GCC petrochemical producers enjoy a significant feedstock advantage allowing them to manufacture a wide variety of products catering to different industries worldwide.
As a number of new projects come on stream over the next few years, an estimated 40 brand new products will be introduced in the region by 2020. This is in addition to petrochemical capacity tripling between 2004 and 2015. Now the challenge is how to physically move large volumes of these products to end-users across the globe in a seamless and cost-efficient manner.
“GCC players expanding capacity are more carefully planning allocation options and pre-marketing periods but, besides this, there is still a need for the development of local downstream capacities allowing for stable captive consumption to buffer volatility,” said José Antonio Alberich, partner at A.T. Kearney.
Other factors which need to be addressed include cost pressure, change in trade flows and opening of new markets, he added.
Indeed, the industry has been expanding at an exponential rate and related infrastructure will play a pivotal role in supporting this growth. Having realised this, governments around the region have invested heavily in expanding downstream supply chain networks by building new terminals, storage facilities and ports.
New and improved port infrastructure includes Qatar’s $7.4bn New Port Project (NPP) slated to be the world’s largest greenfield port. When completed, it will house a new port, a new base for the Qatar Emiri Naval Forces and the Qatar Economic Zone 3, spanning a 26.5 sq km area.
Yanbu Port in Saudi Arabia, and Jebel Ali and Khalifa Ports in the UAE are two other key downstream developments whose inception was largely centred around current and projected expansion in domestic petrochemical production.
Port expansions are expected to continue into 2016, Qatar’s new mega-port near Mesaieed Industrial Zone set to open this year. But infrastructure alone is not sufficient to significantly raise the competitiveness of regional producers on a global scale. If they are to retain their position as key players in the market, companies will need to focus on reliability of service, streamlining their operations and introducing new supply chain efficiencies, experts say.
“We find that opportunities exist to ‘supercharge’ integrated supply chains by adopting not only best practices but also new digital and technology enablers.
“International service providers operating in the region can bring the hardware and the knowledge that local producers will need, as they expand in volume and develop their portfolios towards derivatives and specialties that require more complex logistics,” Alberich said.
Petrochemical producers should also up their investment in training and education, as well as partner with regional universities and colleges to bridge the current gap between academia and industry, advised Dr. Al-Sadoun, Secretary General of the Gulf Petrochemical and Chemical Association (GPCA). Other industry experts have repeatedly called for improved utilisation of female talent. According to a recent report by the GPCA and global management consulting firm, Accenture, women account for up to a third of supply chain professionals in some GCC chemical and petrochemical firms, but more needs to be done to include qualified females in the workforce.
Beyond these challenges, the Gulf Cooperation Countries are amongst the top 35% performers globally, according to the World Bank’s most recent Logistics Performance Index. GCC petrochemical producers traded 70.3mn tonnes of product in 2015, GPCA research has found.
Products like plastics and fertilizers were transported to customers in 166 countries worldwide, rendering the region’s petrochemical supply chain as one of the longest and most complex in the world. In just over a decade, the GCC’s petrochemical industry has expanded its capacity from 38mn tonnes in 2004, to 142.1mn in 2015. At 9.5% per year, this production growth is second only to China — the largest trading country in the world.
“We can already see the direct impact of product expansion on the supply chain, resulting in the emergence of business-to-business style logistics industry that includes road, shipping and port facilities, with further expansion plans in railways in the near future,” said Dr. Al Sadoun.
Along with emerging infrastructure and human capital shortfalls, port congestion and customs procedures are frequently being cited as key obstacles in the development of a dynamic logistics industry in the region. In the short to long term, slow global economic growth, complicated customs procedures, under-invested infrastructure and stalled free trade negotiations with major economic blocks such as the European Union are likely to further hamper growth.
Nonetheless, government support for the industry remains a bright spot for investors. And while capacity additions have been a priority historically, more attention needs to be paid to integration, digitisation and better use of resources.
