GCC Petrochemical Industry -...

GCC Petrochemical Industry

Strategies for Success in Downstream Chemicals

Dr Andrew Spiers – Vice President

Nexant Energy & Chemicals Advisory

3AIS\GPCA 11 Annual Conference November 2016

Nexant Training

Commercial and

Market Analysis

Technology Evaluation

and Management

Project Finance

Merger and

Acquisition

Nexant Thinking

Strategic Planning Project Feasibility

Energy Independent

Expert/Litigation

and Expert Witness

Nexant provides expertise across the energy andchemicals value chain


Gas Monetization

LNG

Gas Pipelines

Regulatory

Frameworks

Petroleum Refining

Storage &

Distribution

Biofuels

Oxygenates

Coal to Liquids

Gas to Liquids

Base Oils

Lubricants

Ammonia

Urea

Melamine

Ammonium Nitrates

Phosphate & NPK

Fertilizers

Methanol

Formaldehyde

Acetyls

Other syngas

derivatives

POWER & RENEWABLES GASC1 CHEMICALS &

FERTILIZERSDOWNSTREAM OIL

BASE PETROCHEMICALS

& POLYMERS

INTERMEDIATE &

SPECIALITY CHEMICALS

Energy Chemicals

Nexant Capability

Olefins

Aromatics

Polyolefins

Vinyls

Styrenics

Polyesters

Polyamides

Acrylates

Rubbers

Other olefin and

aromatic derivatives

Surfactants

Oleochemicals

Engineering &

Speciality Polymers

Coatings,

Adhesives,

Sealants &

Elastomers (CASE)

Polyurethanes

Resins

Biochemicals

Speciality & Fine

Chemicals

Grid Management

Distribution Software

Energy Efficiency

Demand Side

Management

Renewables

• Solar

• Biomass

• Municipal Waste

• Wind

• Clean Coal

Recent global developments are influencing theopportunities for downstream diversification in the Middle East


Impact

off RPI Changed relative competitiveness of upstream chemicals sector

Shift to heavier feedstock:

broader range of feedstocks

changed competitiveness

Increased refinery petrochemical integration focus

broader range of feedstocks

Shift to more sophisticated products:

pay for value

Increased end use sector demand:

reaching critical mass?

Issue

off RPI Lower Oil Price Environment

Limited GCC ethane availability

Economic growth in GCC

GCC Economic Growth will underpin demand fordownstream products as the market becomes more sophisticated


2000 2020 Growth, %

Population (m) 29.3 59.0 101

GDP (current $bn) 403 1 644 308

Per Capita ($ 000) 14 28 100

PPP Basis ($bn) 976 2 189 124

Polyolefins Demand (kg per

capita)

GCC Region 22 43 95

US 67 67 0

WE 48 51 6

Two principal drivers for industry development – Push and Pull


Pull

off RPI Downstream sector growth enables world-scale intermediates/specialties production – import substitution projects:

need domestic/regional market size

proximity to downstream consuming industry

Push

off RPI Sufficient competitive advantage to develop (largely/partly) export-oriented projects:

needs incentives

concern if not close to downstream consuming sector?

can be leveraged off increasing refinery-petrochemical integration

Lower oil price changes the relative competitiveness ofthe GCC feedstock base to the downstream sector


Future global ethylene production cost curves at different crude oil scenarios

0

500

1000

1500

2000

2500

3000

0 50 100 150 200

Eth

ylen

e C

ash

Cos

t (C

urre

nt U

S d

olla

rs p

er to

n et

hyle

ne)

Ethylene Cumulative Capacity (million tons)

Oil Price Scenario

(per barrel)

$140

$100

$70

$50

Ethane & Other lighter Feedstock cracking

Naphtha & Other Liquids feedstock cracking

PP47%Acrylonitrile

53%

Increased availability of a broader range of feedstocksis creating a greater Push opportunity than seen to date


Middle East Propylene Demand (1990):

144 ktons

PP85%Acrylonitrile

3%

Acrylic Acid1%

Propylene Oxide

6%

2-Ethylhexanol

2%Butanols

1%

Cumene2%

Middle East Propylene Demand (2020):

10.1 million tons

November 2016 9

Case Study: Development of Thai Petrochemical Industry


1st Phase

Import Substitution

(1990s)

2nd Phase

Diversify and Improve

Competitiveness

(2000s)

3rd Phase

Consolidate and Cluster

(2010 onwards)

Expand base

Diversify Product

Portfolio

Position for Export

Markets

Improve

Scale and

Competitiveness

“Fill in the gaps”

Focus on Clusters

Gas driven

development at

Map ta Phut –

ethane, propane

Replace Polymer

Imports –

substantial

domestic market

Increasing downstream Focus

Case Study: Singapore


Has developed a world scale, export-oriented petrochemical industry with

significant downstream investment. How?

