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Manufacturing industries to diversify Kuwait economy

Monday, 26 October 2009 15:05

Kuwait appears to be sharpening its industrial focus, looking to build on its existing strengths while reinforcing existing high-profit revenue earners.

Although Kuwait has sought to diversify its economy away from a dependency on oil production, hydrocarbons still form the backbone of GDP, contributing around half of the total. The programme of diversification has certainly seen a broadening of the economic base, but directly or indirectly the foundations are still built over the country's energy reserves.

This is very much the case for Kuwait's manufacturing industries. Though a wide range of sectors have been fostered, nearly all rely on hydrocarbons either as feedstock or to provide cheap sources of energy to process imported raw materials.

Though most of these industries have proved profitable in their own right, and in cases such as steel or cement production directly supporting Kuwait's growth, it now seems that some may fall by the wayside, as focus turns to olefins. The chemical compounds made from fractionates of natural gas liquids, typically turned into ethylene and propylene, act as the building blocks for other chemicals, plastics and fibres.

On October 11, Yousef Al Ateeqi, the deputy managing director for olefins at Petrochemicals Industries Company (PIC), said the firm was planning to sell off or shut down its fertilisers business, one of the company's oldest arms.

The move would allow PIC to focus on its more profitable petrochemicals division, said Al Ateeqi, who is also the chairman of Equate Petrochemical Company, which runs PIC's main olefin plant.

"Our plan is to quit the fertilisers business in the medium to long term through privatisation or closing down," he told the Reuters news agency. "In petrochemicals, we plan to pursue growth inside and outside Kuwait by building or acquiring leading petrochemicals assets in mature markets with a proper foreign partner."

Kuwait began chemical fertiliser production in 1966, the first such project in the region, with a gradual build up seeing three ammonia plants and two urea plants brought on-line. However, being heavily reliant on gas as its basic feedstock for production, the fertiliser sector now has to compete with other petrochemical industries for the same raw material.

In June this year, PIC had to shut its fertiliser plant at Shuaiba due to the shortgae of gas. Though still profitable, it seems as if Kuwait sees more growth potential in olefins than fertiliser.

And the country is making a serious commitment to olefins production as a driving force for industrial expansion. With the completion and subsequent launch of the Olefins II project in June, managed and operated by Equate, a joint venture between Dow and PIC, Boubyan Petrochemical Company and Al Qurain Petrochemical Company, Kuwait's industrial development took a major step forward.

The new facility combines an ethane cracker with an annual capacity of 850,000 tonnes  ; a 600,000-tonnes-per-year ethylene glycol unit; and a 450,000-tons-per-year ethyl benzene/styrene monomer unit, while an additional 225,000 tonnes per year capacity for polyethylene production was added at the existing complex.

Though having only just started full production, PIC and its partners have plans to further expand olefins output, with a proposal to develop Olefins III, a new high-tech cracker that would produce about 1.4m tonnes of ethylene annually. Though still in the planning stages, work on the new $7bn-8bn facility is expected to begin by 2015, according to company officials.

In a recent interview with OBG, Al Ateeqi said Equate was looking at constructing a third cracker, which would have the capacity to produce both specialised products and basic commodities. This would help develop a more diverse portfolio in what he described as a cyclical industry.

"Manufacturing more value-added products would not only have a considerable financial benefit but would also protect us, to a certain extent, from the ebbs and flows of the cycle," said Al Ateeqi.

To ensure that the wheels do not fall off the cycle, Kuwait's petrochemicals industry has to have a guaranteed source of energy and feedstock. The same shortages that affected fertiliser production saw gas consumption in the Kuwaiti industrial sector fall from 13m cu metres per day in 2005 to current levels of 10.5m cu metres per day. These shortages have seen the country become a net importer of liquid natural gas (LNG), with gas even shipped from as far afield as Russia.

Although having to import gas will add to industrial production costs, according to Sheikh Mubarak Abdullah Mubarak Al Sabah, the chairman of Qurain Petrochemicals, the wheel is turning, following a period of restructuring and consolidation within the industry.

"Now is an opportune time to invest, as we are benefitting from a reduction in the cost of building materials, plants and equipment," he told OBG.

Though hit by the global economic downturn, Kuwait's economy is emerging from recession, with higher than predicted oil prices helping fuel the recovery. With better than expected earnings from its economic mainstay, Kuwait is in a position where it can channel further funding and support towards its more focused but expanding industrial base.

Global Arab Network

This article is published in partnership with Oxford Business Group

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