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  • Opportunities and Challenges in Developing

    Sustainable Downstream Industry in the Region

    Sanjay Sharma, Vice President, Middle East and India

  • • Opportunities and Advantages

    • Critical Factors – Development of

    Downstream Industry

    • Structural Challenges –

    Development of Downstream

    Industry

    • Lessons Learned

    Agenda

  • • Opportunities and Advantages

    • Critical Factors – Development of

    Downstream Industry

    • Structural Challenges –

    Development of Downstream

    Industry

    • Lessons Learned

    Agenda

  • 0

    5000

    10000

    15000

    20000

    25000

    30000

    2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

    T h

    o u

    s a n

    d M

    e tr

    ic T

    o n

    s

    GCC PE Demand GCC Ethylene Capacity

    GCC PE Production GCC PE Net Exports

    GCC Polyethylene Demand Vs Production • Major production of building blocks and

    intermediates in the region driven by

    advantaged feedstock

    • Majority of the production currently exported

    • Domestic demand less that 15 percent of the

    total production for majority of products

    • Opportunity to build competitive local

    downstream/converter industry in the region

    to cater to domestic demand as well as

    target exports

    • Challenges exist but not surmountable with

    the right enablers and policies

    Opportunity to develop local downstream industry

    driven by raw material availability

    Source: IHS Markit © 2019 IHS Markit

  • Basic Chemicals (Building

    Blocks)

    • Intermediates

    • Commodity Products

    • Specialty Products

    • Performance Materials

    Downstream Converter

    Industry (Intermediate goods)

    Final Products – Sector

    Specific Applications

    Examples:

    • Ethylene

    • Propylene

    • Butadiene

    • Crude C4s

    • Benzene

    • Paraxylene

    • Methanol

    • Ammonia

    Examples:

    • Polyethylene

    • EVA

    • EO/MEG/Ethoxylates

    • EDC/VCM/PVC

    • Polypropylene

    • Propylene Oxide

    • Polyols

    • Acrylic Acid (GAA)

    • SAP

    • Oxo Alcohols/Butanols

    • Acrylonitrile

    • Cumene/Phenol/Acetone

    • Styrene/PS

    • Polycarbonate

    • SBR/PBR

    • MDI/TDI

    • PTA/PET

    • EPDM

    • MTBE

    • Urea

    Examples:

    • PE Films

    • PE Blow model products (bottles, caps

    etc.)

    • Geotextile sheets/films

    • PE/PVC pipes

    • BOPP Films

    • Non-woven PP

    • Woven PP

    • Garden Furniture (molded products)

    • Compounding

    • PET sheets

    • PET bottles

    • PC 5 gallon water bottles

    • PC sheets

    Examples:

    • Automotive sector applications

    • Food and Beverage Industry

    • Textile Industry

    • Computers/Electronics sector

    • Defence/Aerospace sectors

    • Furniture/Fixtures

    • Medical Equipment & Supplies

    • Pharma sector applications

    • Construction sector applications

    GCC Producers

    Competitiveness

    None

    Sophistication and Job Multiplier

    Critical to define downstream industry

    boundaries

  • Downstream industry potentially a major GDP

    and job multiplier

    Direct Effects First-order responses of`

    economy to changes in the demand

    of petrochemical industry output

    only

    Indirect Effects Impact on domestic supply

    chain supporting the Chemical

    industry (e.g., distribution and

    logistics)

    Induced Effects Impact on downstream industries dependent on petrochemicals

    (e.g., automotive, construction, aerospace) and purchases induced by

    wages of those in and supporting the industry

    JOBSGDP

    Multiplier Effects• Chemical industry directly employs a predominately skilled/highly educated workforce, with less than

    15% identified as un-skilled labor in advanced

    economies

    • Major multiplier effect reported in countries with

    extensive downstream industries

    o Indirect Effect:

