The petrochemicals sector is big business, and it is getting bigger. The industry makes up the second largest manufacturing sector in the Gulf region, producing over $108 billion (USD) worth of products annually. According to the International Energy Agency (IEA), ‘Petrochemicals are rapidly becoming the largest driver of global oil consumption’ and ‘are set to account for more than a third of the growth in oil demand to 2030, and nearly half to 2050.’[i] While we can expect to see further efforts to promote recycling and efforts to curb single-use plastics, particularly in Europe, Japan and Korea, these initiatives are likely to be outweighed by rapid growth in developing economies. In must be borne in mind that advanced economies, such as the United States and the European Union (EU), currently use up to 20 times as much plastic on a per capita basis as developing economies, such as India and Indonesia. This underlines the enormous potential for growth in the global petrochemicals sector.

 

The Gulf Is a Crucible for Petrochemicals Production

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The surge in demand for petrochemicals has led to the construction of major manufacturing complexes costing billions of dollars in the Middle East. Saudi Arabia is the largest producer of petrochemicals in the region, followed by Qatar, the United Arab Emirates (UAE), Oman and Kuwait. In Oman, refineries and petrochemical plants are major wealth creators in the rapidly expanding port of Duqm. Most of the petrochemical companies in the region are either wholly or partly owned by their respective governments — including the Saudi Basic Industries Corporation (SABIC), Kuwait's Petrochemicals Industries Company, the Qatar Petrochemical Company and the Abu Dhabi National Oil Company (ADNOC) in the UAE.

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Prospects are encouraging for the petrochemicals industry. Analysts reckon the industry will boost the Gulf Cooperation Council (GCC) economies by generating additional export revenue, spurring economic growth and creating employment. More than 50% of workers in the sector are GCC nationals, with Bahrain topping the league table at 81%. In contrast, the UAE and Qatar are down at the bottom of this regional ranking with an average of 41% and 17% respectively, reflecting their reliance on migrant labour.[ii] But with the industry forecast to grow rapidly in future years, employment opportunities will expand for GCC nationals, so long as they acquire the appropriate skills.

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Gulf investors are pumping money into massive new plants across the globe, notably Saudi Aramco’s latest move to invest in a 300,00 barrels a day refinery and petrochemicals project in China.[iii] In April 2018, Saudi Aramco signed a deal to invest in a $44 billion mega refinery and petrochemicals complex being built in partnership with three Indian companies in Maharashtra.

 

So What Are Petrochemicals?

 

Petrochemicals are the lucrative by-products derived from crude oil after several distinct refining processes. Crude oil is the basic component used to produce all petrochemicals ranging from plastics, soaps and detergents, solvents and drugs. Other important final products — much in demand — include fertilisers, pesticides, explosives, synthetic fibres along with rubbers, paints, flooring and insulating materials. Industry professionals split petrochemicals into three key categories based on their chemical structure: olefins, aromatics, and synthesis gas. Basic petrochemicals such as ethylene, propylene and aromatics are the building blocks of the chemistry industry. They are predominantly produced through a process employing naphtha, which is derived from crude oil, and ethane which is a derivative of natural gas. Aromatics such as benzene, toluene, and xylenes, have a wide variety of uses. Benzene, for example, is a raw material for dyes and synthetic detergents, while xylenes are used in making plastics and synthetic fibres.

 

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As the chart shows Polypropylene (PP), found in such things as car interiors and carpets, is a plastic in strong demand and one which is predicted to enjoy spectacular growth over the next five years. Polyethylene (PE) is probably the most common petrochemical product, used in everything from shopping bags to bottles, tubes and laminates.

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Why Are Petrochemicals So Important in the Gulf?

 

The petrochemicals industry is one of the oldest industries in the GCC, and contributes significantly towards regional industrial and manufacturing growth. In the past, GCC producers used ethane as the main feedstock, since it was cheaper than the naphtha predominantly used elsewhere. Falling oil prices from 2014 led to petrochemical producers in Europe and US becoming more competitive. This was because naphtha was available at a lower cost. However, the surge in the oil price over the last two years has meant that GCC players are now more competitive in terms of pricing. What is more, petrochemicals companies across the Gulf are shifting their focus towards producing high-value products in order to meet changing market demands.

