Euro Petroleum Consultants in association with eminent petrochemicals expert Aman Amanpour, is pleased to announce our leading seminar, Masterclass and Strategic Management in Petrochemicals taking place on 19-21 November in Dubai. This course is designed for professionals in the petrochemicals industry, senior managers who need a big picture refresher, as well as for investors, regulators and suppliers.
As a seminar teaser, we asked Aman about his insights on the petrochemicals industry in the Middle East.
2017: Middle East Petrochemicals in the Global Context
Last year I provided the analysis: Global Petrochemicals: How the Scene has Changed? Why? What to come Next? While the depicted forces and trends are still at work, I’d like today to provide some specific remarks, focusing on the Middle East Petrochemicals in the global context.
The region as a whole has moved on within the tension filed of socio-political forces, economic challenges, conflicts, alliances and competition. Our industry has been impacted by continued level of subdued oil prices, flatter cost curves hence more fierce global competition, threat of global oversupply (US shale) and self-sufficiency (China), change in trade patterns, scarcity of gaseous feedstock (except Iran) and the resultant urge for new business models.
Integration, innovation, consolidations, enhancing the quality and effectiveness of human capital, revisiting (cancelling, delaying, re-scoping) of some planned investment projects, increasing global footprints by more international alliances and M&As … are visible trends among many players as some necessary responses. These, in the face of deteriorating some of the conducive conditions (e.g. feedstock price and availability, other current incentives), looming overcapacity / down-cycle, emerging trade dynamics after the demise of TPP and TITIP / new wave of protectionism …
These are sure necessary responses. But are they also sufficient considering mega-trends in general and the game changing factors in (petro)chemicals discussed in my previous analysis in particular ? It depends, I would say. It depends on how some of these measures are defined, translated into clear objectives and implemented successfully.
Let me take just four of these responses: Integration and its links with: Consolidation, as well as Innovation and its key requirement: Human Capital.
Refinery-Petrochemicals (vertical) integration is high on the regional agenda but has still a long way to go. Saudi Aramco has been leading the way with Petrorabigh and Sadara mega joint ventures with Sumitomo and Dow respectively. Other GCC countries (UAE, Kuwait, Oman) are planning and are in different stages. Iran is seriously considering the matter as well. Horizontal integration (key word: Industrial Clusters) have also started to take shape for example around Sadara JV in Al-Jubail-2. However, the region is still in earlier miles of its integrative journey. The three other elements -as follow- need to be addressed simultaneously for extracting maximum possible (corporate and social) values out of comprehensive and multi-dimensional integration. Filling in the value chain gaps (e.g. in propylene and aromatics value chains), especially in the countries with broad industrial bases such as Iran, is also an “integral part of integration”
(You can call it organizational integration too). After a rather significant international acquisitions and merger journey by the local players (SABIC, IPIC, Aramco, KPC, OOC) of renowned Western companies (DSM, Huntsman, GE-Plastic, NOVA, Borealis, LANXESS, MEglobal) a new wave of consolidation seems to have kicked in: SABIC’s taking over of Shell share in the tradition-rich Sadaf JV and Tasnee selling its Cristal titanium oxide business to US-based Tronox are the two very recent examples. Iran, for instance, needs still to create functioning consolidation models post the abrupt NPC “privatization” which has created a fractured landscape for petrochemicals governance and challenges for further growth. Consolidation is an area which must and will further evolve. The interplay between the state-owned enterprises and other players such as regional conglomerates, foreign corporations, local family companies and stock markets, as well as high-level government policies will determine the future paths. In the context of fierce competition (global, regional and local) the ME players will face serious (scale, efficiency) challenges which, if mastered professionally, could create added value and new opportunities.
Not many new chemical molecules for industrial uses have been created recently. Innovation in manufacturing processes and applications of existing chemicals and/or their modifications and service differentiations have though been plentiful and highly effective. Middle Eastern players, besides creating their own research and innovation centers, can and should profit from the existing world-class innovations and best practices by striking international alliances with key
research, engineering and commercial institutions- from companies to academia. However this would –foremost- need a healthy supply of talent in different disciplines enabled by progressive national and corporate policies and strategies.
The region as a whole is not short of a healthy supply of talent in different disciplines mentioned above. At the national levels though, there are difference in individual countries, depending on their socio-political (demographic, developmental, governance, cultural) conditions. Despite these national differences and at the corporate levels, the industry must take a much more active role in creating, nurturing and enhancing its human capital as THE most both: immediate and sustainable success factor. Just to mention a very recent global executive survey conducted by Boston Consulting (BCG) – with the key finding: Leadership and talent management capabilities have a surprisingly strong correlation with financial performance. “Talent magnets”—those companies that rated themselves strongest on 20 leadership and talent management capabilities—increased their revenues 2.2 times faster and their profits 1.5 times faster than “talent laggards,” or those companies that rated themselves the weakest.
Middle East Petrochemicals as a whole is at a turning point. The image of lowest-cost supplier of bulk petrochemicals to the world’s consuming markets is challenged by new feeds (shale, coal), technologies and significant new capacities within those very markets. The regional players though have still strong means to address these and their other challenges. Whether in Saudi Arabia or in Iran: the excellence in and interplays between integration, consolidation, innovation and human capital are among the key measures for the regional petrochemical industry to maintain competitiveness and for reaching new heights.
Written by: Aman Amanpour, Independent Petrochemicals and Energy Consultant