Business Interview: GCC fertiliser producers could face challenges from rising US output
Dr Abdulrahman Jawahery is the vice chairman of The Gulf Petrochemicals and Chemicals Association (GPCA) and president of Bahrain-based Gulf Petrochemical Industries Co (GPIC). GPCA represents the downstream hydrocarbon industry in the Gulf.
In an exclusive interview with Muscat Daily, Dr Jawahery spoke about the challenges faced by fertiliser industry in the GCC region. He said the rising fertiliser production in the US following the shale-gas revolution could pose a serious challenge to the Gulf-based fertiliser producers.
Local demand for fertiliser products in the Gulf region is limited and the industry growth entirely depends on export markets. How do you see the potential for growth of fertiliser industry in the GCC countries?
I believe there is a huge potential for growth of fertiliser industry in this region. GCC countries account for approximately 12-14 per cent of world’s total fertiliser production. There is a need to increase the region’s share in global fertilisers production. I personally feel that the region’s share in global output is far below than its potential, particularly if you look at resources in terms of oil and gas available in the region.
We have around 40 per cent of the word’s hydrocarbon reserves and are still producing only 12-14 per cent of the global output. This needs to be changed. Total annual output of fertilisers in the GCC region is currently around 39mn tonnes and looking at the number of projects announced, the production capacity is likely to touch an estimated 47mn tons by 2025. At 46 per cent, Saudi Arabia accounts for almost half of the GCC region’s fertiliser production in 2018, followed by Qatar (25 per cent) and Oman (12 per cent), which has increased its share from 11 per cent in 2017.
What are the key challenges you foresee for fertiliser industry in the future?
There are a number of challenges. One of the most important challenges is to ensure provision of feed stock (which is natural gas) for the expansion of the industry. We need to increase our share in the global production. There is a tendency among countries in the region to encash these natural resources rather than supplying them for fertiliser production. It is also a key issue, because the fertiliser industry also has to compete with other industries such as liquefied natural gas (LNG), which is in very high demand, and power generation sector, which most of the time gets top priority for gas allocation. Besides this, all the manufacturing industries in the region demand gas, which makes it very difficult for fertiliser producers to compete with them.
There have been discussions about the impact of shale gas revolution in the US, which is also one of the largest importers of fertilisers. How is the US shale gas revolution impacting the fertiliser industry in the GCC region?
The increased availability of shale gas in the US and other parts of the word has changed the direction of global fertilisers trade. Before the shale gas revolution took place the US used to import 20mn-25mn tones of fertiliser per year, and was one of the biggest market for fertilisers produced in the GCC region. Now, the US has not only become self sufficient in production of fertilisers, rather chances are there that it may become a net exporter of fertilisers going forward.
This trend could become a big challenge for the GCC fertiliser industry as we are not only going to witness a loss of a big market but also a major rival in business. Therefore, the GCC producers have to find new markets for their products. Africa and South America could be two big potential markets for them due to their emphasis on increasing food production, but still a lot of work needs to be done before they start importing fertilisers from the region in significant quantity.
Availability of natural gas is a challenge for every industry in the region, but the question remains, how can anyone overcome this issue?
When you talk about solutions and outlook of the industry there are some positive developments. We have recently discovered a huge reservoir of natural gas in Bahrain. The natural gas production is increasing in other GCC countries also be it Kuwait, Saudi Arabia or Oman. Almost all the countries in the region have announced new gas discoveries and these findings are significant for us as they raise hopes of additional availability of feed stocks for future development.
Does that mean the availability of natural gas is the only significant challenge GCC fertiliser producers are likely to face going forward?
The challenge from the US producers could be sever one going forward, as prices of gas are higher in the region, cost of production in GCC region is also more and the cost of employing quality manpower is also one of the highest in the world. So, we have no other option but to increase efficiency. For example, our company GPIC in Bahrain is producing fertiliser with an input cost of US$4 per unit, whereas the US fertiliser industry is getting gas supply at around US$2 per unit.
However, in order to compete with them we are producing more efficiently by reducing the cost of production per tone. This is possible by adopting new technologies in the production to utilise gas to maximum level. We also need to have very reliable plants, so we have invested heavily in reliable plants. Our competitors are operating at capacity utilisation in the range of 85-86 per cent whereas we are doing in the range of 99-100 per cent. So, we have 13 per cent better reliability against our competitors. Besides this, the quality is also a factor and we do not have low quality products, so our per unit sales is also very attractive.
Going forward, how do you see the industry shaping up, and what is your outlook for the global demand for fertilisers?
We are very positive about the demand outlook. The land available for agriculture is reducing day by day due to increase in population and water resources available for farming are also decreasing. Therefore, the countries will have to produce more using same resources. For example, as the world population is growing rapidly it is estimated that the world food production need to be doubled in next 20 years to meet the rising demand. And this increase in the food production needs to be done with lesser resources. That means there will be huge demand for fertiliser products in the future. The demand for specialty chemical-based fertilisers such as slow release-nutrients, or fertilisers embedded with micro-nutrients will be very high. One must remember that micro-nutrient is the only way to market fertilisers in the world.