Resilience in the petrochemical industry in Saudi Arabia and Kuwait www.intpcc.com
Petro chemical Supplying Company ( Petro CSC )
Petro Chemical Supplying Company is a global Group based in Iran which produce and provides chemicals raw materials .
The global oil and gas industry faced significant challenges with the advent of the COVID-19 pandemic, suppressing global demand. While the industry has been looking up since the pandemic, its recovery has been hampered by the combined impact of global inflation and the recent economic recession. A slow downturn in oil demand due to tighter efficiency standards and expanding use of green energy has also affected the petrochemicals market.
While demand for petrochemicals reduced during the pandemic, the supply capacity stayed the same and even increased in regions like China, leading to a price drop. Member countries of the Organization of the Petroleum Exporting Countries and allies (OPEC+) pushed for oil production cuts to shore up prices in the petrochemical industry. The production cuts have been extended to 2.2 million barrels per day for the second quarter of 2024, with Saudi Arabia petrochemical stakeholders, Iraq, UAE, Kuwait, Kazakhstan, Algeria, Oman, and Russia all participating in the agreement.
However, demand is expected to stabilize. China and India form the largest plastics and petrochemicals consumer markets. 12% of the world’s oil production is currently used for petrochemical feedstock, and the proportion is expected to grow by 25% by 2030.
Growth Opportunities
The Kingdom of Saudi Arabia (KSA) and Kuwait are uniquely placed to capitalize on this growth , considering their significant role in the global petrochemical industry. KSA is home to 17% of the world’s proven petrol reserves and contributes 10% of the world’s chemical trade. Kuwait, on the other hand, held 7% of the world’s petroleum reserves with a production capacity of 2.7 million barrels per day in 2023.
The Kingdom aims to invest $600 billion into the petrochemicals by 2030 and has launched a Chemicals Sector Strategy to improve downstream production capacity. The Kingdom is particularly concentrating on specialty chemicals, plastics, rubber conversion, and inorganic chemicals, captalising on current production of upstream products. It aims to increase its production capacity of specialty chemicals to 8.7 million tonnes per annum by 2035. Additionally, the nation has set targets to produce 115.7 million tonnes of plastics and elastomers annually by the same year.
Despite Kuwait's plans to invest in the petrochemical industry, the current investment strategies fall short of achieving the desired growth targets for both upstream and downstream capacities. The country targets downstream expansion to reach 1.2 million tonnes per annum by 2040, which includes expansion of upstream capacity of Kuwait petrochemical companies through investments of more than $44 billion in oil production and exploration by 2025.
How downstream petrochemicals trade will drive growth in the sector for Saudi Arabia and Kuwait
Saudi Arabia’s petrochemicals constitute the second most significant export for the country. The country focuses on exports of high-value downstream chemicals and is currently encouraging foreign and domestic investments in the industry.
On the other hand, Kuwait produces low-cost products and sells them to developing petrochemicals markets. However, the country lags behind others in the region such as Saudi Arabia and the United Arab Emirates and needs to increase productivity to be at par with her neighbours.
Therefore, expanding the petrochemical industry is central to diversifying the economies of both Kuwait and Saudi Arabia as it provides essential raw materials for manufacturing various products within their domestic markets and for export.
The place of sustainability
Attracting investments in the today’s global climate requires a focus on sustainability in production processes. The oil and gas sector, in particular, faces significant challenges in adopting sustainable practices. With growing commitments to net-zero carbon emissions worldwide, many investors seek investment destinations with clear strategies for reducing greenhouse gas emissions.
The use of plastics and other downstream products of the oil and gas sector is expected to remain significant, indicating that the petrochemical industry stands to be lucrative in the coming years. The demand for green chemicals (chemicals produced through sustainable processes) is expected to grow at a compound annual growth rate of 10% between 2023 and 2025 to reach USD 161 billion. This is an opportunity for industries like Kuwait and Saudi Arabia petrochemicals to leverage green processes and take over the expanding market.
China, which is significantly investing in expanding its petrochemical industry, is already focusing on key building blocks of plastics such as olefins and polyolefins. The country is also transitioning to green feedstocks for oil and gas derivatives, which reduces carbon emissions.
These sustainability initiatives are expected to take centre stage as countries like Kuwait and the Kingdom of Saudi Arabia diversify their economies.
Supporting growth through efficient supply chains
Building resiliency through logistics and supply chain improvements can enhance these countries’ position in the global market. To effectively capitalize on the growth of the oil and gas sector, Saudi and Kuwait petrochemical companies should prioritize:
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