Middle East emerging as global petrochemicals hub as manufacturing bases shift from the West to East

Ethylene and polyethylene production is on the decline in the Western countries. Disadvantage of feedstock availability has long plagued the Western petrochemical players. This coupled with other factors like poor improvement in productivity, expensive workforces and subscale assets, has been exerting increasing pressure on them. As the gap between price and cost diminishes, petrochemical plants in the US and Europe are becoming less competitive as compared to those in the Middle East. USA's share of global trading in ethylene derivatives has fallen from 30% in the 1990s to under 10%, and it will probably be less than 5% by 2010. A research report has projected a shake-up in the global petrochemical industry. In order to survive and defend their position, companies in the West will have to move eastwards through partnerships, or will be forced to exit or shrink. A paradigm shift will be observed in the petrochemicals business from the West to the East, with the Middle East emerging as a global hub, backed by it's advantages of low-cost feedstock and labour and fast growing demand in Asia. The Middle East's share in the global ethylene market is expected to grow to 148 million metric tons in 2010 (17%) in 2010, from 114 million metric tons (9%) in 2004: Indicating that 40% of all new ethylene capacity will be built in the Middle East. A growth of over 100% in net trade from Middle East to East Asia has been estimated by 2010, with China accounting for a major part of the increase. A projected boom in demand for petrochemicals in the Asia-Pacific region is catching up rapidly with the US and Europe, due to several reasons. On the demand side are: * Increasing demand for polyolefins, expected to grow at around 10% pa. HDPE is estimated to grow by 9%, LLDPE by 12% and PP by 10%. * Access to cheaper gas, with ethane costing US$0.75 to 1 per MMBTU. At these levels, western producers will need crude oil at below US$ 5 per bbl to be competitive for LLDPE in Asia. * A trend of emerging alliances between the Middle East and China, which will combine the benefits of the Middle East's cheap feedstock costs and China's access to Asian markets. On the supply side are: Growth of the petrochemical industry in the Middle East can be attributed to: capacity, portfolio and geography. The Middle East's heavy investments in ethane crackers and polymers will enable it to exploit the huge quantity of gas available. Its ethane supply will be able to meet around 17% of the global ethylene demand, which is expected to be 148 mmt per year by 2010. Companies in the Middle East could also expand by JVs or acquisition of assets of Western companies, such as SABIC-Chevron Phillips Chemicals, Atofina-Qatar, Basell-Saudi Polyolefins, Dow-Oman Oil, and CPC-Qatar Petroleum-Total. (Based on a report by McKinsey & Company)
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