- 1. SECTOR UPDATEOIL AND GASEthylene Global Demand-Supply
ScenarioIndia Equity Research | Oil, Gas and ServicesGlobal demand
for ethylene to grow at a healthy rate of 4.8% CAGR over2010-15,
compared to a growth rate of 1.5% over the last 5 years. In spiteof
healthy demand, there is likely to be an oversupply situation
during2010-11 due largely to huge capacity addition in the Middle
East andChina leading to decreased ethylene prices and margins. The
situation isexpected to improve after 2011 due to limited capacity
addition. Globalcapacity utilization decreased to around 80% during
2010, but is expectedto increase substantially till 2015 to reach a
high of 95%.Global ethylene oversupply scenario not as badThough
there is concern that the new capacities coming up in the Middle
East andChina are going to flood the world market, depressing
ethylene prices and margins, webelieve that most of the scheduled
projects, amounting to 10 mtpa (million tonnes perannum), have
already come online by 2010. Only marginal new capacity of 9 mtpa
isexpected to come online till 2015. Large projects totaling 12
mtpa, which are delayedbecause of a number of reasons, such as,
feedstock availability, impact of financialcrisis, regulatory
approval and environmental impact, are not expected to come
onlineanytime soon.Healthy demand growth led by polymer demand in
China and IndiaDemand for ethylene is expected to grow at a healthy
rate of 4.8% CAGR between2011-15 driven by strong polyethylene (PE)
demand from developing economies inAsia. PE demand per capita in
India is very low at 2kg against a world average of 10.3kg. We
expect the PE demand per capita in developing countries like China
and India togrow in line with their high GDP growth rate, consuming
the added capacity.Asian crackers have bi-product netback; Middle
East (ME) crackersshort of feedstockMost of the crackers that are
coming up in China are Naphtha based. Though Naphthacosts more than
Ethane, it gives 17x more bi-product netback than ethane
basedcrackers.On the other hand, large projects planned in the
Middle East are delayed or cancelledbecause of concerns of natural
gas availability thus tightening ethylene supplysituation. The two
factors together are expected to contribute positively to
crackeroperators bottom lines.Ethylene margins to grow in line with
higher capacity utilizationWe expect that the utilization rates of
the crackers will reach a trough in 2010-11, andthen the demand
scenario will tighten till 2015 primarily driven by healthy
demandgrowth in line with rebound in global economy and less
capacity addition. This will driveAlin Devbetter margin for the
cracker [email protected] 29,
2011Edelweiss Research is also available on www.edelresearch.com,
Edelweiss Securities Limited 1Bloomberg EDEL , Thomson First Call,
Reuters and Factset.
2. Oil and Gas2 Edelweiss Securities Limited 3. Sector
UpdateContentsEthylene
Supply..................................................................................................................................................................
5Middle East:
...................................................................................................................................................................
6Asia:
...............................................................................................................................................................................
7US and Europe:
..............................................................................................................................................................
7Ethylene Demand
...............................................................................................................................................................
8Ethylene Economics
...........................................................................................................................................................
9Feedstock Slate:
...........................................................................................................................................................
10Ethylene Margin & Utilization Rate
..................................................................................................................................
12APPENDIX I
....................................................................................................................................................................
14What is Ethylene?
........................................................................................................................................................
14Ethylene Value Chain
...................................................................................................................................................
14Feedstocks
...............................................................................................................................................................
15Intermediates
..........................................................................................................................................................
15Derivatives
...............................................................................................................................................................
16APPENDIX II
...................................................................................................................................................................
19How is Ethylene Produced?
.........................................................................................................................................
19APPENDIX III
..................................................................................................................................................................
21Middle East Feedstock concerns:
.................................................................................................................................
21Saudi Arabia:
...........................................................................................................................................................
22Iran:
.........................................................................................................................................................................
23Qatar:
......................................................................................................................................................................
23APPENDIX IV
..................................................................................................................................................................
24Existing and expected cracker capacities all over the world
........................................................................................
24APPENDIX V
...................................................................................................................................................................
40Sensitivity Analysis
.......................................................................................................................................................
403Edelweiss Securities Limited 4. Oil and Gas4 Edelweiss
Securities Limited 5. Sector UpdateEthylene SupplyGlobal ethylene
capacity has dramatically increased between 2005 and 2010 from
115.2 million tonnes per annum to144 mtpa, growing at a CAGR 4.6%.
During the same period China has added 14.2 mtpa of ethylene
cracker capacity, while Middle EasternChart 1: World ethylene
capacity has grown at CAGR 3% from 2004-15 countrieshave
nearlydoubled their capacity to23.6 mtpa. At the sametime, during
2006-10 thecumulative capacity shareof Western Europe andNorth
America droppedfrom 53% to 42.5%. Total ethylene capacity is
expected tocontinue increasing, though at a subdued rate, till 2015
when the capacity will reach 152.7 mtpa representing a CAGR of 1.2%
from 2010-15 with Asia, mainly China, and Middle East, mainly Saudi
Arabia adding major portion of the new capacity. Source: Oil &
Gas Journal, Edelweiss researchWe believe that most of the
scheduled projects, amounting to 10 mtpa, have already come online
by 2010. Onlymarginal new capacity of 9 mtpa is expected to come
online till 2015. Large projects totaling 12 mtpa, which aredelayed
because of a number of reasons, such as, feedstock availability,
impact of financial crisis, regulatory approvaland environmental
impact, are not expected to come online anytime soon.5Edelweiss
Securities Limited 6. Oil and GasChart 2: Most of the incremental
capacity has already been added by 2010 Source: Oil & Gas
Journal, Edelweiss researchMiddle East:Availability of cheap crude
oil and high dependence of the kingdoms on oil revenue have driven
the kingdoms andgovernments to diversify into manufacturing
commodity chemicals and capture more value from the commoditynature
of crude oil. Middle Eastern countries are also better positioned
to transport petrochemicals at a lower cost todeveloped markets in
Europe, as well as high growth markets in Asia. This being a labor
intensive industry, thegovernments are also able to generate
meaningful employment for its people by developing the
petrochemicalindustry. To bring about rapid growth in the
petrochemicals industry, Middle Eastern countries provide
differentincentives to investors. Some of the incentives typically
provided in Saudi Arabia include: Subsidized natural gas at $ 0.75
per Mmbtu. A complex discount system for domestic users with NGLs
garnering a 30 percent discount on the export price ofnaphtha and
naphtha itself receiving an 11 percent discount on its export
price. Costs therefore fluctuate in linewith global oil prices,
though Saudi producers using liquids still retain a competitive
advantage.6 Edelweiss Securities Limited 7. Sector UpdateAsia:
Chart 3: Asia & ME will account for 50% of the crackerCapacity
growth in Asia has been largely led bycapacitylarge scale projects
in China. Chinese state-owned players like Sinopec and PetroChina
arerapidly building new ethylene capacity, aided byfavorable
government policies for joint ventureswith foreign majors. But,
environmental worries,economically unviable size of
scatteredpetrochemicals plants and the potential threat
ofovercapacity could delay the commercial start ofproduction. In
the long term, China could be apotential competitor to Middle
Easternpetrochemicals players as petrochemical importsfrom the
Kingdoms are replaced by local Chineseoutput.Source: Oil & Gas
Journal, Edelweiss researchUS and Europe:Chart 4: North America
median age of a plant is Chart 5: Western Europe median age of a
plant32 yearsis 30 years Source: Edelweiss researchSource:
Edelweiss researchHigh feedstock costs coupled with stagnant demand
have depressed capacity growth in the developed markets.Cheaper
imports from ME have forced many economically unviable and older
producers to shutdown. 7 Edelweiss Securities Limited 8. Oil and
GasEthylene Demand Chart 6: Demand for ethylene is highly
correlated to GDP and populationDemand for ethyleneis strongly
correlatedwith both GDPgrowth rate andgrowth in populationwith
correlation of87%and90%respectively.Source: CMAI Global, IMF,
Edelweiss researchChart 7: Ethylene demand per capita is expectedto
grow at CAGR 4.8% till 2015Demand per capita for ethylene has
historically grown atan average growth rate of 3% Y-o-Y since 2000,
barring thepast few years of global economic slowdown and a dip
in2005 when most of the PE plants in North America wereshut down
following hurricane Katrina. We expect thedemand to grow at CAGR
4.8% till 2015 to reach 146 mtpadriven by strong demand growth and
rapid urbanization inhigh growth emerging economies of China and
India.Source: CMAI Global, IMF, Edelweiss researchChart 8: Ethylene
demand GDP elasticity to be1.1xDemand for ethylene has historically
grown with GDPwith an elasticity of 1.06x since 2000, with
exceptions inthe past couple of years due to the financial crisis
and in2005 due to the rampage of hurricane Katrina. We expectthe
elasticity to gradually increase to 1.1x in 2015 due tostrong
demand growth from countries such as China andIndia driven by rapid
urbanization and industrialization.Source: CMAI Global, IMF,
Edelweiss research8Edelweiss Securities Limited 9. Sector
UpdateDemand for ethylene is expected to Chart 9: Ethylene demand
to grow at CAGR 4.8% while little new capacity will come up after
2011grow at a healthy rate of 4.8% CAGRtill 2015, while the
capacity isexpected to grow at a minimal rateof 1.2% CAGR during
the sameperiod with very little capacitiesexpected to come online
after 2011.PE demand per capita in developingeconomies is very low
compared toworld average of 10.3 kg. We expectthe PE demand per
capita indeveloping countries like China andIndia to grow in line
with their highGDP growth rates, consuming theadded capacity.
