INDUSTRY INSIGHTThought Leadership

Shaping the future: The GCC’s and China’s strategic partnership in the chemical industry

Dr. Sana Ben Kebaier, Head of Economic Research Department (A), GPCA

The strategic partnership between the Gulf Cooperation Council (GCC) and China in the chemical industry is rapidly becoming a cornerstone for both regions, not only contributing to economic growth, but also playing a pivotal role in the global energy transition. This partnership is characterized by optimal investments, robust regulatory frameworks, and a commitment to innovation, positioning both regions as leaders in sustainability.

The seismic shifts resonating across the global petrochemical market not only redefine industry dynamics, they also bear significant implications for key players, particularly the GCC and China.

In response to substantial capacity investments in China’s chemical production, the global chemical market confronts an imbalance between supply and demand. Projections indicate an imminent record oversupply of 218 million tons in 2023, primarily attributed to China’s considerable surge in capacity, surpassing previous levels by a significant margin. This surplus, combined with economic uncertainties and a robust US dollar, introduces substantial unpredictability within the industry.

Immediate challenges, encompassing market volatility, geopolitical tensions, and evolving consumer preferences, intersect with more enduring shifts. Consequently, businesses must promptly recalibrate their operational strategies to harness short-term opportunities, while strategically aligning for long-term success in an evolving trade landscape.

This article delves into the dynamics of the GCC petrochemical industry. It explores regulatory frameworks and sustainability initiatives and analyzes the implications of technology transfer between China and the GCC.

1. Overview of the GCC petrochemical industry

The GCC region has witnessed remarkable growth across the petrochemical sector over the past decade, with a 5.1% increase in chemical production capacity. This surge has positioned the GCC as a major player in the global petrochemicals market, with Saudi Arabia ranking among the top 10 producers worldwide. The industry’s robust performance is reflected in its contribution of close to 5% to the GDP of the entire GCC region, which goes to demonstrate its tremendous economic significance. Furthermore, the region’s adeptness in capitalizing on trade opportunities, particularly with China, has resulted in a record-breaking trade balance of USD 66.1 billion in 2022.

GCC Chemicals Production Capacity – by Country (2007-2022)

Source: GPCA questionnaire and analysis, 2023
Note: GPCA member companies only

Innovative Projects in the GCC Chemical Industry towards a sustainable future

Source: GPCA research, 2023

2. Regulatory frameworks and sustainability initiatives

The GCC chemical industry operates under a dual framework of national mandates and international standards. Regulatory bodies focus on environmental protection, product safety, and trade standards, fostering intra-regional trade and global competitiveness. Notably, the industry has embraced Environmental, Social, and Governance (ESG) principles, leading initiatives such as Carbon Capture, Utilization, and Storage (CCUS), clean hydrogen production, and circular economy practices. The GCC’s commitment to CCUS is particularly noteworthy, capturing 10% of global annual CCUS capacity and establishing the region as a leader in this technology.

3. Exploration of Technology Transfer for Reshaping China-GCC Partnership:

China and the GCC have maintained a strong trade relationship in the petrochemical sector, with China being the largest trading partner, accounting for 26% of total exports. This trade synergy has paved the way for a transformative partnership, especially in the context of energy and sustainability. Both regions recognize the potential for collaboration, aligning with China’s Belt and Road Initiative (BRI) and the GCC’s ambitious projects, such as Saudi Vision 2030.

Ensuring strategic alignment for sustainable economic growth requires cooperation at the national level. China and the GCC have the opportunity to enhance collaboration in renewable energy, clean technologies, and sustainable practices within the petrochemical industry. By taking inspiration from global partnerships, both regions can jointly commit to transitioning away from fossil fuels through collaborative initiatives.

GCC-China chemical trade balance value (billion USD)

Source: UNComtrade 2023

GCC chemical projects expected to start up in the next five years

3.1 China-GCC joint ventures and their significance

Joint ventures between Chinese and GCC entities have played a crucial role in facilitating technology transfer and economic cooperation. Ventures like Huajin Aramco Petrochemical Company (HAPCO), SINOPEC SABIC Tianjin Petrochemical Plant (SSTPC), and others exemplify the strategic collaboration between the two regions. These joint ventures not only contribute to economic growth but also serve as platforms for the exchange of technological expertise, fostering innovation and sustainability.

These upcoming projects serve as prime examples of the upcoming efforts that will significantly boost the chemical capacity in the GCC region.

4. Future prospects

The future of the strategic partnership between the GCC and China in the chemical industry looks promising. With a projected 17% growth in chemical capacity over the next five years, driven by integrated refinery-petrochemical projects, the GCC is poised for continued success. Regulatory advancements, sustainable practices, and forward-looking investments will ensure the industry’s resilience and readiness for the future.

To conclude, the strategic partnership between the GCC and China in the chemical industry is a testament to the evolving dynamics of global trade and the shared commitment to sustainability. As both regions explore technology transfer and engage in joint ventures, they contribute not only to their own economic prosperity but also to the global efforts toward a sustainable and environmentally conscious future. This collaboration transcends regional boundaries, shaping a new era for the chemical industry and paving the way for a cleaner and more sustainable world.