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The feedstocks prismUnveiling value in volatile and complex petrochemicals

February 2015

The feedstocks prism: Unveiling value in volatile and complex petrochemicals 3

Contents

Introduction: A new puzzle for a new century 4 Comfortable urgency 6 Mining data “layers”: starting point to exceptional performance 8 Unlocking exceptional performance (knowing what you do not know) 16 Industry 4.0: Big data, analytics, and more 18 Exponentials 19 Conclusion 21 Contacts 22 Endnotes 23


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The face of the global chemical industry, chemistry, and chemical manufacturing has changed. It did not come about all at once and it is not apparent from every angle. But, for those taking notice, this new look could mark a time of accelerated transformation. While numerous articles have been written about megatrends and their impact on demand, societal change is only part of the story. This transformation can also be attributed in large measure to how changes in information technology, digital design and discovery, materials systems commercialization, biotechnology, manufacturing technology, and trans-ecosystem collaboration are being deployed and by whom.

In contrast, there is a historically attractive and resilient core global chemical industry. From that angle, many long-time industry watchers would suggest the industry will grow apace with gross domestic product (GDP) like always. However, there are challenges with this prediction. A closer examination of the competitive environment shows that certain market challenges are intensifying, and potentially to disruptive levels.1 Some companies, especially those that are already disadvantaged relative to their peers, may find it difficult to compete, remain independent, or even survive. Especially in a volatile environment.

Now 15 years into the new century and the core chemical industry is essentially operating as it did throughout the last one, with incremental change remaining very much the norm for the majority of companies. While on paper, most companies have remained successful with this approach. The question remains if more than a few companies believe that incremental changes in the industry, technology, and business models can be the norm.

This is a gigantic industry. It is largely a mature industry with a dominant trend of profits that are gradually yet steadily compromised by competition. While traditionalists would argue that this situation has been a fact of life in the industry for decades, the erosion of economic benefits has limits. Eventually, more seismic structural changes will take hold. More than ever, the Darwinian principle of survival of the fittest will likely play a greater role than it has in the recent past in determining the fates of companies; as predators are growing bigger and stronger and as weaker prey is consumed. The current environment is less forgiving and

Introduction: A new puzzle for a new century


more challenging, making it difficult for disadvantaged competitors to survive. This is a central concern for the global chemical industry today.

So, timing is critical in the global chemical industry; including for large producers and users of major feedstocks; decisions made and implemented over the next few years will be crucial. Moreover, how these decisions are made will be as important as the decisions themselves. This paper focuses on the road ahead for upstream feedstocks and energy, and examines ways in which the familiar historical platform for the (still thriving) world of chemistry, materials science, and industrial biology could change. It demonstrates how companies can determine whether time-honored critical success factors will be sufficient for the decade ahead by exploring the nature of feedstock production, its evolution and connection to energy, its relation to a changing global-demand picture, and a fuller scope of plausible technological disruptions (physical and virtual).

This paper also discusses whether a constantly shifting landscape of choices in energy (“fuel mix”) combined with breakthroughs in renewable sources presents any lifelines for companies in an otherwise disadvantaged

position. That is, what opportunities are available along the feedstock curve and under what conditions can these opportunities offer sustainable value propositions?

In today’s environment, it is a distinct advantage to understand how the convergence of global megatrends, emerging technologies, and shifting regional landscapes can change the competitive environment for chemicals and how these forces could continue to shape the overall industry. For example, by understanding the implications of ongoing changes to competitors’ portfolios and manufacturing assets, a company can position itself and better determine how to win. Especially against more conventional competitors.

This much is true: Conventional thinking will produce conventional strategies. Fortunately, there are alternatives, namely the use of advanced analytics. Through these tools, companies can gain a more precise understanding of the potential of emerging trends, including their broader complexities and interdependencies. Those willing to think—and implement—beyond the conventional may use this understanding to sustain a healthy core business and to blaze new trails in new competitive spaces.

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When markets began to rebound following the worst of the Great Recession in 2009, a sizeable percentage of chemical companies maintained defensive mind-set. Instead of turning to multidimensional thinking, implementing proactive and strategic structural changes, or giving due attention to megatrends, many stuck to the fundamental strategies they had mastered over the previous 25 years.2

A quarter century of this kind of thinking has produced stubbornly slow performance, and managers and executives are beginning to ask if racing to the bottom of commoditized liquids and solids is actually a sufficient or sustainable strategy. Contemplating this question has left more than a few companies with uncertainties about how to move forward. Can they find feasible and effective growth and value capture strategies? What are the real benefits and concerns associated with the potentially relevant alternative strategies emerging in this digital age? Or, alternatively, are they positioned in a part of industry confined to industrial-age thinking?

These questions are being asked because very few global chemical companies are a pure play. Most feature portfolios of businesses, each with unique supply/demand challenges, end-market realities, environmental impact profiles, and even different technologies. Those that intend to remain invested in the upstream feedstocks will likely be challenged to compete with others who can count on world scale, best cost, and best technology, and that have access to either less costly raw materials or robust economies, or both. Is it possible for these companies to take on the discipline required to compete in upstream feedstocks, while also properly nurturing and developing specialized commodities and other downstream products and solutions?

