The Gulf petrochemical industry is in danger of facing a downturn in the next two to three years. Most Chinese and Middle East petrochemical projects will get commissioned at the same by 2010, leading to a glut of ethylene and polyethylene products in the global market.
Capacities planned in the Middle East were greatly dependent on demand from China. Currently, as capacity continues to build up in China as well, Chinese import growth is lagging behind Middle East capacity growth. The Middle East region, therefore, will require to exploit new markets at a time when global capacity operating rates are falling. Other markets of Western Europe and the Americas, are geographically remote from the Middle East region and difficult to penetrate.
Currently, of the 159 petrochemical projects in the region worth US$247 bln, almost half are located in Saudi Arabia. Saudi Arabia has US$124 bln investments in petrochem projects, followed by the UAE with US$33bln and Qatar with US$23 bln. Other big players are Egypt with petrochemical projects valued at US$16.6 bln, Libya US$16 bln, Algeria US$14 bln, Oman US$9.6 bln and Kuwait US$6.5 bln.
The Arabian Gulf polyethylene net exports will increase to around 16 mln tons by 2010 and 19 mln tons by 2012. But so will the Chinese capacity. The average production costs for ethylene and polyethylene is about 50% lower in the Middle East than in North and East Asia. This is posing a sharp challenge to China's upcoming petrochemical industry.
China is forecast to have ethylene capacity of up to 18 mln tons and output of 14.5 mln tons in 2010, with a self-sufficiency rate of 58%, as compared with 43% in 2005, and 78% in 1990. China's ethylene supply gap may widen to 9 mln tons in 2010 and 16 mln tons by the end of 2020.
The plants in China also offers advantages as Middle Eastern plants use ethane gas as feedstock, whereas facilities in China tend to use the oil-based feedstock naphtha. Naphtha yields a broader spectrum of products, which is an advantage in China because demand is strong for many petrochemicals.
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