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Gulf petrochemical giants not dismayed by industry downturn
Companies confident they will emerge stronger and ride out global economic recession.
- By Shakir Husain, Staff Reporter
- Published: 23:16 December 3, 2008
Dubai: Gulf petrochemical giants said the downturn affecting the industry will not result in project cancellations and capacity expansion will be completed despite some delays.
Billions of dollars are being invested in new petrochemical plants in the region as energy-rich Gulf countries take advantage of feedstock abundance to build a strong industrial base.
However, the global economic downturn has reduced demand for plastics and fears are abound that supply from new plants could create a glut if econ-omic recovery is delayed.
"The petrochemical industry has overcome difficult situations many times in the past considering the cyclical nature of this industry," Abdullah Bin Hamad Al Attiyah, Qatar's deputy premier, energy minister and chairman of Qatar Petroleum, told the Gulf Petrochemical and Chemical Association (GPCA) forum in Dubai.
The industry has worked through past problems successfully and emerged stronger, he said.
Al Attiyah said some projects have been delayed as investors are waiting for construction costs to come down further before starting work on new plants.
In the recent boom brought about by high oil prices, engineering costs had reached record highs as contractors found themselves outstretched.
Comparing the two situations, Al Attiyah said: "Last year all of us had a big smile, today smiling is over, temporarily."
He said while global oil prices had dropped, engineering and equipment costs were also falling and investors would wait before taking up new projects.
"We hear that many projects are being delayed but not cancelled," Al Attiyah said.
The bright side
GPCA chairman Mohammad Al Mady, who is also vice chairman and chief executive of petrochemicals giant Saudi Basic Industries Corporation (Sabic), said expansion opportunities existed in the current climate. His company has long-term plans "that are not subject to economic downturns."
"There are opportunities in the downturn and Sabic will utilise these," Al Mady said.
The product demand decline has forced Sabic to reduce production and some of its plants have been delayed. But the Sabic chief described the delays as part of efforts to manage the downturn.
"The idea is to have order and get out of this cycle in a healthy way," he said.
Asked about the size of output reductions, Al Mady said: "We have not reduced out capacity significantly. Inventory level is reasonable considering the circumstances."
The ongoing projects will substantially increase the GCC's share in global petrochemicals production. Al Attiyah said the total global ethylene capacity is projected to be 160 million tonnes by 2012 and the GCC's share is expected to grow to 15 per cent in 2012. The region share was seven per cent in 2002.
"The region's advantage of available feedstock coupled with the inherent economics of scale associated with large investments, create a compelling story for the GCC to take the lion's share of new global petrochemical capacity growth," Al Attiyah said.
The region's advantage of available feedstock coupled with the inherent economics of scale associated with large investments, create a compelling story for the GCC to take the lion's share of new global petrochemical capacity growth."
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