Comfortable urgency

A few powerful and advantaged commodity chemical producers are currently positioning themselves to press their advantages further. In doing so, a high bar will be set for any remaining competitors. Investments in capacity additions, retrofits to natural gas raw material inputs, and new world-scale facilities reinforce this new dynamic. Major energy companies are also re-entering broader upstream feedstock markets. In this environment, it is no wonder that the linear growth trend of traditional chemicals business models is reaching asymptotic limits.

What is more, upstream competition is expected to remain fierce and the environment volatile, while the decline of major new product introductions continues (currently at an historic low), thus leaving companies with fewer outlets for products and fewer avenues to traditional growth. Is the current dynamic enough to spur companies to confront the constraints and conflicts in their portfolios? And if so, is it plausible to pursue a focused strategy as a feedstock producer? Answering these questions is hard work. Of course, no one is obliged to find the answers. Traditional cost reduction and balance sheet clean-ups remain an option for everyone. However, as seen in the past several years, the benefits of this approach are unlikely to be as impactful as they once were.


Although this is clearly a resilient industry that has met the challenges of commoditization for some time (and none more successfully than the leading feedstock producers), the competitive environment today is more uncertain, less familiar, and more difficult. Some of the challenges of the past will continue to confront producers; even the best cost competitors can struggle to make money in a trough.3 And, while the basis of competition for feedstock producers is still clearly cost, producers must still contend with the pressures born by all manufacturers—pressures that add cost and increase complexity. A few examples include shortages of skilled labor, increasing complexities in compliance, the uneven playing field of global competition and compliance, supply/demand imbalances resulting from energy, and a mosaic of other policy differences in markets around the world.4

This is a pivotal moment for the industry and time is fleeting. Global chemicals companies of all sizes know that change is possible (and in fact see customers and some competitors pursuing strategies that have led to exceptional performance), but those that have resisted change may encounter difficulties if they continue to delay.

The reasons for stasis in this industry vary. Companies may lack the means due to limited options. They may be waiting for their counterparts to change first so that the trail will be blazed. They may not be able to assess how much change is actually needed. Or, they may not be prepared to endure the pain required to shed underperforming assets and drive to lower structural costs needed to successfully compete.

The fate of companies with uncompetitive assets in their portfolios is becoming clearer. Changing that fate means a road ahead involving tough decisions, hard work, and risk in order to continue operating. Proactive strategies (such as innovation) could be the preferred alternative to commoditized competition for some, but history tells us that many chemical companies react only when the option of sustaining the status quo weakens and or exogenous pressures to change emerge. This is evidenced in part by a recent and sharp rise in shareholder activism in this industry.

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Peak performance over the coming decades will likely require constant attention and re-evaluation of cost positions, fuel mix, and feedstock strategies. This broad contextual thinking is a new reality arising from disruptive factors rooted in societal change (i.e., the convergence of megatrends—see sidebar entitled "Consumer awareness") and from global competition on an uneven playing field that varies by sources of energy, regulations, and criteria for deployment of capital.

Companies should have a clear understanding of their position both globally and locally. With a strong foundation in place, companies can monitor and make sense of several complex layers of variables in addition to considerations around investment, relative cost position, raw materials spreads, and transportation costs. A multi-layered analysis of this kind would include the following variables:

• Multiple segments of regional energy and hydrocarbon markets

• Demand analysis

• Capacity additions and subtractions

• Substitution drivers (both opportunities and threats)

• Possible disruptors driven by societal change

This paper will examine each of these variables in greater detail and then consider whether employing advanced analytic techniques can offer new/better angles for a 21st Century feedstocks strategy.

Mining data “layers”: starting point to exceptional performance

EnergyThe chemical and petrochemical sectors account for roughly 10 percent of total worldwide energy demand, making it by far the largest industrial energy user.5 As a direct cost, energy represents as much as 80 percent of total chemical industry production outlay.6

Worldwide, energy consumption is expected to rise by 33 to 41 percent through to 2035, with as much as 95 percent of that demand growth from emerging economies.7 Current needs are met primarily by fossil resources, with oil, gas, and coal producing about 87 percent of global energy supply.8

Source: Observation by the DTTL Global Manufacturing Industry group, January 2015.

Consumer awareness: Eliminating or reducing greenhouse gases

Integration of outside-in and inside-out perspectives of products, markets, and megatrends can have broad effects throughout the value chain. Consider the example of increasing consumer awareness related to sustainability and the environment. The last decade has seen growing shareholder pressure and legislation aimed at eliminating or reducing greenhouse gases (GHG). Companies have responded with voluntary action, with some retailers taking a leading position to announce bold GHG-reduction goals. Consumer-products manufacturers soon followed suit, introducing new product lines or modifying existing ones by improving their environmental footprint. These developments, in turn, encouraged chemicals manufacturers to respond with new or alternate materials to meet the growing demand for green products. Furthermore, the ever-increasing visibility in a world connected by social media and the increasing influence of non-government organizations (NGOs) have spurred some global chemical companies to adopt new standards going forward and to proactively develop environment-friendly portfolios through innovation.


Fossil fuels still constitute the lowest-cost option in both developed and developing markets (see Figure 1). However, in the next 20 years, volatility (in price, supply, demand, and sources of raw materials) will be as much (if not more) of a factor as cost in petrochemicals and and feedstocks.

Figure 2: Natural gas prices (1996 to 2013)

0

2

4

6

8

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12

14

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US$

per

mill

ion

BTU

(Brit

ish

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mal

uni

t)

Average German import price including cost plus insurance plus freight (cif)

UK (Heren National balancing point (NBP) index)

US (Henry Hub)

Canada (Alberta)

Year

Source: DTTL Global Manufacturing Industry group analysis of data from BP Statistical Review of World Energy June 2014, analyzed in January 2015.

