As Saudi Arabia accounts for more than half of the petrochemicals capacity in the Gulf Cooperation Council (GCC) states, any developments to reduce the production of greenhouse gases will surely have a positive effect on the region’s emissions portfolio, says Abdulwahab Al-Sadoun, secretary general, Gulf Petrochemicals and Chemicals Association (GPCA).

“We therefore recommend that the region’s petrochemicals companies continue to monitor greenhouse gases and also track carbon dioxide emissions,” Al-Sadoun told Arab News in an exclusive interview.

“Monitoring greenhouse gases is an important factor in developing a sustainable petrochemical facility, making it easier for chemical producers to identify specific areas in which emissions can be reduced,” he added.

These are highlights of the interview.

What is the GCC’ capacity in the petrochemicals industry with particular reference to Saudi Arabia’s role in the region’s petrochemical sector?

The GCC petrochemicals industry is a global leader in commodity petrochemicals production, with a current capacity of 142.7 million tons. Saudi Arabia makes up a majority of this portfolio, with producers in the Kingdom accounting for 91.8 million tons, or 64 percent of the region’s capacity. The petrochemicals industry is the GCC’s second largest manufacturing industry, generating sales revenues close to $100 billion in 2013. In 2013, the GCC petrochemicals industry grew by 3.7 percent compared with the previous year. In Saudi Arabia in particular, the industry grew by 4.3 percent. The petrochemical industry in Saudi Arabia represents 3.8 percent of its GDP and directly employs more than 83,000 people. For every one job created by the petrochemical industry, nearly 3 others are generated in other sectors of the economy, including construction, transportation and agriculture, totaling nearly 250,000 petrochemical-dependent jobs.

Is the shale gas revolution posing any challenge to the Saudi petrochemicals market and what is the impact of the global shale development on the Saudi petrochemical companies?

Access to abundant fossil resources has always been a competitive advantage for the Saudi Arabia and regional industry. Shale gas developments in the US have driven down the natural gas prices, but don’t present a dramatic challenge for the cost competitiveness of the GCC petrochemicals producers and their future expansion plans. However, investment in technology and talent is now even more important to maintain industry growth. And innovation is a must. The industry in the Gulf started late in the innovation game and so we will need to step up our efforts to develop our local innovation capabilities faster. GCC petrochemical players have many options that involve more upstream integration within the value chain to more effectively leverage feedstock developments. They can also expand into performance or specialty products, or consolidate the industry and build scale.

What advice would you give to the Gulf’s fertilizer manufacturers?

That growing world population and the need to increase the world food production by 60 percent to feed the world’s future generations, represents a major opportunity for Saudi Arabian fertilizer producers. As we will discuss in the upcoming GPCA Fertilizer Convention, taking place from Sept. 16-18 in Dubai, the Kingdom and other GCC producers can make a major global contribution to addressing food security challenges by providing access to and efficient use of inputs and resources. The industry in the Gulf region is growing twice as fast as the global industry average, with capacity reaching 42.7 million tons in 2013, a 4 percent increase from previous years. But the industry will have to increase its focus on sustainability and environmental conservation in order to stay ahead of competitors elsewhere. Several regional producers have already implemented strategies to reduce greenhouse gas emissions, recover carbon dioxide and reduce water consumption, but in the longer term, more should be done, also in light of constraints in the supply of natural gas. Production capacity in Saudi Arabia reached 17 million tons of fertilizer products per annum, including ammonia/captive products amounting to 2 million tons. The fertilizer industry in the Kingdom is adding to its products portfolio phosphate fertilizers (MAP/DAP) leveraging the abundant phosphate deposit in the Kingdom. Maaden started production of phosphates fertilizer back in 2001 with a capacity of 3.1 million tons. Its new Waad Al-Shamal complex, a joint venture between Maaden, Saudi Basic Industries Corporation (SABIC) and Mosaic, will have a production capacity of 16 million tons per year and is expected to start in late 2016.

What is the Gulf petrochemical companies’ investment in R&D and do you think GCC petrochemical companies have to increase their investment in R&D in order to remain competitive?

GCC petrochemicals producers spent $ 380 million on R&D in 2012, representing less than 1 percent of global spending in R&D for the year. In 2012, chemical companies in this region filed an estimated 500 patents, or just under 0.2 percent of the global amount. If you look at R&D investment from a worldwide perspective, R&D spending outside of the region is much higher — the global chemical industry spent $ 49 billion in R&D in 2012, a 10 percent increase in spending from the previous year. Additionally, the chemical industry filed nearly 350,000 patents in the same period. Producing petrochemicals is a technology-intensive process dependent on science and technology. R&D investments and patent grants are methods to gauge the innovativeness of an industry. So the fact of the matter is simple: we will have to up our game and increase R&D spending. However, it’s not only about technology: it is talent and technology combined with power possibilities. The industry is therefore closely working with leading academic institutions such as the King Abdullah University of Science and Technology (KAUST) to ensure that the Saudi Arabian petrochemical industry has a pool of talents that will enable it to continue to seize opportunities for the benefit of the Kingdom and the world.

Over the last three decades, the GCC petrochemicals sector has evolved from a chemical importing industry to one that exports. How has this happened?

