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Fri 22 Jan 2010 04:00 AM

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GPCA in review

Protectionism, project financing and industry sustainability topped the agenda at the forum.

GPCA in review
Ali Al-Naimi, Saudi petroleum minister.
GPCA in review
The fourth annual forum attracted more than 1100 delegates from all over the globe, including high profile management figures from the world’s top downstream companies.
GPCA in review
Stephen Pryor, president of ExxonMobil Chemical.
GPCA in review
Hamad Al Terkait, vice chairman of GPCA and CEO of Equate.
GPCA in review
All the major petrochemical producers from the region and from across the world were present in the exhibitors hall.
GPCA in review
Khalid Hamad, executive director of banking supervision, Central Bank of Bahrain.

Protectionism, project financing and industry sustainability topped the agenda at the forum.

The Fourth Annual Gulf Petrochemicals and Chemicals Association (GPCA) Forum was held from 8th to 10th December, in Dubai. The theme was "Breaking through the crisis to pursue sustainable growth" and the 2009 forum has been the largest in terms of delegates, attracting more than 1100 participants from all over the world.

All in all, the event was considered a success, especially when compared to other conferences in Europe, America and Asia, which have seen a notable reduction in the number of attendees. The GPCA had its biggest year ever, with attendees citing it as the best forum for networking and securing new business opportunities.

"It represents an excellent opportunity for networking, compared to other events around the world where the same people attend every year," said Mehdi Adib, vice president, projects at the Saudi International Petrochemical Company (Sipchem).

The GPCA also delivered an interesting insight and local perspective into the industry at large, with a focus on how the regional players were integrating sustainability into their growth agenda.

Major petrochemical producers from the region and from across the world were present in the exhibitors hall. Included were SABIC, Tasnee and Sipchem from Saudi Arabia, all of which attracted many visitors due to the attractive propositions these new titans of the industry now offer.

The UAE's Borouge also exhibited, along with Kuwait's Equate and Petrochemicals Industries Company (PIC). Qapco from Qatar and GPIC from Bahrain were present, as well as major international producers like Dow Chemical and ExxonMobil from the US and Lyondellbasell from Germany.

Mohamed Al-Mady, chairman of the GPCA and vice chairman and CEO of SABIC, told journalists before the forum's launch that the association now has 141 members from 20 countries. He also noted that the recession had strengthened the Middle East's significance as a petrochemical manufacturing hub, and that conditions had improved significantly in the previous 12 months. which had seen the global financial system in disarray and the economy deal with a sharp global downturn. "Now, one year later, there is some room for guarded optimism," Al Mady said.

The SABIC CEO also revealed that the main concerns of petrochemicals producers in the region are linked to the protectionist measures that have been sparked by difficult economic conditions. "In times like these, governments sometimes yield to anti-globalisation arguments, which is a very serious challenge to the expansion of global trade and a serious concern for petrochemical producers in the Gulf," he added.

The forum featured 11 major sessions, mainly focusing on the impact of the economic crisis on the different aspects of the industry in the region and how to succeed during the downturn.

Two breakout sessions also took place.  One, focusing on human resources, discussed "Leadership in an Era of Constant Change," by Dr Vijay Govindarajan, one of the world's leading experts on strategy and innovation. The second breakout session on sustainability was entitled "Pursuing Sustainability in the Chemical Industry."

Saudi Highlights

Saudi minster of petroleum and mineral resources, Ali Bin Ibrahim Al-Naimi, delivered the opening keynote address highlighting petrochemicals diversification.  "Energy companies should take a longer-term view in their business strategies rather than focus on next quarter's profitability," said Al-Naimi.

Al Naimi added that neither the recession of 2008 and 2009 nor any protectionist measures by parties outside the GCC region can alter the fundamental reality of the region's long-term comparative advantages that will enable it to be the world's leading hub for petrochemicals production, and increasingly, the hub of choice for more sophisticated downstream producers and converters.He also announced that several initiatives to provide additional supplies of feedstock to the petrochemicals industry in Saudi Arabia are under way. "We are bringing a number of gas facilities into operation, which will have ethane supplies," he said. "Between now and 2014, we will have brought on stream facilities yielding another 400 million standard cubic feet per day of ethane."

Al Naimi, who is also the chairman of Saudi Aramco, said that the region has successfully attracted investment in the chemical industry because of its competitive advantages. "These include reliable, affordable supplies of feedstock, geographic location, and port facilities to serve the Asian and the European markets," he said.

Highlighting the importance of the petrochemicals industry in the Kingdom, the minister referred to the number of listed petrochemicals companies in the Saudi stock market (Tadawul), which reached 13 firms in 2009. "From a single petrochemicals complex in 1983, the Kingdom now has 24 mega petrochemicals complexes, 14 of which are in joint ventures with international companies," he said.

In response to a question on whether Saudi Arabia will adhere to previously announced plans to raise the price of gas allocation from 75cts per million btu to $1.25per million btu as of 2012, Al Naimi said that the Kingdom has not yet decided on the price it will charge. "We will continue to sell at 75cts per million btu and we will continue to look at what is the appropriate price."

Finance Talks

The main speaker during day two of the event was Khalid Hamad, executive director of banking supervision, Central Bank of Bahrain. He noted that the shorter maturity and the associated refinancing needs are the major risks for project financing in the petrochemicals sector as stability returns to credit markets.

"Financing is still available for sound projects, but it is unlikely that we will see an immediate return to 20-year maturities. Project development will need to take into account not only a higher cost of credit, but also the need to refinance at some point during the life of the project," said Hamad.

The regional petrochemicals industry could benefit from alternatives to banks, such as Islamic finance, according to Hamad.  "However, until there is greater consolidation in the Islamic financial sector, Islamic banks themselves are unlikely to be sufficiently large to finance major projects.  For that, Islamic securities may provide a more viable financing model," he said.

Hamad stressed the need for the region to develop its capital markets and broaden the range of financing options for major projects.  As the global economic recovery takes hold, new opportunities in the petrochemicals sector will become more apparent and the emerging markets will play a bigger role in the global economy.  "This will have significant implications for the demand for petrochemical products and hence for opportunities in the sector."

Supply Chain

Meanwhile, Hamad Al Terkait, vice chairman of GPCA and CEO of Equate Petrochemical Company, said the Gulf region is, and will remain, a strong focus of growth and progress for the industry.  Al Terkait said that the supply chain in the region should be improved and ports need debottlenecking. "The Jebel Ali port is the main operating port in the region.

It serves all the countries of the region and more than 51% of Saudi petrochemicals companies use it to transport their products," said Al Terkait. "What will be the case when Borouge will be fully operational?  We should solve these issues before it become a real concern," explained Al Terkait.

Stephen Pryor, president of ExxonMobil Chemical, noted that the challenges the industry faces are related to tariff barriers, climate change regulations, and cost. "Dumping charges and tariffs are a concern for an industry built on free trade and open access, and a particular issue for Middle East exports," said Pryor. "We must be vigilant and proactive in defending free trade to these threats," he said.

Adding other dimensions to the position of the Middle East, Greg Garland, president and CEO, Chevron Philips Chemical, said that the strong partnerships with the regional players, access to low cost feedstocks, easy access to emerging markets, and valuable human resources are of the prime consideration, as global companies continue to expand in the Gulf region and maintain a positive outlook for the region.

Attendees of the fourth forum agreed that this year event was exceptional in all dimensions, and voiced the hope that the fifth annual forum will take place under better economic conditions.