Compound Surge

In 2015, according to a report by the Gulf Petrochemicals and Chemicals Association (GPCA), Qatar earned nearly $8 billion from its chemical manufacturing portfolio. The report forecast growth in the sector at 6% per annum over the next five years, with the region to produce over 190 million tons annually by 2020.

Such figures come as a surprise, as over 2015 Qatar witnessed several greenfield projects being put on hold and the cancellation of two major petrochemicals projects: Al Sejeel and Al Karaana. This was because Qatar’s petrochemical sector is largely ethane fed, and has therefore had its competitiveness reduced by the sustained low cost of naphtha, which is used by its competitors

China and India are Qatar’s largest markets for polyethylene output, but regional changes and flux in demand are further threatening bold expectations for growth. China’s slowdown, as well as India’s move toward fertilizer self sufficiency, are causing a shrinking of key export markets.

This problem has been compounded by the surge in output from Middle East competitors such as Iran and Saudi Arabia. One strength of Qatar’s production is that its petrochemical industry is more advanced in its development than sanction-hampered Iran. However, Iran is expected to witness strong growth following sanctions relief.

The modest recovery of naphtha prices has given a temporary reprieve to the industry, but some commentators are saying it is not sufficient to prompt optimism. Qatar is now focusing on expanding and diversifying its downstream portfolio in order to add value and support margins. A special emphasis is being put on de-bottlenecking at existing plants, and ultimately diversifying the product portfolio away from dependence on ethane feedstock.

The largest petrochemical producer is the Doha-based Qatar Petrochemical Company (QAPCO). It was founded in 1974, and produces and supplies ethylene and polyethylene to the plastic industry. Despite other projects being put on hold, it is planning the expansion of a third cracker unit at the Mesaieed complex, with a capacity of 400,000 tons per annum, increasing total ethylene production capacity at the site to 1.2m tons per annum.

Regardless of the challenges, Qatar has no reason not to use available feedstock and focus on diversifying production at existing petrochemicals facilities. Now the LNG value chain has been developed, Qatar is expected to push on with more downstream projects. One advantage that Qatar has over Iran is that projects there are time consuming, with long feasibility and front-end engineering and design studies. Qatar already has the head start in this increasingly competitive race.