Bucking the Trend

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Despite weakening global demand for plastics and polymers, Abu Dhabi's chemical investment, which is seen as a key part of the emirate's future economy, remains well placed to become a sustainable growth platform for future economic expansion and diversification.

As part of its Economic Vision 2030, released at the beginning of this year, the government of Abu Dhabi outlined its intention to make petrochemicals an important growth engine.

"The growth of the emirate's petrochemical industry represents another way in which Abu Dhabi can capture a larger share of the hydrocarbon value chain. Such expansion will also assist the emirate in developing the necessary inputs for expanded domestic industries utilising basic plastic and industrial chemicals, thus contributing to the overall objective of economic diversification," the report stated.

Since the beginning of the year, however, the global recession has bitten particularly hard on the petrochemical industry. According to the American Chemistry Council, an industry trade association, the global petrochemical market grew by only 2.2% in 2008, to $3.18trn, and will retreat by 1.5% or more in 2009.

Due to this slump in demand a significant number of petrochemical players, particularly those without access to cheap feedstock, have been forced to shut down around the world.

Abu Dhabi, however, is bucking the trend. Against the backdrop of such weak demand it is rolling on with its plans to increase chemical production.

On May 5, Abu Dhabi National Chemicals Company (ChemaWEyaat) agreed a long-term frame agreement with Finland's Neste Jacobs, which will perform front-end engineering and design (FEED) as part of the development of the ChemaWEyaat Chemical Industrial City (Madeenat ChemaWEyaat), to be located in Khalifa Port Industrial Zone at Taweelah. The first complex is expected to be ready in 2014, at a cost of around $10bn.

With a total production of over 10m tonnes of olefins, aromatics, oxide and ammonia derivatives a year, the Madeenat ChemaWEyaat development is expected to be the biggest petrochemical project Abu Dhabi has ever undertaken and the world's largest fully integrated chemicals complex. It will also be one of the most sophisticated developments seen in the region – with a world-scale cracker, downstream propylene and ethylene derivative units, as well as reformer, BTX, glycols, phenol and derivatives units. Crude oil derivative naphtha will be used as a feedstock rather than ethane.

"If you compare what we are doing to phone technology, it is going to be like the 3G of the petrochemical world," Mohamed Abdulla Al Azdi, the CEO of ChemaWEyaat, told OBG.

Although ChemaWEyaat is going to be a massive producer, it is not the only petrochemical expansion under way in the capital. On April 24, Abu Dhabi National Oil Company and Borealis, the European plastics producer, announced that their joint venture, the Borouge 3 project, is to enter the FEED stage. This will mean an annual expansion of 2.5m tonnes in its Borouge polyolefin operations at Ruwais. The development is scheduled to come on-line by the fourth quarter of 2013 and includes the construction of an ethane cracker, among other related utilities and facilities.

With project expansions such as these, and with other global producers on temporary shutdown, Abu Dhabi will be in a good position to gain more market share once global demand increases. The emirate, as with others in the hydrocarbon-rich region, is well placed to generate healthy profit margins from its chemicals sector due to its access to cheap feedstock.

In fact, with so much production being scaled back internationally due to closures, Abu Dhabi, and other regional producers, "may be in a position one day where the rest of the world depends on them to meet global demand," according to Al Azdi.

Naturally, closures in South and North America, as well others around the world, are going to affect the supply/demand dynamics. As Al Azdi explains, "A consultant would tell you that future demand is going to come from India and China, but as plants in other parts of the world close the demand will come from there, too."

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