds

Outside the Middle East, the mood is one of retrenchment. Integrated global oil companies are increasingly looking to divest all or part of their petrochemicals businesses. 'There is a diverging trend in the developed and developing world,' says Andrew Spiers, vice-president at UK-based consultant Nexant. 'The higher-cost producers in the developed world are undergoing restructuring and consolidation, while in the developing world producers are multiplying - as we see with the new private sector petrochemicals businesses being launched in Saudi Arabia.'

The levels of investment and the amount of new production planned in the Middle East are impressive and daunting - a combination of the current attractiveness of the industry and plentiful liquidity in the region looking for a home. By the end of the decade, up to $35,000 million is expected to be channelled into a proliferation of new projects. Regional giant Saudi Basic Industries Corporation (Sabic) is planning to invest $6,000 million over the next five years in raising capacity by at least 13.5 million tonnes a year (t/y). Iran's National Petrochemical Company foresees increasing output to 77 million t/y by 2015, with investment of $11,000 million by 2010. Abu Dhabi National Oil Company (ADNOC), Kuwait's Petrochemical Industries Company (PIC) and Qatar Petroleum (QP) are all planning major expansions with the help of foreign partners, as is Oman, which signed up in July for an olefins complex at Sohar. Even Bahrain is reviving its petrochemicals ambitions, with the launch in September of a $1,300 million integrated complex by Kuwait Finance House.

'If you can find the right project, the climate for investment in petrochemicals is very favourable,' say