    ▪ 2.1x of direct contribution on GDP

    ▪ 4.1x of direct contribution on jobs

    o Induced Effect:

    ▪ In excess of 10x of direct contribution

    • While an aspiration for Middle East countries, their

    current multiplier is significantly lower

  • • Opportunities and Advantages

    • Critical Factors – Development of

    Downstream Industry

    • Structural Challenges –

    Development of Downstream

    Industry

    • Lessons Learned

    Agenda

  • Investment

    Drivers

    Proximity

    to Market

    Capex

    Advantage

    Feedstock

    Advantage

    Lower delivered costs

    Customer Intimacy

    Access to low cost

    feedstock

    Cost to build

    Low cost regions (China & India)

    US WEP MDE India China

    Capex

    Advantage X X X

    Proximity to

    Markets

     

    Feedstock

    Advantage

    X 

     X X

    US, India and China are preferred investment destinations as they have major

    advantage on at least two of the three major attributes important for an

    investment decision

    Chemical Industry Investment Drivers

  • Investment Decision

    Project Returns

    Country Risk

    Cost To Deliver

    Cash Cost

    Long Term Project Returns

    • Business case IRR

    • Country risk acceptable

    • Total capital cost

    Surviving the down cycle

    • Competitive ex-works cash

    cost

    • Competitive delivered cost

    Typical Investment Hurdles

  • Cluster Management Responsiveness

    One Stop Shop Offering

    Competitive Raw Materials

    Rapid Decision Making and Issue …

    Cluster Organization and Role Clarity

    Adequate Infrastructure

    Small/Mid-Size Company Support

    Clear Key Processes

    Shared Services

    Marketing of Clusters Customs Management

    Regulation Clarity/ConsistencySufficient Capability/Skill Availability

    Supply Chain and Logistics Facilities/Support

    Service Culture Orientation

    Operational Efficiency

    Integration Synergy Potential

    Comprehensive Product Portfolio

    Market Proximity

    Im p

    o rt

    a n

    c e

    Timeliness to Address

    Importance vs Timeliness

    High

    Medium

    High

    Medium

    High Priority Factors

    Critical factors for the development of

    downstream industry

  • • Opportunities and Advantages

    • Critical Factors – Development of

    Downstream Industry

    • Structural Challenges –

    Development of Downstream

    Industry

    • Lessons Learned

    Agenda

  • US and China are ahead of other regions when compared on a five point scale, Middle East has a

    feedstock advantage but realizing it down the value chain is a big question

    • India

    • West Europe

    • China

    • Southeast Asia

    • Middle East

    Technological

    Advancements

    Proximity to Key

    Demand Centres

    Access to Low

    Cost Feedstock Capex Advantage Level of Integration

    H ig

    h M

    e d iu

    m L o w

    Access to Low

    Cost Feedstock Proximity to Key

    Demand Centres Capex Advantage

    Technological

    Advancements Level of Integration

    • US • India

    • China

    • Southeast Asia

    • US

    • West Europe

    • China

    • India

    • Middle East

    • Southeast Asia

    • US

    • West Europe

    • China

    • US

    • West Europe

    • China

    • Middle East

    • Southeast Asia

    • India • US

    • West Europe

    • Middle East

    Regional Downstream Industry Competitiveness

    Scale

    • Middle East

    • Southeast Asia

  • While Middle East lags in downstream industry competitiveness,

    region is among the leaders in chemical industry competitiveness

    A healthy Middle East Industry in combination with appropriate

    mechanism and policies can enable downstream industry to flourish.

    ImpactLow High

    High

    Low

    Domestic or Export

    Market

    Chemical

    Industry

    Downstream

    Industries

    Advantaged

    Feedstock

    Specialized

    Talent

    Tailored

    Infrastructure

    Access to

    Capital

    Specialized

    Talent

    Tailored

    Infrastructure

    Domestic

    Market

    Research &

    Innovation

    Adva

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