HOUSTON (April 14, 10 a.m. EDT) — Bombs flying over Baghdad will do little to slow down the Middle East's rise to prominence in world petrochemical markets, according to consultants at a pair of recent industry conferences in Houston.
“If you look ahead, it looks like a tidal wave of polyethylene exports coming out of the Middle East,” Chemical Market Associates Inc.'s Howard Rappaport said at the firm's World Petrochemical Conference, March 26-27 in Houston.
This tidal wave of PE is being spurred by the construction of 17 new ethylene crackers — producing about 33 billion pounds of PE feedstock ethylene — between 2003 and 2010. Theoretically, those crackers — which include seven in Saudi Arabia and another seven in Iran — could support production of 16.5 billion pounds of PE.
Pat Duke, a consultant with DeWitt & Co. Inc., has tracked Middle Eastern PE additions totaling almost 18 billion pounds from 2000-07. By 2007, the region's annual PE capacity will be more than 28 billion pounds, including more than 9 billion pounds in Saudi Arabia, Duke said at his firm's World Petrochemical Review, March 26-27 in Houston.
Even a postwar Iraq has the potential for two world-scale ethylene crackers producing more than 3 billion pounds of ethylene per year, CMAI's Andrew Pettman said.
Saudi Basic Industries Corp., the Saudi Arabian national oil company, is opening a major billion-pound PE plant later this year. Rappaport estimated that Sabic will be the world's fourth-largest PE maker by 2007. The firm wasn't even among the world's top 10 PE makers in 1997.
There's also a good possibility that Saudi Arabia will expand its downstream efforts in PE processing, including film production, as a means to create jobs for its citizens, according to CMAI's Pat Rooney. Rappaport said the country's existing plastic processing industry is undersized for its population.
The region's easy access to massive amounts of crude oil and natural gas feedstocks is driving the expansions. Saudi Arabia's annual oil production is equal to the combined production of the world's two largest oil companies — ExxonMobil Corp. and British Petroleum plc.
CMAI's Pettman said this feedstock advantage allows Middle Eastern PE makers to produce PE at a cash cost of only $300 per ton, compared to $500 per ton in North America and $450 per ton, on average, globally.
Pettman added that as Sabic's PE capacity grows, there's a possibility the firm might use the PE assets it acquired from DSM NV in 2001 to produce specialty grades of PE, while focusing its native production on commodity PE grades.
Currently, most Saudi Arabian PE makes its way to Asian markets, primarily in China. Some material also ends up in Europe, Africa and South America.
CMAI's Rappaport said Sabic currently doesn't export much PE to North America, since Saudi PE doesn't offer much of a price advantage over North American PE in today's market. But if that price gap widens, things could change.
“The logistics are there [to import Saudi PE], but the critical mass isn't,” Rappaport said. “It's really just a matter of logistics and freight capabilities.”
CMAI's Rooney also anticipates “staggering growth” in Iran and Qatar as the nations jointly develop the world's largest natural gas deposit located between them in the Persian Gulf. Iran alone will add about 6 billion pounds of PE capacity in 2004-08, according to DeWitt's Duke.
“This new production is targeted for China and the Middle East,” Duke said. “So as it's built, it will isolate U.S. and Western European producers from competing in those markets.”