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The world’s largest integrated petrochemical complex is being developed in Saudi Arabia by the Sadara Chemical Company. It is a $20 billion joint venture between SABIC and the US's Dow Chemical, which aims to offer high-value products such as isocyanates and polyols for the first time in the Saudi market. Within the region, many GCC petrochemical companies are co-investing with leading foreign players in a move to acquire innovative technologies and produce higher-value specialty chemicals. 

 

Mounting Environmental Concerns

 

Environmentalist campaigners worry about the disposal of plastics. Over the last decade media attention has been drawn to the problems associated with plastic debris in the world’s oceans, suffocating turtles and causing havoc to seabirds and large marine mammals such as dolphins and whales.

 

Globally, we are now seeing efforts to regulate and combat the issue of plastic pollution. Young people across the world, brought up on David Attenborough wildlife programmes, are well aware of the dangers associated with plastic pollution. Clearly, this international regulatory backlash, along with accompanying moves by major consumer brands to boost the recycled content in their packaging, or switch into alternative materials like cardboard or glass, is forecast to curb demand for virgin plastic resins.

 

The petrochemical industry is well aware of these environmental concerns and steps are being taken to recycle plastic and develop sensible methods of disposal. Increasingly, we are likely to see a surge in biodegradable or “eco-friendly” plastic products. In 2021, this market was estimated to amount to $4.1 billion, and it is expected to grow by 9.7% year on year through to 2027.[i] Among OECD (Organisation for Economic Co-operation and Development) countries this trend is likely to be accelerated by further legislation and government intervention that restricts the production and use of virgin plastics.

 

Looking ahead, the challenge for the sector will be to formulate a strategy which builds on the increased demand for petrochemical products, yet does so in an environmentally responsible fashion. Saudi Arabia is at the forefront of such initiatives. In recent years, several successful government initiatives have addressed the consumer use of plastics, from recycling to awareness campaigns. This is an important step since Saudi consumes more than one million tons of plastic bags every year. It is also encouraging to note that Saudi Arabia aims to invest almost 24 billion Saudi riyals ($6.4 billion) in the recycling of waste by 2035.[ii] This again reflects the Kingdom’s commitment to switch to a more sustainable economy, based on a circular economy model, which opens up exciting opportunities in terms of products, energy creation and services. Together, these promise to make a significant contribution to the diversification of the Saudi economy, in line with the aims of the Kingdom’s Vision 2030 reforms strategy.

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26 July 2022

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References

 

[i] IEA, ‘The Future of Petrochemicals,’ IEA, Paris, 2018, https://www.iea.org/reports/the-future-of-petrochemicals.

[ii] The Gulf Petrochemicals & Chemicals Association, ‘The GCC Petrochemical and Chemical Industry Facts and Figures 2021,’ GPCA, 6 December 2021, p.20, https://www.gpca.org.ae/wp-content/uploads/2021/12/GPCA-Facts-and-Figures_2021.pdf.

[iii] OffshoreTechnology, ‘Saudi Aramco JV to build refinery and petrochemical complex in China,’ 11 March 2022, https://www.offshore-technology.com/news/aramco-jv-refinery-china/.

[iv] Grand View Research, ‘Biodegradable Plastic Market Size, Share & Trends Analysis Report By Product (Starch Based, PLA, PHA, PBAT, PBS), By Application (Packaging, Consumer Goods, Agriculture), And Segment Forecasts, 2022 - 2030,’ May 2022, https://www.grandviewresearch.com/industry-analysis/biodegradable-plastics-market.

[v] Rawan Radwan, ‘How a culture of recycling can reduce waste generation in Saudi Arabia,’ Arab News, 28 January 2022, https://www.arabnews.com/node/2013556/saudi-arabia.