Home > OUR NEWS & MEDIA> President's Speeches & Interviews> Interview with Business outlook – Monday 13 October 2008

Topics for Discussion

  • GPIC’s business model and practices are a clear example of the company’s alignment to Bahrain’s modern and forward-thinking attitude to business. Comment on the strategic and visionary pillars underlining your top priorities for 2009.

Although Bahrain is the smallest country in the Arabian Gulf region, it has continued to play a pioneering role, starting from oil exploration and refining, then becoming the premier off-shore financial hub in the region and now the leading Islamic banking centre in the world.

Despite a lack of oil and monetary resources, a clear vision, creative approach of the leadership to political and economic reforms and determination of an economic think-tank have combined to move Bahrain to look for more sustainable sources of growth. The transition to an open and diversified business economy in a rapidly globalising environment has now placed Bahrain on the economic growth trajectory.

GPIC reflects the spirit of Bahrain. In the midst of petrochemical giants in the region endowed with huge financial and oil resources, GPIC has proved to be the most efficient and cost-effective producer of petrochemicals of the highest quality. In addition, GPIC has set the highest standards in safety, reliability, environmental care and social responsibility, which have been recognised globally.

This achievement has not been accidental; it is a result of a well crafted strategy for sustainable growth based on a clear set of core values, realisation of GPIC’s limitations and recognition of its strengths. The vision for future growth is based on a comprehensive corporate strategic plan to the year 2020 that envisages on the one hand an expansion of the existing capacities in the present complex, once additional gas is available, and on the other hand exploring investments projects abroad where our experience in operating, maintenance and management skills can be gainfully deployed.

  • The global economic slow-down and how Bahrain and its business community are reacting. GPIC’s performance and its outlook in the short and medium term.

In the current globalised environment it is almost impossible for any economy, including Bahrain to distance itself entirely from the turmoil in the west. In the diversified economy of Bahrain the financial sector has a significant share and the international downturn and write-offs will take its toll, however Bahrain is reputed to have a robust regulatory framework to reduce the impact. Again, after 9/11 there was a major shift in funds from the West to the Middle East and a lion share of it went into Islamic funds based out of Bahrain. These funds have not borne the same level of impact as the conventional funds held by the international commercial banks. However, the economic slowdown and the depressed real estate market will take its toll, but without really threatening the viability and existence of Bahrain’s institutions.

In the case of GPIC, the main market focus for its products, particularly ammonia and granular urea, is tied to the food sector and while the importing countries will tighten their belts the impact will be minimal. This will enable GPIC to sustain its profitability level in the near future.

  • Development of advanced petrochemical products, diversification of production and outlook for growth, in a context of exploiting the GCC regions’ diversity and interaction.

The petrochemical industry plays a major role in our daily life. Almost everything on which we are dependent nowadays is made from petrochemicals, be it plastics, clothes, home appliances, etc.

Each new house contains an average of US$16,000 worth of petrochemical products and each new car US$2,500 worth, according to the American Chemical Council.

Hydrocarbon feedstock accounts for 60-80% of the production cost of petrochemicals, which gives GCC producers a huge competitive advantage. The fact that the Arabian Gulf region (GCC) holds about 37% of the world's oil and about 24% of the world's gas reserves (Middle East Region has about 56% of the world's oil and 41% of the world's gas reserves) alone is enough to make the GCC region in particular and also the Middle Eastern Region in general a continued focus for new opportunities in the field of advanced petrochemical products.

Cheap ethane means a production cost of around US$400 per tonne of polyethylene. Needless to say that the region’s ethane resources are not inexhaustible, but even when it has to make the product from more expensive naphtha, it costs no more than US$1,000 per tonne. Elsewhere in the world producers are struggling to produce polyethylene for less than US$1,500-1,600 per tonne. It is estimated that the cost of crude oil would need to drop below US$15 a barrel for Western producers to be competitive with GCC producers.

Even if Feedstock prices vary by country in the GCC, they all provide feedstock at attractive prices that provides an incentive to invest in the petrochemical production.

Oil & Natural Gas Reserves in the Middle East Region

Country

Proven Gas Reserves as at Jan. 2007 in Trillion Cubic Feet (tcf)

Proven Gas Reserves as at Jan. 2007 in Billion Barrels

Iran
948
136
Qatar
905
15
UAE
214
98
Saudi Arabia
253
264
Iraq
112
115
Kuwait
55
101.5
Oman
30
5.5
Yemen
17
3
Syria
8
2.5
Bahrain
3
0.125
Total
2,545 tcf
~ 72 Trillion Cubic Metres (tcm)
740.625
~ 739 Billion Barrels
World Reserves
175 tcm
1317 Billion Barrel

Oil and gas are vital resources to fuel the engine of petrochemicals’ development and growth in the Arabian Gulf region.

Petrochemical industries are primarily based on natural gas and naphtha as feedstock. They are processed in crackers into a number of gas derivatives such as methane, ethane, propane, butane and natural gasoline.

These primary gases are converted to the building block material for petrochemical industries. For instance, ammonia which is the basic fertilizer feedstock is derived from methane and so is the methanol which is used for the production of many chemicals.