No natural resources, high cost labour, reclaimed land, little domestic market

Provided incentives for inward investment

EDB invested directly in projects for a number of years

Focussed on integration and cluster approach

Proactively managed the process – EDB (like Antwerp, Rotterdam)

Maintained customer focus as first priority

Constantly benchmarked itself – identified areas of concern/improvement

(like Antwerp, Rotterdam)

S = Strong M = Moderate W = Weak

Benchmarking helps identify the strengths and allows opportunity to address weaknesses – necessary to create a competitive cluster

12AIS\GPCA 11 Annual Conference

Key Success

FactorsRotterdam Antwerp ChemSite Infra Leuna Delfzijl

S M W S M W S M W S M W S M W

Feedstocks

Logistics to Main

Markets

Land Availability/

Labour Costs

Utilities/Services

Environmental

Permitting

Fiscal Incentives

Marketing

November 2016

There are many sectors of the wider energy & chemicalsvalue chain that could be developed in the GCC from a solid foundation


Some of the most

prominent are

highlighted here

There are many sectors of the wider energy & chemicalsvalue chain that could be developed in the GCC from a solid foundation


Some of the most

prominent are

highlighted here

Downstream competitive advantage has to be provided in someway; feedstock incentive is one although it should be recognisedthat primary industry competitiveness is changing


Primary basic chemicals

Include urea, methanol, PE and MEG

Advantage of low-cost gas feedstock captured via easily transportable product

This is all changing under a lower oil price environment

Secondary derivatives advantage is less but can still be attractive if appropriate incentives are created

Feedstock at netback pricing

Cluster integration e.g. Rotterdam

Infrastructure and utilities e.g. Singapore

Low tax burden

Advantaged financing

Middle East Competitive Advantage

Local investors need to recognise the time of 1990s profitability is over

0

2

4

6

8

10

12

14

16

Primary Secondary

Indi

cativ

e A

dvan

tage

Feedstock Energy CostInfrastructure TaxFinance

Downward

Pressure

GCC source of competitive advantage changes along thevalue chain - the right level of incentives is required at various stages


Derivative Competitive Advantage

off RPI

Freight Influence

off RPIHigh

NegativeIncreasingDownstreamFocus

Freight toMarket$ per ton

Enabler

Required

IntermediatesBasePC

Downstream

Value Chains

Oil PriceEffect

1 King’s Arms Yard,

London, EC2R 7AF

Telephone: +44 20 7950 1600

Facsimile: +44 20 7950 1550

www.nexant.com

“This report (“Report”) was prepared by Nexant Ltd (“NEXANT”), for the use of GPCA (“CLIENT”) in its consideration of

whether and how to proceed with the subject of this Report.

Except where specifically stated otherwise in the Report, the information contained herein was prepared on the basis

of information that is publicly available or was provided by the CLIENT or by a third party, and the information has not

been independently verified or otherwise examined to determine its accuracy, completeness or financial feasibility.

Neither NEXANT, CLIENT nor any person acting on behalf of either assumes any liabilities with respect to the use of or

for damages resulting from the use of any information contained in this Report. NEXANT does not represent or warrant

that any assumed conditions will come to pass. This Report is current as of the date herein and NEXANT has no

responsibility to update this Report.

This Report is integral and must be read in its entirety.

The Report is submitted on the understanding that the CLIENT will maintain the contents confidential except for the

CLIENT’s internal use. The Report should not be reproduced, distributed or used without first obtaining prior written

consent by NEXANT. This Report may not be relied upon by others.”

Nexant, Inc.

San Francisco

New York

Houston

Washington

London

Frankfurt

Bahrain

Singapore

Bangkok

Shanghai

Kuala Lumpur

GCC Petrochemical Industry

Diversification – Specialty Chemicals

David Lines - Principal

Agenda

Section 1

Specialty Chemicals definition

Section 2

Specialty Chemicals in the GCC currently

Section 3

Potentials for GCC future diversification?

