Middle East: Capacity is growing, but so is the competition

Supplies of cheap natural gas from U.S. shale deposits are growing while gas supplies in the Middle East are becoming constrained. That dynamic will be the shaping force this year for Persian Gulf chemical companies competing in international markets.

The Middle East petrochemical industry “is at a critical juncture and must be well prepared and positioned” to face these challenges, said Prince Abdulaziz bin Salman bin Abdul Aziz, deputy minister for Saudi Arabia’s Ministry of Petroleum & Minerals, in a speech in Dubai late last year. Middle Eastern firms are responding by investing in feedstock supply, boosting R&D, and expanding their presence in specialty chemicals that don’t depend so much on cheap raw materials.

The fertilizer sector, where Gulf producers have invested in some of the world’s biggest plants, could be adversely affected by increased exports from the U.S. in the coming years, according to London-based Business Monitor International, a market analysis firm. The Middle East’s fertilizer capacity is expected to increase by some 50% to 50 million tons per year by 2016, BMI says.

The Gulf’s polyethylene producers are also likely to face increased U.S. competition as ethylene crackers planned for the U.S. start cranking out polyethylene and other derivatives. At the same time, Middle East exports of polyethylene are expected to soar as production in the region ramps up, states BMI in a recent report on Saudi Arabia.

Half of all the new ethylene projects being developed globally are located in the Persian Gulf, BMI says, and through 2017 the Middle East could add almost 6 million tons per year of ethylene capacity.

Saudi Arabia is the region’s largest overall exporter of petrochemicals. It is set to account for 16% of global petrochemical production in the next five years, up from around 10% in 2013, as capacity expands and Asian demand continues to grow, BMI states. Overall, however, “the days of new massive olefins projects may be over,” BMI predicts.