The Middle East downstream industry, notably chemicals, requires fewer tariff barriers and higher efficiencies for additional capacity to compete with rivals in North America, China and India, according to analysts.
Despite having some of the lowest-cost oil reserves in the world, Middle East companies are unable to fully optimise these advantages in the chemicals sector, said Sanjay Sharma, vice president, Middle East and India at IHS Market.
“There’s not much domestic demand, growth rate is starting from a very small base, they’re primarily driven by the export market, high capital cost,” he said. Mr Sharma was speaking at an industry event on the regional downstream sector in Abu Dhabi.
National oil companies in the Middle East, which account for around 35 per cent of global oil production, have increasingly looked to beef up the downstream segment of their value chains to capture fast-growing consumer demand in China and South Asia. The downstream sector, which comprises refining and petrochemicals, has seen a distinct shift from regional NOCs who have favoured the industry with investment since the three-year slump in oil prices that began in 2014, attracted by its higher margins and more consistent returns.
Regional governments such as the UAE have allocated capital for downstream development in the domestic market and abroad, with state energy companies such as Adnoc looking to evolve as an integrated player. Adnoc has plans to invest up to $45 billion with its partners, in expansion and development of refining and chemicals capacities in its oil hub at Ruwais, which includes a project to develop the world's largest integrated refinery.
However, analysts say the region must be mindful of competitiveness and work towards removing trade barriers to compete with established players in China and India that are poised to add more capacity to market.
“China is back and they’re announcing projects on the basis of liquid feedstock, so they’re back in the business. North America is adding around 11 million tonnes of capacity. The Middle East is sitting on liquid feedstock, they need to find a competitive model to execute that,” said Mr Sharma.
“The product that comes from Singapore to India comes at zero tariffs whereas products from the Middle East go at 6 or 7 per cent tariff. So the governments should look to engage with free trade agreements.”
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Arabian Gulf NOCs are currently laying the foundations, building refining and chemical complexes that can process oil to chemicals more seamlessly than before. Saudi Aramco, the world's top oil exporter, for instance, is developing a $20bn oil-to-chemicals complex with Sabic, the region's biggest chemical player on its Red Sea coast. The facility, which will be integrated with the existing refinery at Yanbu, could have as much as 70 per cent conversion rate for chemicals, one of the highest globally.
“You’re talking about massive, massive volumes coming out of [just] one complex,” said Mr Sharma.
However, the projects that will most likely be completed over the next five years have to compete increasingly with others under way in the Asia Pacific.
"Asia Pacific is expected to contribute more than 50 per cent to the demand growth, out of that China's contribution will likely be 20 per cent, India's growth rate is quite fast at 9 per cent," said Mr Sharma.
Another strategy for regional companies is to find ways to invest in projects in China and India in order to seize growth more efficiently. In June, both Aramco and Adnoc announced formation of a joint venture to invest in a planned $44bn refining and chemicals complex in the western coast of India, along with domestic state-backed companies.
Analysts expect regional oil companies to increasingly back such developments.
“It makes sense to stay closer to the main customer base,” said a chemical developer who declined to be identified.
“These will be strategic moves and [the Middle East] will have to be innovative with products. It’s almost like the oil companies now really have to go out there and sell their products. That’s some shift. It’s new for the industry,” he added.
The Farewell
Director: Lulu Wang
Stars: Awkwafina, Zhao Shuzhen, Diana Lin, Tzi Ma
Four stars
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The years Ramadan fell in May
COMPANY%20PROFILE
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The%20new%20Turing%20Test
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How it works
1) The liquid nanoclay is a mixture of water and clay that aims to convert desert land to fertile ground
2) Instead of water draining straight through the sand, it apparently helps the soil retain water
3) One application is said to last five years
4) The cost of treatment per hectare (2.4 acres) of desert varies from $7,000 to $10,000 per hectare
How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
'Gold'
Director:Anthony Hayes
Stars:Zaf Efron, Anthony Hayes
Rating:3/5
Command%20Z
%3Cp%3E%3Cstrong%3EDirector%3A%C2%A0%3C%2Fstrong%3ESteven%20Soderbergh%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStars%3A%C2%A0%3C%2Fstrong%3EMichael%20Cera%2C%20Liev%20Schreiber%2C%20Chloe%20Radcliffe%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%C2%A03%2F5%3C%2Fp%3E%0A
MATCH INFO
Euro 2020 qualifier
Fixture: Liechtenstein v Italy, Tuesday, 10.45pm (UAE)
TV: Match is shown on BeIN Sports
THE LIGHT
Director: Tom Tykwer
Starring: Tala Al Deen, Nicolette Krebitz, Lars Eidinger
Rating: 3/5
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
