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Global demand for ethylene to grow at a healthy rate of 4.8% CAGR over 2010-15, compared to a growth rate of 1.5% over the last 5 years. In spite of healthy demand, there is likely to be an oversupply situation during 2010-11 due largely to huge capacity addition in the Middle East and China leading to decreased ethylene prices and margins. The situation is expected to improve after 2011 due to limited capacity addition. Global capacity utilization decreased to around 80% during 2010, but is expected to increase substantially till 2015 to reach a high of 95%. Global ethylene oversupply scenario not as bad Though there is concern that the new capacities coming up in the Middle East and China are going to flood the world market, depressing ethylene prices and margins, we believe that most of the scheduled projects, amounting to 10 mtpa (million tonnes per annum), have already come online by 2010. Only marginal new capacity of 9 mtpa is expected to come online till 2015. Large projects totaling 12 mtpa, which are delayed because of a number of reasons, such as, feedstock availability, impact of financial crisis, regulatory approval and environmental impact, are not expected to come online anytime soon. Healthy demand growth led by polymer demand in China and India Demand for ethylene is expected to grow at a healthy rate of 4.8% CAGR between 2011-15 driven by strong polyethylene (PE) demand from developing economies in Asia. PE demand per capita in India is very low at 2kg against a world average of 10.3 kg. We expect the PE demand per capita in developing countries like China and India to grow in line with their high GDP growth rate, consuming the added capacity. Asian crackers have bi-product netback; Middle East (ME) crackers short of feedstock Most of the crackers that are coming up in China are Naphtha based. Though Naphtha costs more than Ethane, it gives 17x more bi-product netback than ethane based crackers. On the other hand, large projects planned in the Middle East are delayed or cancelled because of concerns of natural gas availability thus tightening ethylene supply situation. The two factors together are expected to contribute positively to cracker operators’ bottom lines. Ethylene margins to grow in line with higher capacity utilization We expect that the utilization rates of the crackers will reach a trough in 2010-11, and then the demand scenario will tighten till 2015 primarily driven by healthy demand growth in line with rebound in global economy and less capacity addition. This will drive better margin for the cracker operators. Alin Dev +1-617-504-3157 [email protected] August 29, 2011 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited OIL AND GAS Ethylene Global Demand-Supply Scenario SECTOR UPDATE India Equity Research | Oil, Gas and Services
Transcript
Page 1: Petrochemicals - Ethylene

1 Edelweiss Securities Limited

Global demand for ethylene to grow at a healthy rate of 4.8% CAGR over 2010-15, compared to a growth rate of 1.5% over the last 5 years. In spite of healthy demand, there is likely to be an oversupply situation during 2010-11 due largely to huge capacity addition in the Middle East and China – leading to decreased ethylene prices and margins. The situation is expected to improve after 2011 due to limited capacity addition. Global capacity utilization decreased to around 80% during 2010, but is expected to increase substantially till 2015 to reach a high of 95%.

Global ethylene oversupply scenario not as bad Though there is concern that the new capacities coming up in the Middle East and

China are going to flood the world market, depressing ethylene prices and margins, we

believe that most of the scheduled projects, amounting to 10 mtpa (million tonnes per

annum), have already come online by 2010. Only marginal new capacity of 9 mtpa is

expected to come online till 2015. Large projects totaling 12 mtpa, which are delayed

because of a number of reasons, such as, feedstock availability, impact of financial

crisis, regulatory approval and environmental impact, are not expected to come online

anytime soon.

Healthy demand growth led by polymer demand in China and India Demand for ethylene is expected to grow at a healthy rate of 4.8% CAGR between

2011-15 driven by strong polyethylene (PE) demand from developing economies in

Asia. PE demand per capita in India is very low at 2kg against a world average of 10.3

kg. We expect the PE demand per capita in developing countries like China and India to

grow in line with their high GDP growth rate, consuming the added capacity.

Asian crackers have bi-product netback; Middle East (ME) crackers short of feedstock

Most of the crackers that are coming up in China are Naphtha based. Though Naphtha

costs more than Ethane, it gives 17x more bi-product netback than ethane based

crackers.

On the other hand, large projects planned in the Middle East are delayed or cancelled

because of concerns of natural gas availability – thus tightening ethylene supply

situation. The two factors together are expected to contribute positively to cracker

operators’ bottom lines.

Ethylene margins to grow in line with higher capacity utilization We expect that the utilization rates of the crackers will reach a trough in 2010-11, and

then the demand scenario will tighten till 2015 – primarily driven by healthy demand

growth in line with rebound in global economy and less capacity addition. This will drive

better margin for the cracker operators.

Alin Dev

+1-617-504-3157

[email protected]

August 29, 2011

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

OIL AND GAS Ethylene Global Demand-Supply Scenario

SECTOR UPDATE

India Equity Research | Oil, Gas and Services

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Contents

Ethylene Supply .................................................................................................................................................................. 5

Middle East: ................................................................................................................................................................... 6

Asia: ............................................................................................................................................................................... 7

US and Europe: .............................................................................................................................................................. 7

Ethylene Demand ............................................................................................................................................................... 8

Ethylene Economics ........................................................................................................................................................... 9

Feedstock Slate: ........................................................................................................................................................... 10

Ethylene Margin & Utilization Rate .................................................................................................................................. 12

APPENDIX – I .................................................................................................................................................................... 14

What is Ethylene? ........................................................................................................................................................ 14

Ethylene Value Chain ................................................................................................................................................... 14

Feedstocks ............................................................................................................................................................... 15

Intermediates .......................................................................................................................................................... 15

Derivatives ............................................................................................................................................................... 16

APPENDIX – II ................................................................................................................................................................... 19

How is Ethylene Produced? ......................................................................................................................................... 19

APPENDIX – III .................................................................................................................................................................. 21

Middle East Feedstock concerns: ................................................................................................................................. 21

Saudi Arabia: ........................................................................................................................................................... 22

Iran: ......................................................................................................................................................................... 23

Qatar: ...................................................................................................................................................................... 23

APPENDIX – IV .................................................................................................................................................................. 24

Existing and expected cracker capacities all over the world ........................................................................................ 24

APPENDIX – V ................................................................................................................................................................... 40

Sensitivity Analysis ....................................................................................................................................................... 40

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Ethylene Supply

Global ethylene capacity has dramatically increased between 2005 and 2010 from 115.2 million tonnes per annum to

144 mtpa, growing at a CAGR 4.6%. During the same period China has added 14.2 mtpa of ethylene cracker capacity,

while Middle Eastern

countries have nearly

doubled their capacity to

23.6 mtpa. At the same

time, during 2006-10 the

cumulative capacity share

of Western Europe and

North America dropped

from 53% to 42.5%.

Total ethylene capacity is

expected to continue

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.

We believe that most of the scheduled projects, amounting to 10 mtpa, have already come online by 2010. Only

marginal new capacity of 9 mtpa is expected to come online till 2015. Large projects totaling 12 mtpa, which are

delayed because of a number of reasons, such as, feedstock availability, impact of financial crisis, regulatory approval

and environmental impact, are not expected to come online anytime soon.

