JEDDAH — In an increasingly competitive marketplace, Saudi Arabia's chemical industry needs to channel more investment to strategic areas to enhance its global competitiveness, Dr. Abdulwahab Al-Sadoun, Secretary General, Gulf Petrochemicals and Chemicals Association (GPCA) told Saudi Gazette in an interview. He stressed that investment should put more emphasis on “developing local innovation capabilities.” Several steps in this direction are already in place including the launch of several Products Application Innovation Centers by leading Saudi companies such as Sabic, Tasnee and Sipchem, he noted. The Saudi government has invested in launching KAUST, the first research university in the region which was complemented by launching two Techno Valleys in Riyadh and Dhahran. However, more coordination is needed to ensure optimizing the resources utilization in this strategic area, he pointed out. Moreover, Al-Sadoun said “product diversification drive” into higher value products (specialty and performance chemicals) should continue. A key challenge associated with this drive could be getting access to leading-edge technologies and one option which lend itself to overcome this challenge is the acquisition of technology companies, he added. He also called for the development of the downstream industry not only to capture more of the value of the exported products and substitute the imported chemicals to the GCC, which, according to GPCA research is valued $23.1 billion as of 2013, but in line with the GCC government's direction to create jobs opportunities for locals. He likewise urged the coordination of efforts between local companies involved in developing new breakthrough technologies such as crude oil-to-chemicals to offset the industry's challenge in securing supply of feedstock amid constraint in supply of the favorable ethane. In addition, to sustain its growth trajectory, the industry needs to improve its performance and global competitiveness through “functional excellence” to sustain its market share in Manufacturing, Supply Chain, Marketing, Sourcing, Service Functions and The enablers to all areas of Excellence, i.e., talent including bringing more GCC women in the workforce. “It is our opinion that today's challenges are tomorrow's opportunities. We have reasons to believe that the industry's future is bright. This confidence is based on the projection for the global chemicals demand to be doubled by 2030 and the fact that the Kingdom has privileged access to fast growing markets such as Asia and Africa, with 40% of the world's population within 3,000 kilometers of Saudi Arabia,” he said. Excerpts from the interview follow: What specific steps are being taken by PetroRabigh and Sadara with respect to research and development of state-of-the-art research centers and in Jubail Industrial City? Are these joint venture companies, products of Saudi Aramco, Dow and Sumitomo, thriving because of investment or does something different need to be done? Both of the outlined projects are key milestones in the diversification drive that the industry in the Kingdom had embarked on in the early 2000s to move from a predominantly cyclical commodity-based industry to an industry of a more diversified products portfolio, with a steadily increasing share of less cyclical and higher-value products (specialties and performance chemicals). Additionally, the two Saudi Aramco petrochemical joint ventures are key milestones in the emergence of Saudi Aramco as a fully integrated energy company and are in line with the company's strategy to be among the top ten chemical producers in the globe by 2020. Saudi Aramco has demonstrated full commitment to the national agenda and the development of mega projects like PetroRabigh and Sadara enable the production of new products that will stimulate a new set of downstream industries in the Kingdom. It is well-known that the specialty products require significant technical support to customers and as such their producers have to invest in setting research centers focused on the application aspects of the new and existing products. What are some of the key projects within KSA that will come on stream in 2015 as well as upgrades in existing facilities that will continue to see production growth? • Sadara, will produce nearly 26 products which include: ethoxylates, amines, elastomers. Several production units are scheduled to start-up in the 2nd half of 2015. • Sipchem commissioned its plant to produce Ethylene Vinyl Acetate (EVA) and Polyethylene Vinyl Acetate (PEVA) in Jubail. The company had also commissioned its Polybutylene Terephthalate (PBT) plant early 2015. The plant will a capacity of 63,000 tons per annum of PBT. • Safco, an affiliate of Sabic, will begin production of its new Safco 5 Plant in Jubail. The plant is designed to produce 1.1-million m.t./year urea. This is a significant development as the plant will be the world largest carbon capturing plants, consuming 850,000 m.t./year of carbon dioxide, the world-largest CO2 capturing plant. • Saudi