Petrochemicals industry expected to get boost over five years as demand picks up.
$50bn Gulf chemicals investment
The Gulf's petrochemicals industry is expected to attract investment of US$50 billion (Dh183.63bn) over the next five years as global demand picks up.
But despite yesterday's upbeat projection from the Gulf Petrochemicals and Chemicals Association, the industry trade body based in Dubai, regional producers remain wary of protectionism from the EU as well as high-growth countries such as India.
With major players including Saudi Aramco and Dow Chemical putting refineries and petrochemicals manufacturing facilities online in the next few years, total petrochemicals investment in the Gulf is expected to continue expanding, said Hamad al Terkait, the president and chief executive of the Kuwaiti petrochemicals maker Equate.
But, since last year, Gulf exporters have been battling India's tariffs against what India claims is "dumping", the practice of flooding the market with products priced below cost. Petrochemicals companies in India and the EU complain that GCC producers benefit from artificially low oil and gas prices thanks to government energy subsidies.
"To deprive Indian customers from dealing with the Middle East is going to hurt India more than it hurts us," said Mohamed al Mady, the vice chairman and chief executive of the world's largest petrochemicals maker, Saudi Basic Industries Corporation (SABIC).
Importing countries should follow the free-trade rules set by the World Trade Organisation, Mr al Mady said.
"In hard times countries forget this," he said, pointing to the financial crisis as a catalyst for protectionist policies in the EU, India and other areas.
Gulf countries have submitted their case to Indian authorities, and the parties involved are now negotiating. "We have met with the Indians, we have showed them our calculations, we have showed them our books," Mr al Mady said. "The business is big enough for everybody to enjoy."
Since the process of appealing a country's tariff often takes six months or more, domestic producers can take advantage of temporary market openings even if the tariffs are ultimately repealed, Mr al Terkait said.
Mr al Mady said the Gulf's petrochemicals industry had enjoyed "good results" in the past three quarters, aided by a relatively stable oil price, and would continue to see modest growth through 2012, especially as China's demand for the plastics used in manufacturing grows.
After that, the demand for petrochemicals would outstrip production capacity and prices would start to climb, he predicted.
To remain competitive in the petrochemicals market, Gulf countries also need to find alternatives to traditional power sources, such as solar and nuclear, to free-up gas resources for petrochemicals production, Mr al Mady said.
"My only concern for the future is the competition between petrochemicals and utilities," he said.
He urged local producers adopt new initiatives to maintain high product prices.
"It's very important to establish a culture of innovation in our region. If they don't they will fall behind," he said. "It will result in these products not commanding a premium in the market."
Mr al Mady, who said he planned to visit Abu Dhabi in the next three months and possibly tour Masdar City, said the Middle East was the right environment for such innovation.
"The Middle East is really friendly to business. Decisions are made quickly," he said. "It does not take years to establish a business here."