Figure 2: Natural gas prices (1996 to 2013)

Source: DTTL Global Manufacturing Industry group analysis of data from BP Statistical Review of World Energy June 2014, analyzed in January 2015.

Figure 1: Primary energy consumption by source for select regions (2013)

Oil

Gas

Coal

Nuclear

Hydropower

Renewables133

34

14 3

87

13

726

586

415

224

160

115

507

145

1925

25 206

43

175

46

324

8 30

12

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U.S. Brazil Russian Federation

Other Europe and Eurasia

Middle East China India

831

671

456

188

62 59

153

372

94

39

41 0

385

385

0 0 6

Perc

enta

ge o

f co

nsum

ptio

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Country or region

Figure 1: Primary energy consumption by source for select regions (2013)

Feedstock and energy markets remain hard to predict and become even more difficult as volatility increases, thus highlighting the need for better analyses of global trends that encompass all relevant variables.

.

Fossil resources

Gas and oil The impact of the North American shale boom has significant implications for energy supply and capturing value. The United States is set to become the world’s leading oil producer by 2015.9 By 2035, domestic supplies should not only satisfy domestic needs but will also make the United States a net exporter of natural

gas.10 With prices up to three times lower than in Europe (see Figure 2), top gas-importing countries could benefit from U.S. exports of liquid natural gas (LNG) while major exporters may see their volumes displaced by less expensive products.11 Within the United States, cheap supplies could support availability of cheap natural gas liquids (NGLs) through the medium term, granting downstream U.S. companies an advantage that may last for decades, while also imposing pressures on chemicals manufacturers elsewhere.12

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Despite increased demand, growth in natural gas production has been below average in all regions except Europe and Eurasia, while consumption growth has remained below average for all regions except North America.13 The world’s largest gas consumers are the United States, Russia, Iran, and China (with China nearly doubling its consumption from 2008 to 2013), while the United States, Russia, Iran, and Qatar are the largest producers.14

Oil supplies over one-third of the world’s energy.15 The 3.3 trillion barrels of technically recoverable shale oil could encourage continued investments in extracting activities, despite concerns over emissions and the environmental impacts of drilling.16 (Indeed, it is estimated that from 2005 to 2012, about 100 million tonnes of carbon dioxide–equivalent emissions will be attributable to fracking wells in the United States alone.17) Total upstream spending in the oil and gas sectors is expected at 2013 levels of US$7 billion in the coming years.18 A major trend will be the concentration of oil use into the petrochemicals and transport sectors.19 Regional shifts may also see North American demand for imports effectively cease, as Asia becomes the central locus for competitive crude imports from North America, Brazil, Africa, and Russia.20 See sidebar entitled “Volatility in oil prices” for information on the impact of recently reported low price of oil.

CoalWhile major developed countries are reducing overall coal consumption, coal use in China, India, and Japan is increasing. China claims over half of total worldwide use, and energy requirements from a burgeoning population and industrial growth suggest this demand will remain strong.21 Industry predictions of a levelling off (“peak coal”) of coal use for power in China by 2020 introduce complexity to feedstock strategies that recognize China’s coal demand.22

By 2035, India is expected to replace China as the world’s largest coal consumer.23 From 2012 to 2013, total global coal production increased less than 1 percent (though still to a record level of 7,896.4 million tonnes).24 In the United States, meanwhile, coal production declined to the lowest level since 1988.25 Overall, coal’s share of power, energy, and transport markets is anticipated to decline steadily through 2035.26

The recent trend of low oil prices and the subsequent impact on the global economy have been driven by weaker demand in both Europe and Asia, and increased production in North America. China grew at its slowest pace in five years in the third quarter of 2014 due to weak real estate market, low domestic demand, and industrial production.I Europe’s total petroleum consumption fell by one million barrels per day in 2013 and has dropped further in 2014.II Advances in technology have supported the emergence of unconventional resources in North America and also enabled the exploration of challenging reservoirs such as deep-water and ultra-deep-water. The U.S. crude output, including lease condensate production, increased by over 2 million barrels per day from 2012 to 2014.III This domestic supply surge greatly offset U.S. net crude oil imports, shrinking from 8.5 million barrels per day in 2012 to less than 7 million barrels per day in 2014.IV Meanwhile, Brazil and Canada collectively added nearly one million barrels per day over the same two-year period.V All told in 2014, production growth of 1.9 percent exceeded demand growth of 1 percent, leading to an inventory build-up of 500 thousand barrels per day with another 400 thousand barrels per day projected for 2015.VI

The implication of the price decline has an effect on exporting countries such as Russia, Venezuela, and The Middle East, as oil export is a major contributor to their economic prosperity. Major oil producers are already facing serious challenges as crude oil price have fallen below the breakeven price for the majority of the oil fields globally, some companies have delayed or revised their investment plans and have started to reduce workforce in order to mitigate financial pressures.

