A.T. Kearney Expects Middle Eastern Refining Industry to Thrive

Louis Besland, Partner at A.T. Kearney, a global management consulting firm recently participated in an interview with the World Refining Association (WRA) to discuss the current challenges and future opportunities faced by the refining industry.

The oil and gas downstream industry in the Gulf has a bright future. Currently though, with the exception of Oman and Bahrain, GCC economies face the challenge of negative net imports of manufacturing goods, propelled by the fact that imported end products are based on raw materials sourced from the region.

Mr. Besland identified that the GCC could expand its capability to reduce this existing imbalance. One example includes attracting automotive Original Equipment Manufacturers (OEM). Furthermore, through the supply of extended feedstock base, downstream oil and gas development can be converted into a broader range of chemical derivatives, providing additional incentives for manufacturing companies to extend their production base in the region.

Mr. Besland, said: “Successful refiners will achieve the right balance of integrating downstream petrochemicals, while maintaining close ties with oil product export markets through appropriate joint venture (JV) strategy and partner selection.”

The petrochemical integration challenge is especially interesting. Most analysts agree that the region can significantly benefit by leveraging feedstock availability and broadening product ranges to include downstream chemical products. However, a paradigm shift is required for chemical players currently focused on export commodity markets.

“To successfully make this shift, acquisitions in new expertise and manufacturing are required to optimise supply chains and effectively manage distant customers requiring tighter compatibility integration with their technologies,” said Mr. Besland.

Global uncertainty, local and global market imbalances, geo-political activities and the availability of crude slate for conversion will affect refiners, impacting profitability.

“The more agile and flexible business models are, the more resilient players will be in meeting these challenges and a re-evaluation of strategies and participation models will optimise their positions,” said Mr. Besland. “Changes in participation models (upstream and / or downstream integration) can maximise profitability growth rates in uneven and regionally-fragmented refining playing fields with multiple environmental legislation, government-driven tax regimes and levels of skilled labor and technologies.”

Mr. Besland further continued: “In 10 years, we expect Middle Eastern players to thrive, leveraging their access to feedstock. New capacity developments will be tightly linked to the petrochemical industry for further value added downstream. In addition, growth strategies will be linked to local economic development policies. We anticipate that Middle Eastern companies will build networks through strategic JV’s to better leverage growing East Asia markets.”

On 27 March 2012, Mr. Besland will participate in Middle East Downstream Week (MEDW) where he will discuss further how the changing dynamics of the global refining market benefits the Middle East in opening opportunities for sovereign capital funds and the financial sector. In addition, he will highlight how global investors framing attractive opportunities with the regional economic development agenda can leverage the same opportunities for oil and gas players.

MEDW 2012 will take place in Abu Dhabi from 25 – 28 March 2012. For more information, please visit: http://www.wra-medw.com.

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