Meeting the demand

OBG talks to Abdul Rahman A. Hussain Jawahery, President, Gulf Petrochemical Industries Company (GPIC)

How is GPIC being affected by a slowdown in world demand for petrochemicals?
JAWAHERY: Many petrochemical plants around the world are shutting down production or reducing capacity to reduce inventory levels due to high operating costs. However, GPIC has no concerns for 2009. We have reduced capacity and do not foresee the need to in the short term at least. This has been attributed to the effective operations of the production units and adherence to stringent control on expenditure, regardless of the volatility of product prices. Also, there is not delay in our expansion plans, which are under way. Although GPIC will actively seek to keep costs to a minimum, it will neither cut jobs, nor change the operational budget for 2009.

 



Some claim that demand for petrochemicals, largely used for production of fertilizers, is set to weather the financial crisis better than many other markets as demand for food will not decrease. Even though the latter is true, it is dependent on the availability of credit facilities for farmers and importers of fertilizer whether sustained demand for food will result into demand for petrochemicals. We believe it is up to governments to take initiatives to secure financing and safeguard ample food production.

In a way, the financial crisis is benefiting the petrochemicals industry. Over the past few years, economic wealth in some parts of the world had started to lure financial institutions more often focused on short-term financial gain than long-term sustainability to the industry. This is a precarious development, particularly in our industry where health and safety regulations should always be a top priority. With the economy slowing down, I foresee a good future for the petrochemical industry.

Is there a problem with feedstock for your operations, and are there plans for expansion?
JAWAHERY: Although GPIC is currently looking for expansion opportunities, it is true that what we need most is access to competitive feedstock, as Bahrain's resources are limited. However, over the past two years Bahrain has been actively exploring for new oil and gas fields in its territorial waters as well as enhancing the production of its existing wells. Contracts have been awarded and geological and seismic work is under way. Due to the recent advances in technology the new wells can drill deeper than in the past. There is also and enhanced oil recovery program under way. Which is aiming to increase output by 100% to 70,000 barrels per day. GPIC is a top priority in the allocation of these new resources and is hopeful to benefit from them over the course of the next two to three years.

Even though I am very confident that more oil and gas will be found, GPIC is prepared for the situation where imports would have to substitute domestic production. Importing feedstock would inevitably result in higher prices and, although our profit margins would be compromised, we have reached ample stature to deal with this. The priority for now is to sustain what we have. Any additional quantities will be used for expansion of current capacities.

What shape is the petrochemicals industry likely to take as a result of consolidation?
JAWAHERY: Consolidation among producers of petrochemicals is inevitable, and uneconomical plants will soon give way to the more cost-effective ones. A typical trend we are likely to see is the concentration of basic and intermediate production of petrochemicals in the Middle East, particularly in the Gulf. Around 40% of the world's gas reserves are located here, yet a mere 9-10% of worldwide production is realized in the region. A substantial part of global production still comes from Western countries, which often have more difficult access to gas. These areas will shift away from basic production and focus on activities for which the resources are more readily available, for example research and development.