Chart 1: World ethylene capacity has grown at CAGR 3% from 2004-15

Source: Oil & Gas Journal, Edelweiss research

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Middle East:

Availability of cheap crude oil and high dependence of the kingdoms on oil revenue have driven the kingdoms and

governments to diversify into manufacturing commodity chemicals and capture more value from the commodity

nature of crude oil. Middle Eastern countries are also better positioned to transport petrochemicals at a lower cost to

developed markets in Europe, as well as high growth markets in Asia. This being a labor intensive industry, the

governments are also able to generate meaningful employment for its people by developing the petrochemical

industry. To bring about rapid growth in the petrochemicals industry, Middle Eastern countries provide different

incentives 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 of

naphtha and naphtha itself receiving an 11 percent discount on its export price. Costs therefore fluctuate in line

with global oil prices, though Saudi producers using liquids still retain a competitive advantage.

Chart 2: Most of the incremental capacity has already been added by 2010

Source: Oil & Gas Journal, Edelweiss research

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Asia:

Capacity growth in Asia has been largely led by

large scale projects in China. Chinese state-

owned players like Sinopec and PetroChina are

rapidly building new ethylene capacity, aided by

favorable government policies for joint ventures

with foreign majors. But, environmental worries,

economically unviable size of scattered

petrochemicals plants and the potential threat of

overcapacity could delay the commercial start of

production. In the long term, China could be a

potential competitor to Middle Eastern

petrochemicals players as petrochemical imports

from the Kingdoms are replaced by local Chinese

output.

US and Europe:

High 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.

Chart 3: Asia & ME will account for 50% of the cracker

capacity

Chart 5: Western Europe – median age of a plant is 30 years

Chart 4: North America – median age of a plant is 32 years

Source: Oil & Gas Journal, Edelweiss research

Source: Edelweiss research Source: Edelweiss research

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Ethylene Demand

Demand for ethylene

is strongly correlated

with both GDP

growth rate and

growth in population

with correlation of

87% and 90%

respectively.

Demand per capita for ethylene has historically grown at

an average growth rate of 3% Y-o-Y since 2000, barring the

past few years of global economic slowdown and a dip in

2005 when most of the PE plants in North America were

shut down following hurricane Katrina. We expect the

demand to grow at CAGR 4.8% till 2015 to reach 146 mtpa

driven by strong demand growth and rapid urbanization in

high growth emerging economies of China and India.

Demand for ethylene has historically grown with GDP

with an elasticity of 1.06x since 2000, with exceptions in

the past couple of years due to the financial crisis and in

2005 due to the rampage of hurricane Katrina. We expect

the elasticity to gradually increase to 1.1x in 2015 due to

strong demand growth from countries such as China and

India driven by rapid urbanization and industrialization.

Chart 6: Demand for ethylene is highly correlated to GDP and population

Chart 7: Ethylene demand per capita is expected

to grow at CAGR 4.8% till 2015

Chart 8: Ethylene demand – GDP elasticity to be 1.1x

Source: CMAI Global, IMF, Edelweiss research

Source: CMAI Global, IMF, Edelweiss research

Source: CMAI Global, IMF, Edelweiss research

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Demand for ethylene is expected to

grow at a healthy rate of 4.8% CAGR

till 2015, while the capacity is

expected to grow at a minimal rate

of 1.2% CAGR during the same

period with very little capacities

expected to come online after 2011.

PE demand per capita in developing

economies is very low compared to

world average of 10.3 kg. We expect

the PE demand per capita in

developing countries like China and

India to grow in line with their high

GDP growth rates, consuming the

added capacity.

Ethylene Economics

Due to the commoditized nature of the basic chemicals business, price is the single most important factor in

determining the competitiveness of players in the market place as there is only marginal differentiation between the

products of different suppliers.

It is not all about who has the biggest

plant - the next plant built will be the

Biggest Plant; it is also not about who has

the best technology - technology has

become readily available; it is not even

about 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 cost

producer, feedstock cost is the most

important factor in determining the

ethylene margins across different

geography.

Chart 9: Ethylene demand to grow at CAGR 4.8% while little new capacity will come up after 2011

Chart 10: ME producers enjoy the lowest cost of production riding on cheap ethane

Source: CMAI Global, IMF, Edelweiss research

Source: CMAI Global

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Feedstock Slate:

Petrochemicals are produced by cracking Naphtha or

ethane.

Since 2008, the relative price of U.S. ethane (as a

percent of crude oil price) has been trending down,

due to cheaper U.S. natural gas. This benefits the

petrochemical producers using natural gas as feed

stock, but there is always a trade off as naphtha

unlocks more sophisticated derivatives.

Cracking ethane generates a large proportion of

ethylene (95%) while cracking naphtha gives better

byproduct credit. A typical cracker output is given

below:

Ethane crackers enjoy a higher margin as

naphtha prices rallied with crude oil price,

while natural gas price remained stable.

Middle Eastern countries which provide natural

gas at an average subsidized rate of USD

4/mmBtu, enjoys still higher margins though

the gap narrowed in the recent years driven by

a fall in natural gas prices in the international

market.

Chart 11: Olefins Feedstock vs. Crude Oil Prices

Source: Lyondell Basell Investor Day 2010

Chart 12: Napththa vs ethane cracker margin widens

Source: Platts, ICIS pricing, Edelweiss Research

Table 1: Cracker output slate

Source: Platts, ICIS pricing, Edelweiss Research

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Feedstock-related costs account for

over 50% of the total cash costs of

the final output of petrochemical

companies.

Most of the crackers in Asia and

Europe are Naphtha based while

those in the Middle East and North

America are ethane based. Though

Naphtha costs more than Ethane,

Naphtha gives 17x more bi-product

netback than ethane based crackers.

Meanwhile, propylene / ethylene price ratio

continues to increase as ethylene production

from ethane increases driven by higher

cracker margin realization and propylene

production from steam naphtha crackers

declines owing to large ethane cracker

capacity addition in the ME. The effect is even

more pronounced in the case of butadiene

which is used as a substitute for natural

rubber.

Chart 13: Regional feedstock slate of steam crackers

Chart 14: Propylene-ethylene spread widens

Source: OGJ, Edelweiss Research

Source: Bloomberg, Edelweiss Research

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Ethylene Margin & Utilization Rate

The cracker industry is cyclical in nature and

historically operated in a 7-8 year cycle. We

believe that the ROCE cycle of the industry

based on replacement cost of a steam cracker

will hit trough in 2011, and will see the

beginning of new cycle starting 2011-12.

Historically operating rates of crackers have closely

followed ethylene margin as the operators have

more incentive to run the plant at a higher

operating rate when the margins are higher, and

lower the rate when the margins are declining.

