Golden opportunity

Cheap natural gas feedstock in Saudi Arabia presents a huge opportunity to firms in the Kingdom.

Saudi Arabia's abundance of cheap ethane feedstock has delivered the listed companies in the Kingdom a golden opportunity at a time when global competitors are reeling from a downstream product price collapse.

It is estimated that the natural gas feedstock in Saudi Arabia is sold at around $0.75 per BTU, far lower than European and North American producers can source.

Manufacturers worldwide face an intensely tough period due to the flip in petrochemical prices seen in the last few months. In less than six months prices - and revenues - scaled historical highs, followed by a rapid decline to the lowest level ever recorded.

In line with global realities, a downturn was anticipated, but the speed and extent of the fall was not. Added to this is the fact that huge new capacities will be coming on stream in the period 2009-2011, exacerbating that supply and demand gap further.

The downturn we are witnessing has already obliged many international companies to shut down their production units, giving the Middle East petrochemical sector a golden opportunity.

The majority of plants in the Kingdom have large production capacities, which means when output is high, the cost is further reduced, giving producers in Saudi Arabia another huge competitive ability.

Of course, Saudi petrochemical companies are affected by the current financial crises, and the listed companies have reported a decline in their fourth quarter results. SABIC, for instance, announced a 95% decline in its profits to US$82.76m, but weighed against the experiences of its global competitors, it is still on the winning side.

For comparison, global giants such as the US Dow Chemical announced fourth quarter net loss of $1.552 billion, and LyondellBasell have filed for Chapter 11 bankruptcy in the US.

The moment of truth in the petrochemical industry arrives when shareholders in Saudi Arabia and other Middle East countries which have been fortunate enough to only witness only the profit-soaked side of the industry are invited to live on the other side.

Will the current crisis strengthen the region's resolve? If so, we can be sure that established global producers will be fearful of just how strong Middle Eastern producers will be when the upturn beckons.

Abdelghani Henni is the editor of Petrochemicals Middle East.

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