Petrochemical Fiesta

The meeting that petrochemical industry executives all know and love made a comeback in 2004. The National Petrochemical & Refiners Association’s (NPRA) International Petrochemical Conference, held late last month in San Antonio, Texas, was marked by optimism not seen for years as attendees looked forward to better cyclical conditions and a revived economy lifting the industry from the past three bleak years.

  The meeting that petrochemical industry executives all know and love made a comeback in 2004. The National Petrochemical & Refiners Association’s (NPRA) International Petrochemical Conference, held late last month in San Antonio, Texas, was marked by optimism not seen for years as attendees looked forward to better cyclical conditions and a revived economy lifting the industry from the past three bleak years.

A year ago, the severe acute respiratory syndrome outbreak and the war in Iraq kept foreign attendees away and caused the meeting to be dominated by the intrepid and those driving in from Houston. Out of just over 3,000 people that registered, only 2,550 made it to San Antonio.

This year, without such constraints, attendance boomed by some 18%, reaching 3,100 people and nearly recovering to the 3,300 attendees the meeting saw in 2002.

The gathering wasn’t irrationally exuberant: Attendees and guest speakers still worried about natural gas costs, terrorism, and other serious issues. But by and large, the meeting drew an industry relieved that it has been through the worst it thinks it will see in a long time.

The keynote speaker at the conference is a man at the center of the dramatic change of the global petrochemical industry: Mohamad H. Al-Mady, chief executive officer of Saudi Basic Industries Corp. (SABIC). And the remark that most underscored the Middle East’s rise in petrochemicals was his reminder that in 2003, while many U.S. firms profited little, SABIC made $1.8 billion in net profits on sales of $12.6 billion.

But to Al-Mady, the change in the industry hasn’t been all that dramatic. He says it started 25 years ago when oil and petrochemical companies started forming joint ventures in the Middle East to tap into competitive feedstocks. “Only recently, however, has the essence of this change become readily apparent and widely acknowledged,” he said.

Al-Mady reviewed statistics that showed the extent of the change that has already taken place and what to expect in the years to come. The Persian Gulf region, he said, has already seen cumulative investment of $37 billion in petrochemicals and is expecting another $40 billion by 2010. Middle Eastern ethylene capacity, he said, has grown from 5.4% of world capacity in 1993 to 9% in 2003. Forecasts say the region could reach 15% of world capacity by the end of the decade.

Al-Mady also profiled some of SABIC’s plans for the European petrochemical business it acquired from DSM in 2002. SABIC is planning a new ethylene cracker in Geleen, the Netherlands.

Contrary to what some industry observers have been expecting, SABIC may no longer be pursuing a similar strategy in North America and Asia. Before the NPRA meeting, Al-Mady told C&EN that SABIC has no plans for acquisitions in North America, mostly because of the lack of a feedstock advantage. Instead, he said SABIC is interested in joint ventures, particularly in Mexico, and he alluded to Mexican national oil company Pemex’s Phoenix Project to build a cracker there.

Al-Mady told C&EN that SABIC is also considering building a grassroots cracker joint venture or refurbishing an existing petrochemical complex in China rather than pursuing an acquisition of an established company in the region.

FRAN KEETH, president and CEO of Royal Dutch/Shell’s U.S. chemical arm, Shell Chemicals, began her talk by proclaiming she has grown tired of reading the word “bleak” in reference to the chemical industry. “Anyone who has skimmed the news for articles about the chemicals industry in the past couple of years will have found the word ‘bleak’ used over and over again,” she said. “Maybe we’ve focused a little too much on the difficulties lately and not nearly enough on the opportunities.”

Keeth gave her prognosis for North America and Europe. She said the loss of the natural gas cost advantage will lead the U.S. to focus on domestic demand rather than on exports. “North America remains the largest market for petrochemicals in the world, and with an improving economy, should provide a continuing steady baseload of demand for local production,” she said.

Europe, Keeth said, will be saddled with slower growth. Moreover, she added, the continent is vulnerable to a stall in demand in Asia, which would cause Europe to be oversupplied by cheap Middle Eastern material in need of a new home.

Harlan Chappelle, president of Chappelle Energy Associates, shared some of the results of the National Petroleum Council’s recent natural gas study, which he helped compile. He warned that the low natural gas availability and higher prices would lead to “demand destruction” from manufacturing plants closing. “The chemical industry is arguably the most exposed to that,” he said.

With the NPRA meeting coming less than a week after the Federal Bureau of Investigation issued terror warnings for oil refineries and petrochemical plants in the Houston area, security was a hot topic in San Antonio.

Amy Myers Jaffe, associate director of the Rice Energy Program at Rice University, warned that the chemical and refining industries should not grow complacent about security against terrorist attacks. She pointed out that al Qaeda has called oil the “umbilical cord and lifeline of the crusader community.” She cited an attack on a French oil tanker in 2002 and planned attacks on the Singapore oil and chemical hub on Jurong Island as examples of terrorists’ designs. “The energy industry needs to make sure it isn’t a soft target,” she said.

But despite all the talk about terrorism and the gradual decline of the chemical industry in the developed world relative to emerging markets, the attendees were optimistic that at least they will be facing these challenges with some money in their pockets.