Markaz: Kuwait Petrochemicals-Poised for Growth

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Markaz: Kuwait Petrochemicals-Poised for Growth 20 - Aug - 2014

Kuwait Financial Centre “Markaz” recently published its report on Kuwait Petrochemicals. In this report, Markaz examines the status of Kuwait Petrochemicals sector and highlights the growth drivers, opportunities and key challenges for the sector. The report also presents an overview of the key players in the industry and a comparison of the Petrochemicals sector in other GCC countries.

Driven by government investment and a thriving hydrocarbon sector, Kuwait Petrochemicals sector has grown from its modest beginning in 1963. Petrochemicals Industries Company (PIC) 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.

Kuwait has implemented the 100% 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 PIC are the Olefins – III plant at the Shauiba Complex of Kuwait worth USD 7,000 Mn which is expected to be operational from 2017 or 2018.  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 capitalize on the huge market for petrochemicals available in China. Petrochemical projects worth USD 7,565 Mn are expected to be executed in Kuwait between 2011 and 2017.

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, fertilizers 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.
 


Source: GPCA

China and India are in the process of rapid urbanization. Urban population in these countries is expected to increase by 50% by the year 2020 compared to the levels in 2010. This will rapidly increase the demand for products like plastics and polymers. Anticipating the increased demand Kuwait has planned to expand its petrochemical capacity from 3.4 MTPA in 2012 to 7.9 MTPA by 2015 at a CAGR of 32%.

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% of the total revenue of the Petrochemicals sector in the 2012. Saudi Basic Petrochemicals (SABIC) being the major player from the region dominates the GCC Petrochemicals sector. It is largest petrochemical company in the region.
 
Revenue share from petrochemicals in 2012 among GCC Countries

Source: GPCA

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 USD 0.75/mmbtu, compared with a minimum USD 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 utilizing 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.

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About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre K.P.S.C “Markaz”, established in 1974, is one of the leading asset management and investment banking institutions in the Arabian Gulf Region with total assets under management (AUM) of over KD 1 billion as of June 30th, 2014 (USD 3.82 billion). Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.
 
For further information, please contact:
Osama Al Musallam
Senior Communications Officer
Media & Communications Department
Kuwait Financial Centre S.A.K. "Markaz"
Tel: +965 2224 8000 ext 1819
Dir: +965 2224 8075
Fax: +965 2241 4499
Email: omusallam@markaz.com
www.markaz.com