Driver for Development of the Chemicals & Petrochemicals Industries in the Gulf

Unlike the case in the industrialized countries, the development of the chemicals and petrochemicals industry in the Gulf region has not been in response to a surge in local demand or to a development of indigenous technologies. Instead, it can largely be attributed to the abundant natural gas reserves; the major part of it is associated gas. The very low boiling point of the associated gas renders its transportation uneconomical and as a result, it can be flared, used as a fuel or re-injected into the oil fields. These uses generate a low, or in some cases, even a negative economic value.

Prior to the mid 1970s, almost all the associated gas was flared. At that time, the associated gas was flared because there was no developed domestic market for it and exporting the gas would substantial investment. From that time onward, the regional Governments embarked on a program aimed at facilitating therequire development of a "domestic market" for the natural gas whereby it is used to support the rapid industrialization drive in the region, particularly the gas based fertilizers and petrochemical industries which presented the best choice from economic and social perspectives. More specifically, the petrochemical industry provided the best option to add value to the gas and its associated products, as well as protecting the environment by eliminating flaring.

Early Fertilizers Production in the Gulf Countries

The Gulf region has been a participant in the global fertilizer since the 1960's when the first urea and ammonia plants were established in Kuwait. The combination of the natural gas industry and the voluminous supply of elemental sulphur, combined to give the Gulf region the key ingredients to continue to play a significant role in the supply of nitrogen fertilizers to the world's agricultural growers.

The Gulf fertilizer industry is currently focused on nitrogen based (ammonia and urea) fertilizers, which makes over 95% of the region's fertilizer production. Phosphates fertilizers account for the remaining 5% of production, although this production is entirely for domestic consumption.

Milestones in the Development of the Chemical Fertilizers Industries in the Gulf States

In terms of the GCC, Saudi Arabia and Qatar have the most production capacity in the region. However, Saudi Arabia is the only country in the GCC with phosphate fertilizer production, with a capacity of 0.14 million tonnes per annum. This will significantly change in 2010 with the start-up of a 3 million tonnes per annum di-ammonium phosphate (DAP) fertilizer plant. The GCC region does not currently have any potash capacity.

The Saudi Basic Industries Corporation (SABIC) has been the main player historically in the fertilizer sector in Saudi Arabia, and has partial ownership of all of the main current producers. The Saudi Arabian Fertilizer Co. (SAFCO) is the largest producer in Saudi, and is 43% owned by SABIC, and 57% privately owned. SAFCO’s first Urea/Ammonia plant started up in 1969. The Al-Jubail Fertilizer Co. (SAMAD) is a 50:50 joint venture with the Taiwan Co. which started-up in 1983. Ibn Al-Baytar (National Chemical Fertilizer Co. or NCFC) is a 50:50 joint venture between SABIC and SAFCO which was commissioned in 1987. A fourth company, the United Jubail Fertilizer Company (UJFC) which was started-up in 2003 is owned by five other SABIC affiliates. Through these companies, SABIC is the largest single producer of urea in the world.

QAFCO is the sole producer of fertilizers in Qatar. QAFCO started production from its first plant (QAFCO 1) in 1973 with a nominal capacity of 900 tons of Ammonia and 1000 tons of Urea daily. Since then, the company had been on consistent expansion drive which resulted in having presently four integrated plants; QAFCO 1 (1973), QAFCO 2 (1979), QAFCO 3 (1997) and QAFCO 4 (2004). Each plant is made up of two units, one for production of ammonia and the other for urea, with a total production of 6,150 tons of Ammonia and 8,700 tons of urea daily.

In the late 1970s and early 1980, fertilizers production was extended to Bahrain through GPIC, a joint venture equally owned by the Government of the Kingdom of Bahrain, Sabic, and PIC of Kuwait. On almost the same timeline, FERTIL was established in Abu Dhabi as a joint venture between ADNOC and Total to manufacture nitrogen-based fertilizers. The newest member in the Gulf fertilizers producers club was Oman India Fertilizer Co. (''OMIFCO'') which was established in 2005 for the production of Ammonia / Urea in Salalah, Oman.

Early Milestones in the Chronology of Petrochemicals Production in the Gulf Countries

In the chronology of the GCC petrochemical industry, two key events mark the beginning of its rapid evolution. The first is the commissioning in 1981 of QAPCO's ethylene/polyethylene plant in Qatar, and the second is the production in 1983, in Saudi Arabia, of methanol by SABIC's affiliate AR-RAZI. Since then, the industry has taken a rapid and consistent expansion pattern and subsequently several other producers joined the producers club. The staggering expansion was in Saudi Arabia which resulted in rendering Sabic now not only the dominant GCC petrochemical producer but also a global player.

Beside Saudi Arabia and Qatar, the production of petrochemicals in the GCC States has extended respectively to Bahrain, Kuwait, Abu Dhabi and more recently to Oman as listed in the Table below. At present, the annual GCC petrochemical production accounts for about 11% of the world petrochemical output by volume. This is a remarkable achievement, considering the short time span since production began in the 1980s.

Milestones in the Development of the Chemical Fertilizers Industries in the Gulf States

The GCC region has become a significant global producer of commodity petrochemicals. Its position in the global market will grow over the coming 5 years due to the on-going staggering growth wave, which will add significant petrochemical capacity. As a result, the overall share of the GCC region in the world petrochemical capacity is projected to grow markedly. This growth, fueled by massive foreign and domestic investment inflow, is coinciding with the shift in the petrochemicals industry's centre of gravity towards the best cost area with access to markets; and is demonstrated by the increasing involvement of a number of the industry’s global majors in the GCC petrochemical industry. This development is expediting the rapid emergence of the GCC region as a major global hub for commodity petrochemical manufacturing.