| Abstract |
Kuwait's petrochemical industry is vulnerable to its exposure to the Asian market, particularly China which is its main customer, its narrow product range and dependence on naphtha could lead to an erosion of margins in 2012 as export markets hit a soft patch. While China's capacities are growing fast, BMI believes the Chinese market will slow down in 2012 as inflation rises and the government is forced to introduce more restrictive policies to dampen demand. Coupled with growth in output, measures to prevent over-heating will lead to a decline in imports and the potential for over-capacity in some segments. BMI's concern remains that Kuwait's naphtha-fed petrochemicals industry will be at a competitive disadvantage compared to the ethane-fed producers elsewhere in the region. In line with regional peers, most progress has been concentrated on olefins, intermediates and basic polymers rather than downstream plastics and chemicals industries. Kuwait will be competing for markets in Asia, particularly China, with Qatar and Saudi Arabia that are relying on ethane as feedstock, which in recent history has been priced far lower than naphtha that follows oil price trends. Kuwait's competitive disadvantage as the spread between ethane and naphtha grows could undermine the case for a third olefins plant, although by sourcing naphtha from domestic resources the country still has an edge over most Asian producers. However, if the plant were to rely on the country's untapped gas resources, either in an ethane-fed or mixed feed cracker, it may become a more attractive proposition. Moreover, after the debacle with the merger with Dow and uncertainties over feedstock availability, BMI does not believe the project will be completed before 2015, if it is completed at all. In 2011, Kuwait had ethylene capacity of 1.7mn tonnes per annum (tpa) feeding downstream units that included 825,000tpa LLDPE. It also has 370,000tpa of benzene, 822,000tpa of xylenes, 1mn tpa of EG, 765,000tpa of EO and 160,000tpa of PP capacity. In the fertiliser sector, Kuwait has capacities of 1.04mn tpa urea and 885,000tpa ammonia. Olefins and polyolefins capacities are unlikely to increase before 2016, with the main expansion projects completed in 2009. If realised, the 615,000 barrels per day (b/d) al-Zour refinery project would be the largest refinery in Kuwait and, potentially, the Middle East. Its output would be used to fuel local power demand and also boost exports of refined products as well as providing a naphtha stream for downstream industries. Certainly, new capacity could support another world-scale cracker. There are no plans for major additions to Kuwait's olefins capacity until 2016, with the planned Olefins III project at 1.4mn tpa of ethylene production capacity. Downstream plants would include EG, PE and PP, although capacities will depend on the feed mix. Given the near-constant political gridlock in Kuwait, the realisation of these refinery and petrochemicals projects is likely to be slow. As such, a third complex is still an aspiration rather than a firm plan and we have not included it in our forecasts. Kuwait Petrochemicals Report Q1 2012 © Business Monitor International Ltd Page 6 BMI has revised down Kuwait's petrochemicals rating by 0.6 points to 57.4 points this quarter due to deterioration in its Country Risk scores. It retains fourth place, 4.6 points behind the UAE and 0.9 points ahead of Iran. Kuwait's score declined over 2010 due to uncertainty over the future of the al-Zour refinery, which has attracted considerable controversy over its tendering process. The resumption of the al-Zour refinery project and other upstream projects helped improve the country's score in 2011. However, Kuwait's score has also under pressure in recent months due to deterioration in country risk caused by the economic downturn. |
