Muscat: Anticipating increased demand, Kuwait has planned to expand its petrochemical capacity from 3.4 MTPA in 2012 to 7.9 MTPA by 2015 at a compound annual growth rate of 32 per cent. Petrochemical projects worth $7,565 million are expected to be executed in Kuwait between 2011 and 2017, says Kuwait Financial Centre (Markaz) in its recent report.
Kuwait has implemented 100 per cent FDI law in 2010, which is expected to bring in foreign investors and encourage private players in the petrochemicals sector, which, till now, has been mainly funded by the Government of Kuwait.
Major Petrochemical projects under construction by the Petrochemicals Industries Company (PIC) are the Olefins – III plant at the Shauiba Complex of Kuwait worth $7,000 million which is expected to be operational from 2015.
China integrated refinery is the overseas plant constructed by PIC and Sinopec at the Guangdong province in China. It is expected to be operational from 2017 and will help PIC to capitalise on the huge market for petrochemicals available in China.
Though the Kuwait petrochemicals sector is poised to see growth, it faces a few challenges and impediments on its growth path. There is stiff competition from players within the region, especially from Saudi Arabia, which accounted for 75.2 per cent of the total revenue of the petrochemicals sector in the 2012.
GCC major player
Saudi Basic Petrochemicals (Sabic) being the major player from the region dominates the Gulf Cooperation Council (GCC) petrochemicals sector. It is largest petrochemical company in the region.
Driven by government investment and a thriving hydrocarbon sector, Kuwait petrochemicals sector has grown from its modest beginning in 1963.
Petrochemicals Industries Company was established as the sole player in the petrochemicals sector under the supervision of Kuwait Petroleum Corporation (KPC). PIC is the only player in Kuwait's petrochemical sector with all the others being its subsidiaries or joint ventures.
PIC follows 'Strategy 2002-2020' for the development of petrochemicals sector in the country.
It envisions the development of mega integrated petrochemical and refining plants in Kuwait as well as in major markets like India and China through its joint ventures.
The Kuwait Petrochemicals sector faced problems in the past due to decreased global demand in 2008-2009 due to the global financial crisis. The demand recovered after 2010 when the economic growth rates increased, especially in the emerging Asian markets like India and China.
Increased demand for products such as paints, fertilisers and plastics from India and China during 2013 to 2017 will drive the demand for petrochemicals.
as it is the raw material used in the manufacture of these materials. The economic growth of the Asian counties, especially India and China are positive signs for the increased demand of these products.
China and India are in the process of rapid urbanisation. Urban population in these countries is expected to increase by 50 per cent by the year 2020 compared to the levels in 2010. This will rapidly increase the demand for products like plastics and polymers.
The major impeding challenge is the reduced availability of feedstock on one hand and increased cost of feedstock on the other. The availability of gas feed stock, which is the main raw material in ethylene-based petrochemical plants, is estimated to decrease continuously over the years in the GCC region.
The petrochemicals production in the Gulf is based on comparatively cheap ethane supply.
There is a clear preference for ethane owing to the region's significant cost advantage in procurement. GCC supplies ethane at $0.75/mmbtu, compared with a minimum $3.20/mmbtu in Europe and the US. The shift towards Naphtha based plants in GCC will make the producers lose on the cost advantage as Naphtha has to be obtained at market price and its prices are highly volatile.
Building on the strong cash reserves and utilising the low feed stock advantage to tap the huge downstream petrochemicals market available will help Kuwait Petrochemicals sector to achieve greater heights.
Streamlining investments into refining and petrochemical integration, entering into more number of Joint Ventures and diversifying the product portfolio will help PIC to handle the challenges and achieve its goals.