GGC Petchem Industry Set for Expansion

The GCC petrochemicals industry is set to see significant capacity expansion on cost advantage and strong government intent but project delays, cancellation, ethane shortage and regulatory hurdles are acting as impediments, according to Alpen Capital. Saying that the GCC’s petrochemical’s industry is at an “inflection point”, Alpen Capital said the region has enormous capacity expansion plans, which are set to change the global petrochemicals industry landscape.

“Most of the leading global petrochemical firms are evaluating options of entering or expanding their activities in the Gulf through subsidiaries, joint ventures or other innovative operating models,” said the report. The global petrochemical industry is facing an avalanche of new production capacity, largely owing to cost-advantageous feedstock. Alpen Capital estimates additional ethylene and polyethylene production capacity of about 32 million metric tons and 23 million metric tons respectively over the next 6 years from 139 million metric tons and 90 million metric tons in 2009.

It forecast that global ethylene demand to grow 4.7% over the next 6 years to reach about 153 million metric tons by 2015 and the key emerging markets – China and India – remain the focus. Although the demand situation improved in 2009, “we expect it to pick up further in 2010 onwards,” it added.

The supply demand mismatch is expected to worsen in the short run, but gradually improve as the global economy recovers and more downstream projects come on-stream, according to the report.
Excess capacity may peak at around 29 million metric tons in 2012-’13 and then gradually fell to around 18 million metric tons by 2015, which according to Alpen Capital, is a bad news from marginal cost producers but not necessarily so for Persian Gulf producers with low cost advantage.

GCC countries procure ethane at US$0.75-1.5 mmBTUcompared with a minimum US$3.2/MMbtu in Europe and the US, while the region’s closeness to demand clusters – specifically India and China – offers a significant logistic cost advantage, it said.- Gulf Times