Source: CMAI Global, IMF, Edelweiss researchEthylene EconomicsDue
to the commoditized nature of the basic chemicals business, price
is the single most important factor indetermining the
competitiveness of players in the market place as there is only
marginal differentiation between theproducts of different
suppliers.Chart 10: ME producers enjoy the lowest cost of
productionriding on cheap ethaneIt is not all about who has the
biggestplant - the next plant built will be theBiggest Plant; it is
also not about who hasthe best technology - technology hasbecome
readily available; it is not evenabout who traded there first
-competitive conditions dictate decisions.It is literally about the
cost.With price of ethylene fixed on a cost-plus basis based on the
highest costproducer, feedstock cost is the mostimportant factor in
determining theethylene margins across differentgeography. Source:
CMAI Global 9Edelweiss Securities Limited 10. Oil and GasFeedstock
Slate: Chart 11: Olefins Feedstock vs. Crude Oil
PricesPetrochemicals are produced by cracking Naphtha
orethane.Since 2008, the relative price of U.S. ethane (as apercent
of crude oil price) has been trending down,due to cheaper U.S.
natural gas. This benefits thepetrochemical producers using natural
gas as feedstock, but there is always a trade off as naphthaunlocks
more sophisticated derivatives.Cracking ethane generates a large
proportion ofethylene (95%) while cracking naphtha gives
betterbyproduct credit. A typical cracker output is givenbelow:
Source: Lyondell Basell Investor Day 2010 Table 1: Cracker output
slate Chart 12: Napththa vs ethane cracker margin widensSource:
Platts, ICIS pricing, Edelweiss ResearchEthane crackers enjoy a
higher margin asnaphtha prices rallied with crude oil price,while
natural gas price remained stable.Middle Eastern countries which
provide naturalgas at an average subsidized rate of USD4/mmBtu,
enjoys still higher margins thoughthe gap narrowed in the recent
years driven bya fall in natural gas prices in the
internationalmarket.Source: Platts, ICIS pricing, Edelweiss
Research10 Edelweiss Securities Limited 11. Sector UpdateChart 13:
Regional feedstock slate of steam crackersFeedstock-related costs
account forover 50% of the total cash costs ofthe final output of
petrochemicalcompanies.Most of the crackers in Asia andEurope are
Naphtha based whilethose in the Middle East and NorthAmerica are
ethane based. ThoughNaphtha costs more than Ethane,Naphtha gives
17x more bi-productnetback than ethane based crackers.Source: OGJ,
Edelweiss ResearchChart 14: Propylene-ethylene spread
widensMeanwhile, propylene / ethylene price ratiocontinues to
increase as ethylene productionfrom ethane increases driven by
highercracker margin realization and propyleneproduction from steam
naphtha crackersdeclines owing to large ethane crackercapacity
addition in the ME. The effect is evenmore pronounced in the case
of butadienewhich is used as a substitute for naturalrubber.Source:
Bloomberg, Edelweiss Research11Edelweiss Securities Limited 12. Oil
and GasEthylene Margin & Utilization RateChart 15: Beginning of
a new cycle of profitabilityThe cracker industry is cyclical in
nature andhistorically operated in a 7-8 year cycle. Webelieve that
the ROCE cycle of the industrybased on replacement cost of a steam
crackerwill hit trough in 2011, and will see thebeginning of new
cycle starting 2011-12.Source: CERA Downstream Index, Edelweiss
Research Chart 16: Operating rate follows gross marginHistorically
operating rates of crackers have closelyfollowed ethylene margin as
the operators havemore incentive to run the plant at a
higheroperating rate when the margins are higher, andlower the rate
when the margins are declining. Source: Edelweiss Research
12Edelweiss Securities Limited 13. Sector UpdateChart 17:
Ethylene-Naphtha crack is expected togrow in line with higher
operating rateWe believe that the gross ethylene margin will
startstrengthening in line with higher ethylene prices andgradually
increase to USD 460 per tonne, along withhigher operating rates of
the crackers though thecrackers will not see high margins of
2004-06 anytimesoon partly because of higher crude oil
prices.Source: Edelweiss ResearchChart 18: Cracker margin is
expected to grow alongwith higher bi-product pricesAt the same time
the net cracker margin realized willgradually strengthen to USD 383
per tonne by theyear 2015, riding on higher bi-product netbacks.
Source: Edelweiss Research 13 Edelweiss Securities Limited 14. Oil
and GasAPPENDIX IWhat is Ethylene?Ethylene is the raw material used
in the manufacture of polymers such as polyethylene (PE),
polyethyleneterephthalate (PET), polyvinyl chloride (PVC) and
polystyrene (PS) as well as fibers and other organic chemicals.
Theseproducts are used in a wide variety of industrial and consumer
markets such as the packaging,
transportation,electrical/electronic, textile and construction
industries as well as consumer chemicals, coatings and
adhesives.Ethylene is one of the largest-volume petrochemicals.
With a diverse range of end-uses, demand for ethylene issensitive
to both economic and energy cycles. It is often seen as a barometer
to the performance of the petrochemicalindustry as whole.According
to CMAI, global production and consumption of ethylene in 2010 were
both approximately 115m tonnes.Global capacity utilization (demand
/ capacity) was 83.1% in 2010, down from 88% in 2009. Ethylene
consumption isestimated to have increased by 2.1% in 2010; it is
forecast to grow an average 4.9% per year up to 2015.Ethylene Value
Chain Chart A1-1: Ethylene value chainSource:Edelweiss research
14Edelweiss Securities Limited 15. Sector UpdateFeedstocksEthane:
Ethane is isolated on an industrial scale from natural gas, and as
a byproduct of petroleum refining. Itschief use is as petrochemical
feedstock for ethylene production.Naphtha: Naphtha is obtained in
petroleum refineries as one of the intermediate products from the
distillationof crude oil. It is a liquid intermediate between the
light gases in the crude oil and the heavier liquid kerosene.The
generic name naphtha describes a range of different refinery
intermediate products used in differentapplications. Naphtha is
used primarily as feedstock for producing high octane gasoline (via
the catalyticreforming process). It is also used in the bitumen
mining industry as a diluent, the petrochemical industry
forproducing olefins in steam crackers, and the chemical industry
for solvent (cleaning) applications.IntermediatesEthylene Oxide:
Because of its special molecular structure, ethylene oxide easily
participates in the additionreaction and thus easily polymerizes.