19GPCA 11th Annual Conference (V04) 29-Nov-16

Section 1

Specialty Chemicals Definition

20

21

BASF – definition of commodity versus specialty

GPCA 11th Annual Conference (V04)

Customer service to provide innovative technical solutions can be important component of the value

provided by specialty chemical producers. Products may be less capital intensive and cost sensitive,

although as competition increases then cost competitiveness may become more important

22

Market differentiation for Specialty Chemicals


Cost LeadershipAverage product offered at a low cost to the broadest possible market. Economies of scale result in cost savings

Cost FocusStrategy of offering average product at low cost to a specific customer group. Customer relationship depends on the cost of the product and a unique connection with a customer

Product DifferentiationStrategy focuses on offering a unique product to the broadest possible market. Product offering necessitates continuous innovation in light of the highly competitive market sources

Differentiation FocusStrategy focuses on offering unique product to specific customer groupCustomer relationship depends on the uniqueness of the product and the way the customer is served

Cost Differentiation

Basis

of

Ad

van

tag

e

Hig

her

Ben

efi

ts

E

qu

al

Ben

efi

tsScope of Activities

Broad Market Narrow Market

Section 2

Specialty Chemicals in the GCC Currently

23

Intermediates and Specialty Chemicals in the GCC

currently, still vastly underdeveloped

Basic Chemicals

Isobutanol

Caustic Soda

Acetaldehyde

Calcium Chloride

Acetic Acid

Various Acids

Cumene

Phenol

VAM

LAO

2-EH

Ethylene Oxide

Propylene Oxide

Intermediate Chemicals

DMF

Hexamine

Paraformaldehyde

Pentaerythirtol

Sodium Formate

Detergent Alcohols

BDO/THF/GBO

Ethyl Acetate

Butyl Acetate

MMA

DMA

Maleic Anhydride

Acetic Anhydride

Acrylic Acid

Alkyl Chloride

Specialty Chemicals

DOP & DIOP

Ethylamine’s

SNF/SMF

BPA

Ethoxylates

Ethanolamines

TDI/MDI

Polyether Polyols

Butyl Glycol Ethers


Uncertain times – but product differentiation & synergies

with facilities are robust within the specialty chemicals sectors

Size

Location

Configuration

Integration

Capture economies of scale

Cost advantage/product differentiation

PARAMETER KEY OBJECTIVES

Access to low cost feedstocks/ deficit

markets

Synergies with adjacent facilities

GPCA 11th Annual Conference (V04) 2529-Nov-16

Section 3

Potentials for GCC future diversification?

26

Commitment from SABIC, Saudi Aramco, MEIM and others

are driving the development of the specialty chemicals industry in the GCC

27GPCA 11th Annual Conference (V04)

2000 2010 2015 2020 2030

Continued

substitution of

sophisticated

products

Export to

GCC

substitution

of Import

Export

to

MENA

Firm

Commitment

to Specialty

Chemicals

Export

Globally

29-Nov-16

RCJY Yanbu, Jubail I and Jubail II

need to be fully integrated/utilized

to attract further investment and

have a platform for maximising

efficiencies and profitability,

benchmarking against e.g.

BASF Ludwigshafen or

Jurong Island Singapore

28

Sadara will be the first complex in the GCC to crack naphtha. The project will have a

differentiated product slate as 14 of the 26 products will be new to GCC. New products

streams from Sadara will provide opportunities for downstream industries


Saudi Aramco Shell

Refinery Company

(SASREF)

Saudi Aramco Total

Refining &

Petrochemical

Company (SATORP)

Single Mixed Feed

Cracker

Ethylene

Propylene

C4’s

Aromatics Hydrogenation

& Extraction

Sadara Clusters:

SABIC

Linde

Others

Ethane

C2

Naphtha

C5-C12

Benzene

Toluene

Plastics

LLDPE & HDPE

Elastomers

LDPE

Chemicals

Propylene Glycols (PG)

Polyols

Butyl Glycol Ethers (BGE)

Ethanolamines (EDA)

Ethyleneamines (EAE)

Isocyanates

Polymeric Methylene

Diphenyl Diisocyanate

(PMDI)

Toluene Diiosocyanate (TDI)

40%

60%

Saudi Aramco

Natural Gas Grid

SASREF

Hydrocarbons Dedicated Off-

takers* via

PlasChem Park

RO Membranes

PU formulation

systems house

Coating additives

Oil & Gas Field

chemicals

Brake fluids

Hygiene films for

diapers

Hydrocarbon

resins

PU insulation,

adhesives and

sealants

Chemical

intermediates

for; water

treatment, home

and personal

care,

construction and

detergents.

