The recent developments surrounding the discoveries and development of shale gas resources in the US, combined with a plummeting natural gas price on international markets has spurred a debate in the Middle East about whether regional companies will be able to maintain their feedstock cost advantage or not.
Some industry players have also raised questions about whether any governmental intervention would be feasible. But the issue here is that any intervention from local governments would violate the World Trade Organisation (WTO) rules, which bans subsidizing the cost of feedstock that is traded on open markets, principally liquid feedstocks like naphtha and LPG, compared to ethane gas which doesn’t have a specific market.
Faced with this situation, future projects in the region are likely to slow down as their competitiveness is further questioned – mainly because the majority of projects in the region target Asian clients, where the logistics cost is high. One solution would be building new plants closer to the customers in Asia, as SABIC has done.
Alternatively projects built on home ground would probably have to migrate even further down the downstream value chain.
I think that this issue will most affect companies in Qatar and the UAE, as their investments in the petrochemical sector is mainly driven by commercial needs.
This compares to Saudi Arabia, which invests in the petrochemical industry for strategic needs as it aims to create jobs for citizens, and diversify its economy through moving further down the downstream chain. This may in fact be one of the reason that the Sadara Chemical project is progressing well, whereas ChemaWEyaat in Abu Dhabi seems to
have slipped from priority into obscurity.
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Could America’s shale derail the downstream dreams
The developments surrounding the development of shale gas resources
The recent developments surrounding the discoveries and development of shale gas resources in the US, combined with a plummeting natural gas price on international markets has spurred a debate in the Middle East about whether regional companies will be able to maintain their feedstock cost advantage or not.
Some industry players have also raised questions about whether any governmental intervention would be feasible. But the issue here is that any intervention from local governments would violate the World Trade Organisation (WTO) rules, which bans subsidizing the cost of feedstock that is traded on open markets, principally liquid feedstocks like naphtha and LPG, compared to ethane gas which doesn’t have a specific market.
Faced with this situation, future projects in the region are likely to slow down as their competitiveness is further questioned – mainly because the majority of projects in the region target Asian clients, where the logistics cost is high. One solution would be building new plants closer to the customers in Asia, as SABIC has done.
Alternatively projects built on home ground would probably have to migrate even further down the downstream value chain.
I think that this issue will most affect companies in Qatar and the UAE, as their investments in the petrochemical sector is mainly driven by commercial needs.
This compares to Saudi Arabia, which invests in the petrochemical industry for strategic needs as it aims to create jobs for citizens, and diversify its economy through moving further down the downstream chain. This may in fact be one of the reason that the Sadara Chemical project is progressing well, whereas ChemaWEyaat in Abu Dhabi seems to
have slipped from priority into obscurity.
Abdelghani Henni, editor
e-mail: abdelghani.henni@itp.com
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and... More by Staff Writer
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