Chart 15: Beginning of a new cycle of profitability

Chart 16: Operating rate follows gross margin

Source: CERA Downstream Index, Edelweiss Research

Source: Edelweiss Research

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We believe that the gross ethylene margin will start

strengthening in line with higher ethylene prices and

gradually increase to USD 460 per tonne, along with

higher operating rates of the crackers though the

crackers will not see high margins of 2004-06 anytime

soon partly because of higher crude oil prices.

At the same time the net cracker margin realized will

gradually strengthen to USD 383 per tonne by the

year 2015, riding on higher bi-product netbacks.

Chart 17: Ethylene-Naphtha crack is expected to

grow in line with higher operating rate

Chart 18: Cracker margin is expected to grow along with higher bi-product prices

Source: Edelweiss Research

Source: Edelweiss Research

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APPENDIX – I

What is Ethylene?

Ethylene is the raw material used in the manufacture of polymers such as polyethylene (PE), polyethylene

terephthalate (PET), polyvinyl chloride (PVC) and polystyrene (PS) as well as fibers and other organic chemicals. These

products 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 is

sensitive to both economic and energy cycles. It is often seen as a barometer to the performance of the petrochemical

industry 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 is

estimated 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 chain

Source:Edelweiss research

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Feedstocks

Ethane: Ethane is isolated on an industrial scale from natural gas, and as a byproduct of petroleum refining. Its

chief use is as petrochemical feedstock for ethylene production.

Naphtha: Naphtha is obtained in petroleum refineries as one of the intermediate products from the distillation

of 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 different

applications. Naphtha is used primarily as feedstock for producing high octane gasoline (via the catalytic

reforming process). It is also used in the bitumen mining industry as a diluent, the petrochemical industry for

producing olefins in steam crackers, and the chemical industry for solvent (cleaning) applications.

Intermediates

Ethylene Oxide: Because of its special molecular structure, ethylene oxide easily participates in the addition

reaction and thus easily polymerizes. Although it is a vital raw material with diverse applications, including the

manufacture of products like polyethylene glycol that are often more effective and less toxic than alternative

materials, 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 is

commonly handled and shipped as a refrigerated liquid.

The chemical reactivity that is responsible for many of

ethylene oxide's hazards has also made it a key industrial

chemical that supports the living standards of advanced

societies. Ethylene oxide (EO) is primarily used to make

ethylene 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 compound

widely used as automotive antifreeze and a precursor to

polymers. Ethylene glycol is produced from ethylene, via

the intermediate ethylene oxide. Ethylene oxide reacts with

water to produce ethylene glycol.

Most monoethylene glycol (MEG) is used to make polyester fibers for textile applications, PET resins for bottles

and polyester film. MEG is also used in antifreeze applications.

Ethyl Benzene: This aromatic hydrocarbon is important in the petrochemical industry as an intermediate in the

production 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 by

combining benzene and ethylene in an acid-catalyzed chemical reaction.

Chart A1-2: Global Ethylene Derivatives

Source:Edelweiss research

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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 world's 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 the

monomer styrene. Polystyrene is one of the most widely

used plastics, the scale being several billion kilograms per

year. Solid polystyrene is used, for example, in disposable

cutlery, plastic models, CD and DVD cases, and smoke

detector housings. Products made from foamed

polystyrene are nearly ubiquitous, for example packing

materials, insulation, and foam drink cups.

Polyethylene: The largest outlet, accounting for 60% of

ethylene demand globally, is polyethylene. Polyethylene is

a thermoplastic polymer consisting of long chains

produced 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.

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HDPE is defined by a density of greater or equal to 0.941 g/cm3. It has

a low degree of branching and thus stronger intermolecular forces and

tensile strength. HDPE is used in products and packaging such as milk

jugs, detergent bottles, margarine tubs, garbage containers and water

pipes. One third of all toys are manufactured from HDPE.

LDPE is defined by a density range of 0.910–0.940 g/cm3. It has a

high degree of short and long chain branching, which means that

the chains do not pack into the crystal structure as well. This results

in a lower tensile strength and increased ductility. The high degree

of branching with long chains gives molten LDPE unique and

desirable flow properties. LDPE is used for both rigid containers and

plastic film applications such as plastic bags and film wrap.

Source:Edelweiss research

Source:Edelweiss research

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LLDPE is defined by a density range of 0.915–0.925 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

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 PVC's 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.

Source:Edelweiss research

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APPENDIX – II

How is Ethylene Produced?

Ethylene is produced commercially by the steam cracking of a wide range of hydrocarbon feedstocks. In Europe and

Asia, 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 plants

cheaper to construct and less complicated to operate.

Olefin cracking and inter-

conversion processes are

being developed to boost

light olefins output.

Typically, they can

convert C4-C8 olefins and

light pyrolysis gasoline

into ethylene and

propylene. Newer

catalytic processes are

under development that

provide enhanced control

of the cracking process or

permit catalytic

dehydrogenation of

ethane.

Small quantities of dilute

ethylene can also be

obtained from refinery

streams. In South Africa,

ethylene is produced by

the Fisher-Tropsch

process from gases

obtained by coal

gasification. Efforts have

been made to develop

processes which can

crack crude or residual oil

Chart A2-1: Steam Cracking Process

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but 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 this

technology 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 converts

them into lighter olefins, more specifically into propylene. A pilot plant has been built at Feluy, Belgium, to assess this

olefin 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 this

technology, called oxidative coupling of methane (OCM), is the low per-pass yield of ethylene and the high yield of

unwanted carbon oxide by-products such as carbon monoxide and carbon dioxide. Most attempts to increase product

yield have been through new catalyst formulations. Research is also focusing on making further use of the carbon

oxides by producing methanol or methane.

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APPENDIX – III

Middle East Feedstock concerns: Gas demand in the

Middle East has been

rising by around 7%

per annum and it has

outpaced the growth

in regional 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 enhance oil

recovery.

In the Middle East,

there is tension

between the

requirement to

supply domestic

markets to fuel

economic growth

and the desire to

achieve higher

revenues via export

sales agreements.

73% of the Middle

East gas reserves are

concentrated in just two countries: Iran and Qatar. Qatar, which is the world’s 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 region’s 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.

Chart A3-1: Electricity demand in the ME countries have grown 8.7%

CAGR from 1980

Source: U.S. Energy Information Administration

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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 emirate’s 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.

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

production is capped by OPEC

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-associated gas,

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

Middle East.

Chart A3-2: Saudi ethane will be more dependent on oil production

Chart A3-3: KSA ethane deliveries may turn below allocations

Source: CMAI Global

Source: CMAI Global

Page 23: Petrochemicals - Ethylene

23 Edelweiss Securities Limited

Sector Update

Iran: Iran has ethane cracker

capacity of 3.7 mtpa while the

largest non-associated gas field,

South Pars, can produce enough

ethane to support 1.35 mtpa.

The country has plans to

produce additional natural gas

from South Pars over the next

five years that can support upto

4.5 mtpa of cracker capacity.

