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

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 a new report by industry intelligence company GlobalData.

The new 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.

Source: Globaldata