Oil markets have been marked with stress over the last year with record low prices, pandemic-spurred demand woes, and talk of peak oil this decade putting energy players’ nerves on edge. But there is a growth spot capturing more and more attention: petrochemicals.
For one, the healthcare needs to counter the impact of Covid-19 have been an unfortunate but very real propellant of the market over the last year. The global medical plastics market is projected to reach $44bn by 2027, marking a compound annual growth rate of 7.7% between 2020-2027, according to ResearchandMarkets. This is one of the reasons that feedstock is expected to lead oil demand to pre-crisis levels, according to the International Energy Agency (IEA). This is particularly telling considering that 2020 marked the greatest decline in demand for oil – ever. This year, the agency expects liquified petroleum gas (LPG), ethane and naphtha demand to climb by 800,000 b/d – approximately 4%.
A sure thing
But this does not mean that growth will tail off once the pandemic is brought under control. Instead, petrochemicals has cemented its position as the largest driver of future oil demand growth up to 2030, several leading energy forecasters agree. Saudi Arabia’s Apicorp has raised its estimate for planned petrochemical projects in the Middle East and North Africa alone by $4bn between 2020-2024, to $95bn.
This all fits in with many Middle Eastern companies’ downstream push, including national oil companies (NOCs). Momentum is fast-growing in the UAE alone. For one, ADNOC wants to nearly triple its petrochemicals production in nine years – from 4.5mn tons per year to 11.4mn tons per year in 2016-2025. And in March this year, the major NOC updated the status of its ambitious downstream investment and industry expansion, saying that more than $11bn (AED40bn) of growth projects are under execution and that front-end engineering design (FEED) tenders for Taziz Chemicals projects have been issued.
And in March this year, the UAE launched the Industrial Strategy ‘Operation 300bn’. The 10-year plan aims to empower and expand the industrial sector – petrochemicals and plastics are well noted – to drive a sustainable national economy, increasing GDP contribution from today’s $36bn (AED133bn) to $82bn (AED300bn) by 2031. International eyes are also increasingly zooming in on the region’s potential, such as Austrian energy group OMV saying that it may bolster investments in the UAE via its stake in petrochemical company Borouge.
For now, it appears that regional and global economic strain – driven by Covid-19 and lower oil prices – has not weakened petrochemical growth. Equally, in such a volatile economic environment, it is good business sense to proactively monitor the timeliness of countries’ recoveries and how this may feed into fund availability for petrochemicals in late-2021 and next year. For example, Apicorp expects the real GDP of Saudi Arabia, the region’s biggest economy, to decline by 5.4% in 2020, Oman by 10% and Kuwait by 8.1%. If realized, this would mark Kuwait’s greatest contraction in 41 years. And while Saudi Arabia projects growth of 3.1% this year, few others in the region can bounce back so quickly.
The green issue?
How does this rising consumption in petrochemicals and plastics sit amid the increasingly vocal and global ‘war on plastics’ narrative? And Middle Eastern nations’ commitment to a greener future, as per the Paris Agreement? The reality is that these two camps – petrochemicals and sustainability – clash rather a lot. But petrochemicals remain a much-needed market, from the plastics that enabled the mass vaccinations against Covid-19 to the lubrication that supports billions of vehicles worldwide.
Accordingly, all stakeholders must work hard to create synergies, with the growth of circular methods being one route. Progress is being made in Saudi Arabia, for example with SABIC, a global leader in the chemical industry, announcing in April this year that it is launching a new recycled material made from ocean bound plastics that have been recovered from ocean-feeding waterways and inland areas. That such innovative and scalable steps are being taken in a nation historically renowned for black gold speaks volume about the cultural shift taking place ‘on the ground’ in the Middle East.
Petrochemicals are undeniably a valuable asset. But better managing the environmental impact of the market will create invaluable and big green ticks for its reputational strength and longevity – both key selling points for investors.
