The Gulf, with its huge petroleum reserves, is the hub of the global petrochemical industry, with exports from the region last year exceeding $10 billion. The GPCA, headquartered in Dubai, has a 141 members, up from its original roster of eight, and they include all major players in the regional petrochemical industry.

Dr. Abdulwahab Al Sadoun has worked as the GPCA’s Secretary-General since March. He worked previously in various senior positions in the energy and industrial sectors in Saudi Arabia and Qatar. He holds a PhD in Industrial Chemistry  from King’s College University of London and is also a graduate of the General Management Program of Harvard Business School.

Dr. Al Sadoun, a Saudi citizen, recently shared his views about the prospects and performance of the region’s petrochemical industry in an email interview with Khaleej Times. Here are excerpts from the interview. 

How would you evaluate the performance of the petrochemical industry in the just-concluded second quarter?

A)  First-quarter 2009 results were better than expected, with steadily increasing demand for commodity petrochemicals in the Asian markets... There are reasons to believe that the second quarter 2009 performance will be better, given the steady increase in demand from the Asian markets, particularly in China.

What has been the impact of the global downturn on the petrochemicals industry? Has there been any cancellation or delay of projects? Are there any signs of recovery? 

A)  The impact of economic downturn is clearly shown in the decline in the profits earned by leading petrochemical players in the region, especially the publicly listed companies in Saudi Arabia such as SABIC, Tasnee and Sipchem.  However, what is most important is that the regional players are still making reasonable profits at a time when their international peers are reporting significant losses and closing production facilities. 

For instance, German giant BASF has closed over 80 production facilities in Europe since the third quarter of 2008. Contrary to that, the Gulf region has maintained its consistent drive to expand its petrochemical production base, with projects under construction moving ahead as per schedule. This is demonstrated by several projects commissioned during this year, including Saudi Aramco’s PetroRabigh Complex and SABIC’s Yansab Complex on the west coast of Saudi Arabia, as well as Borouge II in Abu Dhabi, scheduled for completion in 2010.  In fact, the downturn has had a positive impact on the industry in the region as the EPC (Engineering-Procurement-Construction) cost has decreased significantly over the past year or so, resulting in significant savings on project cost.  In fact, at least one project that was shelved because of high EPC costs has now been revived — the Jubail Refinery in Saudi Arabia, which is a joint venture between Saudi Aramco and Total (of France). The saving in the construction cost for this project is in the range of $2.5 billion.

New projects that are under consideration now include  Borouge III in Abu Dhabi, Equate Aromatics in Kuwait, (and) PetroRabigh II and Ras Tanura Complex in Saudi Arabia, to name few. These projects, as well as the ones that had been recently commissioned, will further enhance the position of the Gulf region as the centre of gravity of the global petrochemical industry.   

Could the industry be adversely affected by the intensifying pursuit of sources of renewable energy?

A)  Very thin. Renewable energy is primarily geared towards supplementing fuels used by the residential and transport sectors. There are attempts to manufacture bio-based petrochemicals from ethanol — for example, from sugarcane in Brazil — but (these are) still not cost-effective compared to the oil-based petrochemicals. The renewable energy may indeed have a positive impact on the petrochemical industry in the Gulf region in the sense that it will provide another source for generating power and desalinating water, thus minimising the competition for the natural gas allocation.  These three sectors compete fiercely in the region to secure gas as the main source 
of energy.       

Do you seen any signs that the industry has been moving away from the Middle East in recent years?

A)  On the contrary, the industry’s competitive advantage is primarily based on its access to favorably priced feedstock in the region, which is supplied on a long-term basis.  If you find GCC players setting up overseas production and marketing networks, that is because strategically, they want to be close to their major customers (particularly in the burgeoning Asian markets) to preserve and expand their market share.

How have initiatives such as conversion of gas to liquid (GTL) and the use of gas for power generation affected the petrochemical industry in the Gulf?

A)  GTL is a small outlet for converting the gas into liquids, and thus its impact on the petrochemical industry in the Gulf is negligible.

On the other hand, there is a rising demand for natural gas in the utilities sector — power generation and water desalination — throughout the Gulf region, and indeed the utilities and petrochemical sectors are competing for limited gas supplies. But I would like emphasise here that the gas sought by the utilities sector is methane, which is the major component of the natural gas, whereas the other component of the gas which is the petrochemical industry’s favourite feedstock is ethane which normally represent 6-18 per cent of the natural gas composition….  Thus, there is no competition for ethane. …

Has the industry been working on a new paradigm to make it cleaner and more resilient amid rising environmental concerns around the world?

A)  The Gulf petrochemical industry has already built a great reputation for being ‘clean and resilient.’ 

The petrochemical industry in the region is relatively modern, as most of the plants were brought on stream over the past 25 years or so.  They were sensible enough to incorporate world-class industry standards and practices at the time of conception.

That commitment to adopt international best practices related to safety and environmental protection within and outside the production facilities will continue... 

GPCA is working closely with the industry to take that commitment to a higher level in a coordinated way, and you will hear more initiatives such as Responsible Care and Global Product Stewardship codes in the coming months. ...The adoption of such initiatives in the Gulf by GPCA member companies signals their readiness to engage more actively with stakeholders in a honest manner.

·         ramavarman@khaleejtimes.ae