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United Arab Emirates Petrochemicals Report Q1 2011
Business Monitor International, Dec 2010, Pages: 56
The United Arab Emirates Petrochemicals Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Arab Emirates's Petrochemicals industry.
The second phase of the massive Borouge petrochemicals complex at Ruwais, Abu Dhabi, should reach full operational capacity by mid-2011, but the UAE will need to diversify away from its focus on a narrow range of commodity chemicals if it is to add value to production and limit its dependence on the Chinese market, according to BMI’s latest UAE Petrochemicals Report.
The second phase of the Borouge complex at Ruwais, Abu Dhabi, began production in mid-2010 with a 540,000tpa polyethylene (PE) unit coming onstream in July. In Q410, an olefins conversion unit producing 752,000tpa propylene, together with 50,000tpa of propylene delivered from the Abu Dhabi National Oil Company (Adnoc) refinery, began supplying the two Borstar polypropylene (PP) units with combined capacity of 800,000tpa. Borouge 2 will triple Borouge’s polyolefins capacity to 2mn tpa when it becomes fully operational by mid-2011. An additional 2.5mn tpa is scheduled to come online in 2013, following the completion of Borouge 3. The new capacity will be marketed mainly to the Middle East and Asia Pacific, targeting high-end applications in the pipe and high performance packaging areas. Borouge 3 will have capacities of 1.43mn tpa PE and 960,000tpa PP supplied by a 1.5tpa ethane cracker, with US$4.6bn worth of construction contracts signed in Q210.
The industry will remain highly exposed to global markets, particularly Asia. China’s growth in capacity in 2010 has been accompanied by a sharp downturn in domestic demand due to tightened bank lending conditions and a more restrictive fiscal policy. As an indication, in H110 Chinese polyolefins production was up by 30%, but total polyolefin imports only rose by 1%. BMI estimates that China’s annual PE demand will grow by 8-9% in 2011, but new capacity will reduce imports by up to 14% from the 7.4mn tonnes imported in 2009. If sustained, such trends will undermine Asian petrochemicals prices and squeeze the UAE petrochemical sector’s margins.
The UAE’s main weakness is its dependence on commodity petrochemicals and lack of high performance and speciality grades, which can add value to exports and put the industry in direct competition with producers in Japan and other more mature markets. Key to overcoming this problem of lack of diversification is the development of plastics conversion industries. BMI believes that the UAE has a considerable potential for growth in the plastic industry because of the abundance of feedstock. Development of a domestic petrochemicals industry is now gathering pace, which could considerably enhance the growth of small and medium enterprises (SMEs) in the sector. However, a major risk factor is oversupply in segments where the financial barrier to entry is low.
The planned Chemaweyaat complex, which is to include an olefins plant, an aromatics complex and a range of downstream polymer and chemical units, was due to start production in 2015. The naphtha cracker will have capacity of 1.5mn tpa, but the exact details of the capacities of downstream units are unclear. It was due to be located in Khalifa Industrial Zone at Taweelah, but recent reports have suggested it will be moved to Ruwais. The uncertainties around the project could lead to a delay in completion beyond 2015. As such, we have not included it in our forecasts.
In BMI’s Middle Eastern Petrochemicals Business Environment Rankings matrix, the UAE has a score of 62.7 points, up 1.6 points since the previous quarter due to increased petrochemicals capacity in Q410. It has jostled with Kuwait for third place in recent months, but while the UAE has undergone massive expansion, Kuwait has suffered as a result of policy reversals in the refining and petrochemicals sectors which has affected its market risk score, while its overall country risk rating has fallen in line with global economic trends. The UAE has also suffered from the same problems, leading to a modest drop in its country risk score. The UAE is 0.5 points behind Qatar and 4.5 points ahead of Kuwait.
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