Middle East petrochemicals producers have enjoyed decades of market leadership, but now have to adapt to new competition from the US and the Middle East’s own client base in Asia. How can the historic epicentre of fossil fuels sharpen its competitive edge?
For now, the Middle East dominates global polyethylene (PE) exports, controlling around 80 per cent of supply going into Asia and around 60 per cent into Europe. The region is expected to remain the largest global PE supplier in terms of net export trade, with S&P Global Platts Analytics expecting the region’s surplus to hold at around 12 million metric tons (mt) in 2019 and move to 16.9 million mt by 2029 — a staggering 40 per cent climb.
And in the short term, the region’s producers are benefiting from the trade issues between the US and China.
Despite this, Middle East producers need to consider how to counter the rapid growth of the US’ market share, buoyed by the abundant availability of low-cost shale gas. Historically, US export prices have commanded a premium over delivered markets in Asia, but the trend has now reversed.
Just one year ago, FAS Houston prices for low density polyethylene (LDPE) were close to $140 a tonne higher than in Asia, but prices this May were $70 a tonne lower, according to prices assessed by S&P Global Platts. The exponential growth of US liquefied natural gas (LNG) exports serve as a reminder to Middle Eastern petchem producers who may be pausing to catch their breath.
Despite only starting LNG exports in 2016, the US will be the third largest exporter worldwide by 2020, behind Qatar and Australia. Relative acceleration will likely be echoed in the petchems market as we head into the 2020s.
And eastward, the largest ever domestic capacity build is underway in China. With Asia as the Middle East’s biggest client, this could impact the region’s appetite for imports. Middle East producers must adapt.
The good news is that appetite abounds, there’s plenty of market share. Petrochemicals are set to account for more than a third of the growth in world oil demand to 2030 and nearly half the growth to 2050, according to International Energy Agency (IEA) forecasts.
In this positive but competitive mix, how can the Middle East stay ahead? Governments and industry must keep investing in capacity expansions, leveraging the region’s own low-priced feedstocks. Projects such as Dow Chemical and Saudi Aramco’s joint-venture Sadara and the phased expansions of Petro-Rabigh have added PE capacity.
There will also be PE capacity attached to Sabic and Saudi Aramco’s crude to chemicals complex in Yanbu, which is scheduled to come online in 2026. Across the Middle East, there are many examples such as the Liwa Plastics Industries Complex (LPIC) in Oman, which will include an 800,000 mt a year mixed feedstock ethylene cracker. Plus, Saudi Aramco’s Jizan refinery has 420,000 mt a year capacity for benzene and 1,300,000 mt a year of paraxylene.
Greater efficiency will also intensify the Middle East’s tailwind in the global race. The region’s demand is expected to climb by 1.7 per cent annually over the next 10 years, with current plant utilisation levels in the Gulf averaging 82 per cent for PE. Plus, there is scope for domestic supply to be siphoned towards the export market.
This is pertinent as re-emerging sanctions on Iran, a key petchem player, are a thorn in the region’s export plans. The Middle East can retain its market leadership position if it leverages over three decades of experience and revs up its speedometer.
Shelley Kerr is Global Head of Petrochemicals Markets at S&P Global Platts. Hetain Mistry is Lead Analyst — Petrochemicals.