Qatar: Qatar has put a

moratorium on any new projects

requiring natural gas till 2012.

Depending on the outcome of its

ongoing study of the natural gas reserve in the country, even if the moratorium is lifted in 2012, no new

capacity can come up before 2016.

Bottom line: The demand for natural gas has exponentially grown throughout the Middle East riding on cheap

pricing. This puts a risk of feedstock availability in the new multi million tonne projects.

Chart A3-4: Sanctions continue to delay Iran

Source: CMAI Global

Page 24: Petrochemicals - Ethylene

24 Edelweiss Securities Limited

Oil and Gas

APPENDIX – IV

Existing and expected cracker capacities all over the world

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

ALGERIA Sonatrach Skikda 133,000

2010 100

ARGENTINA

Dow

Chemical

Co.

Bahia

Blanca

(BB1)

275,000

2010 100

ARGENTINA

Dow

Chemical

Co.

Bahia

Blanca

(BB2)

490,000

2010 100

pARGENTINA Huntsman

Corp.

San

Lorenzo 21,000

2010

25

75

ARGENTINA Petrobras

Energia

Puerto San

Martin 32,500

2010

100

ARGENTINA Petrobras

Energia

San

Lorenzo 20,000

2010

100

AUSTRALIA

Huntsman

Chemical

Co.

Australia

Ltd.

Melbourne,

Vic. 32,000

2010 100

AUSTRALIA Qenos Pty.

Ltd. Altona, Vic. 180,000

2010 80 5 15

AUSTRALIA Qenos Pty.

Ltd.

Botany,

NSW 250,000

2010 80

20

AUSTRIA OMV AG Schwechat 500,000

2010 15

23 62

AZERBAIJAN Azerichimi

a Sumgait 30,000

2010

AZERBAIJAN Azerichimi

a Sumgait 300,000

2010

BELARUS

Production

Associatio

n Polymir

Novopolots

k 73,000

2010

BELARUS

Production

Associatio

n Polymir

Novopolots

k 120,000

2010

BELGIUM

BASF

Antwerpen

NV

Antwerp 1,080,000

2010

5

95

BELGIUM Benelux

FAO Antwerp 255,000

2010 16 16 18 50

BELGIUM Benelux

FAO Antwerp 610,000

2010 16 16 18 50

BELGIUM Benelux

FAO Antwerp 550,000

2010 16 16 18 50

Page 25: Petrochemicals - Ethylene

25 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

BRAZIL Braskem

SA

Camacari,

Bahia 600,000

2010 5

95

BRAZIL Braskem

SA

Camacari,

Bahia 680,000

2010

100

BRAZIL Copesul Triunfo, RS 700,000

2010

100

BRAZIL Copesul Triunfo, RS 500,000

2010

100

BRAZIL

Petroquimi

ca Uniao

SA

Santo

Andre, Sao

Paulo

700,000

2010

100

BRAZIL Rio

Polimeros

Duque de

Caxias 520,000

2010

100

BULGARIA

Lukoil

Neftochim

Bourgas

JSC

Bourgas 250,000

2010 3.4

10 86.6

BULGARIA

Lukoil

Neftochim

Bourgas

JSC

Bourgas 150,000

2010

100

CANADA

Dow

Chemical

Co.

Fort

Saskatchew

an, Alberta

1,100,000

2010 100

CANADA

Imperial

Oil

Products &

Chemicals

Sarnia,

Ontario 300,000

2010 33 33 34

CANADA

Nova

Chemicals

Corp.

Corunna,

Ontario 839,002

2010 10 15 30 40 5

CANADA

Nova

Chemicals

Corp.

Joffre,

Alberta

(E1)

725,624

2010 100

CANADA

Nova

Chemicals

Corp.

Joffre,

Alberta

(E2)

816,327

2010 100

CANADA

Nova

Chemicals

Corp.

Joffre,

Alberta

(E3)

1,269,841

2010 100

CANADA Petromont Varennes,

Quebec 295,000 2010

10 25 50 15

CHILE Petrox SA Concepcion 60,000

2010 8

16 76

CHINA BASF-YPC

Co. Ltd. Nanjing 600,000

2010

100

CHINA

China

National

Offshore

Oil Co.

Daya Bay,

Guangdong 800,000

2010

100

Page 26: Petrochemicals - Ethylene

26 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

CHINA

China

National

Offshore

Oil Co.

Dushanzi 140,000

2010

100

CHINA

China

Petrochem

ical

Industrial

Corp.

Daqing 320,000

2010

100

CHINA

Dalian

Petrochem

ical Co.

Dalian 4,000

2010

100

CHINA

Fujian

Petrochem

ical Co.

Ltd.

Quanzhou 800,000

2010

100

CHINA

Fushun

Petrochem

ical

Complex

Fushun 115,000

2010

100

CHINA

Fushun

Petrochem

ical

Complex

Fushun

685,000 2011

100

CHINA

Gaoqiao

Petrochem

ical Co.

Gaoqiao 14,000

2010

100

CHINA

Guangzhou

Petrochem

ical Co.

Guangzhou 150,000

2010

100

CHINA

Jilin

Chemical

Industrial

Co. Ltd.

Jilin 700,000

2010

100

CHINA

Lanzhou

Chemical

Industrial

Co.

Lanzhou 600,000

2010

100

CHINA

Lanzhou

Chemical

Industrial

Co.

Lanzhou

320,000 2011

100

CHINA Norinco/Zh

enhua Panjin 450,000

2010 100

CHINA

Panjin

Ethylene

Industry

Corp.

Panjin 130,000

2010 100

CHINA Petrochina Dushanzi 1,000,000

2010

100

CHINA Sinopec Caojing,

Shanghai 145,000

2010

30 70

CHINA Sinopec Caojing,

Shanghai 700,000

2010

60 40

Page 27: Petrochemicals - Ethylene

27 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

CHINA Sinopec Shanghai

605,000 2014

60 40

CHINA Sinopec Maoming,

Guangdong 1,000,000

2010

100

CHINA Sinopec Neijing 650,000

2010

60 40

CHINA Sinopec Puyang,

Henan 180,000

2010

100

CHINA Sinopec Qilu 720,000

2010

80 20

CHINA Sinopec Tianjin 200,000

2010

100

CHINA Sinopec Tianjin 1,000,000

2010

100

CHINA Sinopec Wuhan,

Hubei 800,000 2013

100

CHINA Sinopec Zhenhai 1,000,000

2010

100

CHINA

PetroChina

Sichuan

Petrochem

ical

Co. Ltd

Chengdu,

Quanzhou

City

800,000 2011

100

CHINA BASF-YPC

Co. Ltd. Nanjing 150,000

2010

100

CHINA

Daqing

Petroleum

&

Chemical

Co.

Heilongjian

g Province 600,000 2012

100

CHINA

Shenhua

Baotou

Coal

Chemical

Baotou,

Inner

Mongolia

300,000

2010

100

TAIWAN

Chinese

Petroleum

Corp.

