As the Gulf’s petrochemicals producers are learning, there can be too much of a good thing.
The good thing in question is the production of the chemical ethylene, a building block for the basic plastic polyethylene. And there is, unquestionably, too much of it.
According to UK consultancy International Echem, global demand for ethylene-based products fell to around 115 million tonnes a year (t/y) in 2009, against available supplies of 136 million t/y. The global financial crisis of 2008-2009 hit demand for consumer products hard, with producers of the basic plastic polyethylene also feeling the pinch.
Over the next five years, demand for plastics like polyethylene is likely to grow, but not to the degree that it will absorb the current overcapacity in the market let alone the new production units being planned and built worldwide. In the Middle East alone, output is set to double to 32.8 million t/y from 16.8 million t/y currently according to the Dubai-headquartered Gulf Petrochemicals and Chemicals Association.
The region’s petrochemicals companies remain the lowest-cost producers of ethylene in the world, but where regional output was once largely the reserve of the Saudi Arabian giant Saudi Basic Industries Corporation (Sabic), new players like Abu Dhabi Polymers Company (Borouge) and a series of joint ventures in Qatar are entering the market with huge volumes on offer.
These companies are increasingly in competition with one another in the last remaining growth market for their products, Asia. In turn Asia’s biggest consumer, China, is doing its best to become a self-sufficient producer of plastics.
If Iraq, which currently flares almost all of the ethane-rich natural gas it produces, enters the market over the next five years, the fight for market share could intensify even more. And then, it will not be a battle for market share between the Middle East’s low-cost producers and their Western rivals, but between the highest quality and the lowest cost the region has to offer.