Russia’s February 2022 invasion of Ukraine has reignited international debate about the pace of the global energy transition and the risks of relying on oil and gas imports from countries with opposing agendas. In the Gulf it is largely framed around how to extract maximum benefit from the remaining hydrocarbons wealth, while also playing a responsible role in global efforts to both mitigate climate change and maintain stability in international energy supply.
In October 2022 Oman, along with the UAE, pledged to reach net-zero emissions by 2050, while Saudi Arabia and Bahrain are aiming to meet the same goal by 2060. Although it has yet to commit itself to a net-zero target, Qatar’s 2021 national climate change action plan seeks to achieve a 25% reduction in greenhouse gas emissions and decrease the carbon intensity of its liquefied natural gas (LNG) facilities by 2030.
Qatar and Saudi Arabia are also among the founding members of the Net-Zero Producers’ Forum – a cooperative body representing 40% of global oil and gas production that seeks ways to harness technology to accelerate the energy transition and reduce greenhouse gas emissions from fossil fuels.
Downstream Opportunity
One of the key ways Gulf countries plan to extract maximum benefit from their hydrocarbons wealth is by catalysing investment in downstream production and export capacity for petrochemicals and chemicals. By doing so effectively, countries in the region can diversify their export revenue, enhance the resilience of public finances, and create high-value employment for the growing cohort of young and well-educated citizens.
The chemicals and petrochemicals industry’s importance to regional economic diversification was growing significantly in the years leading up to the Covid-19 pandemic. Prior to the global outbreak of the health crisis, petrochemicals and chemicals contributed around onethird of the region’s manufacturing GDP, with more than 80% of local production exported beyond the region. It also directly supported some 613,000 jobs in 2018, equivalent to 2.4% of the GCC’s combined workforce. That same year, the industry in the Gulf invested an estimated $438m in research and development (R&D), supporting 7100 jobs and approximately $71m in economic activity. Between 2010 and 2019 R&D spending almost doubled, from $293m to $480m – outpacing the 42.5% rise in the global industry over the same period.
Looking ahead, with the global energy transition well under way and Gulf governments committed to reducing national carbon emissions, innovation efforts will be focused on sustainable products and processes.
Evolution of Innovation
The increase in R&D spending in the regional chemicals and petrochemicals industry, particularly in the decade leading up to the pandemic, was powered by an emphasis on chemical synthesis, which accounted for 1629 of the 2461 chemical patents granted by the GCC Patent Office between 2009 and 2019. This was largely driven by rising demand for new synthetic methods for developing commercially important compounds used in corporate laboratories.
The second-highest number of patents filed during this period was in the category related to catalysts, which are key to the development and application of petrochemicals and chemicals. Cracking – or the process by which complex hydrocarbons are broken into lighter molecules by means of hydro, catalytic, steam and thermal processes – accounted for the third-most patents filed during this period. As with the other top categories, this is a mature area of research which presents notable opportunities to enhance competitiveness along the value chain.
In the future, it is widely expected that R&D efforts will centre on processes to reduce the carbon footprint and environmental impact of production, as well as innovation in product applications, company services and business models. One of the biggest challenges facing petrochemicals and chemicals companies in the region relates to environmental sustainability. Producers are under scrutiny for their water usage, waste-disposal practices, and the climate impact of their operations and products.
In response to this global sustainability shift, producers in the GCC are increasingly embracing circular-economy principles. For example, the adoption of closed-loop value chains for plastics can help retain used plastics within value chains by redeploying them for use in feedstock, monomers and polymers. Policymakers across the region have also begun to implement circular-economy policies and strategies at the highest levels. For instance, Oman plans to divert 80% of municipal solid waste into recycling-reuse initiatives by 2030.
Progress can be seen in practice in the petrochemicals and chemicals segment, where the chemicals conglomerate SABIC has joined forces with Saudi Investment Recycling to develop a chemical recycling plant in the Kingdom. The facility will convert mixed plastic waste into feedstock for pyrolysis oil, a synthetic fuel that could be used as a replacement for petroleum.
In Bahrain, plastics manufacturer BASF has launched a circular-economy programme that aims to process 250,000 tonnes of recycled and waste-based raw materials per year by 2025, and double sales generated from circular-economy innovations to €17bn. Its strategy focuses on circular feedstock, new material cycles and new business models. Meanwhile, in Qatar, Mesaieed Petrochemical released its first annual sustainability report in 2020 detailing progress on reducing carbon emissions, energy intensity and water usage from operations across its four companies through innovative policies and investment in technology.
Supply Chain Opportunities
With the bulk of the chemicals and petrochemicals produced in the GCC currently exported beyond the region, companies involved in such trade are considering how best to optimise shipping routes and fleets to minimise the environmental impact of supply chains. Freight costs are already at elevated levels due to pandemic-related bottlenecks, and questions surrounding how to replace ageing fleets due to regulatory uncertainty over fuel could drive prices up further – particularly following Russia’s invasion of Ukraine.
For their part, producers in the region are adopting big data solutions to predict changing market conditions. These technologies not only improve time and cost efficiency in bringing a new product to market, but also facilitate business model innovation and increase competitiveness. In particular, big data and analytics enable the integration of information from suppliers, factories, internal departments and third-party logistics firms. Analytics tools, meanwhile, can accelerate innovation, improve quality, strengthen supply chain resilience and enhance customer service. Increased investment in research and innovation will be pivotal for product differentiation, process efficiency, cost advantages and sustainability – ultimately helping producers in the GCC to become more competitive in the international arena.
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