Kaohsiung

Linyuan 500,000

2010 100

TAIWAN

Chinese

Petroleum

Corp.

Linyuan 230,000

2010 100

TAIWAN

Chinese

Petroleum

Corp.

Linyuan 380,000

2010 100

TAIWAN

Formosa

Petrochem

ical Corp.

Mailiao 700,000

2010

7.3

92.7

TAIWAN

Formosa

Petrochem

ical Corp.

Mailiao 1,035,000

2010

6.6 0.3 93.1

TAIWAN Formosa

PetrochemMailiao 1,200,000

2010

9 91

Page 28: Petrochemicals - Ethylene

28 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

ical Corp.

TAIWAN CPC Corp.

Taiwan

Kaohsiung,

Linyuan 600,000 2013

100

COLOMBIA

Empresa

Colombian

a de

Petroleos

Barrancabe

rmeja 100,000

2010 80 20

CROATIA Polimeri Zagreb 90,000

2010 100

CZECH REPUBLIC Unipetrol Litvinov 544,000

2010

2 6 56 1 35

EGYPT

Sidi Kerir

Petrochem

icals Co.

Alexandria 300,000

2010 100

FINLAND Borealis

OY Porvoo 390,000

2010

100

FRANCE A. P. Feyzin Feyzin 250,000

2010

100

FRANCE ExxonMobi

l Corp.

Notre

Dame de

Gravencho

n

400,000

2010

100

FRANCE Naphthach

imie Lavera 740,000

2010

50 50

FRANCE

Polimeri

Europa

France SAS

Dunkerque 430,000

2010 0.5 3.5 20 76

FRANCE

Societe du

Craqueur

de L’

Aubette

SCA

Berre

l’Etang 450,000

2010

12 75 13

FRANCE

Total

Petrochem

icals

Carling-St.

Avold-

Marienau

320,000

2010

100

FRANCE

Total

Petrochem

icals

Gonfreville

l’Orcher 520,000

2010

100

GERMANY

Basell

Polyfine

GMBH

Wesseling 738,000

2010

10 90

GERMANY

Basell

Polyfine

GMBH

Wesseling 305,000

2010

100

GERMANY BASF AG Ludwigshaf

en 620,000

2010

5 5 90

GERMANY

BP

Gelsenkirc

hen

Gelsenkirch

en 580,000

2010

2 8 78 12

GERMANY

BP

Gelsenkirc

hen

Gelsenkirch

en 480,000

2010

9 65 26

Page 29: Petrochemicals - Ethylene

29 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

GERMANY INEOS Dormagen 550,000

2010

100

GERMANY INEOS Dormagen 544,000

2010

100

GERMANY LyondellBa

sell

Munchsmu

nster 400,000

2010 13 17 17 53

GERMANY

Dow

Chemical

Co.

Bohlen 560,000

2010

100

GERMANY

OMV

Deutschlan

d GMBH

Burghause

n, Bavaria 450,000

2010 2.5 6 6 84 1.5

GERMANY

Shell &

DEA Oil

GMBH

Heide 110,000

2010

100

GERMANY

Shell &

DEA Oil

GMBH

Wesseling 500,000

2010

100

GREECE

EKO

Chemicals

Co. AE

Thessalonik

i 20,000

2010

65

35

HUNGARY

Tiszai

Vegyi

Kombinat

Ltd.

Tiszaujvaro

s 370,000

2010

1 4 90 5

HUNGARY

Tiszai

Vegyi

Kombinat

Ltd.

Tiszaujvaro

s 290,000

2010

7 16 75 2

INDIA

Gas

Authority

of India

Ltd.

Pata, Uttar

Pradesh 300,000

2010 33 33 34

INDIA

Haldia

Petrochem

icals Ltd.

Haldia,

West

Bengal

670,000

2010

100

INDIA Indian Oil

Corp. Ltd.

Haryana,

New Delhi 800,000

2010

100

INDIA

Indian

Petrochem

icals Corp.

Ltd.

Baroda,

Gujarat 156,000

2010

100

INDIA

Indian

Petrochem

icals Corp.

Ltd.

Gandhar,

Gujarat 400,000

2010 42.5 57.5

INDIA

Indian

Petrochem

icals Corp.

Ltd.

Nagothane,

Maharashtr

a

400,000

2010 42.5 57.5

INDIA National

Organic

Thane,

Maharashtr75,000

2010

100

Page 30: Petrochemicals - Ethylene

30 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

Chemical

Industries

Ltd.

a

INDIA

Reliance

Industries

Ltd.

Hazira,

Gujarat 840,000

2010

100

INDIA

Brahmaput

ra Cracker

and

Polymer

Ltd.

Lepetkata,

Assam 280,000 2013 33 33 34

INDIA

ONGC

Petro-

additions

Ltd. (OPAL)

Dahej,

Gujarat 1,100,000 2013 50 50

INDONESIA

PT

Chandra

Asri

Cilegon,

West Java 600,000

2010

100

IRAN

Amir Kabir

Petrochem

ical Co.

Amir Kabir 520,000

2010 24 4 12 58 2

IRAN

Arak

Petrochem

ical

Arak 247,000

2010

100

IRAN

Arya Sasol

Polymer

Co.

Assaluyeh

Bushehr 1,000,000

2010 100

IRAN

Bandar

Imam

Petrochem

ical Co.

Bandar

Imam 550,000

2010 20 3 10

67

IRAN

Jam

Petrochem

ical Co.

Assaluyeh

Bushehr 1,320,000

2010 100

IRAN

Marun

Petrochem

ical Co.

Bandar

Assaluyeh 1,100,000

2010 100

IRAN

Tabriz

Petrochem

ical Co.

Tabriz 136,000

2010 4 8 8 80

ISRAEL Carmel

Olefins Ltd. Haifa 240,000

2010

10 10 80

ITALY Polimeri

Europa Brindisi 440,000

2010

100

ITALY Polimeri

Europa Gela 245,000

2010 25 5

70

ITALY Polimeri

Europa

Porto

Marghera 490,000

2010

100

ITALY Polimeri

Europa Priolo 745,000

2010 2

1 65 32

ITALY Syndial Porto

Torres 250,000

2010

70 30

JAPAN Asahikasei

Chemicals

Kurasiki,

Okayama 500,000

2010

100

Page 31: Petrochemicals - Ethylene

31 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

Corp.

JAPAN

Idemitsu

Petrochem

ical Co.

Ltd.

Chiba 374,000

2010

2 98

JAPAN

Idemitsu

Petrochem

ical Co.

Ltd.

Tokuyama 623,000

2010

100

JAPAN Keiyo

Ethylene

Ichihara,

Chiba 740,000

2010

100

JAPAN

Maruzen

Petrochem

icals

Chiba 520,000

2010

100

JAPAN

Mitsubishi

Chemical

Corp.

Kashima

(Unit 1) 375,000

2010

10 20 55

15

JAPAN

Mitsubishi

Chemical

Corp.

