Economic modernisation, the arrival of the multinationals, and the emergence of new industrial gas trends and technologies are driving change in the Middle East.
Despite political and civil unrest in the region, the Middle East and North African industrial gas industry is booming and appears set to continue to do so. It remains one of the industry’s most promising markets, with significant potential across a range of end-user industries and opportunities in outsourcing.
With this in mind, what better time to explore the dynamics of the Iranian, Iraqi and GCC markets as part of a wider new industrial gas frontier?
The industrial gases business in Iran is fragmented, with a large number of companies supplying the industrial gases sector. There is no state-owned gas company, but the state (via the National Petrochemical Company – NPC) plays an important role in the supply structure. There are also understood to be many small privately owned gas companies operating in all the major towns and cities in Iran.
The country’s economy has been crippled in recent years by international sanctions, which have targeted its energy sector and access to the global financial system. Despite this, the industrial gas market has been on the rise. This has been due to a number of new plant installations starting up or being built. While the Iran market was valued at around $146m in 2007, it is now thought to be worth nearer $236m (2012), a rise of 60% over the last five years.
The Iranian industrial base has been relatively strong compared with the rest of the Middle East, though sanctions have had a marked impact, particularly in 2011 and 2012. Still, given the large petrochemical and chemicals business, as well as the country’s large fertiliser, steel, manufacturing and agricultural/food businesses, there remains significant latent potential in the economy - so long as the political situation can be stabilised.
There are several major petrochemical facilities spread throughout Iran, but these are state-owned enterprises, subsidiaries of the National Iranian Oil Company (NIOC). Most operate their own ASUs, but supply surplus gases (mainly liquid oxygen - LOX - and liquid nitrogen - LIN) to the merchant gas companies in the local area. The nitrogen market is considered under-developed as most demand is related to the chemicals and petrochemicals industries and captively supplied, while argon appears to be in short supply, with metal (steel) production and metal fabrication the primary consumers of argon.
Many of the beverage processing and bottling plants own their own carbon dioxide (CO2) production units and so the CO2 market is relatively small for the size of population. However, the large ammonia plants do produce the CO2, and this is used in the beverage, food and metal fabrication industries.
The industrial gases business in Iraq is small compared to the physical size of the country and was valued at an estimated $40m in 2012, up $10m in five years.
Clearly the gases business, like most other industries, has been affected by the impact of wars, insurgency, political instability and corruption. Gas producing plants installed in the 1970s/1980s have either been damaged through the various wars that took place in the 1990/2000s or affected by drastic power shortages.
The gasworld Business Intelligence team understands that in the last five years the country has stabilised somewhat. As a result, demand for industrial gases is growing and some companies operating in neighbouring countries are now supplying various gases into Iraq - either directly or through joint ventures.
Iraq has an economy that is dominated by state run enterprise with the oil and gas industry the major component; over 80% of Iraq’s exports are crude oil. Iraq’s industrial base is largely state-owned assets including iron and steel, fertiliser, chemicals, petrochemicals, cement, glass to textiles, and food.
Oilfield service companies are major users of bulk LIN in the country, which is largely imported, as is CO2, acetylene, specialty gases and medical gases. Few ASUs have previously existed in the area, though it is understood that an ASU may be constructed as part of a project to refurbish the Basra Iron Steel Factory (a project announced in November 2012).
In 2012, industry revenues were up by 5-6% year-on-year (YOY), with some new volumes of liquid product available from a captive ASU operated by a steel producer in Kurdistan. Going forward, further gains are anticipated if the economy stabilises in line with recent trends. The biggest challenge facing the Iraq industrial gases business, it would appear, is a lack of reliable electricity, which remains an obstacle to the country’s development.
The Gulf Cooperation Council (GCC) comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).
The industrial gases business in Bahrain was estimated to be $21m in 2011, an 8% decline on 2010 thought to be due to the ‘Arab Spring’ riots in the country. Despite this, the industrial gas market has performed reasonably healthily over the past decade, averaging 10% per year through to 2011. This trend was reinforced in 2012, when revenues reached $25m.
Bahrain is an oil-based economy but has under-invested in its oil and petrochemical sector for a number of years as it has focused on becoming a service-led industry (banking for example). Due to its size and population, industrial growth has been limited, although an important aluminium smelter has been built and expanded in recent years. GDP growth has been consistent through the past 10 years, though industrial production (IPI) has been more volatile with several years of decline within the same period.
On average, the industrial gas market has outperformed both GDP and IPI over the past 10 years. Energy prices may impact on future pricing and demand for gases (in the long-term), with possible upward pressure on industrial gas pricing as costs increase.
The future development of the gases business is probably relatively limited unless some major expansions to the refinery sector occur, there is investment downstream, or more aluminium smelting capacity is brought on-stream. There has been a jump in demand for gases from a new steelworks that came on-stream in 2012, served by an onsite ASU operated by ROC-Praxair. Delayed growth due to political instability is likely the biggest challenge to overcome in the years ahead.
The commercial industrial gases business in Kuwait is estimated to have reached $100m during 2012, a market that has continued to perform strongly with YOY growth averaging 10% p.a. between 2002 and 2012.
Kuwait is an oil-based economy and is strongly affected by changes to oil trading conditions. Its economy has seen strong growth through the early part of the last decade with the only decline in GDP seen in 2009. IPI has not performed as strongly as the overall economy in the same 10-year period.
There is a reasonably large industrial gas business in Kuwait with some important production capacity linked to the petrochemical and refining businesses in the country, some of it classified as captive and therefore not included in this valuation of the commercial market.
