A flood of new petrochemicals exports from the Gulf is driving western producers to close older plants and centre the industry in the Middle East, according to Mark Garrett, the chief executive of Borealis, an Austrian producer majority-owned by the Abu Dhabi Government. Even as the global market remains depressed, Gulf producers including Abu Dhabi have started building major plastics and chemicals plants that are more efficient and cost effective to operate than rivals in Europe and the US.
Europe, in particular, will see a number of older plants close permanently in the face of stiffer competition, said Mr Garrett. Borealis owns 40 per cent of Borouge, another Abu Dhabi-based producer. "Some of Borouge's volumes will start to flow into Europe, and Europe will go through what anyone could see as a consolidation - there's old plant and equipment in Europe that will over time be closed down," he said.
"I doubt that capacity will be replaced by Europe-based capacity, it will be replaced by capacity coming up here in the Middle East." Borealis closed a plastics plant in Belgium in March, Mr Garrett noted, and was shifting more of its focus to Borouge, a joint-venture with the Abu Dhabi National Oil Company (ADNOC), which owns the remaining 60 per cent share. Borouge will complete a major expansion to triple capacity at its plant in Ruwais by the end of this year. Most of the additional exports will be directed to China through a separate marketing venture called Borouge Pte Ltd, while Borealis will take some of the product to sell in Europe, Mr Garrett said.
Abu Dhabi is a small producer of plastics compared with Saudi Arabia, but the Borouge expansions and a separate development called Chemicals Industrial City will make the emirate a major player in the global industry. The emirate would compete to be the region's leader, said Rashed al Shamsi, the chairman of Borouge and the director of petrochemicals at ADNOC. "Everyone wants to be the leader," said Mr al Shamsi. "This is very important for the economic growth and the diversification of the oil and gas business."
The low cost of production at Borouge will significantly boost Borealis's profits, especially after another expansion is completed in four years, Mr Garrett said. "At a much lower cost, you end up making in 2014 the equivalent volumes of Borealis in Europe, but off a better cost base, so of course it makes a difference," he said. "It's very important we get through this year, then you'll see a growth story for the next number of years with Borouge 2, Borouge 3, the volumes coming."
Borouge uses technology from Borealis and receives low-cost natural gas, the raw material in its products, from ADNOC. For Borouge, the challenge now is in signing customers in China, the main market for the Borouge 2 expansion, said William Yau, the chief executive of Borouge Pte Ltd. The company opened a logistics centre in Shanghai this month with a small compounding plant that works with plastic pellets exported from Abu Dhabi. An adjoining facility, together with two similar plants in Guangzhou and Singapore, have capacity to handle about 1.2 million tonnes of plastics per year.