Kashima

(Unit 2) 453,000

2010

10 20 55

15

JAPAN

Mitsubishi

Chemical

Corp.

Mizushima 500,000

2010

5 5 80

10

JAPAN

Mitsui

Chemicals

Inc.

Ichihara,

Chiba 617,000

2010

10 90

JAPAN

Mitsui

Chemicals

Inc.

Takaishi

City, Osaka 450,000

2010

100

JAPAN

Nippon

Petrochem

ical

Kawasaki 460,000

2010

100

JAPAN Showa

Denko KK Oita 675,000

2010

100

JAPAN

Sanyo

Petrochem

ical Co. Ltd

Mizushima 500,000

2010

100

JAPAN

Sumitomo

Chemical

Co. Ltd.

Chiba 415,000

2010

100

JAPAN

Tonen

Chemical

Corp.

Kawasaki 515,000

2010

100

JAPAN Tosoh

Corp. Yokkaichi 527,000

2010

100

KAZAKHSTAN Akpo Aktau 100,000

2010

KAZAKHSTAN Governme

nt Atyrau 30,000

2010

KUWAIT Equate

PetrochemShuaiba 850,000

2010 100

Page 32: Petrochemicals - Ethylene

32 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

ical Co.

(Equate II)

LIBYA National

Oil Co. Ras Lanuf 350,000

2010

100

MALAYSIA

Ethylene

Malaysia

Sdn. Bhd.

Kertih 400,000

2010 100

MALAYSIA

Optimal

Olefins

Sdn. Bhd.

Kertih 600,000

2010 100

MALAYSIA

Titan

Petrochem

icals Sdn.

Bhd.

Pasir

Gudang,

Johor

442,000

2010

10 10 80

MALAYSIA

Titan

Petrochem

icals Sdn.

Bhd.

Pasir

Gudang,

Johor

667,000

2010

10 10 80

MEXICO Petroleos

Mexicanos

La

Cangrejera,

Veracruz

600,000

2010 100

MEXICO Petroleos

Mexicanos

Morelos,

Veracruz 600,000

2010 100

MEXICO Petroleos

Mexicanos

Pajaritos,

Veracruz 184,000

2010 100

NETHERLANDS

Dow

Chemical

Co.

Terneuzen

(No. 1) 580,000

2010

15

85

NETHERLANDS

Dow

Chemical

Co.

Terneuzen

(No. 2) 585,000

2010

15

85

NETHERLANDS

Dow

Chemical

Co.

Terneuzen

(No. 3) 635,000

2010

100

NETHERLANDS SABIC

Europe

Geleen

(No. 3) 595,000

2010

100

NETHERLANDS SABIC

Europe

Geleen

(No. 4) 670,000

2010

100

NETHERLANDS

Shell

Nederland

Chemie BV

Moerdijk 900,000

2010

100

NIGERIA

Eleme

Petrochem

ical Co.

Ltd.

Eleme

River 550,000

2010 33 33 34

NORTH KOREA

Namhung

Youth

Chemical

Complex

Anju, South

P’yong’an

Province

60,000

2010

NORWAY Noretyl AS Rafnes,

Bamble 550,000

2010 30 45 25

POLAND PKN Orlen

SA Plock 700,000

2010

5 5 90

Page 33: Petrochemicals - Ethylene

33 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

PORTUGAL Repsol YPF

SA Sines 570,000

2010

100

QATAR

Qatar

Petrochem

ical Co.

Mesaieed 720,000

2010 100

QATAR Q-Chem I Mesaieed 500,000

2010 80 20

QATAR Ras Laffan

Olefins Co. Ras Laffan 1,300,000

2010 80 20

ROMANIA Petrom SA Pitesti 170,000

2010 19.5 8.5 23.7 48.4

ROMANIA Petromidia

SA Navodari 200,000

2010

100

RUSSIA Angarsknef

torgsintez

Angarsk,

Siberia 60,000

2010

5.2 89.2 5.6

RUSSIA Angarsknef

torgsintez

Angarsk,

Siberia 240,000

2010

5.2 89.2 5.6

RUSSIA

Nizhnekam

skneftekhi

m

Nizhnekam

sk 600,000

2010

RUSSIA Norsy Norsy 300,000

2010

100

RUSSIA Omskykau

chuyk

Omsk,

Siberia 90,000

2010

RUSSIA Orgsintez Kazan 445,000

2010 100

RUSSIA Oxosyntez Orsk 45,000

2010

RUSSIA Polimir Novopolots

k 150,000

2010

100

RUSSIA Salavatneft

orgsintez Salavat 300,000

2010

RUSSIA Sibur

Himprom Perm 30,000

2010

RUSSIA Sibur-

Neftechim

Nizhny

Novgorod 300,000

2010

20 80

RUSSIA Sintezkauc

huk Samara 300,000

2010

RUSSIA Stavrapolp

olymer Prikumsk 350,000

2010

RUSSIA Tomsk PCC Tomsk 300,000

2010

RUSSIA Uraorgsint

es Ufa 235,000

2010

SAUDI ARABIA

Al Jubail

Petrochem

ical Co.

Jubail 800,000

2010 50 50

SAUDI ARABIA Arabian

PetrochemJubail 800,000

2010

100

Page 34: Petrochemicals - Ethylene

34 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

ical Co.

SAUDI ARABIA

Arabian

Petrochem

ical Co.

Jubail 800,000

2010 50 50

SAUDI ARABIA

Arabian

Petrochem

ical Co.

Jubail 650,000

2010 100

SAUDI ARABIA

Chevron

Phillips

Chemical

Co. LP

Jubail 300,000

2010

50 50

SAUDI ARABIA

Eastern

Petrochem

ical Co.

Jubail 1,300,000

2010 50 50

SAUDI ARABIA

Jubail

United

Petrochem

ical Co.

Jubail 1,450,000

2010 50 50

SAUDI ARABIA

Saudi Basic

Industries

Corp.

Yanbu 1,380,000

2010 50 50

SAUDI ARABIA

Saudi

Petrochem

ical Co.

Jubail 1,350,000

2010 100

SAUDI ARABIA Tasnee Jubail 1,000,000

2010 25 25 25 25

SAUDI ARABIA

Yanbu

Petrochem

ical Co.

Yanbu 875,000

2010 100

SAUDI ARABIA

Yanbu

Petrochem

ical Co.

Yanbu 830,000

2010 16 16 18 50

SAUDI ARABIA Saudi

Polymers Al-Jubail

1,200,000 2011

SERBIA AND

MONTENEGRO

Chemi

Industria Pancevo 200,000

2010

SINGAPORE

ExxonMobi

l Chemical

Co.

Jurong

Island 900,000

2010

33 33 34

SINGAPORE

Petrochem

ical Corp.

of

Singapore

Pte. Ltd.

Pulau Ayer

Merbau 465,000

2010

100

SINGAPORE

Petrochem

ical Corp.

of

Singapore

Pte. Ltd.