Although it is a vital raw material with diverse applications,
including themanufacture of products like polyethylene glycol that
are often more effective and less toxic than alternativematerials,
ethylene oxide itself is a very hazardous substance: at room
temperature it is a flammable,carcinogenic, mutagenic, irritating,
and anesthetic gas with a misleadingly pleasant aroma. Therefore,
it iscommonly handled and shipped as a refrigerated liquid.The
chemical reactivity that is responsible for many ofChart A1-2:
Global Ethyleneethylene oxides hazards has also made it a key
industrialDerivativeschemical that supports the living standards of
advancedsocieties. Ethylene oxide (EO) is primarily used to
makeethylene glycol. Other EO derivatives include ethyoxylates(for
use in shampoo, kitchen cleaners, etc), glycol ethers(solvents,
fuels, etc) and ethanol amines (surfactants,personal care products,
etc).Ethylene Glycol: Ethylene glycol is an organic compoundwidely
used as automotive antifreeze and a precursor topolymers. Ethylene
glycol is produced from ethylene, viathe intermediate ethylene
oxide. Ethylene oxide reacts with Source:Edelweiss researchwater to
produce ethylene glycol.Most monoethylene glycol (MEG) is used to
make polyester fibers for textile applications, PET resins for
bottlesand polyester film. MEG is also used in antifreeze
applications.Ethyl Benzene: This aromatic hydrocarbon is important
in the petrochemical industry as an intermediate in theproduction
of styrene, which in turn is used for making polystyrene, a common
plastic material.Although often present in small amounts in crude
oil, ethylbenzene is produced in bulk quantities bycombining
benzene and ethylene in an acid-catalyzed chemical reaction.15
Edelweiss Securities Limited 16. Oil and Gas Styrene: Styrene, also
known as vinyl benzene, is a colorless oily liquid that evaporates
easily. The presence of the vinyl group allows styrene to
polymerize. Commercially significant products include polystyrene,
ABS, styrene-butadiene (SBR) rubber, styrene-butadiene latex and
other products. Ethylene dichloride: Ethylene dichloride (EDC) is a
chlorinated hydrocarbon, mainly used to produce vinyl chloride
monomer (VCM), the major precursor for PVC production. Production
is primarily achieved through the iron (III) chloride-catalyzed
reaction of ethylene and chlorine. Vinyl chloride: VCM is an
important industrial chemical chiefly used to produce the polymer
polyvinyl chloride (PVC). It can be produced by two methods -
hydrochlorination of acetylene and dehydrochlorination of ethylene
dichloride. Due to the relatively low cost of ethylene, compared to
acetylene, most vinyl chloride has been produced via
dehydrochlorination of EDC, despite lower yields (50-60%), lower
product purity and higher costs for waste treatment.Derivatives
PET: Polyethylene terephthalate is a thermoplastic polymer resin of
the polyester family and is used in synthetic fibers; beverage,
food and other liquid containers; thermoforming applications; and
engineering resins often in combination with glass fiber. The
majority of the worlds PET production is for synthetic fibers (in
excess of 60%) with bottle production accounting for around 30% of
global demand. In discussing textile applications, PET is generally
referred to as simply "polyester" while "PET" is used most often to
refer to packaging applications. The polyester industry makes up
about 18% of world polymer production.Polystyrene: PS is an
aromatic polymer made from themonomer styrene. Polystyrene is one
of the most widelyused plastics, the scale being several billion
kilograms peryear. Solid polystyrene is used, for example, in
disposablecutlery, plastic models, CD and DVD cases, and
smokedetector housings. Products made from foamedpolystyrene are
nearly ubiquitous, for example packingmaterials, insulation, and
foam drink cups.Polyethylene: The largest outlet, accounting for
60% ofethylene demand globally, is polyethylene. Polyethylene isa
thermoplastic polymer consisting of long chainsproduced by combing
the ingredient monomer ethylene.PE is classified into several
different categories based mostly on its density and branching. The
mechanical properties of PE depend significantly on variables such
as the extent and type of branching, the crystal structure and the
molecular weight. With regard to sold volumes, the most important
polyethylene grades are HDPE, LLDPE and LDPE. 16 Edelweiss
Securities Limited 17. Sector UpdateHDPE is defined by a density of
greater or equal to 0.941 g/cm3. It hasa low degree of branching
and thus stronger intermolecular forces andtensile strength. HDPE
is used in products and packaging such as milkjugs, detergent
bottles, margarine tubs, garbage containers and waterpipes. One
third of all toys are manufactured from HDPE.Source:Edelweiss
researchLDPE is defined by a density range of 0.9100.940 g/cm3. It
has ahigh degree of short and long chain branching, which means
thatthe chains do not pack into the crystal structure as well. This
resultsin a lower tensile strength and increased ductility. The
high degreeof branching with long chains gives molten LDPE unique
anddesirable flow properties. LDPE is used for both rigid
containers andplastic film applications such as plastic bags and
film wrap. Source:Edelweiss research 17 Edelweiss Securities
Limited 18. Oil and Gas LLDPE is defined by a density range of
0.9150.925 g/cm3. It is a substantially linear polymer with
significant numbers of short branches. LLDPE has higher tensile
strength than LDPE and exhibits higher impact and puncture
resistance; thus lower thickness (gauge) films can be blown,
compared with LDPE, with better environmental stress cracking
resistance but is not as easy to process. LLDPE is used in
packaging, particularly film for bags and sheets. Lower thickness
may be used compared to LDPE for use in cable covering, toys, lids,
buckets, containers and pipe. While other applications are
available, LLDPE is used predominantly in film applications due to
its toughness, flexibility Source:Edelweiss research and relative
transparency. Product examples range from agricultural films, saran
wrap, and bubble wrap, to multilayer and composite films. PVC:
Polyvinyl chloride is a thermoplastic polymer. PVC is the third
most widely produced plastic, after polyethylene and polypropylene.
