The Middle East region is facing a rising shortage of ethane supply owing to slack in exploration and production activity and increasing gas demand for power generation, said a study by Alpen Capital (ME).

As a result, Gulf producers are gradually shifting toward heavier feedstocks, Alpen Capital stated in its new 'Gulf Petrochemicals Industry Report.'

The report pointed out that the global petrochemical industry was facing an avalanche of new production capacity, largely owing to cost-advantageous feedstock.

'The majority of the world’s petrochemical capacity growth is concentrated in the Gulf, which now accounts for around 10 per cent of global supply,' said Tommy Trask, executive director and head of Industry Research services at Alpen Capital.

According to him, the additional ethylene and polyethylene production capacity will hit 32 million metric tons (mmt) and 23 mmt respectively over the next six years from 139 mmt and 90 mmt in 2009.

'The supply demand mismatch is expected to worsen in the short run, but gradually improve as the global economy recovers and more downstream projects come on-stream, Trask said.

'The region has natural competitive advantages in access to cheap feedstock and being located relatively close to demand-dense Asian countries,' he noted.

Trask pointed out that the move has both advantage and disadvantages.

'Although ethane is the more cost effective choice, it only enables production of basic olefins, whereas heavier feedstock can be used to produce a more diverse range of petrochemicals,' he added.

The year 2009 was defined as a year of recovery, when petrochemicals prices moved up from the cyclical trough of 2008. The price trend has also been encouraging over the past quarter.

The price trend in 2010 will be a function of downstream sector growth, global economic recovery and new supply initiatives overcoming feedstock, technical and human skill-set constraints.

“Our Gulf petrochemicals industry report talks about the prospects for the industry, emerging trends, financial performance, valuations and governance” says Sanjay Vig, managing director at Alpen Capital.

“The report covers eight of the largest Gulf petrochemicals firms as well as comparative statistics on an international peer group”, he added.-TradeArabia News Service