Your Royal Highness(es), Your Excellencies, ladies and gentlemen: good evening. It’s a pleasure to be here today, and a privilege to begin my remarks by congratulating the organizers of the tenth Middle East Petrotech conference. Since the first event was organized in 1996, Petrotech has become our region’s premier refining and petrochemicals gathering, serving as an unrivaled arena for discussion, debate and knowledge-sharing among the Gulf’s downstream players. So while I thank the organizers of this year’s event for their kind invitation, I would also like to express the industry’s appreciation to a generation of men and women who have built this conference into what it is today.
My friends, this is my second major speech of the day, as I addressed the opening session of the Society of Petroleum Engineers’ Annual Technical Conference & Exhibition in Dubai this morning. So within twelve hours I have an opportunity to reflect first on the future of the exploration and production sector, and now to share my views on our region’s downstream industry. If that’s not value chain integration, I don’t know what is!
For some eight decades the Arabian Gulf has been a major player on the world’s upstream stage. So while our region’s E&P businesses are facing a more complex and challenging environment, they do so from a firm foundation and can leverage a global leadership position.
By contrast, the Gulf’s petrochemical industry is more or less half as old—and therefore half as established—as its upstream counterpart. That means the sector is still in a state of considerable evolution and growth, with tremendous upside potential and numerous opportunities to expand its operations, enhance its portfolio, and strengthen its capacity to add and create value.
So this evening I would like to focus on two main issues. The first is the vital importance of liquid feedstocks for the future of the petrochemicals industry in our region. The second and more complex topic is the ability of the region to grow its slice of the four-trillion-dollar global chemicals pie, and in so doing to create more meaningful employment opportunities for our economies and our societies.
Let me begin, though, with the question of feedstock.
As you all know, the supply of large quantities of additional ethane feedstock in our region is limited.However, nearly half of the world’s entire proven reserves of crude oil—roughly 800 billion barrels—are located right here in the Gulf. Taken together, this means that liquids in general, and oil in particular, are an attractive feedstock opportunity for the region’s petrochemical industry.
But there is more to that opportunity than just considerations of supply. Liquids also offer a broader product slate than ethane, while liquids cracking also unlocks attractive opportunities in higher value specialty chemicals—a topic to which I will return later.
And viewed holistically, more liquids cracking for petrochemicals would lock in larger oil sales volumes for our region’s producers over the long term. That is a critical consideration in light of greater energy efficiency and rising competition from other energy sources in a number of end-use sectors, including light transportation which has been a mainstay of strong oil demand growth for many decades.
But the utilization of liquid feedstocks in the region’s petrochemical sector will only come into its own when we improve the economics of those feedstock supplies by developing purpose-built technologies. Specifically we need to focus on oil-to-chemicals processes, so that we can eventually bypass the refining step and convert crude oil directly into petrochemicals.
At Saudi Aramco, we’ve adopted a two-phase approach to our research efforts in the field of liquid feedstocks. Phase One seeks to enhance existing liquid cracking technologies and maximize the yield of petrochemicals. This is an interim or incremental step, but it is an R&D opportunity that still offers significant operating benefits and considerable economic advantages for both our refining and petrochemicals assets.
Phase Two, though, sets as its goal the elimination of the entire refining step in the process, so that we can introduce crude oil directly into the petrochemicals manufacturing process. This will not only save time and money, but will also eliminate the need for new facilities and expensive and extensive infrastructure development. We are currently working with SABIC on a joint feasibility study that may eventually lead to an integrated crude-to-chemicals complex in the Kingdom. We strongly believe that this is the shape of things to come for our own petrochemicals business, and indeed for the rest of the Gulf’s chemical sector simply because the benefits are so enormous.
Which brings me to my second topic: enhancing the region’s share of both the worldwide chemicals market and its vast employment pool.
Global chemicals currently represent a market in excess of four trillion dollars, and that market is set to expand substantially in the decades ahead: the OECD predicts the global chemicals market will grow three percent per year through 2050, with sales in developing economies growing more than twice as fast as in the developed world. By the same token, the world’s chemical, pharmaceutical, and rubber and tire industries together employ approximately 20 million people.
While there can be no doubt that our region has made significant progress in petrochemicals manufacturing from a very modest start in the 1970s, the fact remains that our region’s petrochemicals revenues are less than 100 billion dollars, or two-and-a-half percent of the world total. The proportion is even worse when it comes to jobs, however. The regional chemicals industry employs a little more than 150,000 people, and accounts for less than one percent of the global number of jobs in the chemicals and related industries.