It is widely used in construction because it is cheap, durable, and
easy to assemble. A number of PVCs properties recommend it for a
wide variety of applications. It is biologically and chemically
resistant, making it the plastic of choice for most household
sewerage pipes and other pipe applications where corrosion would
limit the use of metal. With the addition of impact modifiers and
stabilizers, it becomes a popular material for window and door
frames. By adding plasticizers, it can become flexible enough to be
used in cabling applications as a wire insulator. It is also used
to make vinyl records. PVC is a controversial material in that
during its production, useful life and incineration, especially in
accidental and uncontrolled circumstances, it may liberate
persistent toxins, which the manufacture, use and destruction of
suitable alternative plastics, such as, polypropylene do not. Other
ethylene derivatives include alpha olefins which are used in LLDPE
production, detergent alcohols and plasticizer alcohols; vinyl
acetate monomer (VAM) which is used in adhesives, paints, paper
coatings and barrier resins; and industrial ethanol which is used
as a solvent or in the manufacture of chemical intermediates such
as ethyl acetate and ethylacrylate.18 Edelweiss Securities Limited
19. Sector UpdateAPPENDIX IIHow is Ethylene Produced?Ethylene is
produced commercially by the steam cracking of a wide range of
hydrocarbon feedstocks. In Europe andAsia, ethylene is obtained
mainly from cracking naphtha, gasoil and condensates with the
coproduction of propylene,C4 olefins and aromatics (pyrolysis
gasoline). The cracking of ethane and propane, primarily carried
out in the US,Canada and the Middle East, has the advantage that it
only produces ethylene and propylene, making the plantscheaper to
construct and less complicated to operate.Chart A2-1: Steam
Cracking ProcessOlefin cracking and inter-conversion processes
arebeing developed to boostlight olefinsoutput.Typically,they
canconvert C4-C8 olefins andlight pyrolysis gasolineinto
ethyleneandpropylene.Newercatalytic processes areunder development
thatprovide enhanced controlof the cracking process
orpermitcatalyticdehydrogenation ofethane.Small quantities of
diluteethylene can also beobtained from refinerystreams. In South
Africa,ethylene is produced bythe Fisher-Tropschprocess from
gasesobtained bycoalgasification. Efforts havebeen made to
developprocesses which cancrack crude or residual oil19Edelweiss
Securities Limited 20. Oil and Gasbut they suffer from high
operating costs.Processes are available that use lower alcohols as
feedstocks. Norsk Hydro and UOP have developed a MTO
(methanol-to-olefins) technology that converts methanol to ethylene
and propylene. There is considerable interest in using
thistechnology in China with methanol produced via the gasification
of coal.Working with UOP, Total has developed a technology which
takes the heavier olefins from the MTO unit and convertsthem into
lighter olefins, more specifically into propylene. A pilot plant
has been built at Feluy, Belgium, to assess thisolefin cracking
process (OCP) in conjunction with the MTO process.Much research is
being conducted into the direct conversion of methane to ethylene.
However, the problem with thistechnology, called oxidative coupling
of methane (OCM), is the low per-pass yield of ethylene and the
high yield ofunwanted carbon oxide by-products such as carbon
monoxide and carbon dioxide. Most attempts to increase productyield
have been through new catalyst formulations. Research is also
focusing on making further use of the carbonoxides by producing
methanol or methane. 20 Edelweiss Securities Limited 21. Sector
UpdateAPPENDIX IIIMiddle East Feedstock concerns: Gas demand in the
Chart A3-1: Electricity demand in the ME countries have grown 8.7%
Middle East has beenCAGR from 1980 rising by around 7% per annum
and it has outpaced the growth inregional gas production. Domestic
demand growth is fuelled by economic expansion, low gas prices, the
switch from oil to gas for power generation and the injection of
gas into oil reservoirs to enhanceoil recovery. In the Middle East,
there is tension between the requirementto supply domestic markets
to fuel economic growth and the desire to achieve higher revenues
via export salesagreements. 73% of the Middle Source: U.S. Energy
Information Administration East gas reserves are concentrated in
just two countries: Iran and Qatar. Qatar, which is the worlds
largest LNG producer and exporter, has a moratorium on new North
Field developments and export sales agreements until 2012. Outside
of Iran and Qatar, a significant proportion of the regions gas
reserves are in associated oil deposits, and so gas production is
not flexible. Much of the gas in the region is also sour, which
makes it more difficult and costly to extract and process. Domestic
sales prices, which are subsidized to varying degrees, may need to
rise to cover the additional processing costs and investment
required in gas infrastructure. 21Edelweiss Securities Limited 22.
Oil and Gas Price subsidies, political differences and more
lucrative export opportunities have reduced the availability of gas
produced in the Middle East for consumption in the region. As a
result, there is limited intra-regional infrastructure in place for
the transportation of natural gas. Individual countries in the
Middle East have developed independent strategies to address their
rising demand for natural gas. Saudi Arabia is looking to
substantially increase gas production to meet growing domestic
demand and UAE has been actively looking at unconventional gas
reserves. The emirates associated gas is increasingly being used
for reinjection. Rapid economic development and high domestic power
subsidies have prompted UAE to take alternative measures to meet
future demand.Chart A3-2: Saudi ethane will be more dependent on
oil production Saudi Arabia: The current capacity of ethane
crackers in the country is 6.1 mtpa while it is expected to
increase to 6.4 mtpa over the next five years. Saudi Arabia
currently produces enough ethane to supply to the crackers;
however, electricity production is also expected to grow at more
than 8%. As most of the natural gas produced in Saudi Arabia is
associated gas (hence the Source: CMAI Global production is capped
by OPEC Chart A3-3: KSA ethane deliveries may turn below
allocations crude oil production quota of 8.4 million bpd), and
lower regulated price ($0.75 per mmBtu) does not provide any
incentive for drilling non-associatedgas, ethane supply is expected
to tighten in the future. Though the government is planning to
increase the gas price to $1.2 per mmBtu from 2012, this may not be
practically possible in the near term, given the tense socio
political situation throughout the Source: CMAI Global Middle East.
22 Edelweiss Securities Limited 23. Sector UpdateIran: Iran has
ethane cracker Chart A3-4: Sanctions continue to delay Irancapacity
of 3.7 mtpa while thelargest non-associated gas field,South Pars,
can produce enoughethane to support 1.35 mtpa.The country has plans
toproduce additional natural gasfrom South Pars over the nextfive
years that can support upto4.5 mtpa of cracker capacity.Qatar:
Qatar has put amoratorium on any new projectsrequiring natural gas
till 2012. Source: CMAI GlobalDepending on the outcome of
itsongoing study of the natural gas reserve in the country, even if
the moratorium is lifted in 2012, no newcapacity can come up before
2016.Bottom line: The demand for natural gas has exponentially
grown throughout the Middle East riding on cheappricing. This puts
a risk of feedstock availability in the new multi million tonne
projects. 23 Edelweiss Securities Limited 24. Oil and GasAPPENDIX
IVExisting and expected cracker capacities all over the
worldCountryCompanyLocationCapacity, Capacity, Year ofFeedstock
Slate (%)tonnes/ tonnes/ Completionyear 2010 year(ExistingC2C3
C4Naphtha GasoilOtherExistingNew
capacity=2010)ALGERIASonatrachSkikda133,0002010100
DowBahiaARGENTINAChemical Blanca275,0002010100 Co.(BB1)
DowBahiaARGENTINAChemical Blanca490,0002010100 Co.(BB2) Huntsman
SanpARGENTINA 21,000201025 75 Corp.Lorenzo PetrobrasPuerto
SanARGENTINA32,5002010100 EnergiaMartin
PetrobrasSanARGENTINA20,0002010100 EnergiaLorenzo Huntsman
ChemicalMelbourne,AUSTRALIACo. 32,0002010100Vic. Australia Ltd.
Qenos Pty.AUSTRALIA Altona, Vic.180,000201080515 Ltd. Qenos Pty.
