Industry 4.0 can significantly impact the growing GCC petrochemical sector

With the big oil players in the Middle East significantly ramping up their petrochemical capacities, Oliver Wyman has outlined the potential impact of Industry 4.0 on the sector.

The race to move downstream for the oil producers of the GCC has accelerated to full steam in ahead in recent months, and in true Middle Eastern fashion, the companies have gone big: Saudi Aramco partners with an Indian consortium on a $44 billion mega-refinery, set to be one of the largest refining and petrochemical plants in the world; Saudi Aramco signs a $5 billion deal with Total on a ‘giant’ petrochemical complex at home; Saudi Aramco moves to integrate a petrochemical business into North America’s largest oil refinery Port Arthur, operated by Motiva, an Aramco subsidiary which it has said it would pour $18 billion into for the purpose.

And that was just Aramco – which plans to spend $334 billion across the oil and gas value chain by 2025 – in the past couple of months alone. In addition, also since April, Qatar Petroleum have invited bids for the development and operation of a new petrochemical plant, which will include an ethane cracker with the largest capacity in the Middle East, while Abu Dhabi’s ADNOC have stated their intention to build the world’s largest integrated refining and chemical site, tripling petrochemical production by 2025.

Meanwhile, Kuwait’s $14.5 billion-odd Al Zour refinery and petrochemical project is set for completion toward the end of next year, while Oman’s $6.5 billion Liwa Plastic Industries Complex development is due to come online at around the same time – with the Sultanate currently receiving advice from McKinsey on the integration of its refining and petrochemical industries. And this is just scratching the surface of the estimated $215 billion worth of refining and petrochemical projects in the active pipeline across the GCC till just the end of 2016.McKinsey, however, in a report earlier this year, estimated that the sector’s 3.6 percent global growth rate over the last decade could slow to as low as 2 percent through to 2030 due mostly to drying demand from emerging economies. One area McKinsey and just about every other strategy and management consulting firm on the planet is far more bullish about is Industry 4.0 – or the convergence of rapidly emerging technologies such as robotics, artificial intelligence, the Internet of Things and 3D printing – with A.T. Kearney pegging the potential by 2030 at SAR 1 trillion for the combined production sectors of the Kingdom of Saudi Arabia alone.

Recently, Saji Sam, a Partner in Oliver Wyman’s Energy Practice, discussed the disruptive opportunities of Industry 4.0 for GCC chemical producers, writing for local industry body the Gulf Petrochemicals & Chemicals Association (GPCA). For Oliver Wyman’s part, the strategy firm projects a $1.8 trillion increase in annual margin potential for global industry by 2030 through digital technologies. Sam, however, contends that the real value will not derive from digital itself, but what the technology enables.

“By providing real-time information about customer demand, production capacity, operational performance and product quality, among other things, it will allow “clock speed” algorithm-based decision making that will dramatically improve process efficiency in everything from pricing through production planning and supply-chain management to R&D,” Sam writes, highlighting the primary opportunities for process industries such as chemicals being in the areas of operations and services, at >50% of the potential margin impact by 2030.As to operations and services, and further breaking down the areas into two major value levers in ‘smart maintenance’ & ‘equipment performance’, and ‘plant network optimisation’, the Oliver Wyman partner suggests that digital predictive maintenance – based on the full connectivity of an array of sensors which send operators live reports on critical plant conditions such as temperature and pressure – can bring ‘equipment maintenance to a different dimension.’ Here, advanced data processing can guide forecasting on potential breakdowns, required maintenance and the ordering of spare parts.

Further, Industry 4.0 technologies can enhance the operation of the equipment itself, providing real-time recommendations for production optimisation; improving efficiency, reliability, and overall operational costs. Sam forwards the example of Dow Chemical, which incorporated a bi-directional communication system in one of its facilities for digitally enhanced predictive maintenance, leading to a 66% reduction in downtime over a three year period and significant financial savings. The technology can also enhance efficiencies by networking across multiple manufacturing plants worldwide.

In respect to ‘idea-to-product’ and ‘sales-to-delivery’ areas of potential for the sector, digital solutions could allow for the simulation of new plants prior to commissioning to enhance eventual implementation, while adopting big data and 3D printing for research & development activities could help reduce the risk through greater predictive modelling. For sales-to-delivery, demand forecasting and pricing can be improved through real-time data collation, while the Internet of Things and integrated data flows can allow for automated warehousing and better inventory management.

Sam writes in conclusion; “As the next generation of production technology is starting to unfold, big data analytics, virtual environments, simulation software, broad connectivity, collaborative robots, machine-to-machine communication and new manufacturing techniques such as 3D printing are creating new opportunities for the chemical industry… Chemical companies in the Arabian Gulf are (now) beginning to embrace digital, realising that Industry 4.0 is a must to stay competitive in the global market.”