Energy prices in Kuwait are government subsidised, with power supplied to Kuwaitis free of charge and commercial rates being low. Therefore if there were any changes to the Government’s energy strategy this could have a dramatic impact on the Kuwaiti industry and on the gases business as well. The Business Intelligence team estimates the commercial market will grow in value from $100m in 2012 to $132m in 2017, equating to a YOY average growth of 5.7% over this five-year period.
Oman also features a reasonably large oil and natural gas sector, but it is also home to a number of refining, petrochemical and fertiliser industries. In recent years much of the growth seen in the industrial gas market has been related to the construction of onsite/pipeline nitrogen capacity for oil refining and petrochemical industries. In 2012 the Oman industrial gas business generated revenues of $58m. The industrial gas sector has performed strongly, with YOY growth averaging 16% p.a. between 2002 and 2012.
GDP growth has been steady over the past decade in Oman, though industrial production has only come out of decline in the last few years. Energy prices remain a low threat to future pricing and demand for gases. Oil prices have seen a steady, nearly unbroken trend of uplift and stood at a record high in 2011. Gas prices were seen to peak in 2008 and have since dropped back significantly to values similar to earlier in the past 10 years, while industrial power rates are relatively low at present and power generation is predominantly produced via a number of gas-fired plants.
Estimates suggest that the commercial market will expand in value from $58m in 2012 to $84m in 2017. This forecast equates to a YOY average growth of 7.7% over the five-year period.
Both GDP and IPI have grown strongly in Qatar over the past decade. The industrial gases business in Qatar was valued at $98m during 2012 and continues to outperform the domestic economy and industrial production, with YOY growth averaging 19% p.a. between 2002 and 2012. The use and demand for industrial gases is significantly higher than the $98m commercial market, thanks to two major Gas-to-Liquids (GTL) projects that have gone ahead in the country in the past five years – the Oryx and more recent Pearl GTL projects.
Qatar has huge natural gas resources (predominantly the North Dome field in the Arabian/Persian Gulf) and has built up a reasonably sized petrochemical business off the back of readily available ethane and methane.
One of the biggest developments in Qatar of late has been the long-awaited start-up of the the world’s largest helium purification and liquefaction unit, a turnkey project at Ras Laffan Industrial City. The new unit’s production capacity is approximately 38 million cubic meters of helium per year.
The industrial gases business is forecast to further increase over the next five years to reach over $133m by 2017, taking into account current projects coming on-stream in 2012/3 and representing a 6.3% p.a. growth forecast.
The industrial gases business in the Kingdom of Saudi Arabia (KSA) is by far the largest in the Arabian Peninsula and is estimated to have reached $595m in 2012. The industrial gas market has outperformed the domestic economy and industrial production with YOY growth averaging 12% p.a. between 2002-2012.
The Kingdom can be viewed as very much an ‘oil and gas economy’ which has developed over the past 50 years and the country has significantly developed downstream into petrochemicals, intermediates and fertilisers. However, the low oil prices observed in the early 2000s had an impact of slowing project development. Since the mid 2000s this has accelerated somewhat, with the Kingdom aiming to be a global supplier of petrochemicals through to 2050.
The industry has grown strongly, mainly as a result of the development of the onsite business of the state-owned National Industrial Gases Company (NIGC, SABIC’s industrial gas-focused subsidiary) - we envisage continued strong revenue growth from additional onsite supply schemes, perhaps also from major international companies such as Air Liquide, Air Products and Linde. There are also a number of independently owned gas companies that serve the merchant market.
The demand for gases continues to grow across Saudi Arabia, driven by industrial activity, support to the oil and gas sector, and the desire to branch out into other industries (steel, glass, pharmaceuticals). It is estimated that the commercial market will more than double in value from $595m in 2012 to $808m in 2017, a YOY average growth of 6.3% over the five-year period.
“Oil, gas and petrochemical facilities have historically driven demand in the UAE. Though many of these sites have a gas demand that tended to be supplied by captive gas production facilities, a recent trend towards outsourcing to onsite/pipeline supplies has been observed”
Turning to the United Arab Emirates (UAE), this is an area which has traditionally been viewed as an ‘oil and gas economy’ for many years, but in the past decade has also attracted investment in steel, glass and aluminium - boosted by construction activity, especially in Dubai. However, Dubai suffered from the 2009/10 global recession and the financial power has subsequently shifted to fellow Emirate Abu Dhabi.
Oil, gas and petrochemical facilities have historically driven demand for industrial gases in the UAE. Though many of these sites have a gas demand that tended to be supplied by captive gas production facilities, a recent trend towards outsourcing to onsite/pipeline supplies has been observed – significantly boosting the gas market in the Emirates. This results in a UAE gases business that is becoming bi-polar in performance - with the merchant gases market facing a more competitive environment and lower growth prospects, compared with the new but significantly growing on-sites business.
The total market is estimated to have jumped from $141m in 2010 to reach $242m in 2011. In 2012 this grew to $303m. The industrial gas market certainly continues to outperform the domestic economy and industrial production with YOY growth averaging 22.7% p.a. between 2002 and 2012. The commissioning of the huge enhanced oil recovery (EOR) project of Elixier in 2011 was the main focus behind this significant growth recently.
Energy prices may have an impact on future pricing and demand for gases. Industrial power rates vary between each Emirate, but the trend is for flat electricity costs and a potential rise in the future. There have been moves to raise power costs, but there has also been resistance to any energy cost rises.
While continued investment in core industrial sectors will continue, especially in oil and gas, other investments in the metal, glass and petrochemical industries are likely to drive demand in future. The Business Intelligence team predicts that the market will exceed $430m by 2017, based largely on the uplift from the new EOR plant and continued growth in the merchant market.