Sector News

GPCA: Aramco CEO calls for switch to mixed-feed crackers as gas feedstocks run short

November 24, 2014
The 9th Gulf Petrochemical & Chemical Association (GPCA; Dubai) Forum kicked off today with record attendance, exceeding 2,000 for the first time. The event, whose theme is: “What’s next for the chemical industry,” is taking place amid many challenges facing Mideast producers, including the shale gas revolution in the United State and the explosive growth of China’s coal-to-chemicals industry.
In his opening address, Mohamed Al Mady, chairman of GPCA and CEO of Sabic, noted that abundant feedstock is a source of competitive advantage. “We can see this in the Gulf countries, and more recently in the US where shale gas and oil production has grown so rapidly,” he said. The industry, however, cannot rely solely on natural resources for future growth. “In the current economic environment, we expect success to come to those companies that generate innovative products, services, processes and business models to gain competitive advantage. These companies will stay ahead of change,” Al Mady said.
Mohammed bin Saleh Al Sada, Minister of Energy and Industry of Qatar, in his keynote speech said that there are three “significant” developments that will influence strategic direction of the petrochemical and chemical industry in the coming years: the price of oil, the impact of US shale gas on the industry and its competitiveness in the Mideast; and “the potential impact of China’s coal-based polyethylene, which could boost its plastics industry and could become a relatively low-cost alternative to products from our region, or those produced using North American shale gas.”
Al Sada called for greater investment in R&D. The region’s industry in 2012 spent $380 million on R&D initiatives, a 30% increase on the year before but it is still low. “Our region’s spending is less than 1% of the global industry total while our patents are only 0.4% of the global total. Altogether, 75% of the industry’s R&D spending in the region is geared towards maintaining and advancing existing technologies, while the remaining 25% is invested in ‘new chemistry’, he said.
The industry in the region will continue to grow, Al Sada said. “GPCA estimates that petrochemical producers in the Arabian Gulf will increase their capacity by almost 50%, producing more than 190 million tons by the year 2020.” Feedstocks, economies of scale and large investments have contributed to the creation or this, the second largest manufacturing sector in the region, producing almost $100 billion/year worth of products, Al Sada said. Qatar has major plans to expand the petchem industry, he said. “As Qatar aims to reach the full potential of its downstream portfolio, ambitious plans are currently under implementation to consolidate its position as a major player in the industry. Our long term hydrocarbon development strategy is opening new opportunities for further downstream development, which includes boosting Qatar’s petrochemical output.” The region, he stressed, will continue to be a dominant force in the production of petrochemicals.
Khalid Al Falih, president and CEO of Saudi Aramco, meanwhile, today gave a forceful keynote speech, calling for changes and a different mindset in addressing current challenges that the region is facing. Al Falih outlined his visions at GPCA four years ago and today said companies need to adapt to new realities. “Overall, regional development has focused on the manufacturing of commodities for export by leveraging our feedstock advantage, economies of scale and extensive industrial infrastructure. We have tended to grow horizontally rather than through vertical integration, and while primary petrochemical capacity has grown admirably, the strengthening of functional capabilities has tended to lag. To date, our advantages have carried us through but the existing model will not realize our full potential because the global industry landscape is changing rapidly and creating stronger competition,” Al Falih said.
“On the back of growing volumes of unconventional oil and gas, North American chemicals and plastics production will virtually double over the next decade, with a substantial increase in exports to markets we have assumed were ours for the taking. The European petrochemical industry is closing less efficient plants, integrating assets into cross-regional networks, and altering its product portfolio.”
“Closer to home, we see constrained gas-based feedstocks, while recent crude oil price volatility underscores yet again the value of vertical integration and greater diversification, which provide greater resilience and adaptability.” Al Falih sees four major opportunities to address the current challenges. While supplies of ethane are becoming tighter in the region those of alternative feedstocks such as naphtha and other liquids are plentiful. “I believe that we shouldn’t think of these feedstocks as mutually exclusive choices but rather view them as a mixed pool that can be used to leverage each other.” Liquids are more versatile and offer broader product slate, including opportunities to produce specialty chemicals, which help spawn new industries and new jobs. “Longer term, I foresee the creation of new, ground breaking technologies to enhance the competitive position of liquids, such as the direct conversion of oil to chemicals,” he said. During a question and answer session, Al Mady and Al Falih said that their companies are working on separate projects to convert crude oil to petrochemicals.
The second opportunity that Al Falih discussed is enhancing existing chemical facilities in the region. “Considering the massive scale of the region’s petrochemical asset base built in the 1970s and ‘80s, it would generate enormous additional value if we pursued opportunities to restructure and upgrade these legacy assets, some of which are fully depreciated and offer limited added value to local economic development in the future,” he said. The retrofit would include changes to the feedstock mix, deployment of more efficient technologies and the addition of high value specialty products. “But to succeed in specialties, we will need to leapfrog in knowledge intensity and accelerate our innovation engines.”
Other opportunities outlined by Al Falih are the creation of small to medium sized enterprises in the Gulf region and developing human talent to help with future growth. Youth of today are driven to better themselves. They think laterally and multi-dimensionally, and want to tackle challenges and explore the possibilities for improvement in whatever they do. “It’s a generation that grew up with a baby bottle in one hand and an electronic device in the other! But that different worldview is one reason we view their potential contributions to our company as our most prized future opportunity, and why we take connecting with this new generation and directing their energy so seriously. We at Saudi Aramco enjoy a proud heritage, but we also recognize that our corporate culture must evolve with the times, and we have a number of initiatives to reinvigorate our corporate systems while engaging young talent.”
By Natasha Alperowicz in Dubai

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