Botany,AUSTRALIA 250,000201080 20 Ltd. NSWAUSTRIAOMV AG Schwechat
500,000201015 2362 AzerichimiAZERBAIJANSumgait30,0002010 a
AzerichimiAZERBAIJANSumgait 300,0002010 a
ProductionNovopolotsBELARUSAssociatio73,0002010k n Polymir
ProductionNovopolotsBELARUSAssociatio 120,0002010k n Polymir
BASFBELGIUMAntwerpenAntwerp 1,080,0002010595 NV BeneluxBELGIUM
Antwerp 255,00020101616 1850 FAO BeneluxBELGIUM Antwerp
610,00020101616 1850 FAO BeneluxBELGIUM Antwerp 550,00020101616
1850 FAO 24Edelweiss Securities Limited 25. Sector
UpdateCountryCompanyLocation Capacity, Capacity, Year of Feedstock
Slate (%) tonnes/ tonnes/ Completion year 2010 year(ExistingC2C3C4
NaphthaGasoilOther ExistingNew capacity=2010)
BraskemCamacari,BRAZIL 600,00020105 95 SA Bahia
BraskemCamacari,BRAZIL 680,0002010 100 SA BahiaBRAZIL
CopesulTriunfo, RS700,0002010 100BRAZIL CopesulTriunfo,
RS500,0002010 100 Petroquimi SantoBRAZIL ca Uniao Andre, Sao
700,0002010 100 SA Paulo RioDuque deBRAZIL 520,0002010 100
PolimerosCaxias Lukoil NeftochimBULGARIABourgas250,00020103.4
1086.6 Bourgas JSC Lukoil NeftochimBULGARIABourgas150,0002010 100
Bourgas JSC DowFortCANADA Chemical Saskatchew 1,100,0002010100
Co.an, Alberta Imperial OilSarnia,CANADA 300,0002010333334 Products
& Ontario Chemicals NovaCorunna,CANADA Chemicals
839,002201010153040 5Ontario Corp. Nova Joffre,CANADA
ChemicalsAlberta725,6242010100 Corp.(E1) Nova Joffre,CANADA
ChemicalsAlberta816,3272010100 Corp.(E2) Nova Joffre,CANADA
ChemicalsAlberta1,269,8412010100 Corp.(E3)Varennes,CANADA Petromont
295,0002010102550 15QuebecCHILEPetrox SAConcepcion60,00020108 1676
BASF-YPCCHINA Nanjing600,0002010 100 Co. Ltd. China National Daya
Bay,CHINA800,0002010 100 Offshore Guangdong Oil Co.25 Edelweiss
Securities Limited 26. Oil and GasCountry CompanyLocation Capacity,
Capacity, Year of Feedstock Slate (%)tonnes/ tonnes/ Completionyear
2010 year(ExistingC2C3C4Naphtha GasoilOtherExistingNew
capacity=2010)ChinaNationalCHINADushanzi 140,0002010 100OffshoreOil
Co.ChinaPetrochemCHINA ical Daqing 320,0002010
100IndustrialCorp.DalianCHINA PetrochemDalian 4,0002010 100ical
Co.FujianPetrochemCHINAQuanzhou 800,0002010 100ical
Co.Ltd.FushunPetrochemCHINAFushun 115,0002010
100icalComplexFushunPetrochemCHINAFushun 685,0002011
100icalComplexGaoqiaoCHINA PetrochemGaoqiao 14,0002010 100ical
Co.GuangzhouCHINA PetrochemGuangzhou150,0002010 100ical
Co.JilinChemicalCHINAJilin700,0002010 100IndustrialCo.
Ltd.LanzhouChemicalCHINALanzhou600,0002010
100IndustrialCo.LanzhouChemicalCHINALanzhou320,0002011
100IndustrialCo.Norinco/ZhCHINAPanjin
450,0002010100enhuaPanjinEthyleneCHINAPanjin
130,0002010100IndustryCorp.CHINA Petrochina Dushanzi 1,000,0002010
100 Caojing,CHINA Sinopec 145,00020103070 Shanghai Caojing,CHINA
Sinopec 700,00020106040 Shanghai 26 Edelweiss Securities Limited
27. Sector UpdateCountry CompanyLocation Capacity, Capacity, Year
ofFeedstock Slate (%)tonnes/ tonnes/ Completionyear 2010
year(ExistingC2C3 C4Naphtha GasoilOtherExistingNew
capacity=2010)CHINA SinopecShanghai 605,0002014 6040 Maoming,CHINA
Sinopec 1,000,0002010100 GuangdongCHINA SinopecNeijing650,0002010
6040 Puyang,CHINA Sinopec 180,0002010100 HenanCHINA SinopecQilu
720,0002010 8020CHINA SinopecTianjin200,0002010100CHINA
SinopecTianjin1,000,0002010100 Wuhan,CHINA Sinopec 800,0002013100
HubeiCHINA
SinopecZhenhai1,000,0002010100PetroChinaSichuanChengdu,CHINA
PetrochemQuanzhou 800,0002011100ical CityCo.
LtdBASF-YPCCHINANanjing150,0002010100Co. Ltd.DaqingPetroleum
HeilongjianCHINA & 600,0002012100 g ProvinceChemicalCo.Shenhua
Baotou,BaotouCHINAInner300,0002010 100Coal MongoliaChemicalChinese
KaohsiungTAIWANPetroleum 500,0002010100
LinyuanCorp.ChineseTAIWANPetroleumLinyuan230,0002010100Corp.ChineseTAIWANPetroleumLinyuan380,0002010100Corp.FormosaTAIWANPetrochemMailiao700,00020107.392.7ical
Corp.FormosaTAIWANPetrochemMailiao1,035,00020106.60.3 93.1ical
Corp.FormosaTAIWAN Mailiao1,200,0002010991Petrochem 27Edelweiss
Securities Limited 28. Oil and GasCountryCompanyLocation Capacity,
Capacity, Year ofFeedstock Slate (%) tonnes/ tonnes/ Completion
year 2010 year(ExistingC2C3 C4Naphtha GasoilOther ExistingNew
capacity=2010) ical Corp. CPC Corp.Kaohsiung,TAIWAN 600,0002013100
Taiwan Linyuan Empresa ColombianBarrancabeCOLOMBIA 100,00020108020
a de rmeja PetroleosCROATIAPolimeri Zagreb90,0002010100CZECH
REPUBLIC UnipetrolLitvinov 544,0002010 2656 135 Sidi
KerirEGYPTPetrochemAlexandria 300,0002010100 icals Co.
BorealisFINLAND Porvoo 390,0002010100 OYFRANCE A. P. Feyzin Feyzin
250,0002010100Notre ExxonMobiDame deFRANCE 400,0002010100 l
Corp.Gravenchon NaphthachFRANCELavera 740,0002010 5050 imie
PolimeriFRANCE Europa Dunkerque430,00020100.5 3.52076 France SAS
Societe du CraqueurBerreFRANCE de L 450,0002010 127513lEtang
Aubette SCA TotalCarling-St.FRANCE PetrochemAvold- 320,0002010100
icalsMarienau TotalGonfrevilleFRANCE Petrochem
520,0002010100lOrcher icals BasellGERMANYPolyfine
Wesseling738,0002010 1090 GMBH BasellGERMANYPolyfine
Wesseling305,0002010100 GMBHLudwigshafGERMANYBASF AG 620,0002010
5590en BPGelsenkirchGERMANYGelsenkirc580,0002010 287812en hen
BPGelsenkirchGERMANYGelsenkirc480,000201096526en hen28Edelweiss
Securities Limited 29. Sector UpdateCountry Company Location
Capacity, Capacity, Year ofFeedstock Slate (%) tonnes/ tonnes/
Completion year 2010 year(Existing C2 C3 C4 NaphthaGasoilOther
ExistingNew capacity=2010)GERMANY INEOS Dormagen
550,0002010100GERMANY INEOS Dormagen
544,0002010100LyondellBaMunchsmuGERMANY400,0002010 13 17
1753sellnsterDowGERMANY ChemicalBohlen
560,0002010100Co.OMVBurghauseGERMANY Deutschlan 450,0002010 2.5
6684 1.5n, Bavariad GMBHShell &GERMANY DEA Oil
Heide110,0002010100GMBHShell &GERMANY DEA Oil
Wesseling500,0002010100GMBHEKOThessalonikGREECEChemicals 20,0002010
6535iCo. AETiszaiVegyi TiszaujvaroHUNGARY370,0002010 1490
5KombinatsLtd.TiszaiVegyi TiszaujvaroHUNGARY290,0002010 7 1675
2KombinatsLtd.GasAuthority Pata, UttarINDIA300,0002010 33 33 34of
IndiaPradeshLtd.HaldiaHaldia,INDIA Petrochem West
670,0002010100icals Ltd.BengalIndian
OilHaryana,INDIA800,0002010100Corp. Ltd.New DelhiIndianPetrochem
Baroda,INDIA156,0002010100icals Corp. GujaratLtd.IndianPetrochem
Gandhar,INDIA400,000201042.5 57.5icals Corp.