Considering the Gulf’s endowment of oil and gas, as well as our geographic proximity to major markets in Europe and Asia, both those figures should be much, much higher. And given the acute need for revenue generation and job creation in the region, there is no question that petrochemicals must play a more substantial role in our economies.
So, what do we need to do in order to bridge the massive gap between present reality and future potential?
In my view, there are four key strategies that would help us create more enduring wealth from chemicals while also generating greater employment opportunities for our citizens.
The first strategy centers on enhancing our existing value chains by producing more differentiated, higher value commodity petrochemicals, along with their derivatives. At Saudi Aramco, that includes increasing the integration of our refining and petrochemicals assets, and becoming a top-three player in ethylene, paraxylene and benzene.
Second, we should pursue the conversion of commodity petrochemicals into higher value products—that is, we need to extend the local value chain into manufacturing. The GCC’s petrochemicals sector has taken steps to move further downstream by expanding its manufacturing capabilities in the area of commodity materials. But the sector still has significant opportunities for growth into segments of intermediate chemicals and end-product applications. There is considerable value to be realized in these areas, but just as important is their potential to create new jobs and meaningful career opportunities.
The third key strategy takes us away from commodities and into specialty chemicals, and involves growing the manufacturing of these higher value products. At the moment, the region’s share of the global market for specialty chemicals does not exceed two percent. That represents a huge lost opportunity when you consider that in Germany and Japan, specialty chemical production generates twice the value of commodity-based chemicals. This is clearly the richest and sweetest slice of the pie, and one we should endeavor to grow.
The fourth strategy links to the third, in that we need to derive even more value from those specialty chemicals by building higher value downstream manufacturing and conversion industries, thus magnifying and multiplying the benefits of that production. Aside from domestic and regional demand, there are large and attractive export markets for these products, and here is where the Gulf’s prime geographic position—at the crossroads of Europe, Asia and Africa—can be highly leveraged to significant positive effect.
Taken together, these strategies will help to create greater value for our economies, spawn new industries which will help us reach our goal of greater diversification, and create significant opportunities for the well-paying, highly productive jobs our societies require.
At Saudi Aramco, we’ve embraced these strategies, and are putting them into practice with tangible results. Our Sadara and Petro Rabigh projects are both examples of each of the four strategies that I just outlined. They produce differentiated commodity petrochemicals as well as a slate of specialty petrochemicals, and have created conversion and manufacturing opportunities in their adjacent industrial parks.
In line with the Kingdom’s goals to help diversify the local economy and create meaningful employment opportunities, we will continue to attract further investments into these value parks and expedite implementation of investor projects. For example, 29 tenants have already signed agreements at the Rabigh PlusTech Park associated with Petro Rabigh, while five new firms were identified as potential tenants for Petro Rabigh phase two. Likewise, the Sadara team continues to work with the Royal Commission for Jubail and Yanbu‘ to develop the site for 32 projects already approved by the Ministry of Energy, Industry and Mineral Resources.
Of course, I don’t want to downplay the difficulties and challenges that stand in the way of creating the sort of integrated, differentiated regional petrochemical ecosystem I have described. First of all, we need to see more indigenous development of high-end technologies. Licensing agreements can take us some way down the path, but to create true competitive advantage and a sustainable leadership position in the industry, we need to develop our own technologies, processes and products.
Furthermore, while implementing these four key strategies across the region will create numerous job opportunities, they also require qualified technical talent to fill these positions. That translates into a sizable training and development challenge, and one whose solution must be expedited if we are not to lose ground to rapidly expanding petrochemical industries in places like China and India. Yes, we need technology and capital investments, but we also need talent—which actually highlights the promising opportunities for the many young people I see in the audience this evening and who will be attending this week’s conference.
Distinguished guests, ladies and gentlemen: in closing let me say that the Gulf petrochemical industry has come a long way over the last four decades, and its future prospects are bright indeed. But that immense potential will not fulfill itself, nor will our numerous opportunities come to fruition without hard work, dedication and determination.
As it has for twenty years, Petrotech has brought together the best and brightest of our downstream sector, and I believe that the people in this room have a fundamental role to play in adopting and adapting the four key strategies I have discussed tonight. If we succeed—if you succeed—our regional petrochemical sector will realize its full potential, and in so doing will produce greater prosperity for our economies, our societies and our nations.
Thank you, and allow me to wish each of you an informative and enlightening Petrotech experience.