Hydrogen Peroxide, a JV between Sadara and Belgium's Solvay Group. The 300,000 tons/year plant is scheduled to begin production in 2015 and will be one of the world's largest hydrogen peroxide propylene oxide (HPPO) plants. Looking at the second half of fiscal year 2015, how will the Sadara impact the petrochemical sector in KSA (jobs, growth, projection)? The Sadara project is Saudi Arabia's first venture into petrochemicals based on naphtha feedstock, offering a broader portfolio of products, particularly in the Aromatics (BTX) value chain which will stimulate a new set of downstream industries in the Kingdom. Furthermore, Sadara will include an integrated “Value Park” (Chem VP), which will accommodate large process businesses. The Chem VP Park will be located next to the Sadara Complex and will have access to raw materials via rail. This will enable these businesses to produce number of high-value added products for the first time in the Kingdom such as: RO Membrane used by the desalination plants, Elastomers, among others. Further, the “Chemical Value Park” will be integrated with “PlasChem Park” to be developed by the Royal Commission of Jubail & Yanbu for further downstream conversion of the Sadara products. The PlasChem Park will host smaller, more downstream, fabrication type activities. Both of the outlined parks will create numerous rewarding job opportunities for Saudi nationals. The planned products will help making available key building blocks for the National Industrial Cluster Program (NPCD) in sectors of energy, transportation, infrastructure and consumer products. Some issues that have already arisen in 2015 include Sabic's disappointing 4Q2014 earnings report and rising domestic consumption coupled with a deficit in gas production. How best to approach these specific issues if the petrochemicals is to have a good fiscal year 2015? The slumping oil prices have had a serious impact on the petrochemical prices which have dropped on average by 25-35%. The health of the global economy had also contributed to this weak prices and created a difficult near-term outlook for the global chemical industry and it is hard to predict the outlook for the rest of the year. The low oil prices have made the naphtha based producers in Europe and Asia more competitive and resulted in further pressure on the petrochemical prices. This, in turn, has resulted in a drop in sales revenue for all the petrochemicals producers in Saudi Arabia, as well as elsewhere around the world. We have noticed that the producers of commodity petrochemicals such as those in the Kingdom have been the most impacted compared with their global counterparts, who produce specialty chemicals which have been the least impacted by the current weak market prices. Given that the industry in the Kingdom is not a price setter, in such environment it has to embark on cost-cutting campaign to optimize its operational model to improve its bottom line. In late January 2015 at the Global competitiveness Forum, Sabic's then CEO, Mohamed Al-Mady, said the petrochemicals sector has played a significant role in creating value for the country over the last 40 years. Will this continue to be the case in the short and medium term? From your vantage point at the GPCA, how is sustaining a high-value business chain, diversifying the economy and adapting to a competitively priced feedstock vital for the sector? There are good reasons to believe that the industry will continue its expansion drive both in the local and international markets. According to GPCA analysis, the Saudi petrochemical industry will add over 30 Million ton to reach production capacity of 126 Million ton by the Year 2020, up from 94.6 Million ton in 2014. This expansion will bring alone more socio-economic benefits to the Kingdom. To do so, the industry should invest heavily in developing “Innovation Capability Building”. This entails is the implementation of a new or significantly improved product (good or services), or process, a new marketing method, or a new organizational method in business practices”. Collectively, this will enhance the global competitiveness of the industry in Saudi Arabia. What are concrete steps to ensure KSA's path forward and being ‘out in front' in the petrochemical sector? The Kingdom had successfully developed a globally competitive petrochemical industry, particularly in the commodity products segment. The government has been a key enabler behind this success, by providing massive investments to develop a world-class infrastructure in Jubail and Yanbu. The industry is now entering a new phase characterized by consistent capacity expansion and a diversification down the value chain into high-value products. Given that the petrochemical industry is a global industry, the path forward should involve creating a competitive differentiation through ‘functional excellence' and continue our focus on innovation and sustainability. This in turn requires having producers with “critical mass” either through organic or inorganic growth. — SG