GujaratLtd.IndianNagothane,PetrochemINDIA Maharashtr
400,000201042.5 57.5icals Corp.aLtd.NationalThane,INDIA
75,0002010100Organic Maharashtr29Edelweiss Securities Limited 30.
Oil and GasCountry CompanyLocationCapacity, Capacity, Year of
Feedstock Slate (%) tonnes/ tonnes/ Completion year 2010
year(ExistingC2C3C4Naphtha GasoilOther ExistingNew
capacity=2010)Chemical aIndustriesLtd.Reliance Hazira,INDIA
Industries 840,0002010 100 GujaratLtd.Brahmaputra Cracker
Lepetkata,INDIA and280,0002013333334 AssamPolymerLtd.ONGCPetro-
Dahej,INDIA1,100,00020135050additionsGujaratLtd. (OPAL)PT
Cilegon,INDONESIA Chandra600,0002010 100 West JavaAsriAmir
KabirIRANPetrochemAmir Kabir520,000201024 41258 2ical
Co.ArakIRANPetrochemArak247,0002010 100icalArya Sasol
AssaluyehIRANPolymer1,000,0002010100 BushehrCo.BandarImam
BandarIRAN 550,000201020 31067PetrochemImamical Co.Jam
AssaluyehIRANPetrochem1,320,0002010100 Bushehrical Co.Marun
BandarIRANPetrochem1,100,0002010100 Assaluyehical
Co.TabrizIRANPetrochemTabriz136,000201048 880ical Co.CarmelISRAEL
Haifa 240,0002010101080Olefins Ltd.PolimeriITALYBrindisi440,0002010
100EuropaPolimeriITALYGela245,000201025 570EuropaPolimeri
PortoITALY490,0002010 100Europa
MargheraPolimeriITALYPriolo745,0002010216532Europa PortoITALY
Syndial250,00020107030 TorresAsahikasei Kurasiki,JAPAN500,0002010
100ChemicalsOkayama30 Edelweiss Securities Limited 31. Sector
UpdateCountryCompanyLocation Capacity, Capacity, Year of Feedstock
Slate (%) tonnes/ tonnes/ Completion year 2010 year(ExistingC2C3C4
NaphthaGasoilOther ExistingNew capacity=2010) Corp. Idemitsu
PetrochemJAPAN Chiba374,0002010 298 ical Co. Ltd. Idemitsu
PetrochemJAPAN Tokuyama 623,0002010 100 ical Co. Ltd.
KeiyoIchihara,JAPAN740,0002010 100 Ethylene Chiba
MaruzenJAPANPetrochemChiba520,0002010 100 icals
MitsubishiKashimaJAPANChemical375,000201010205515(Unit 1) Corp.
MitsubishiKashimaJAPANChemical453,000201010205515(Unit 2) Corp.
MitsubishiJAPANChemical Mizushima500,0002010 5 58010 Corp.
MitsuiIchihara,JAPANChemicals 617,00020101090Chiba Inc.
MitsuiTakaishiJAPANChemicals 450,0002010 100City, Osaka Inc.
NipponJAPANPetrochemKawasaki 460,0002010 100 ical ShowaJAPAN Oita
675,0002010 100 Denko KK SanyoJAPANPetrochemMizushima500,0002010
100 ical Co. Ltd SumitomoJAPANChemical Chiba415,0002010 100 Co.
Ltd. TonenJAPANChemical Kawasaki 515,0002010 100 Corp. TosohJAPAN
Yokkaichi527,0002010 100 Corp.KAZAKHSTAN Akpo Aktau100,0002010
GovernmeKAZAKHSTANAtyrau30,0002010 nt
EquateKUWAITShuaiba850,0002010100 Petrochem31 Edelweiss Securities
Limited 32. Oil and GasCountry Company Location Capacity, Capacity,
Year of Feedstock Slate (%) tonnes/ tonnes/ Completion year 2010
year(ExistingC2C3C4Naphtha GasoilOther ExistingNew
capacity=2010)ical Co.(Equate II)NationalLIBYA Ras Lanuf350,0002010
100Oil Co.EthyleneMALAYSIAMalaysiaKertih 400,0002010100Sdn.
Bhd.OptimalMALAYSIAOlefins Kertih 600,0002010100Sdn.
Bhd.TitanPasirPetrochemMALAYSIAGudang,442,0002010101080icals
Sdn.JohorBhd.TitanPasirPetrochemMALAYSIAGudang,667,0002010101080icals
Sdn.JohorBhd.LaPetroleosMEXICOCangrejera,600,0002010100MexicanosVeracruzPetroleos
Morelos,MEXICO 600,0002010100Mexicanos VeracruzPetroleos
Pajaritos,MEXICO 184,0002010100Mexicanos
VeracruzDowTerneuzenNETHERLANDS Chemical 580,00020101585(No.
1)Co.DowTerneuzenNETHERLANDS Chemical 585,00020101585(No.
2)Co.DowTerneuzenNETHERLANDS Chemical 635,0002010 100(No.