The Organization of the Petroleum Exporting Countries (OPEC) decided against reducing production. After a meeting in November 2014, 12 OPEC nations that produce 40 percent of the global oil supply decided to maintain an output ceiling of 30 million barrels/day, despite falling prices.VII The decision of major OPEC nations have since triggered a free fall in the crude oil prices [See figure entitled "Oil prices (2013 to 2015)"

Acknowledgement: Information in this sidebar was taken from Deloitte United States’ (Deloitte Center for Energy Solutions) report entitled Oil Prices in Crisis: Considerations and Implications for the Oil and Gas Industry, February 2015, http://www2.deloitte.com/us/en/pages/energy-and-resources/articles/oil-prices-in-crisis.html.

Volatility in oil prices

0

20

40

60

80

100

120

Jan 02, 2013

Mar 02, 2013

May 02, 2013

Jul 02, 2013

Sep 02, 2013

Nov 02, 2013

Jan 02, 2014

Mar 02, 2014

May 02, 2014

Jul 02, 2014

Sep 02, 2014

Nov 02, 2014

Jan 02, 2015

West Texas intermediate (WTI) (US$) Brent spot price (US$)

Cos

t pe

r ba

rrel

(US$

)

Date

Oil prices (2013 to 2015)

Source: DTTL analysis of data from U.S. Energy Information Administration (EIA), accessed in February 2015.


Renewable and alternative energyAlthough accounting for less than one-fifth of global energy consumption, growth rates of renewable and alternative energy have been outstripping fossil fuels, with a 2.7 percent increase in consumption in 2013 compared with 1.4 percent for each of oil and gas.27 And there may be more growth to come. Predictions run as high as 6.4 percent annually through to 2035.28 Applications of exponential technologies (see section entitled "Exponentials") could accelerate market growth and increased adoption of renewables, particularly given specific global megatrends (i.e., climate change and environmental concerns, urbanization, and resource scarcity), and persistent, dedicated capital investments into renewable energy by multinationals and small and medium-sized enterprises.29

Figure 3: Hydropower capacity in the Lower Mekong Basin

Existing Under construction Potential

Coun

try

1,016

662 2,558

17,686

5,589

23,5743,5742,612

745

0 0

1,204

0

Thailand

Vietnam

Cambodia

Laos

Total

5,000 10,000 15,000 20,000 25,000 30,000 35,000

1 0

299

Less than 10 percent of available hydropower resources in mainland

Southeast Asia have been developed

Capacity in megawattSource: DTTL Global Manufacturing Industry group analysis of data from Mekong River Commission, State of the Basin Report 2010, accessed in January 2015.

Figure 3: Hydropower capacity in the Lower Mekong Basin

HydropowerHydropower will be a major player among the alternatives to fossil fuels for years to come, with total global capacity predicted to double by 2050, reaching almost 2,000 gigawatts (GW), and total global electricity generation estimated to reach 7,000 terawatt-hours (TWh).30 China invests in hydroelectric production more than any other country, with an estimated 260 GW/905 TWh in capacity and generation in 2013.31 Overall, global hydro capacity exceeds that of all other renewable energy sources combined and could account for 20 percent of worldwide investments in renewable energy through 2015.32

Even in developed countries, where many hydropower resources have already been developed, potential for growth remains. For example, the United States has an estimated 12 GW of undeveloped capacity in existent non-powered dams alone.33 In some developing countries, the untapped resources are even greater. Within mainland Southeast Asia, the Lower Mekong Basin has an estimated 23-plus GW of undeveloped hydropower potential (Figure 3).34

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NuclearNuclear markets will likely see modest overall growth at 1.9 percent per year through to 2035.35 This growth, however, will be greater in developing countries (5.9 percent yearly), as nuclear generation in OECD countries declines (by 0.2 percent per year) with the decommissioning of aging plants.36 The chill in developed countries is attributable in part to the Fukushima Daiichi disaster in Japan, which highlighted the high capital costs and logistical issues surrounding safety and waste storage.37 The disaster also led to a precipitous 94 percent decline in Japanese consumption of nuclear power from 2010 to 2012 (see Figure 4).38 Although uranium supplies could conservatively accommodate over a century’s worth of production, the nuclear market may have peaked in terms of share of global energy demand.39

Figure 4: Japanese nuclear power consumption

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1965 1971 1977 1983 1989 1995 2001 2007 2013

Meg

aton

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(mto

e)

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Source: DTTL Global Manufacturing Industry group analysis of data from BP Statistical Review of World Energy 2014, June 2014, analyzed in January 2015.

Figure 4: Japanese nuclear power consumption


Bio-based energy and powerCost-parity remains the overarching challenge to at-scale production of bio-based alternatives. To date, production has fallen short of anticipated volumes.40 Nonetheless, biomass represents 10 percent of primary global energy supplies and is the fourth largest energy source after fossil fuels.41 If technical hurdles are met regarding product yields, feedstock yields, and bioconversions, the biofuels market could increase from US$25.8 million in 2011 to US$2.1 billion by 2016 to over US$185 billion by 2021.42

Currently, global biofuel production is estimated to reach 1,900 million barrel in 2020 with a compound annual growth rate (CAGR) of 10 percent over a forecast period 2015 to 2020.43 Brazil was a major factor in this expansion while the United States continues to be the world’s biofuel leader, accounting for 43.5 percent of production.44 Advanced biofuels (cellulosic, algae-based, and other next-generation products) could see increased market share over fermentative biofuels starting in 2020. Capital-intensive investments in both conventional and advanced biofuel markets for heat and transport will require clear policy enablement, both in major producing regions and emerging economies.45

