ME/NAMR benefit from gas-based ethylene production

1. Average, plant capacity-weighted Cash Cost is Factory Gate Cash Cost without Depreciation & ROCE; Integration is assumed at Cash Cost; Operating rate assumed is 100%; WE Ethane price adjusted to the US import parity for select crackers in Grangemouth, Mossmorran, Rafnes, Stenungsund, Terneuzen, Wilton, Antwerp

Source: BCG Analysis

The Middle East enjoys a competitive advantage in ethylene production, as the region is primarily ethane-based. Feedstock dynamics and regional differences, caused by shale gas production in the United States, significantly favor gas-based ethylene production over naphtha. Comparatively, ethane crackers in the Middle East and North America yield higher profit margins than naphtha-based ethylene production, making investments in the region more attractive.

In contrast, European chemical producers face significant challenges. European companies are grappling with reduced competitiveness due to the high costs associated with transforming naphtha into ethylene, as well as sustainability concerns amidst increasing climate change pressures. The Middle East, primarily ethane-based, may also take advantage of the lower carbon footprint associated with gas-based crackers and achieve higher profits. However, to keep pace, the Middle East region needs more such projects which translates into a question of further competitive ethane availability.

Experts predict a surge in ethane production from recent gas discoveries in the region. The main factors driving this expansion are the regional abundance of natural gas liquids – both conventional and unconventional, however, for the latter some time is needed to build the required scale. In addition, the push towards solar energy is very visible now across the region. This will likely bolster green hydrogen and ammonia production – but will also offer effective means to electrify cracking installations, making Middle East-produced ethylene also partially decarbonized.

These developments, along with the region’s holistic efforts towards decarbonization, could cement its prominent place in the global chemical industry. The UAE and Saudi Arabia, in particular, have set ambitious goals for the production of decarbonized hydrogen and serving the global hydrogen market. The low cost of solar energy in the Middle East has enabled companies in the region to undertake significant decarbonization efforts with major projects for blue and green ammonia. The solar and decarbonized hydrogen economy has the potential to create thousands of jobs, attract billions in investment, and reduce emissions substantially.

Strategies for future-proofing petrochemical companies in the Middle East

As climate change influences shape the future of the petrochemical industry, three additional trends are necessary to watch out for. Firstly, the feedstock advantage alone may not be enough – it is the carbon footprint that increasingly matters in securing attractive markets for chemical products. Secondly, the oil-to-chemicals trend is designed to maximize the production of chemicals from every barrel of oil available, skipping the traditional refining step (with costs and emissions) on the way to a final chemical product. Thirdly, a move towards sustainability and a circular economy with increasing demand for bio-based and recycled plastics. For Middle Eastern petrochemical firms, these trends offer significant opportunities if they adopt the following strategies to remain resilient and maximize opportunities:

1. Maintaining feedstock advantage: The increased supply of natural gas liquids may lead to a more competitive environment for ethane production in the region. However, companies should go beyond that, taking advantage of emerging local supply of renewable power to electrify steam crackers and other installations, and significantly reduce carbon footprint, strengthening their competitive edge.

2. Exploiting liquid cracking technologies: The evolution of cracking technologies, particularly related to liquids, presents a promising avenue for Middle Eastern producers. These technologies could potentially facilitate the cost-effective conversion of locally produced crude oil to chemicals. Middle East producers should actively explore the conversion of locally produced crude oil to chemicals, reducing their dependency on refining and export of fuels as a traditional way to commercialize crude oil domestically. Advancements in technology and economies of scale will be crucial to making liquid cracking competitive in the global arena.

3. Investing in green products: As consumers and governments across the globe intensify their demand for sustainability, businesses are under pressure to embrace greener practices. Petrochemical companies in the Middle East should invest in the development of bio-based polymers and recycling technologies as part of the growing circular economy. Transitioning towards a more sustainable business model will not only satisfy consumers’ preference for green products but also align with regulatory pressures in the European Union and other markets.

4. Engaging in international collaboration and partnerships: Access to foreign investment and technology is essential for ensuring the competitiveness of petrochemical companies. Companies in the region should explore international partnerships and joint ventures to gain access to cutting-edge technologies and funding opportunities. This will further bolster their competitive advantage, facilitate the transfer of knowledge and skills and help them navigate the ongoing global ethylene economics shift.

5. Addressing decarbonization challenges: Petrochemical companies in the Middle East should proactively invest in sustainable infrastructure and renewable energy to reduce their carbon footprint. By embracing green initiatives and harnessing local solar energy resources, these companies can meet tightening environmental regulations and increase their competitiveness in the global market.

Overall, the Middle East, which is rich in natural resources, faces a crucial turning point amidst the shifting dynamics of global ethylene economics. Companies in the region must adapt to new market realities by embracing innovative technologies, investing in green products, and adopting sustainable practices. By doing so, the regional petrochemical industry can effectively future-proof itself—even in the midst of unprecedented changes unfolding globally.