3)Co.SABIC GeleenNETHERLANDS595,0002010 100Europe(No. 3)SABIC
GeleenNETHERLANDS670,0002010 100Europe(No. 4)ShellNETHERLANDS
Nederland Moerdijk 900,0002010 100Chemie BVElemePetrochem
ElemeNIGERIA550,0002010333334ical Co.RiverLtd.NamhungAnju,
SouthYouthNORTH KOREA Pyongan
60,0002010ChemicalProvinceComplexRafnes,NORWAYNoretyl AS
550,0002010304525BamblePKN OrlenPOLANDPlock700,0002010 5 590SA32
Edelweiss Securities Limited 33. Sector UpdateCountryCompany
LocationCapacity, Capacity, Year of Feedstock Slate (%) tonnes/
tonnes/ Completion year 2010 year(Existing C2C3 C4Naphtha
GasoilOther ExistingNew capacity=2010) Repsol YPFPORTUGAL Sines
570,0002010 100 SA QatarQATARPetrochem Mesaieed720,0002010100 ical
Co.QATARQ-Chem IMesaieed500,0002010 8020 Ras LaffanQATARRas
Laffan1,300,0002010 8020 Olefins Co.ROMANIAPetrom SA Pitesti
170,000201019.5 8.5 23.7 48.4 PetromidiaROMANIANavodari200,0002010
100 SA AngarsknefAngarsk,RUSSIA60,00020105.2 89.2 5.6
torgsintezSiberia AngarsknefAngarsk,RUSSIA 240,00020105.2 89.2 5.6
torgsintezSiberia Nizhnekam NizhnekamRUSSIA skneftekhi600,0002010
sk mRUSSIA Norsy Norsy 300,0002010 100
OmskykauOmsk,RUSSIA90,0002010 chuyk SiberiaRUSSIA Orgsintez Kazan
445,0002010100RUSSIA Oxosyntez Orsk 45,0002010 NovopolotsRUSSIA
Polimir 150,0002010 100 k SalavatneftRUSSIA Salavat 300,0002010
orgsintez SiburRUSSIA Perm 30,0002010 Himprom Sibur-NizhnyRUSSIA
300,00020102080 Neftechim Novgorod SintezkaucRUSSIA
Samara300,0002010 huk StavrapolpRUSSIA Prikumsk350,0002010
olymerRUSSIA Tomsk PCC Tomsk 300,0002010 UraorgsintRUSSIA Ufa
235,0002010 es Al JubailSAUDI ARABIA Petrochem Jubail800,0002010
5050 ical Co. ArabianSAUDI ARABIA Jubail800,0002010 100 Petrochem33
Edelweiss Securities Limited 34. Oil and GasCountryCompany
LocationCapacity, Capacity, Year of Feedstock Slate (%) tonnes/
tonnes/ Completion year 2010 year(ExistingC2C3C4Naphtha GasoilOther
ExistingNew capacity=2010) ical Co. ArabianSAUDI ARABIA Petrochem
Jubail800,00020105050 ical Co. ArabianSAUDI ARABIA Petrochem
Jubail650,0002010100 ical Co. Chevron PhillipsSAUDI ARABIA
Jubail300,00020105050 Chemical Co. LP EasternSAUDI ARABIA Petrochem
Jubail1,300,00020105050 ical Co. Jubail UnitedSAUDI ARABIA
Jubail1,450,00020105050 Petrochem ical Co. Saudi BasicSAUDI ARABIA
IndustriesYanbu 1,380,00020105050 Corp. SaudiSAUDI ARABIA Petrochem
Jubail1,350,0002010100 ical Co.SAUDI ARABIA
TasneeJubail1,000,000201025252525 YanbuSAUDI ARABIA Petrochem Yanbu
875,0002010100 ical Co. YanbuSAUDI ARABIA Petrochem Yanbu
830,000201016161850 ical Co. SaudiSAUDI ARABIA Al-Jubail
1,200,0002011 PolymersSERBIA AND Chemi Pancevo
200,0002010MONTENEGRO Industria ExxonMobi JurongSINGAPOREl
Chemical900,0002010333334 Island Co. Petrochem ical Corp. Pulau
AyerSINGAPOREof465,0002010 100 Merbau Singapore Pte. Ltd. Petrochem
ical Corp. Pulau AyerSINGAPOREof615,0002010 100 Merbau Singapore
Pte. Ltd. Shell Eastern BukomSINGAPORE800,0002010 100 Petroleum
Island Ltd.34 Edelweiss Securities Limited 35. Sector
UpdateCountryCompany Location Capacity, Capacity, Year ofFeedstock
Slate (%)tonnes/ tonnes/ Completionyear 2010 year(ExistingC2 C3C4
NaphthaGasoilOtherExistingNew capacity=2010) ExxonMobi
JurongSINGAPOREl Chemical 1,000,0002013100 Island Corp.
SlovnaftSLOVAKIA Petrochem Bratislava 210,0002010 8 112655 icals
SasolSOUTH AFRICA Sasolburg110,000201080 20 Polymers SasolSOUTH
AFRICA Secunda475,000201075520 Polymers HonamSOUTH KOREAPetrochem
Yeochun750,0002010100 ical Korea PetrochemSOUTH
KOREAicalUlsan470,0002010100 Industries Co. Ltd. LG DaesanSOUTH
KOREAPetrochem Daesan 760,0002010100 ical LG PetrochemSOUTH
KOREAYeosu City 900,0002010100 ical Co. Ltd. Lotte DaesanSOUTH
KOREADaesan 650,0002010100 Petrochem ical SamsungSOUTH KOREAGeneral
Daesan 850,0002010100 ChemicalsSOUTH KOREASK
Corp.Ulsan545,0002010100SOUTH KOREASK Corp.Ulsan185,0002010100SOUTH
KOREAYeochon Yeochun857,0002010100SOUTH KOREAYeochon
Yeochun555,0002010100SOUTH KOREAYeochon Yeochun400,0002010100
DowSPAINChemicalTarragona660,0002010100 Co. Repsol
YPFSPAINPuertollano250,0002010 100 SA Repsol
YPFSPAINTarragona660,0002010100 SA StenungsunSWEDEN Borealis
AB625,000201040 2040 d 35Edelweiss Securities Limited 36. Oil and
GasCountry CompanyLocationCapacity, Capacity, Year of Feedstock
Slate (%) tonnes/ tonnes/ Completion year 2010
year(ExistingC2C3C4Naphtha GasoilOther ExistingNew
capacity=2010)SWITZERLAND Lonza Ltd. Visp 33,0002010306010Map Ta
Map TaTHAILANDPhut Phut, 900,0002010100Olefins Co.Rayong Map
TaPTTTHAILAND Phut, 400,000201080 614Chemical Rayong Map
TaPTTTHAILAND Phut, 515,00020105 182849Chemical Rayong Map
TaPTTTHAILAND Phut, 461,0002010100Chemical Rayong Map TaPTTTHAILAND
Phut, 1,000,0002010100Chemical Rayong Map TaRayongTHAILAND Phut,
800,0002010 100Olefins Ltd. RayongPTT Map TaTHAILANDPolyethyle
1,000,0002010100 Phutne Co. Ltd.PetkimPetrochem
Aliaga,TURKEYicals520,0002010 100 IzmirHoldingCo.UKRAINE Chlorvinyl
Kalush250,0002010 100UKRAINE Oriana 180,0002010UKRAINE TNK-BP
Lisichansk300,0002010 100BorougeUNITED ARAB Abu DhabiRuwais,
2,100,0002010100EMIRATESPolymers Abu DhabiCo. Ltd.Abu DhabiUNITED
ARAB Polymers Ruwais, 1,500,0002013100EMIRATESCo. Ltd. Abu
Dhabi(Borouge)UNITED GrangemoINEOS730,0002010 100KINGDOMuthUNITED
GrangemoINEOS340,0002010 100KINGDOMuthExxonMobiUNITEDl Chemical
Fawley120,000201098 8252525KINGDOMCo.ExxonMobiUNITED Mossmorral
Chemical 830,0002010100KINGDOMn FifeCo.UNITEDSABIC
Wilton865,0002010201070KINGDOM Europe36 Edelweiss Securities
Limited 37. Sector UpdateCountry Company Location Capacity,
Capacity, Year of Feedstock Slate (%) tonnes/ tonnes/ Completion
year 2010 year(ExistingC2C3C4 NaphthaGasoilOther ExistingNew
capacity=2010)BASF FinaUNITED STATES Petrochem Port
Arthur907,0002010 100icalsChevronPhillipsCedarUNITED
STATES803,000201030202525ChemicalBayouCo. LPChevronPhillipsUNITED
STATES Port Arthur861,00020107025 5ChemicalCo.
LPChevronPhillipsUNITED STATES Sweeny 907,0002010383725ChemicalCo.
LPChevronPhillipsUNITED STATES Sweeny 676,00020107525ChemicalCo.
LPChevronPhillipsUNITED STATES Sweeny 295,00020108515ChemicalCo.