The growth of the petrochemicals industry in the Arabian Gulf can be attributed to the abundant natural gas reserves. In the early 1970s, associated gas — the by-product produced upon pumping oil for the well — was flared as an unwanted byproduct. From this period onward, regional governments embarked on a program to develop a domestic market for associated gas. This program was used to support the rapid industrialization drive in the region, particularly the gas based fertilizers and petrochemical industries, which presented the best choice from environmental, economic and social perspectives. The abundant supply of natural gas enabled the industry to fully leverage the economy of scale building some of the world’s largest production plants in the region. On the backdrop of the small local and regional markets, the industry adopted an export-oriented approach. Today the GCC petrochemical industry exports 63.4 million tons of chemical products reaching 177 different countries across the world. The bulk of products exported are destined for markets in Asia. Saudi Arabia represents 59 percent of total chemical exports, making Saudi Arabia the largest chemical exporter in the GCC and the 14th largest exporter worldwide, creating a strong industrial base beyond oil refining and exports.

Water consumption by the GCC petrochemicals industry reached 1.16 trillion cubic meters in 2012. How can petrochemical producers conserve water in their manufacturing processes?

Responsible water consumption is a key issue for our industry and will top the agenda of the second GPCA Sustainability Conference, which will take place from Oct. 21-23. One of the industry’s sustainability goals is to reduce freshwater usage for process operations, using recycled water or cold seawater instead. We can learn from some of the best practices in the region. SABIC, for example, has a water system management in place, allowing that a large percentage of the water used in its operations is recycled.

Do you believe the GCC petrochemicals industry has taken positive steps toward achieving environmental sustainability over the last few years?

I think we have definitely made positive strides in achieving sustainability. Between 2012 and 2013, the GCC petrochemicals industry not only added capacity to its facilities, but also reduced the emissions per ton of capacity in its manufacturing units. This shows that the sector is growing in a way that is environmentally sustainable. However, we still have a long way to go. It is true that the GCC region has a high level of emissions per capita, but that is because the region as a whole has lower population density than that of the United States or China. As the Kingdom accounts for more than half of the petrochemicals capacity in the GCC, any developments to reduce the production of greenhouse gases will surely have a positive effect on the region’s emissions portfolio. We recommend that the region’s petrochemicals companies continue to monitor greenhouse gases and also track carbon dioxide emissions. Monitoring greenhouse gases is an important factor in developing a sustainable petrochemical facility, making it easier for chemical producers to identify specific areas in which emissions can be reduced.

Which are the major players (companies) in Gulf petrochemicals industry?

GPCA was established in 2006 by 8 major GCC chemical producers. Since then, the association’s membership had grown by a compounded annual growth rate of 23 percent. At present we have 234 member companies. Among them are 34 full members, who are the leading petrochemical and chemical producers in the GCC region accounting for 95 percent of the total output by volume. Among the major players are SABIC, Saudi Aramco Tasnee, Sipchem from Saudi Arabia; QAPCO and QAFCO from Qatar; PIC and Equate from Kuwait; Borouge from the UAE; and GPIC from Bahrain.

Are there any export barriers against GCC petrochemicals?

Petrochemical producers in the Gulf region export about 80 percent of the volumes of their products to other regions of the world — in fact more than 177 countries. It is very important for our industry to have access to world’s market unfettered by artificial trade barriers. Several of our industry players have been subject to protectionist measures in the past few years in leading global markets. Through concerted efforts and outstanding support from GCC governments, particularly in Saudi Arabia, we managed to challenge all the measures that are not in compliance with the WTO regulation. The WTO Bali package, which is due to be ratified this summer, creates binding commitments among member countries to increase customs efficiency and revenue collection by reducing bureaucratic procedures. It will reduce the cost of all GCC petrochemical exports, thus easing the flow of goods across borders and cutting delays in international shipments. The WTO estimates that benefits are estimated to be between $400 billion and $1 trillion as costs of trade are set to decrease by 10 percent to 15 percent, contributing to increased trade flows and higher revenues while creating a stable business environment.

Technology and innovation are being identified as the key drivers of future growth across the petrochemicals industry. What do you think?

I fully agree: science, technology and innovation, placed in the sure hands of talented human capital, will allow the region to retain its position as a global petrochemical leader and to diversify toward value-added specialty chemicals, formulated products and performance polymers.

Do you believe strong regional multi-stakeholder partnerships will be the key for a dynamic, flexible and growth-driven petrochemicals industry?

Wholeheartedly. The petrochemical industry in the Gulf is no longer simply operating facilities to manufacture products; it is becoming a key enabler of other industrialization activities. That requires collaboration across borders and synergies with other industries in the form of economic clusters. Only if we can join forces, we can compete and ensure that global and regional markets contain not just basic products, but also a significant number of consumer and industrial products labeled ‘Made in the GCC.’

Do you agree that ambitious railway developments in the Gulf region will become a critical enabler for industry growth by facilitating intra-regional chemicals trade?

Absolutely. Transporting petrochemicals is a complex process, and companies need to take into account lots of variables like safety, economic value and time into account. A well-planned railway network that offers high connectivity will provide petrochemical companies with an opportunity to safely transport their products across vast distances, reduce their overhead costs in a timely manner. Railways also provide an added advantage of incurring fuel savings, as well as environmental benefits. The Saudi Railway Company, for example, has estimated that one train on its network is the equivalent of 600 trucks, resulting in savings of 70 percent for fuel and greenhouse gas emissions.