The term “bio-based” is still largely associated with bioethanol, which accounts for 87 percent of the US$127 billion fermentation market (94 percent of total volume).46 But the broader market potential of

bio-based chemicals (excluding alcohols) remains largely untapped. CAGR projections are well above anticipated global GDP growth (6.5 percent through 2020).47 At the same time, the price of sugar has stabilized at lower levels than oil.48

Solar and windSolar and wind continue to show strong growth rates and are contributing an increasing share of power generation, despite claiming a low percentage of overall energy market share. Wind energy production grew almost 21 percent in 2013, and solar grew over 33 percent in the same year. Installed wind capacity increased globally by over 200 GW from 2007 to 2013, and solar installation increased to almost 140 GW (a sevenfold rise) during the same period.49 When combined, total global wind and solar installed capacity has consistently doubled every three years over the last two decades (see Figure 5).50

Developed countries continued to show growth potential in 2014 with over 72 GW of combined wind and solar capacity installed in the United States, fourth only to installed natural gas capacity, which reached roughly 490 GW.51 China and the Asia-Pacific region are poised to account for up to 45 percent of projected new capacity installations of 183 to 291 GW by 2018.52

Figure 5: Cumulative global solar and wind installed capacity over time

Solar Wind

Inst

alle

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paci

ty (g

igaw

att)

Year

320

198

94

482510 41

140

1 2 4 9

19980

100

200

300

400

500

2001 2004 2007 2010 2013

Source: DTTL Global Manufacturing Industry group analysis of data from BP Statistical Review of World Energy 2014, January 2015.

Figure 5: Cumulative global solar and wind installed capacity over time

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High initial investment, requirement for specialty materials (e.g., germanium and others for solar), and dependency on external conditions (weather, space/footprint, wind patterns) could remain countervailing factors in the short term, but technology advances are already combatting these constraints.

Storage capacityGrid-scale energy storage is quickly becoming one of the top emerging technologies because of the critical role that storage will play in ensuring the future of renewable energy.53 Worldwide, there is at least 140 GW of large-scale, grid-connected energy storage.54 However, an estimated 310 GW of additional grid-connected storage is needed in the United States, Europe, China, and India to effectively support decarbonization of the electricity sector (i.e., for renewable energy sources to account for 27 to 44 percent of electricity production by 2050).55 The United States currently counts on about 24.6 GW of installed storage capacity, but even that value accounts for only 2.3 percent of total installed electricity production capacity.56 To reach the decarbonization target, projections suggest that investments totalling about US$590 billion will be required.57

Another layer: regional considerationsA company’s feedstock and portfolio decisions will vary based on several geographic factors, including upstream or downstream position (or upstream and investing into downstream assets), supply and customer relationships, and regional policies. The task is to determine the breadth of the geographic data most relevant to one’s value proposition and assess likely impacts of market trends within any given region. A snapshot view of current trends provides an idea of the type of data considerations required to fully assess these variables.

EuropeEuropean chemical manufacturers are braced for the impacts of cheap U.S. shale gas and have looked to respond with differentiation through innovation, sourcing strategies, and upstream investments (into North American ethane-harnessing crackers or Europe-based operations for cheaper raw materials access).58 Higher LNG prices in Asia may be diverting exports from Europe.59 Competitive pressures from the United States and Middle East for ethylene and its derivatives may encourage European niche markets, including C3s, C4s, and aromatics.60

AsiaMost chemicals industry growth over the past 25 years stems from Asia, where half of all global chemical sales are currently made.61 In China and South Asia, the need to produce chemicals for domestic industry has been the primary motive for growth, making profit a less-important driver. By 2030, more than half of the top 10 chemical entities are expected to be Asian or Middle Eastern, and Asia chemicals production will equal that of Europe and North America combined.62 Furthermore, China will likely continue to import C1 hydrocarbons while innovating coal-to-chemical platforms and pursuing coal alternatives.63

North AmericaSome of the ripple effects of shale oil and gas in the United States are presented above. While the United States is poised to become an exporter of oil and gas, a linear competitiveness relationship for U.S.-based operations is not assured. Record volumes of U.S. shale oil have recently brought the price of oil down to below US$50 per barrel.64 Should the price continue to decline, drilling and investment may also fall off.65

Canada’s tar sands have added substantial oil volumes to the global supply (168 billion barrels of the country’s technically recoverable 173 billion barrels).66 As much as 97 percent of Canada’s energy exports are sent to U.S. markets.67 Canadian oil production is expected to increase by a factor of 2.5, to 4.8 million barrels per day by 2030.68

Mexico recently opened its gas and oil markets to private foreign and local investors for the first time in over three-quarters of a century, a decision that may attract up to US$2 billion in direct and indirect investment.69

Changing market positionsGiven their natural ownership in traditional upstream feedstocks markets, the supermajors and national oil companies have extended their reach into downstream value chains.70 While this may put pressures on smaller entities, it could also create new opportunities, such as specialty niche pursuits for those companies unable to compete against the scale and low-cost producer positions.


Megatrends Specific megatrends have been identified for their high potential impact on manufacturing industries (see Figure 6).71 Creative consideration of megatrends can identify unmet market needs and, therefore, new solutions and end markets with substantial possible value.