LPDowFreeportUNITED STATES Chemical 633,00020105050(LHC
7)Co.DowFreeportUNITED STATES Chemical 1,024,0002010102070(LHC
8)Co.DowPlaqueminUNITED STATES Chemical 522,00020107525e (LHC
2)Co.DowPlaqueminUNITED STATES Chemical 740,0002010701020e (LHC
3)Co.DowUNITED STATES ChemicalTaft 1 612,0002010204040Co.UNITED
STATES DuPontOrange 681,0002010100EastmanUNITED STATES
ChemicalLongview 140,00020102567 7 1Co.EastmanUNITED STATES
ChemicalLongview 140,00020102567 7 1Co.EastmanUNITED STATES
ChemicalLongview 140,00020102567 7 1Co.EastmanUNITED STATES
ChemicalLongview 360,00020102567 7 1Co.37 Edelweiss Securities
Limited 38. Oil and GasCountry Company Location Capacity, Capacity,
Year ofFeedstock Slate (%) tonnes/ tonnes/ Completion year 2010
year(ExistingC2 C3C4Naphtha GasoilOther ExistingNew
capacity=2010)EquistarChemicalsChannelvieUNITED STATES LP
875,0002010 5 95w(LyondellBasell)EquistarChemicalsChannelvieUNITED
STATES LP 875,0002010 5
95w(LyondellBasell)EquistarChemicalsChocolateUNITED STATES LP
544,0002010100Bayou(LyondellBasell)EquistarChemicalsUNITED STATES
LPClinton500,000201080
20(LyondellBasell)EquistarChemicalsCorpusUNITED STATES LP
771,000201010 3060Christi(LyondellBasell)EquistarChemicalsUNITED
STATES LPLaPorte789,000201060
2020(LyondellBasell)EquistarChemicalsUNITED STATES LPMorris
590,000201080 20(LyondellBasell)ExxonMobiBatonUNITED STATES l
Chemical 975,0002010 98 8252525RougeCo.ExxonMobiUNITED STATES l
ChemicalBaytown2,197,0002010588 925Co.ExxonMobiUNITED STATES l
ChemicalBeaumont 816,0002010 88 975Co.ExxonMobiUNITED STATES l
ChemicalHouston102,0002010 100Co.Flint HillsUNITED STATES Port
Arthur617,0002010 6040Corp.FormosaPointUNITED STATES Plastics
816,000201045 1540ComfortCorp. USAFormosaPointUNITED STATES
Plastics 680,000201045 1540ComfortCorp. USA38Edelweiss Securities
Limited 39. Sector UpdateCountry Company LocationCapacity,
Capacity,Year ofFeedstock Slate (%)tonnes/ tonnes/Completionyear
2010 year (Existing C2C3 C4
NaphthaGasoilOtherExistingNewcapacity=2010)HuntsmanPortUNITED
STATES 180,000 2010Corp. NechesINEOSOlefins and ChocolateUNITED
STATES 1,746,000 2010 5035 15PolymersBayouUSAJavelinaCorpusUNITED
STATES 102,000 2010100Co. ChristiSasolNorth LakeUNITED STATES
454,000 2010100America CharlesInc.ShellUNITED STATES Chemicals Deer
Park 1,406,000 2010Ltd.ShellUNITED STATES Chemicals Norco 1,556,000
20105 35 60Ltd.WestlakeUNITED STATES Petrochem Calvert City204,000
2010100icals Corp.WestlakeUNITED STATES Petrochem Sulphur #1567,000
2010100icals Corp.WestlakeUNITED STATES Petrochem Sulphur #2522,000
2010 7030icals Corp.WilliamsUNITED STATES Geismar 626,000 2010 92
8OlefinsUzbekneftUZBEKISTANShurtan 140,000
2010100egazPequiven-PetroquimiEl Tablazo,VENEZUELA ca de 250,000
2010 3070ZuliaVenezuelaSAPequiven-PetroquimiEl Tablazo,VENEZUELA ca
de 350,000 2010100ZuliaVenezuelaSASource: Oil & Gas Journal,
Downstream Today, Edelweiss research 39Edelweiss Securities Limited
40. Oil and GasAPPENDIX VSensitivity Analysis Table A5-1: Cracker
margin basedTable A5-2: Cracker margin based on demand per capita
growth rateon GDP growth rate and demand and population growth
rateelasticity2011Demand per capita growth rate 2011 GDP growth
rate188 2.90% 3.40% 3.90%4.40% 4.90% 198 3.80%4.10% 4.40%
4.70%5.00% population growth rateDemand elasticity0.77%187 192
198203 209Demand elasticity0.96187 190 193 197 2000.89%188 194
199205 2101.01189 193 196 199 2021.00%190 195 200206 2111.06191 195
198 202 2051.12%191 196 202207 2131.23%192 198 203208 214 1.11193
197 201 204 2081.16195 199 203 207 2102015 Demand per capita growth
rate2015GDP growth rate382 2.90% 3.40% 3.90%4.40% 4.90%Demand
elasticityDemand elasticity 388 3.80%4.10% 4.40% 4.70%5.00%
population growth rate0.77%358 365 371377 383 Demand
elasticity0.96369 373 377 380 384Demand elasticity0.89%360 366
372379 3851.01372 376 379 383 3871.00%361 368 374380 3861.06374 378
382 386 3901.12%363 369 375382 3881.23%364 371 377383 389 1.11377
381 385 389 393 Demand per capita growth rate1.16379 383 388 392
396 population growth rate Demand elasticityOur sensitivity
analysis of cracker margin based on demand projection based on 1)
demand per capita growth rate andGDP growth rate2) demand
elasticity with GDP growth shows that the margin will be higher
than USD 188 per mt in 2011 and will growto more than USD 383 per
mt by 2015.Demand elasticity Demand per capita growth rate
population growth rateDemand elasticity40 Edelweiss Securities
Limited Demand per capita growth rate 41. Sector UpdateEdelweiss
Securities Limited, Edelweiss House, off C.S.T. Road, Kalina,
Mumbai 400 098.Board: (91-22) 4009 4400, Email:
[email protected] Vikas KhemaniHead Institutional Equities
[email protected]+91 22 2286 4206 Nischal Maheshwari Head
Research [email protected] +91 22 6623 3411 Coverage
group(s) of stocks by primary analyst(s): Oil and Gas,
Petrochemicals Bharat Petroleum Corporation, Cairn India, Chennai
Petroleum Corp., Hindustan Petroleum Corporation, Indian Oil
Corporation, Indraprastha Gas, ONGC, Reliance Industries, Aban
Offshore, Petronet LNG, Essar Oil, GAIL, Shivvani Oil & Gas
ExplorationRecent ResearchDate Company Title Price (INR)
Recos01-Jul-11AbanStake sale: Turning the heat524Hold1,150 Offshore
on; Edel Flash 95030-Jun-11 CairnDeal approved, but
royalty312HoldBuy Indiacost recoverable; 750(INR) Edel Flash
55029-Jun-11 Petronet Buy Strong LNG volume visibility; 138 Buy
350LNG Buy Visit Note 150 Aug-08 Se p-08 Nov-08 De c -08 Oc t-08 J
a n-09 J un-09J ul-08J ul-09 Feb-09 Ma y-09 Ma r-09
Apr-09Distribution of Ratings / Market Cap 20-Jun-11 Torrent Growth
drivers intact;642 BuyEdelweiss Research Coverage Universe Pharma
Visit Note Rating Interpretation BuyHoldReduceTotal Rating Expected
to 15-Jun-11 Dr. Reddys USFDA issues warning letter 1,555BuyRating
Distribution* 132 51 18 Lab. 203 Mexico facility; for EdelFlash
Buyappreciate more than 15% over a 12-month period* 2 stocks under
review 08-Jun-11 Dr. Reddys Gauging upsides from Holdappreciate up
Buy1,577 to 15% over a 12-month period> 50bn Lab. Between 10bn
and 50 bn < 10bncurrent level;Company Update Reducedepreciate
more than 5% over a 12-month periodMarket Cap (INR)117 16-May-11
Shiv-vani 21 65 Robust results on full asset 275 BuyOil & Gas
deployment; Result UpdateAccess the entire repository of
Uncertainties cloud attractive
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