Petroleum Refining and Petrochemicals and the Drive toward Economic Diversification

The universally recognized objective of the economic development policies of the GCC countries is diversification. Hydrocarbon resources are eventually exhaustible, and any economy based on the extraction and export of finite mineral resources faces the issue of sustainability in the long run.

However, while the broad objective of economic diversification is not controversial, the understanding of what diversification actually means is very much so. There is a line of thinking which implicitly or explicitly believes that diversification is only meaningful if it is away from oil – that is, if it consists of activities that are totally unrelated to oil production and exports. Some commentators push this position to the extreme of disqualifying as proper diversification all those activities that, though they are functionally and technologically independent of the extraction and export of hydrocarbons (such as, for example, trade or tourist services) nevertheless cater to a demand whose spending power is, directly or indirectly, derived from the oil industry. Obviously, this line of reasoning leads to the conclusion that none of the GCC countries has been able to achieve any sustainable diversification at all and all are doomed to eventual failure.

Such rather extreme approaches would be justified if the exhaustion of oil reserves were an impending prospect, ruling out the possibility of any adjustment. As we know, this is certainly not the case: hydrocarbon resources in the Gulf region are much more abundant than just presently proven oil and gas reserves, and the latter are exploited at much more conservative rates than in the rest of the world.

The demise of hydrocarbons as a source of energy is nowhere visible on the horizon of even distant technological development, although we may aim at a world in which energy consumption is exclusively provided for by renewable sources and possibly nuclear. In any case, the world is likely to continue valuing the wide array of materials that can be derived from petroleum – the petrochemical products. Indeed, the demand for petrochemical products is rapidly increasing, and plastics, fibers and rubbers are universally in use and supplanting other materials, notably metals, in a broad variety of applications.