Mohamed Al-Mady, CEO & vice-chairman of Saudi Basic Industries Corporation and chairman of the Gulf Petrochemicals and Chemicals Association, discusses how innovation will drive the industry forward
The GCC petrochemicals industry’s research and innovation spending continues to lag behind the global competition, accounting for just 1% of world spending in the field.
As markets across the world begin to capitalise on lower feedstock prices, efficiency gains and technological advances, this region’s petrochemicals industry will need to do much more if it hopes to stay competitive. That was the general message at the Gulf Petrochemicals and Chemicals Association’s inaugural research and innovation summit in Dubai last mont.
From the moment that Mohamed Al-Mady, CEO and vice chairman of Saudi Basic Industries Corporation, and chairman of the GPCA, took to the stage at the Ritz Carlton in Dubai, it became clear how important the need for innovation had become.
“Driving business through research and innovation reflects the competitive relationship between the need to develop innovation capabilities and success in our increasingly competitive marketplace,” he began.
With the advent of horizontal drilling and the exploitation of shale oil and shale gas reserves in North America, the world has entered a new era where comparative advantages in feedstock prices are being eroded.
Around the world, oil & gas, refining and petrochemical companies are becoming increasingly concerned by how the development of unconventional resources is changing the energy landscape.
“Our business is facing new and unprecedented challenges globally and from all directions,” warned Al-Mady. “Cheap and abundant resources have been our primary competitive advantage. Within five years, what used to be a phenomenon known only to specialists, what is now called drilling technologies, brought an avalanche of unforeseen reserves.”
Indeed, the world’s shale gas reserves are now estimated to be over 3 trillion barrels of crude oil, and 22.8 trillion cubic feet of natural gas. As North American players begin to capitalise on lower feedstock prices, there is widespread concern that international petrochemical companies may see their markets at risk.
Al-Mady pointed out that North American gas prices will continue to drop over the coming decade, which will only lead companies in that region to invest more heavily in the petrochemicals industry.
Article continues on next page …
Naturally, such developments would present some higher risks for the GCC’s own downstream sector.
In 2012, the GCC produced 121 million tonnes of petrochemicals, showing an output growth rate of 11% per annum since 2000.
With forecasts predicting that the GCC will enter into a new growth phase characterised by massive capacity expansions combined with significant product diversification, there is an imminent need to invest in the means that ensure such projects remain competitive, even in the face of the shale revolution.
That is of course, not to say that the GCC has failed to innovate. With a likely gas shortage approaching as early as 2015, the region’s petrochemicals companies have certainly seized the opportunity to innovate, albeit because of challenging circumstances.
As much as 34 million tons of additional petrochemical capacity may come online by 2018, but constraints in the supply of ethane throughout the GCC have encouraged companies to shift to the utilisation of heavier feed-stocks such as propane, butane and naphtha.
By 2020, approximately 35% of the incremental feedstock for petrochemical production will be derived from refining operations.
Within refinery streams, naphtha will account for the largest feedstock demand.
Such a move has come at a higher cost, but has also produced a more balanced base petrochemicals products mix. In turn this has allowed for the production of new sets of secondary and tertiary products.
The successful diversification of the region’s petrochemical product slate has been heralded as one of the major triumphs of innovation in the region.
But other factors, such as coals-to-chemicals technology in China, have also meant that the comparative cost advantages once enjoyed by the Middle East are fading in Eastern markets as well. Here is perhaps another example of how research and innovation can really make a difference.
Article continues on next page …
In 2012, China’s petrochemical industry, at $10.2 billion, was the third largest investor in R&D after the European Union and the United States. That year, China produced $1.5 trillion of petrochemicals, representing 28.8% of global chemicals output.
Innovation will continue to bring cheaper and larger production of chemicals products in China and throughout the rest of East Asia (such as the recent expansion of ExxonMobil’s plant in Singapore), which will only serve to compromise this region’s export markets further.
“While it’s easy to say that innovation is a must, how to make it happen is less obvious,” said Al-Mady. To get there, the GCC’s petrochemical companies will have to entrench a culture of innovation into everything it does.
“Our industry was established using mature and commercially proven technologies which were available for licensing from process contractors and/or chemical companies,” added Dr Moayyed Al-Qurtas, chairman of the GPCA’s Research & Innovation committee who was also speaking at the event.
He explained that as a developing industry, “the first aim was not necessarily to try to develop new processes or products, but to create an in-depth understanding of our licensed technologies and products and ensure their optimal utilisation.”
According to a report by strategy consultancy McKinsey & Co., “the Middle East producers have historically tended to depend on their joint-venture partners for technology and for marketing; indeed joint ventures account for 60% of current capacity.”
Although the region may have some of the most complex infrastructure and production facilities, it may lack the corporate capabilities, such as management and idea utilisation, to stay attractive.
“The chemical industry in the gulf started late in the innovation game, and needs to find ways to get to a competitive advantage faster than entrenched competitors,” added Al-Mady.
But today, the region is pushing to invest more heavily in innovative technologies.
In particular, the region has excelled at developing new product applications based on mature technologies beyond the scope of existing licenses. “Also, production capacities were scaled up in a tremendous way, even exceeding 100% of the original design capacity in some cases,” said Dr. Al-Qurtas.
The Gulf petrochemicals industry has shown signs of leadership in developing its own chemical processes.
In fact, new chemistry-related patents in the GCC have seen a compound average growth rate of 28.1% between 2005 and 2011, from 35 to 155. But there is always more work to be done ahead.
“The industry has proved that entrenched competitive advantages can fade, and there is little mercy from those who do not get new ones,” concluded Al-Mady. “Innovation has therefore become a must, to secure advantage primarily in technology.”
In numbers:
– 28.1% Compound growth rate of chemistry related patents in the GCC.
– 121 mln The GCC produced this many tonnes of petrochemicals in 2012.
– $10.2 bln China’s spending on Research and Innovation in 2012.
– $1.5 tln China produced this much worth of petrochemicals in 2012.