Pulau Ayer

Merbau 615,000

2010

100

SINGAPORE

Shell

Eastern

Petroleum

Ltd.

Bukom

Island 800,000

2010

100

Page 35: Petrochemicals - Ethylene

35 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

SINGAPORE

ExxonMobi

l Chemical

Corp.

Jurong

Island 1,000,000 2013

100

SLOVAKIA

Slovnaft

Petrochem

icals

Bratislava 210,000

2010 8 11 26 55

SOUTH AFRICA Sasol

Polymers Sasolburg 110,000

2010 80 20

SOUTH AFRICA Sasol

Polymers Secunda 475,000

2010 75 5

20

SOUTH KOREA

Honam

Petrochem

ical

Yeochun 750,000

2010

100

SOUTH KOREA

Korea

Petrochem

ical

Industries

Co. Ltd.

Ulsan 470,000

2010

100

SOUTH KOREA

LG Daesan

Petrochem

ical

Daesan 760,000

2010

100

SOUTH KOREA

LG

Petrochem

ical Co.

Ltd.

Yeosu City 900,000

2010

100

SOUTH KOREA

Lotte

Daesan

Petrochem

ical

Daesan 650,000

2010

100

SOUTH KOREA

Samsung

General

Chemicals

Daesan 850,000

2010

100

SOUTH KOREA SK Corp. Ulsan 545,000

2010

100

SOUTH KOREA SK Corp. Ulsan 185,000

2010

100

SOUTH KOREA Yeochon Yeochun 857,000

2010

100

SOUTH KOREA Yeochon Yeochun 555,000

2010

100

SOUTH KOREA Yeochon Yeochun 400,000

2010

100

SPAIN

Dow

Chemical

Co.

Tarragona 660,000

2010

100

SPAIN Repsol YPF

SA Puertollano 250,000

2010

100

SPAIN Repsol YPF

SA Tarragona 660,000

2010

100

SWEDEN Borealis AB Stenungsun

d 625,000

2010 40 20

40

Page 36: Petrochemicals - Ethylene

36 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

SWITZERLAND Lonza Ltd. Visp 33,000

2010

30 60 10

THAILAND

Map Ta

Phut

Olefins Co.

Map Ta

Phut,

Rayong

900,000

2010 100

THAILAND PTT

Chemical

Map Ta

Phut,

Rayong

400,000

2010 80 6

14

THAILAND PTT

Chemical

Map Ta

Phut,

Rayong

515,000

2010 5 18 28 49

THAILAND PTT

Chemical

Map Ta

Phut,

Rayong

461,000

2010 100

THAILAND PTT

Chemical

Map Ta

Phut,

Rayong

1,000,000

2010 100

THAILAND Rayong

Olefins Ltd.

Map Ta

Phut,

Rayong

800,000

2010

100

THAILAND

PTT

Polyethyle

ne Co. Ltd.

Map Ta

Phut 1,000,000

2010 100

TURKEY

Petkim

Petrochem

icals

Holding

Co.

Aliaga,

Izmir 520,000

2010

100

UKRAINE Chlorvinyl Kalush 250,000

2010

100

UKRAINE Oriana

180,000

2010

UKRAINE TNK-BP Lisichansk 300,000

2010

100

UNITED ARAB

EMIRATES

Borouge

Abu Dhabi

Polymers

Co. Ltd.

Ruwais,

Abu Dhabi 2,100,000

2010 100

UNITED ARAB

EMIRATES

Abu Dhabi

Polymers

Co. Ltd.

(Borouge)

Ruwais,

Abu Dhabi 1,500,000 2013 100

UNITED

KINGDOM INEOS

Grangemo

uth 730,000

2010

100

UNITED

KINGDOM INEOS

Grangemo

uth 340,000

2010

100

UNITED

KINGDOM

ExxonMobi

l Chemical

Co.

Fawley 120,000

2010 9 8 8 25 25 25

UNITED

KINGDOM

ExxonMobi

l Chemical

Co.

Mossmorra

n Fife 830,000

2010 100

UNITED

KINGDOM

SABIC

Europe Wilton 865,000

2010

20 10 70

Page 37: Petrochemicals - Ethylene

37 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

UNITED STATES

BASF Fina

Petrochem

icals

Port Arthur 907,000

2010

100

UNITED STATES

Chevron

Phillips

Chemical

Co. LP

Cedar

Bayou 803,000

2010 30 20 25 25

UNITED STATES

Chevron

Phillips

Chemical

Co. LP

Port Arthur 861,000

2010 70 25 5

UNITED STATES

Chevron

Phillips

Chemical

Co. LP

Sweeny 907,000

2010 38 37 25

UNITED STATES

Chevron

Phillips

Chemical

Co. LP

Sweeny 676,000

2010 75 25

UNITED STATES

Chevron

Phillips

Chemical

Co. LP

Sweeny 295,000

2010 85 15

UNITED STATES

Dow

Chemical

Co.

Freeport

(LHC 7) 633,000

2010 50 50

UNITED STATES

Dow

Chemical

Co.

Freeport

(LHC 8) 1,024,000

2010 10 20

70

UNITED STATES

Dow

Chemical

Co.

Plaquemin

e (LHC 2) 522,000

2010 75 25

UNITED STATES

Dow

Chemical

Co.

Plaquemin

e (LHC 3) 740,000

2010

70 10 20

UNITED STATES

Dow

Chemical

Co.

Taft 1 612,000

2010 20 40

40

UNITED STATES DuPont Orange 681,000

2010 100

UNITED STATES

Eastman

Chemical

Co.

Longview 140,000

2010 25 67 7 1

UNITED STATES

Eastman

Chemical

Co.

Longview 140,000

2010 25 67 7 1

UNITED STATES

Eastman

Chemical

Co.

Longview 140,000

2010 25 67 7 1

UNITED STATES

Eastman

Chemical

Co.

Longview 360,000

2010 25 67 7 1

Page 38: Petrochemicals - Ethylene

38 Edelweiss Securities Limited

Oil and Gas

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Channelvie

w 875,000

2010 5

95

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Channelvie

w 875,000

2010 5

95

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Chocolate

Bayou 544,000

2010

100

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Clinton 500,000

2010 80 20

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Corpus

Christi 771,000

2010 10 30

60

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

LaPorte 789,000

2010 60 20

20

UNITED STATES

Equistar

Chemicals

LP

(LyondellB

asell)

Morris 590,000

2010 80 20

UNITED STATES

ExxonMobi

l Chemical

Co.

Baton

Rouge 975,000

2010 9 8 8 25 25 25

UNITED STATES

ExxonMobi

l Chemical

Co.

Baytown 2,197,000

2010 58 8 9 25

UNITED STATES

ExxonMobi

l Chemical

Co.

Beaumont 816,000

2010 8 8 9 75

UNITED STATES

ExxonMobi

l Chemical

Co.

