Saudi Arabia is piling pressure on its petrochemical industry to develop the country's downstream sector in a bid to create jobs.
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The industry has been growing exponentially over the past decade, but has fallen short of putting a dent into the kingdom's high levels of unemployment.
The government has identified the more labour-intensive conversion industry, where petrochemical products are converted into finished products, parts or basic materials, as a remedy to the job shortage.
"Most petrochemicals are exported and then shipped back into the region and other world consumers as finished goods, with associated jobs created elsewhere. This is a lost opportunity for job creation," Prince Faisal bin Turki, who advises the Saudi Ministry of Petroleum and Mineral Resources, told the Gulf Petrochemicals & Chemicals Association's annual summit in Dubai yesterday.
Employment opportunities in the sector remain insufficient, in spite of Saudi Arabia's "golden area of petrochemicals", he said.
The total production capacity for petrochemicals and polymers in the kingdom will have grown by about 250 per cent in a decade to reach about 100 million tonnes by 2016. A further 120 petrochemical projects will have been called into life within the next five years.
The new capacity will "enable our further downstream conversion industry to support our economic diversification", Prince Faisal said.
The government is willing to divert huge amounts of natural gas for the industry to continue to flourish. By 2016, it will be allocating a total of 8.7 million standard cubic feet a day to the industry. In return, firms are expected to contribute to downstream growth.
"They want this investment to take place, and they encourage early investment on our side of the business. Perhaps we'll do some more of that in other downstream sectors," said James Gallogly, the chief executive at LyondellBasell, a US petrochemical producer with an extensive presence in Saudi Arabia.
Converters have so far been hesitant to enter the kingdomdespite government incentives that go beyond attractive feedstock prices. The country, and the region as a whole, is not densely populated, depriving manufacturers of a large market.
"The difficulty is when you start going further downstream, you still put in a lot of capital to get into the next step, but your added value is much less, and maybe not more than if you did the same in China or Europe," said Matthew Thoelke, a director at the Chemical Market Associates consultancy.
"That's the conflict between Sabic [Saudi Basic Industries Corporation], which wants to max shareholder value, and the ministry, which is trying to create more value and is trying to create jobs."
Prince Faisal has identified five key downstream industries that he believes can be developed in Saudi Arabia, including automotive parts, metal mineral and metal processing, and solar energy projects.
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