It is a measure of the Middle East's competitiveness in petrochemical production that, while much of Europe and the US is shutting down capacity, the Gulf is adding more. The phenomenon - the result of feedstock pricing - has not gone unnoticed among leading engineering contractors, with companies such as Linde, Krupp Uhde and Lurgi increasingly turning to the Middle East to make up for the downturn elsewhere.
'Companies are under pressure to go to the Middle East because of the availability of resources,' says Linde executive board member Aldo Belloni. 'We are in the region because that is where the projects are.'
Despite rising investment in Middle East petrochemicals, competition for new orders remains intense. 'The Middle East is one of the toughest markets around, with companies competing from the US, Japan, increasingly South Korea, Italy and France,' says Joachim Klimpke, director of business development at Krupp Uhde. 'No one invests as much in large-scale projects as the Middle East. For this reason, it is the most important region for us, accounting for more than 50 per cent of our incoming orders.'
For Belloni, the price development comes as no surprise. 'The Middle East has come to realise the attractiveness of the market, which is now translated into price pressures,' he says. 'Companies such as NPC [National Petrochemicals Company of Iran] legitimately use their power to achieve better prices on the plant construction market.'
Increasing competition has forced German firms to adjust their business strategies. With high overheads at home, firms have looked to source engineering services from overseas offices. In Krupp Uhde's case, much of its plant engineering work is performed out of its Indian office, while materials are procured globally.
'We cannot afford to provide all the services from Germany,' says Klimpke. 'We have centres for detailed engineering in other countries, using the same tools and abilities which we have here in Germany. Clients accept this because what matters is that it comes from Krupp Uhde.'
Companies adopt different criteria for bidding on engineering, procurement and construction (EPC) contracts. Says Belloni: 'We are a contractor and a provider of technology. Our strategy is to be active only where we can utilise our own technology. This strategy has helped us, as we get involved in discussions with the client at a very early stage. Our goal is to win lump-sum turnkey contracts.'
Krupp Uhde is also an active EPC bidder but, unlike Linde, frequently uses third party technology. Says Klimpke: 'First and foremost we are a contractor with our own technologies. But we also engage in pure EPC if the client provides the FEED [front-end engineering design].'
The latter approach was highlighted in September when Krupp Uhde signed the $420 million EPC contract with Qatar Fertiliser Company (Qafco) for its Qafco IV expansion project. The contract centres on the construction of a 3,500-tonne-a-day (t/d) urea unit and a 2,000-t/d ammonia plant. While Krupp Uhde is providing its proprietary ammonia process, it is using Stamicarbon technology for the urea unit.
The Qafco-IV order has reconfirmed Krupp Uhde's close relationship with the Qatari petrochemical industry. It was the contractor for the Qafco III project, completed in 1997, and the Qatar Vinyl Company (QVC) plant, commissioned earlier this year. 'Qatar has probably been the most successful country in attracting investors in the region,' says Klimpke. 'The government pursues an open policy allowing for joint ventures. It also has massive gas reserves and little bureaucracy which allows for speedy implementation.'
Fertiliser projects are Krupp Uhde's bread and butter. And with a host of new expansions planned in the region, the business outlook is promising. In Egypt, it is gearing up to bid for the Abu Qir IV project, having been the main contractor for the second and third phase expansions of the fertiliser complex. In Iran, it is bidding for a new ammonia line at Razi Petrochemical Company's plant in Bandar Imam and for new ammonia and urea trains at Kermanshah.
The global fertiliser market is changing, however, with plants becoming technologically more demanding. 'We see a trend towards plants with capacities of up to 3,000 t/d of ammonia. In the past this would have required construction of three plants; today it means setting up one massive plant,' says Klimpke.
Krupp Uhde is looking to take the experience drawn from its regional fertiliser references into other fields, too. In Iran, the company is building two polyethylene plants, each with a capacity of 300,000 tonnes a year (t/y), for NPC's Marun and Yam petrochemical complexes. It is also seeking to be prequalified for the EPC package on the region's first gas-to-liquids (GTL) scheme, at Ras Laffan in Qatar.
Ethylene-based technology is one of three business strands for Linde in the Middle East - the others being the construction of oxygen and natural gas separation plants. In addition, Linde is one of the world's major hydrogen works contractors.
The company has repeatedly landed major contracts in the downstream oil and gas industry. It has recently completed construction of the UAE's first ethane cracker, a 600,000 t/y plant on the Abu Dhabi Polymers Company (Borouge) complex at Ruwais. It is building one of the world's largest ethylene plants, a 1.1 million t/y unit at Bandar Imam. Nearby at Bandar Assaluyeh, it is constructing a gas separation plant under a $164 million contract awarded in September 2000.
Linde's relationship with the Middle East entered a new era in late October, when it announced that it had jointly developed with Saudi Basic Industries Corporation (Sabic) a new linear alpha olefin (LAO) technology. Known as alpha Sablin, the technology will be commercially used for the first time on a 150,000-t/y unit planned on the Jubail United Petrochemical Company (JUPC) complex in eastern Saudi Arabia.
'This was a great success and we will engage in similar projects in the future,' says Belloni. 'The product is in line with our strategy. It is an extension of our product range and will strengthen the relationship with our clients.'
The Middle East has also turned out to be fertile ground for Lurgi. In May, Iran's Zagros Petrochemicals Company, a subsidiary of NPC, selected the company to build the world's largest methanol plant in Bandar Assaluyeh. Under the $123 million contract, Lurgi will install its own Lurgi MegaMethanol process in the 5,000 t/d facility.
For all three companies, the Middle East is a market of considerable importance. For Krupp Uhde, it is its largest. It is not far behind at Linde, accounting for about a third of its order intakes. And provided companies can maintain their competitive and technological edge, the region is set to grow in significance in years to come. 'German industry will continue to play a role throughout the region but it will need to adjust to world market prices,' says Klimpke. 'We cannot afford to offer rates significantly above those of our competitors, despite our good reputation.'