Houston 102,000

2010

100

UNITED STATES Flint Hills

Corp. Port Arthur 617,000

2010

60

40

UNITED STATES

Formosa

Plastics

Corp. USA

Point

Comfort 816,000

2010 45 15

40

UNITED STATES

Formosa

Plastics

Corp. USA

Point

Comfort 680,000

2010 45 15

40

Page 39: Petrochemicals - Ethylene

39 Edelweiss Securities Limited

Sector Update

Country Company Location Capacity,

tonnes/

year 2010

Existing

Capacity,

tonnes/

year

New

Year of

Completion

(Existing

capacity=2010)

Feedstock Slate (%)

C2 C3 C4 Naphtha Gasoil Other

UNITED STATES Huntsman

Corp.

Port

Neches 180,000

2010

UNITED STATES

INEOS

Olefins and

Polymers

USA

Chocolate

Bayou 1,746,000

2010 50 35

15

UNITED STATES Javelina

Co.

Corpus

Christi 102,000

2010

100

UNITED STATES

Sasol

North

America

Inc.

Lake

Charles 454,000

2010 100

UNITED STATES

Shell

Chemicals

Ltd.

Deer Park 1,406,000

2010

UNITED STATES

Shell

Chemicals

Ltd.

Norco 1,556,000

2010 5

35 60

UNITED STATES

Westlake

Petrochem

icals Corp.

Calvert City 204,000

2010

100

UNITED STATES

Westlake

Petrochem

icals Corp.

Sulphur #1 567,000

2010 100

UNITED STATES

Westlake

Petrochem

icals Corp.

Sulphur #2 522,000

2010 70 30

UNITED STATES Williams

Olefins Geismar 626,000

2010 92 8

UZBEKISTAN Uzbekneft

egaz Shurtan 140,000

2010 100

VENEZUELA

Pequiven-

Petroquimi

ca de

Venezuela

SA

El Tablazo,

Zulia 250,000

2010 30 70

VENEZUELA

Pequiven-

Petroquimi

ca de

Venezuela

SA

El Tablazo,

Zulia 350,000

2010 100

Source: Oil & Gas Journal, Downstream Today, Edelweiss research

Page 40: Petrochemicals - Ethylene

40 Edelweiss Securities Limited

Oil and Gas

APPENDIX – V

Sensitivity Analysis

Our sensitivity analysis of cracker margin based on demand projection based on 1) demand per capita growth rate and

2) demand elasticity with GDP growth shows that the margin will be higher than USD 188 per mt in 2011 and will grow

to more than USD 383 per mt by 2015.

2011

198 3.80% 4.10% 4.40% 4.70% 5.00%

0.96 187 190 193 197 200

1.01 189 193 196 199 202

1.06 191 195 198 202 205

1.11 193 197 201 204 208

1.16 195 199 203 207 210Dem

and e

lasticity

GDP growth rate

Dem

and e

lasticity

GDP growth rate

popula

tion g

row

th r

ate

Demand per capita growth rate

Dem

and e

lasticity

Dem

and e

lasticity

Dem

and e

lasticity

Demand per capita growth rate

2015

388 3.80% 4.10% 4.40% 4.70% 5.00%

0.96 369 373 377 380 384

1.01 372 376 379 383 387

1.06 374 378 382 386 390

1.11 377 381 385 389 393

1.16 379 383 388 392 396Dem

and e

lasticity

GDP growth rate

popula

tion g

row

th r

ate

Demand per capita growth rate

Dem

and e

lasticity

Dem

and e

lasticity

Dem

and e

lasticity

Dem

and e

lasticity

popula

tion g

row

th r

ate

Demand per capita growth rate

2011

188 2.90% 3.40% 3.90% 4.40% 4.90%

0.77% 187 192 198 203 209

0.89% 188 194 199 205 210

1.00% 190 195 200 206 211

1.12% 191 196 202 207 213

1.23% 192 198 203 208 214

popula

tion g

row

th r

ate

Demand per capita growth rate

Dem

and e

lasticity

Dem

and e

lasticity

Dem

and e

lasticity

Dem

and e

lasticity

popula

tion g

row

th r

ate

Demand per capita growth rate

2015

382 2.90% 3.40% 3.90% 4.40% 4.90%

0.77% 358 365 371 377 383

0.89% 360 366 372 379 385

1.00% 361 368 374 380 386

1.12% 363 369 375 382 388

1.23% 364 371 377 383 389 Dem

and e

lasticity

popula

tion g

row

th r

ate

Demand per capita growth rate

Table A5-1: Cracker margin based on demand per capita growth rate and population growth rate

Table A5-2: Cracker margin based on GDP growth rate and demand elasticity

Page 41: Petrochemicals - Ethylene

41 Edelweiss Securities Limited

Sector Update

Buy

BuyBuy

150

350

550

750

950

1,150

Ju

l-0

8

Au

g-0

8

Se

p-0

8

Oc

t-0

8

No

v-0

8

De

c-0

8

Ja

n-0

9

Fe

b-0

9

Ma

r-0

9

Ap

r-0

9

Ma

y-0

9

Ju

n-0

9

Ju

l-0

9

(INR

)

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Vikas Khemani Head 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 Exploration

Recent Research

01-Jul-11 Aban

Offshore

Stake sale: Turning the heat

on; Edel Flash

524 Hold

30-Jun-11 Cairn

India

Deal approved, but royalty

cost recoverable; Edel Flash

312 Hold

29-Jun-11 Petronet LNG

Strong LNG volume visibility; Visit Note

138 Buy

20-Jun-11 Torrent

Pharma

Growth drivers intact;

Visit Note

642 Buy

15-Jun-11 Dr. Reddys

Lab.

USFDA issues warning letter

for Mexico facility; EdelFlash

1,555 Buy

08-Jun-11 Dr. Reddys Lab.

Gauging upsides from current level;

Company Update

1,577 Buy

16-May-11 Shiv-vani Oil & Gas

Robust results on full asset deployment; Result Update

275 Buy

12-May-11 Cairn India

Uncertainties cloud attractive long-term investment case;

Result Update

336 Hold

05-May-11 Oil & Gas Diesel price hike factored in;

Call it quits; Sector Update

03-May-11 Oil & Gas Monthly

GRMs robust despite high crude prices;

Monthly Update

20-Jun-11 Torrent

Pharma

Growth drivers intact;

Visit Note

642 Buy

15-Jun-11 Dr. Reddys

Lab.

USFDA issues warning letter

for Mexico facility; EdelFlash

1,555 Buy

08-Jun-11 Dr. Reddys

Lab.

Gauging upsides from

current level; Company Update

1,577 Buy

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 132 51 18 203

* 2 stocks under review

Market Cap (INR) 117 65 21

> 50bn Between 10bn and 50 bn < 10bn

Date Company Title Price (INR) Recos

Buy Hold Reduce Total

This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Specifically, this document does not constitute an offer to or solicitation from any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

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Access the entire repository of Edelweiss Research on www.edelresearch.com

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to


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