* These are publically announced projects by Sadara PlasChem Park

29

Ethylene Oxide Value Chain – first availability of EO for

downstream projects in the GCC


Primary Alcohol Ethoxylates

Ethylene Glycol and Higher Glycols

Ethanolamines

Glycol Ethers

Alkylalkanolamines

Alkyl Phenol Ethoxylates

Polyethylene Glycols

Polyols, Polyalkylene Glycols

1,3-Propanediol

PET Bottles, PET Film, PET Fiber, Antifreeze, Heat Transfer Fluids

Detergents, Gas Purification, Herbicide Intermediate, Textiles, Metal Cleaning

Coatings, Inks, Cleaners, Insecticides, Herbicides, Solvents

Pharmaceuticals, Water Treatment, Coatings, Gas Treatment

Surfactants, Detergents, Antioxidants, Emulsifiers

Surfactants, Cleaners, Laundry Detergents, Degreasers

Lubricants, Chemical Intermediates, Processing Aids, Surface Releases

Polyurethanes, Rigid/Flexible Foams, Adhesives, Elastomers

Coatings, Adhesives, Coolants, Heat Transfer Fluids, Polyurethanes, UPR

Water

Ammonia

Alcohols

Alkyl Amines

Alkyl Phenols

Primary Linear Alcohols

Ethylene Oxide

Propylene Oxide

H2, CO

Ethylene Oxide

PlasChem is located next to Sadara’s park and will have an

industrial park for chemical and conversion industriesPlasChem Park in Jubail

To promote downstream industries and

investment in Saudi, the Royal Commission for

Jubail and Yanbu (RCJY) cooperated with Sadara

to create a world-class industrial park for chemical

and conversion industries called “PlasChem

Park”.

The park has a total area of twelve square

kilometre and is located in Jubail Industrial City II

next to Sadara’s new manufacturing complex.

With complete focus on chemical and conversion

industries PlasChem will make direct or indirect

use of Sadara’s products and raw materials from

other suppliers.

PlasChem will consist of three main units: the

Sadara Value Park (ready 2017 and currently

20% full), the Chemical Park and the Conversion

Park (ready 2020).

29-Nov-16GPCA 11th Annual Conference (V04) 30

Continued low-oil price environment will undermine the level of investment in the

downstream development of the speciality chemicals industry in the GCC.

Increased refinery petrochemical integration focus with a broader range of feedstocks will be

a major area of focus for the GCC.

Economic growth in GCC, whilst still robust, will not reach critical mass for key industry

segments (e.g. automotive, consumer goods, FMGC, etc.).

Major government support will be required to attract both local and international investment.

Iincentives for inward investment will become more readily available.

Saudi Arabia for specialty chemicals and the U.A.E. for technology driven sectors are examples

for continued future support

Like the Singapore EDB, GCC governments will invest directly in projects (e.g. TAQA in Saudi

Arabia).

The GCC specialty chemicals sector will continue to be a ‘PUSH’ market, there will be risks

were products will have to be exported before the local industry development reaches critical

mass.

What can we expect to see in the GCC Specialty

Chemical industry over the next decade?


1 King’s Arms Yard,

London, EC2R 7AF

Telephone: +44 20 7950 1600

Facsimile: +44 20 7950 1550

www.nexant.com

“This report (“Report”) was prepared by Nexant Ltd (“NEXANT”), for the use of GPCA (“CLIENT”) in its consideration of

whether and how to proceed with the subject of this Report.

Except where specifically stated otherwise in the Report, the information contained herein was prepared on the basis

of information that is publicly available or was provided by the CLIENT or by a third party, and the information has not

been independently verified or otherwise examined to determine its accuracy, completeness or financial feasibility.

Neither NEXANT, CLIENT nor any person acting on behalf of either assumes any liabilities with respect to the use of or

for damages resulting from the use of any information contained in this Report. NEXANT does not represent or warrant

that any assumed conditions will come to pass. This Report is current as of the date herein and NEXANT has no

responsibility to update this Report.

This Report is integral and must be read in its entirety.

The Report is submitted on the understanding that the CLIENT will maintain the contents confidential except for the

CLIENT’s internal use. The Report should not be reproduced, distributed or used without first obtaining prior written

consent by NEXANT. This Report may not be relied upon by others.”

Nexant, Inc.

San Francisco

New York

Houston

Washington

London

Frankfurt

Bahrain

Singapore

Bangkok

Shanghai

Kuala Lumpur

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