Petrochemical feedstock supply in the Middle East affected by natural gas scarcity

18-Apr-12

Petrochemical feedstock supply In the Middle East has been affected by natural gas scarcity, as per GlobalData's new report. Securing natural gas feedstock in the Middle East has become increasingly difficult in the last few years, threatening the region's dominance as the most economical petrochemicals producer. Middle East is now facing a natural gas scarcity due to increasing demand and inefficient utilization of subsidized natural gas by the energy intensive industries, which has led to the restriction of supplies and posed a subsequent threat to the global petrochemical market. Huge natural gas resources and cheaper feedstock availability turned the Middle East into the hub of the global petrochemical industry over the last decade by making the region the most competitive in the world. Middle Eastern petrochemical producers use natural gas as a key feedstock due to the availability of subsidies. This means that natural gas in Middle Eastern countries can be as much as 60-70% cheaper than natural gas found in Europe and North America. However, the subsidies on natural gas production offered by countries such as Saudi Arabia, Iran and Qatar has led to the inefficient utilization of the available resources, leading to a decline in the supply of ethane feedstock. Feedstock costs determine the success of petrochemical producers, as they represent the majority of production costs. As natural gas is the primary feedstock used in the Middle East, its scarcity will affect the petrochemical producers significantly. In addition, the Organization of Petroleum Exporting Countries (OPEC) quota limits crude oil production, thereby also limiting associated natural gas production. Despite all Gulf countries producing more than their allotted quota, production is insufficient to meet burgeoning demand from the power, transportation and petrochemical sectors. Saudi Aramco, the sole supplier of ethane in Saudi Arabia, stopped allocating ethane to new petrochemical projects in 2006, and pre-existing supply agreements have not received their allocated limits since 2009. Lack of development of Iranian non-associated gas reserves has also led to the scarcity in ethane supplies, and Qatar have imposed a moratorium upon further development of gas reserves, in order to assess sustainable rates of gas production, halting allocation of the country's gas for industrial projects until 2014.