Figure 6: Megatrends redefining markets and

customer demand

Climate change, environment, and sustainability

Growing demand for energy

Growing demand for quality health care, nutrition, and food

Scarcity and uneven distribution of resources (water, energy, food)

Corporate global citizenship and globalization

Social life (“connectivity”) in an increasingly technological world

Demographic trends, including shifting populations and mobility

Shifting centres of economic activity (regional or global and increased urbanization)

Source: DTTL Global Manufacturing Industry group analysis of WEF data included in a presentation for a monthly Project Board guidance “WELCOM” virtual meeting and Chief Innovation Officers of World Economic Forum Partner Organizations and bilateral discussions at The Forum in a slide titled “Nine global trends selected for discussion,” (as developed by the Community of Chief Innovation officers at The Forum) on 21 July 2009. For more information on megatrends impacting the global chemical industry, refer to DTTL Global Manufacturing Industry group, The chemical multiverse: Preparing for quantum changes in the global chemical industry, November 2010, http://www2.deloitte.com/global/en/pages/manufacturing/articles/chemical-multiverse-quantum-changes-global-chemical-industry.html.

On the other hand, as emerging market needs redefine consumer demands, trends may also impose constraints on conventional value chains. The balance lies in managing the risk of lost revenues from inaction or less effective choices as well as lost opportunities from ignoring innovations that others choose to pursue. Feedstocks in particular are vulnerable to several systemic industry risks identified by the World Economic Forum (the Forum), including economic risks (e.g., oil and gas price shocks), environmental risks (e.g., nuclear disasters), geopolitical risks (e.g., West–Middle East conflict), societal risks (social instability, e.g., arising from resource scarcity), and technological risks (e.g., as individuals, governments, and businesses become more reliant on connectivity).72

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Unlocking exceptional performance (knowing what you do not know) For most chemicals manufacturers, four questions tend to be of principal concern:

• How can costs be reduced and/or margins increased?

• How can new markets be opened?

• How can value in current markets be maximized?

• How can these objectives be achieved sustainably?

If by focusing on these questions companies are finding exceptional performance elusive, it may be time to re-evaluate. More specifically, companies will need to determine if the right questions are being asked and, if not, if the time has come to incorporate new and potentially larger data sets.

How, for instance, would a company in the 21st Century derive practical answers to such questions as:

• How should asset and location strategy be optimized?

• How might feedstock uncertainties be mitigated when building a manufacturing asset?

• Will renewables markets continue their strong growth and, if so, what opportunities and constraints follow?

• How will growth of both the middle class and the population at large impact the drivers of feedstock for chemicals? For example, as car ownership increases in China, pressures on chemical feedstock will also likely increase as naphtha prices will be impacted by the rising demand for gasoline.

• Are there niche markets where agile players may capture market share?

• Can cost volatility be removed by focusing on niche commodities, whether for a company’s own value chain or that of its customers?

• How much and what kind of innovation can current value chains and company culture accommodate?

• Are there new leading indicators and insights that might be identified and evaluated?

• Could data analytics and digital disruption become an enabler of early mover advantage?

Data mining and advanced analytics constitute a primary step toward finding practical answers to questions of volatility, uncertainty, and a rapidly changing competitive environment. Although not a universal solution, both can be highly effective in finding and developing value in a feedstock strategy. For example, high-performing companies tend to leverage technology and data science to collect and analyze massive, and sometimes disparate, data sets. They use the power of algorithms to identify previously undiscovered relationships between data. They test custom scenarios and create meaningful insight to inform strategy (see Figure 7).73

Core platform implementation

Product system implementation

Back office consolidation

Information management

Performance optimization

Analytic insights

Looking forwardLooking back

Origination and servicing systems Analytics

Operational reporting Uncommon insights

Understand Predict

Analyze Optimize

What happened? What will happen?

Slice and dice Discover and simulate

Key Performance Indicators (KPIs)

Key Performance Predictors (KPPs)

Pres

ent

Information value

Figure 7: Using analytics to develop a feedstock strategy

Source: DTTL Global Manufacturing Industry group, January 2015.


Over the last two decades, many companies have invested heavily in origination and servicing systems to streamline processes. This has significantly increased the amount of organized data that permits deep analyses. The result is that focus is shifting from “what needs to be done” to “what needs to be known,” that is, a “meta” focus on how to design analytical approaches toward performance gains.

Still, how does a company know where to begin and how far and wide to look with respect to data?

Exploring global megatrends and emerging technology developments, as well as testing various scenarios and hypotheses using new insights, may identify key intersections of multiple data layers. These intersections can unlock growth from unmet customer and market needs, or identify approaching risk. An approach that consolidates multiple, disparate data sets, as well as legacy and enterprise resource planning (ERP) data, and that uses powerful algorithms to identify relationships among data sets, can yield strategies that may position a company for exceptional results (see Figure 8).

Figure 8: Data analysis creates information and insight

Illustrative data analysis framework

Optimize strategy based on market opportunities

Data analysis and scenario testing

Data collection and integration from multiple sources

Legacy ERP dataGlobal megatrendsGeographic/regional factorsWEF forecasts/economic indicatorsEnergy outlookCompetitive and market intelligenceSocial media

Apply data science to look for relationships between dataUse data insights to test business scenarios

Optimize strategy

Data analytics and scenario testing

Insights

Consider advanced analytics to gain a more precise understanding of the potential of emerging trends.

Understand how the convergence of global megatrends, emerging technolo-gies, and shifting regional landscapes are changing the chemical industry to understand the implications of ongoing deconstruction or reconstruction of their competitors’ portfolios.

