Middle East: A big chunk of ethylene capacity is coming onstream this year

It’s showtime in the Middle East. In 2010, the region’s petrochemical building boom, meant to tap its low-cost ethane feedstock, will peak. More than 5 million metric tons of capacity for ethylene—roughly 4% of the world’s capacity of the chemical building block—will come onstream in Iran, Saudi Arabia, and nearby countries this year.

Those with memories of the industry that stretch back a decade might recall that the flood of new capacity was supposed to come sooner—in about 2007 or so. But petrochemical makers delayed construction because of escalating costs.

Roger Green, vice president for Europe, the Middle East, and Africa at the consulting firm Nexant, explains that the region has experienced a general building frenzy—witness the recent headlines about Dubai, United Arab Emirates—that crimped the supply of labor and materials. The problem has eased, making it easier for plants to be finished.

Traditionally, the Middle East’s low production costs have made its products competitive in regions such as Asia that depend on higher cost naphtha-based feedstocks. But, Green notes, Middle Eastern producers don’t want to be perceived as dumping. If Asian firms start buckling under foreign competition, they might clamor for tariffs. “The biggest threat to the Middle East is parochialism in trade regulations,” he notes.

Green says the next slate of capacity to open in the region, beginning around 2015, will focus more than production currently does on liquid feedstocks such as naphtha and heavy oil and less on ethane. The versatile raw materials will expand the Middle Eastern industry beyond ethylene glycol and polyethylene and into premium products such as synthetic rubber and polycarbonate. “The chemistry will be much more inventive, and the facilities will have much more scope,” he says.

One reason for the shift is that the supply of ethane, once considered an unwanted by-product of oil drilling, is increasingly being claimed as feedstock for existing petrochemical plants.

And Middle Eastern governments are keen on maximizing their resources. At the Gulf Petrochemicals & Chemicals Association forum in Dubai last month, ExxonMobil Chemical President Steve Pryor told local industry guests that they should partner with companies like his to make premium products, such as rubber for fuel-efficient tires, that promote conservation.

Middle Eastern companies have also been gaining expertise in value-added chemistry through overseas acquisitions. Saudi Basic Industries Corp. purchased GE Plastics in 2007. And International Petroleum Investment Co. of Abu Dhabi, U.A.E., purchased Canada’s Nova Chemicals last summer.