United Arab Emirates Petrochemicals Report Q2 2008

The expansion of the Borouge complex continues apace, despite the doubling in costs, and is likely to see the UAE become a significant petrochemicals exporter within the next two to three years, according to BMI's latest UAE Petrochemicals Report.

Borouge plans to increase its polyolefins production capacity to 620,000tpa in 2008, from 574,000tpa in 2006 and 518,000tpa in 2005. Increased capacity will be provided by the installation of a sixth furnace, which will provide extra ethylene. It is targeting production at 2mn tpa by 2010 at its Ruwais plant. The 1.45mn tpa Borouge 2 cracker, due onstream in 2010, is set to provide much of the feedstock for the increase capacity. However, expenditure on the project has increased nearly twofold of initial estimates to US$4.5bn, including the US$1.8bn Borstar technology-based polyolefins units, and $1.3 bn ethylene and metathesis plants. Two of the new units will make PP, each with 400,000tpa capacity and one unit will have a 540,000tpa polyethylene capacity. The expanded complex will be the largest plastics and petrochemicals complex in the Middle East and one of the largest in the world. Presently, Borouge supplies 35% of its output to the Middle East with the rest exported to Asian markets. The company is hoping that Asian markets will absorb the increase in output. Borouge is anticipated to grow twice its current size by 2020, with further development after Borouge 2. Between 2010-2020, it aims to boost ethylene capacity potentially by 2mn tpa through 2020. However, Borouge has abandoned its plans to expand its portfolio by including basic petrochemicals. Abu Dhabi National Oil Company (Adnoc) and Borealis had been looking at a plan to build a propane dehydrogenation facility and a major cumenephenol complex.

In BMI's Middle Eastern Petrochemicals Business Environment Rankings matrix, the UAE has retained its fourth place ranking, lagging behind Saudi Arabia, Kuwait and Qatar. In terms of its overall score, the UAE is 3.8 points ahead of Iran and 2.1 points behind Qatar. The UAE petrochemicals industry business environment is fairly attractive in regional terms due to abundant, cheaply extractable feedstock supplies, a low risk business environment in general, and the fact that it is well placed geographically to export to Asia. However, a narrow production portfolio and current low production capacity relative to potential feedstock are primary reasons for a constrained growth.

There are a number of hurdles that the UAE will have to overcome. There are suggestions that spare volumes of gas will not be available until beyond 2012, which could limit the amount of feedstock available to Borouge. This highlights one of the chief problems the UAE's petrochemical sector will face in the next decade. The massive rise in capacity may not be accompanied by a concurrent rise in output, even with the increase in supply from Dolphin, a pipeline project supplying gas from Qatar. Ethane will become less available and petrochemical development will likely require greater dependence on heavier feedstocks such as propane, naphtha, or gasoil. The UAE is also facing rising costs in construction costs, which could impact on the profitability of the new cracker and associated downstream units. At the same time as Borouge's cracker is due to come online in 2010, growth in Asian markets is due to moderate.

Nevertheless, Borouge anticipates that polyolefin demand in the Middle East and Asia is expected to grow by 6-8% per annum until 2010, and should absorb the capacity expansions