ERP and legacy data

Global megatrends

Geography and policy

Geopolitical risk

Economic indicators

Comp and market intel

Social media

Source: DTTL Global Manufacturing Industry group, January 2015

Figure 8: Data analysis creates information and insightIllustrative

18

Industry 4.0: Big data, analytics, and more

Creating operational excellence will be enabled by a combination of multiple applications across data capture and management, analysis and data science, technology and process optimization through machine learning, and the evolution of the “Internet of Things” (collectively; “digital applications”). At its most basic tier, digital applications will be employed for broad and deep complex data analyses. For example, advanced analytics will be used to evaluate large capital investment decisions and tease-out strategy directions from the kinds of information sets described above.

Second-tier digital applications will harness social media and community or crowd platforms (crowd sourcing, crowd analytics) in ways that may radically transform analytics and customer engagement. Emerging applications include:

• Sensing: This allows the ability to target customers, markets, and geographies across multiple dimensions, combining real-time data harvested from social media with static data (such as published reports, annual reports, etc.) and purchased data sets. Adding ERP data from a company’s own operations can elevate sensing to a “best practice” with widespread applications in the chemical industry.

• Active brand management: Identifying key influencers through monitoring of social media and tracking geographic “hot spots” for user identification is widely deployed in other industries. This practice could be easily adapted within the chemical sector for robust engagement with investors, existing and potential human capital, consumers, and stakeholders.

Third-tier digital applications will likely demand the greatest investment. For some companies, this may mean the potential redesign of entire production lines and manufacturing strategies from the base up. Some of these solutions are being tested, as companies experiment with machine learning and “factories of the future.”74 This does not imply the wholesale redesign and replacement of the built manufacturing

environment, for some companies, the application of low cost sensors to existing equipment will allow data capture and enable analysis to create insight. The degree to which innovation optimally informs operations and portfolios will be determined by insights from analytics integrated into a strong overall strategy. Some companies will likely adopt and continue to use digital applications primarily for data analytics, to transform business processes in stepwise fashion.

Wholly new possibilities will be enabled as the industry continues to progress possibilities for machine learning and connecting intelligent devices and controls (an “Internet of Things”). Efforts to create the next generation of manufacturing, “Industry 4.0”, will optimize and revolutionize how products are designed, made, and distributed, and how work processes are designed and executed. A continuous digital thread is set to redefine all aspects of chemicals production from product development through manufacturing, with digital disruption already starting to take hold as companies employ new tools and techniques across the value chain:

• Radio frequency identification tagging (RFID), global positioning systems (GPS), and telemetry, e.g., to reduce railcar costs for customers

• Cloud-based solutions to improve customer relationships

• Additive manufacturing (or 3D printing) as an example of an “exponential” approach to develop new materials and processes for novel solutions, and to reduce operating costs from maintenance


Exponentials

“Exponentials” change by orders of magnitude the effects, reach, and pace of manufacturing processes. In their converging of molecular biology, chemical engineering, and materials sciences (and subsuming digital applications), exponentials can shrink development timelines from decades to a few years and enable what had previously been theoretical product and process solutions.

In the 21st Century, advances in materials, ushered in by exponentials, will likely be the most disruptive technology innovation in manufacturing end markets. Exponential advanced materials (e.g., biomimetic nanocomposites, hierarchically assembled materials) and process technologies (e.g., 3D printing) is expected to introduce massive efficiency gains and permit radically new design solutions that can threaten imbedded assets, create opportunities, and structurally change business profitability. Exponentials are fundamentally transforming technology platforms and production processes in particular ways, some of which are described in Figure 9.

Identification of functional solutions

Intersection of megatrends and industry offerings based on advanced analytics is expected to result in solutions emerging from artificial intelligence, crowd sourcing, and gamification.

Selection, synthesis, and integration of materials

Predictive analytics enabled by database approaches (e.g., Materials Genome Initiative, housing >30,000 compounds*) will likely transform materials development, drawing on high-performance computing and multi-scale physical models, and reinvigorating the value-generating potential of materials development.

Product design and production processes

Digital prototyping, virtual manufacturing, hierarchical design and assembly, and (ultra)high-throughput testing and processing may identify proprietary materials in massive parallel.

Manufacture and distribution

Digital, distributed, and additive manufacturing approaches will likely lead to completely new opportunities. Standardization and digital certifications of materials, parts, components, and products across globalized markets will characterize these new manufacturing playing fields.

Figure 9: Transformation of manufacturing by exponential technologies

Source: Deloitte United States (Deloitte Consulting LLP), Accelerating innovation at the intersection of Advanced Materials and Manufacturing, forthcoming report, January 2015.

* Executive Office of the President of the United States, Materials Genome Initiative, National Science and Technology Council, Committee on Technology, Subcommittee on the Materials Genome initiative, Materials Genome, Strategic Initiative, December 2014, http://www.whitehouse.gov/sites/default/files/microsites/ostp/NSTC/mgi_strategic_plan_-_dec_2014.pdf.

20

Figure 10: Digital applications


Digital applications are already in play among some innovator companies (see Figure 10).

Technology Organization/Process

Network and sensors

Advanced robotics

Digital medicine (SynBio)

Artificial intelligence

Bio/Nano coverage

Super computing

Additive manufacturing

Hierarchial assembly

Crowd sourcing

Crowd-funding

Gamification

Maker-movement

D-I-Y (Democratization)

Incentive based economy

Prize-based competition

Mobile and social economy

Figure 11: Shift from linear to curvilinear thinking


10

0

20

30

40

50

60

70

80

Time—Years Perception is linear...

