How important is integration between the upstream and downstream sector in the Middle East’s oil and gas industry?
It’s very important. What we are now striving for in the region is to boost the production of higher value products. If you take the range of chemicals that you can produce in these crackers, they range from C1-C6. The further you go towards the C4-C6 range of products, the higher the value becomes.
What has happened in the region is that the industry has been predominantly gas based. With more refining capacity and new technologies coming onstream, you have the opportunity to produce more of the higher value products. What we are doing is developing and enabling this transition towards the production of higher value petrochemicals.
Traditionally the C1 and C2 products have made up the bulk of the region’s export portfolio, as we move towards more liquid feeds, the higher value products start to come into play.
If you look at Europe, their petrochemicals industry is based on liquid cracking. Liquid cracking gives you a little bit of ethylene, much more propylene than the gas based cracking, and lots of C4 and C6 chemicals. That is why Europe’s petrochemical sector is more resilient because they have the added protection of those higher value products. Also because they are fully integrated facilities. Europe has the technology and the applications.
What impact is Shale gas having on the global petrochemical market?
We started to see the impact of shale gas around 5 years ago. If you look at the exports and imports for the US, you will see that historically the US was importing a huge amount of naphtha from Europe, because Europe has traditionally been very high on naphtha, low on middle distillates.
With the shale gas, what we saw is that the US is importing much less naphtha and has actually begun to export LPG to European markets. And not just for use in heating, but for use in crackers. To the point where some of the European cracking companies revamping their crackers to be able to accept more LPG.
That brings us on to the topic of ‘flexible feedstocks’. Companies in the US call it molecular optimisation. So, because of the market conditions, crackers in Europe were reconfigured to accept and process more LPG.
Obviously switching to liquid feeds from gas feeds is something that would take a great deal of time and investment. Is this more of a long term trend, or something that producers are looking to execute in the near term?
It depends entirely upon the country. If we look at Oman, for them this would be a mid-term aspiration because their refineries are at quite an early stage. They have to put in place the basic capacity and from there they have to start looking to attract those joint venture partners and potential technology partners.
In other cases, like Sadara and PlasChem for example [in Saudi Arabia], they are already at a very advanced stage.
How is the GCC’s petrochemical industry being affected by low crude oil prices?
We don’t see prices remaining this low in the long term – they have to go higher. It is not good for anybody. Investments in the upstream are being affected, basic petrochemicals are also being affected. The upside of that is that there is more incentive on companies to invest in their downstream operations, but still the current oil prices are not really good for anyone.
How much of a factor is the reintroduction of Iran in the regional petrochemical market?
They are certainly making progress and their Western Ethylene Pipeline has recently come onstream and they have already competed the second phase. That follows the model of industrial cities located along the length of the pipeline. Similar to what you find in Europe and the US where you have many facilities connected to that common piece of infrastructure. This will definitely help Iran to develop its petrochemical sector.
That being said, they have been around for years and are already an established producer. They are a key player in methanol production. Iran is either in the top 5 or top 6 [methanol] producers.
They have also announced another big cluster that is being developed by the private sector in the south east of the country. It is one more element in the equation.
What is the Middle East’s role in the global downstream sector?
In terms of technologies and markets you have three distinct regions:
You have the west, which is comprised of the US, the Atlantic Basin and Europe. They are the ones providing the technology and the applications knowledge.
Then you have Asia, especially China, where all the demand is. They continue to be the market for basic and primary petrochemicals.
Then you have the Middle East – which has a very positive role because geographically it is right in the middle of these two locations. It is attracting a significant amount of downstream change and for us we could really see the region acting as a kind of hinge. We want to see that the Middle East is evolving from a producer of basic petrochemicals, pumping out volumes to China and Europe, to become a balancing point [between Asia and the West).
How does the economic slowdown in China affect the Middle East’s petrochemical sector?
It does have a bearing on it. It is distorting the plans for the downstream sector. When you think about the slowdown in demand from manufacturers of final products, China used to take a lot of the resins that they used to produce wind turbines. Suddenly demand slows down and they have to start finding new markets for that product. That then creates challenges for Middle Eastern producers to carry on expanding capacity levels for those products.
There is also an impact on demand for the basic petrochemicals that are being produced in the Middle East and sold on to Asian markets. It affects both the price and volume cycle.
What can you tell us about technologies such as coal-to-olefins and methanol-to-olefins, particularly in China? Are they a threat to gas based production here in the Middle East?
With regard to coal-to-olefins and methanol-to-olefins technology, there are some additional capacities coming onstream. There is also another technology that is not being watched very carefully, which is Propane DeHydrogenisation (PDH) and that could be a game changer. We have already PDH capacity in Saudi Arabia, and I think that could be used to solve the problems of C3 products.
Compared to years ago when producers in the Middle East were relying on their joint venture partners to bring them the technology, we are seeing more and more that they are the ones leading the technological advancement. Particularly regarding basic chemicals.