GCC countries boosting downstream activities to increase petrochemicals exports

With Russia’s invasion of Ukraine reigniting debate about the pace of the energy transition and the risks of relying on oil and gas imports from countries with opposing agendas, discussion in the Gulf is framed around how to extract maximum benefit from hydrocarbons while also playing a responsible role in efforts to both mitigate climate change and maintain stability in international energy supply. Saudi Arabia aims to achieve net-zero carbon emissions by 2060 and is a founding member of the Net-Zero Producers’ Forum – a cooperative body representing 40% of global oil and gas production that seeks ways to accelerate the energy transition and reduce emissions from fossil fuels.

Downstream Opportunity

One of the ways Gulf countries plan to extract maximum benefit from hydrocarbons is by catalysing investment in downstream production and export capacity for petrochemicals and chemicals. By doing so, countries in the region can diversify their export revenue, enhance the resilience of public finances and create high-value employment.

The chemicals and petrochemicals industry’s importance to regional economic diversification was growing significantly in the years leading up to the Covid-19 pandemic. Prior to the health crisis, petrochemicals and chemicals contributed around one-third of the region’s manufacturing GDP, with more than 80% of local production exported beyond the region. They also directly supported some 613,000 jobs in 2018, equivalent to 2.4% of the GCC’s combined workforce.

Sustainability

Consumers and investors are increasingly aware of the environmental toll of certain products derived from petrochemicals and chemicals. For instance, single-use plastic products are becoming the target of regulatory efforts to discourage their usage. Consumers are also abandoning single-use plastics in high numbers: a 2022 survey by polling firm Ipsos found that 75% of people around the world would like to see single-use plastics banned as soon as possible, while 82% said they favoured products with less packaging.

In response to this growing sustainability shift, producers are embracing circular-economy principles. For example, the adoption of closed-loop value chains can help retain used plastics by redeploying them for use in feedstock, monomers and polymers.

Many policymakers have also begun to adopt circular economic policies and strategies at the highest levels. For example, Saudi Arabia’s SABIC has partnered with Saudi Investment Recycling to develop a chemical recycling plant to convert mixed plastic waste into feedstock for pyrolysis oil, a synthetic fuel that could be used as a replacement for petroleum.

Supply Chain Benefits

Beyond production, industrial supply chain emissions are significant contributors to greenhouse gas emissions in the chemicals and petrochemicals industry. However, accurately measuring and calculating these emissions remains a challenge.

With the bulk of the chemicals and petrochemicals produced in the GCC exported beyond the region, companies are considering how to optimise shipping routes and fleets to minimise the environmental impact of supply chains. Freight costs are already at elevated levels, and questions surrounding how to replace ageing fleets could drive prices up further.

Producers in the region are adopting big data solutions to predict changing market conditions. These technologies not only improve time and cost efficiency in bringing a new product to market, but also facilitate business model innovation and increase competitiveness. In particular, big data and analytics enable the integration of information from suppliers, factories, internal departments and third-party logistics firms. Analytics tools, meanwhile, can spur innovation, improve quality, bolster supply chain resilience and enhance customer service. Increased investment in research and innovation will be pivotal for product differentiation, process efficiency, cost advantages and sustainability – helping producers in the GCC to become more competitive in the international arena.