Ethylene is extracted from ethane and is used for the production of a number of chemical and plastic products.
Propylene is extracted from propane to produce polypropylene, the base of many plastic industries.

Aromatics are derived from naphtha and are used in many industries such as paints, detergents etc.
By the year 2010 the Middle East will produce above 20% of the world’s basic petrochemicals and polymers, such as ethylene and polyethylene.

But the demand comes mainly from China and to a lesser extent from India. Opportunities for continued and future petrochemical development include exploiting the energy advantage to a greater degree. The development further along the petrochemical value chain will be driven by an export orientation.

Most of the GCC countries such as Saudi Arabia, Kuwait, Qatar, UAE have already in place healthy and growing petrochemical production that utilises methane, ethane, and gas liquid feedstock in petrochemical units. These plants are of global size and utilise the best and state-of-the-art technologies. With primary and secondary chemical production already flourishing, some of the producers have begun exploring tertiary industries. This can offer diversity and better value addition to the industry. They are actively collaborating with petrochemical industry participants to gain access to technology and expertise.
I am confident that Gulf cooperation in petrochemical industries will succeed for a number of reasons. In a relatively short period not exceeding 30 years since inception, the petrochemical industries in the Gulf were able to achieve vast growth and wonderful success. As such, the Gulf region has become a centre of attraction and interest of several numerous major global petrochemical companies. It is forecasted that the size of investment in the Gulf petrochemical industry will reach some US$80 billion by 2010.

As a matter of fact, GPIC's corporate strategic plan also covers the manufacturing of secondary petrochemicals such as acetic acid and expansion in other basic petrochemicals.

  • Environmental awareness is at the forefront of GPIC’s core values and has made it stand out on an international scale for its achievements. Comment on the company’s continued effort to upkeep the high standards of security and environmental protection, and how international know-how and expertise contribute to your success.

The GPIC fish farm, bird sanctuary, herbal, fruit and vegetable garden are unique and innovative initiatives to demonstrate that at GPIC we do not pollute the water, air or soil in and around the complex. But at GPIC environmental issues are not dealt with independently from the core issues of operating and maintenance to produce quality petrochemicals in a cost effective and reliable manner, environmental issues are integrated into the techno-commercial feasibilities. The potential environmental hazards of storing and handling huge quantities of ammonia were overcome by adding a plant to divert a major portion of the ammonia produced to make urea. Urea is not only environmentally safe to store and handle, but it also adds value and contributes positively to the revenue, profits and cash-flows.

Again as soon the technology of carbon dioxide recovery was found to be technically feasible, GPIC decided to initiate a carbon dioxide recovery plant, in which the carbon dioxide that would otherwise be vented will be captured to add to our existing production volumes. So an environmental measure was integrated into a commercial proposition.

  • Major international partners and clients, and expectations for the volume of sales growth for the next 5 years.

GPIC will continue its marketing and sales strategy plans for the international markets with its marketing partners, Saudi Basic Industries Corporation (SABIC) and Petrochemical Industries Company, Kuwait. The marketing strategies are to place GPIC’s products in premium markets offering its customs reliable off-takes and the best in product quality. The excellent customer relationship with our buyers in America, Europe, Asia and Australia is strengthened through our continuous follow up with our marketers to meet our customers’ expectations.

GPIC is presently completing its corporate strategic plan for the future until the year 2020. The strategy will draw the roadmap for future investments both locally, regional and internationally for grassroots plants and downstream projects for its current ammonia, methanol and granular urea production.

  • Europe and the GCC and Bahrain as one of the most strategic locations for potential investors. GPIC’s view, interaction and aspiration for ever-greater collaboration/business ventures.

Over the past 25 years the reliable, efficient and cost effective manner in which GPIC has operated and maintained its plant has impressed not only the other petrochemical manufacturers around the world, but also the suppliers of the major items of equipment in Europe and Japan who want to seek avenues or recommend initiatives to cooperate with GPIC for new ventures.

The open business-friendly socio-economical environment of Bahrain created by the Kingdom’s leaders has added to the allure of parties wanting to invest in joint ventures with GPIC.

  • Message to the international community of investors, key TIME magazine readers.

Message to the international community; Bahrain has:

  • A progressive environment dedicated to promoting economic growth through a wide series of reforms and initiatives to advance the economy, labour market, education, healthcare systems and protection of human rights.
  • A government committed to ensuring a business friendly financial, legal, tax and regulatory structure.
  • Strong economic fundamentals making it the freest and most open economy in the MENA region.
  • A well established and regulated banking and finance sector (with strong emphasis on Bahrain being the epicentre of the fastest growing Islamic banking sector).
  • A well developed infrastructure built to international standards for new developments in the service and industrial sector.
  • A convenient geographical location together with excellent transport links that can provide a base to foreign corporations to access the huge and booming MENA market.
  • The first and only Gulf state to sign a US Free Trade Agreement.
  • A socially progressive, multi-national cultural and family friendly lifestyle in a relaxed, tolerant and cosmopolitan environment that is regarded as the most welcoming and liberal society in the Gulf, offering a relaxed, comfortable, modern work-life balance.