Growing petchem sector in Gulf to keep energy demand afloat: Fitch

A steady regional growth in petrochemical sectors among Arabian Gulf states will keep fuel demand strong over the next decades, noted a report by Fitch Solutions Macro Research (a unit of Fitch Group).

The report cited OPEC’s recently released yearly World Oil Outlook, which foresees the petrochemical sector emerging as a ‘front runner’ in terms of future energy demand, in particular oil and natural gas, that are used as feedstocks under the form of naphtha and natural gas liquids such as ethane and propane.

“As heat is an essential element for running chemical reactions, the strong performance of the petrochemical industry is also expected to require additional volumes of natural gas, which represents an inexpensive and reliable energy source,” the report maintained.

Noting that major regional players are aiming for substantial growth in petrochemical capacities over the next five years, the report added Saudi Arabia is actively seeking to increase the use of liquids for petrochemical feedstock, so as to avoid putting further pressure on gas supply, as the kingdom's production struggles to satisfy growing domestic demand.

The report further cites OPEC data that foresees a ‘very healthy’ outlook from the petrochemical sector with oil demand forecast to increase by 4.5 mbd from 2017-2040, while oil demand from the road transportation sector, which has traditionally been the sector with highest incremental demand, is expected to increase only by 4.1 mbd over the same period.

The Fitch report adds amidst regional developments, Kuwait is currently working on boosting its petrochemical sector with its planned Al-Zour Petrochemicals Complex.

“In June 2018, Kuwait closed its 1.1 million ton year urea fertilizer plant and associated ammonia operations, mainly due to a diversion of focus onto olefins and aromatics, combined to a decline in urea and ammonia prices. The country now aims at strengthening its petrochemicals sector, as illustrated by the development of the Al-Zour Petrochemicals Complex,” the report added.

Kuwait’s energy consumption is set to stay strong in the mid- to long-term, as the country is currently pressing ahead with plans to add value and monetize refinery naphtha output as well as ethane from associated gas resources.

“The planned new olefins and aromatics facilities downstream of the Al-Zour refinery will enhance Kuwait’s competitiveness on external markets and contribute to the country’s efforts towards diversification of the economy,” Fitch noted.

However, it added one of the major challenges associated with the development of large-scale projects within the petrochemical industry in Kuwait lies in the existence of enough demand to absorb output.