Business | Oil & Gas
Petrochemical woes in the pipeline
The European petrochemicals industry is coming under increasing strain from two distinct quarters.
- Financial Times
- Published: 23:37 June 18, 2007
The European petrochemicals industry is coming under increasing strain from two distinct quarters. First, rich oil-producing Middle East countries and China are investing heavily to capture a bigger share of the world market for these basic chemical products.
Second, European regulations, however well-intentioned, are placing a further heavy burden on the continent's big petrochemicals groups. This is making it even harder for them to compete with the new capacity, which will soon be flowing out of the developing world.
Worse, according to the French petrochemical industry association, the Middle East is targeting lower-cost products at Asian markets, especially China where most of the current demand lies.
Already the Mideast accounts for more than 10 per cent of world ethylene capacity - the key building block for plastics, chemical fibre and synthetic rubber.
The French industry body expects the Middle East to overtake Europe by 2015 when it will account for about 20 per cent of world ethylene capacity, against 17 per cent for Europe. Saudi Arabia alone is investing $80 billion in this sector over the next five years and its flagship company, Aramco, is about to build a giant new petrochemical complex in partnership with Dow Chemical of the US.
China remains the big export market with petrochemical demand expected to keep rising by around nine per cent a year between now and 2012 compared with a meagre 1.8 per for the US and Europe. However, the Chinese are also continuing to multiply their petrochemical investments.
As the Chinese raise their domestic capacity, Middle East producers are likely to turn to Europe to dispose of future surplus capacity. Russia too is expected to start investing heavily in petrochemicals in the next few years. But pressures are likely to be particularly acute for European manufacturers, who are now coming under far more stringent regulatory constraints than their competitors in emerging markets and oil-producing countries.
For example, they are having to deal with the European Union's so-called Reach directive on chemicals, the Kyoto protocol, and moves by individual countries to step up their environmental campaigns.
The debate over the economic damages or benefits of the Reach directive has been rumbling for years.
The current predicament of the European petrochemicals industry simply highlights once again the dilemma facing EU regulators and policy makers. How do you reconcile the pursuit of free and fair competition with regulations that inhibit the ability of European companies to compete in world markets?
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