Oil Loses Out to Plastics, as Middle East Diversifies its Economy

Thursday 16 August 2012, Amsterdam

The Middle East is seeking a gradual movement away from its dependency on oil and gas production to diversify its economy and create a positive environment for the development of its plastics industry, according to the new Plastics Industry in the Middle East - Increased Focus on Downstream Petrochemicals to Drive the Sector report.

The report suggests that the region has been witness to the emergence of an impressive upstream petrochemicals industry in the last decade, which is now the most competitive in the world thanks to its low-cost feedstock advantage. However, the region is now taking steps to establish a stronger downstream petrochemical industry, attempting to replicate this previous success in order to achieve even higher profits.

The Middle East has long sought diversification in its economies, which are all extremely dependent on oil production and exports. Middle Eastern countries all derive a significant portion of their gross domestic product (GDP) from petroleum exports, and this high dependency on the oil sector has led to their vulnerability to the frequent fluctuations in crude oil prices. This exposure to economic instability has driven many countries to attempt to diversify their sources of income by establishing petrochemical industries.

The region’s basic petrochemical industry was boosted at the start of the decade when producers began receiving ethane feedstock at subsidized prices, which led to lower production costs, making the Middle East the hub of the global basic petrochemical industry. Continuous government support has seen foreign investments welcomed and higher efficiency achieved through the integration of petrochemical operations with refinery operations previously under government control. During 2000-2011, the basic petrochemicals capacity in the Middle East reached 46.61 MMtpa, growing at a CAGR of 11.1%.

The regions strong basic petrochemical industry will serve as a feedstock provider for the downstream industry, with its cost advantage directly transfered to the downstream industry. The focus on the downstream petrochemical industry will also help the Middle East to offset the competition it faces from China in the basic petrochemical market, which is currently suffering from over-capacity.

The Middle Eastern plastics processing industry will be a big winner from its drive to diversify its economy. While the region has a thriving plastic resin production market, its plastic processing industry is very small and scattered. To encourage domestic processing, many countries in the region plan to start cluster programs, which will allow plastics processors to establish a unit in a polymer park. The processing units will benefit from the integrated supply chain and tax benefits by the government, while the polymer parks will cater to the domestic plastics conversion industry to increase plastics output. Two polymer parks have already been established: the Abu Dhabi Polymer Park situated in the UAE and the Rabigh Conversion Industrial Park situated in Saudi Arabia.

This study provides an in-depth analysis of the Middle Eastern plastics industry. It explains the reasons that led to the economic diversification of the Middle Eastern countries and explains the benefits to the plastics industry from this diversification. It gives the historic and forecast plastics capacity in the region and analyzes the strategies adopted by the Middle East petrochemicals industry to achieve growth in its plastic resins production.

The study also discusses the trade pattern for downstream petrochemicals in the Middle East. It also explains the reasons for increased exports to Asian countries and provides exports data for major plastics (polyethylene, polypropylene, polyethylene terephthalate (PET) resins, polystyrene and polyvinyl chloride (PVC). The study also provides details on the capacity growth for the basic petrochemicals (ethylene, propylene, butadiene, benzene, toluene, xylenes and methanol) and major plastics in the Middle East.

The report is built using data and information sourced from proprietary databases, and with primary and secondary research and in-house analysis by a research team of industry experts.