Importance of a naphtha cracker

In a recent interview with the chairman of FPCCI, as well as Pakistan Chemical Manufacturers Association (PCMA), Zubair Tufail emphasized on the importance of a naphtha cracker for the chemical industry. A single naphtha sector would help set up a host of downstream industries, he said.

Pakistan’s chemical sector is small with annual revenue of about $2.8 billion, whereas the global market is over $5 trillion. In the last five years, it saw a healthy growth rate of 6-7 percent per annum as compared to the global chemical growth rate of around 3.4 percent. However, FY17 saw a decline by 2.3 percent partly due electricity and gas shortages and partly due to the decline of the textile sector that is a major consumer of chemicals.

Dependence on a narrow range of chemicals used by a few key industries makes the sector vulnerable, since production is limited to raw materials. Low demand has discouraged R&D as the local industry does not have the capacity or the funds for innovation.

Petrochemicals are the largest subset within the chemical industry, accounting for about 40 percent of the global chemical revenue. A naphtha cracker would promote Pakistan’s petrochemical sector and change the current import substitution outlook to export promotion in the long term. Polypropylene, polyethylene, ethylene glycol, paraxylene are some of the high-value products that can be produced if Pakistan had a naphtha cracker.

Keeping export aside, there is a lot of scope for domestic consumption since Pakistan’s consumption of polymers and plastic is far below global averages; 15 kg is consumed per person in developed economies as compared to Pakistan’s 3 kg per capita consumption.

Early estimates suggest that a naphtha cracker would have an impact of $2-3 billion in import substitution and increase in consumption in the first few years of operation. Furthermore, it would generate 50,000 to 60,000 jobs. Given that a naphtha cracker would cost upwards of $4 billion, it is an investment that would pay rich dividends in the medium and long term.