What are the “exponential” innovations?

Pace

of

inno

vati

on

Reality is exponential... Disruptive stress/

Opportunity

20

A shift in mind-set from linear to digital (curvilinear) thinking—a shift that acknowledges the exponential reality of current markets—will enable effective use of digital applications upstream in the feedstocks value chain (see Figure 11).


Conclusion

The need to optimize feedstock portfolios is nothing new for global chemicals manufacturers. For years, this has been the basis of competition among companies in the industry. Finding ways to save money has been the priority and every lever has been considered, from product mix to fuel mix to scale.

Finding new sources of heightened performance is the task of every company. For a quarter century, companies have found enough value to maintain strong performance. But in recent years, sources of new value have become scarcer. Ideas are harder to find and implement. Margins are being squeezed. Some companies will be challenged.

For many, a new approach is needed and new questions need to be asked. It is not about looking at the same problems in the same ways and hoping that new solutions emerge. Instead, companies need to find new ways of looking at old problems. The information should be broader, more accurate, and more comprehensive. This is where advanced analytics become so important.

If there is an apt analogy for the global chemical industry, it surely comes from the field of medical imaging. Before the invention of the x-ray in the late 19th Century, physicians were limited to feel and information provided by the patient when they examined for disease. In the 1970s, the CAT scan and MRI proved even better, non-surgical ways to look inside a patient. None of these technologies actually cured the disease in question. But they made it much easier to diagnose a problem and attack it in the most effective ways available.

This is how smart companies will use advanced analytic techniques. Adopting these next generation approaches will help them identify growth opportunities, realize cost savings, shape their portfolios to participate in the markets for which they are best suited, determine the best fuel mix, and understand the competition. In short, breaking with convention will make for better decisions. And better decisions lead to better performance.

22

Contacts

Duane Dickson

DTTL Global Chemicals Sector Leader [email protected] +1.203.905.2633

Acknowledgements:The following are sincerely recognized for their tremendous contributions to the report including Ellyn Kerr, Helyx Communications; those from Deloitte United States (Deloitte Consulting LLP) Krishna Venkatesh and Chuck Chakravarthy; Mike Krenek, Deloitte United States (Deloitte Services LP); Tim Hanley, DTTL Global Manufacturing Industry group; and Andrew Hagan and Oliver Inderwildi, World Economic Forum.

Additionally, with strong gratitude the following are acknowledged for their input to the document including those from Deloitte United States (Deloitte Consulting LLP) Kevin Lang, Ric Caraballo, Jamie Meyerson, and Shay Eliaz; Eric Flor, Blumberg Grain; Roger Ihne (retired), Deloitte United States (Deloitte Consulting LLP); Jim Guill, Deloitte United States (Deloitte Services LP); and Bruce Geddes.

Deep appreciations are given for their insights as they relate to Figures 9, 10 and 11, as well as content relating to exponential technologies including the following from Deloitte United States (Deloitte Consulting Innovation) Jeff Carbeck, Chris Greene, Kelsey Carvell, and Andrew Choi; and Tom Aldred, Deloitte United States (Deloitte Consulting LLP). Their additions to this report are included in a forthcoming monograph entitled Accelerating innovation at the intersection of Advanced Materials and Manufacturing.

Finally, special thanks to Mimi Lee and Jennifer McHugh with DTTL Global Manufacturing Industry group.

Andrew Clinton

Specialist, Supply Chain and Manufacturing Operations Deloitte United States (Deloitte Consulting LLP) [email protected] +1.203.905.2834

Yann Cohen

Asia Chemical and China Oil and Gas Consulting Leader Deloitte China [email protected] +86.212.312.7460


Endnotes

1Deloitte Touche Tohmatsu Limited (DTTL) Global Manufacturing Industry group’s five-year analysis of the global chemical industry using data from Capital IQ that analyzes over 200 global chemical manufacturers, January 2015. The ongoing analysis examines revenue growth; return on capital; gross margin; debt to equity; and selling, general, and administrative (SG&A) expenses/research and development (R&D) as a percentage of revenue.

2International Monetary Fund (IMF), World Economic Outlook 2013: Hopes, Realities, Risks, April 2013, www.imf.org/external/pubs/ft/weo/2013/01/pdf/text.pdf; IMF, World Economic Outlook Update: Is the Tide Rising? 21 January 2014, http://www.imf.org/external/pubs/ft/weo/2014/update/01/pdf/0114.pdf; and DTTL Global Manufacturing Industry group, The chemical multiverse: Preparing for quantum changes in the global chemical industry, November 2010, http://www2.deloitte.com/global/en/pages/manufacturing/articles/chemical-multiverse-quantum-changes-global-chemical-industry.html. This report analyses over a decade’s worth of data from about 200 global chemical manufacturers including revenue growth; return on capital; gross margin; debt to equity; and selling, general, and administrative (SG&A) expenses/research and development (R&D) as a percentage of revenue.

3DTTL Global Manufacturing Industry group, The chemical multiverse: Preparing for quantum changes in the global chemical industry, November 2010, http://www2.deloitte.com/global/en/pages/manufacturing/articles/chemical-multiverse-quantum-changes-global-chemical-industry.html; and DTTL Global Manufacturing Industry group’s five-year analysis of the global chemical industry using data from Capital IQ that analyzes over 200 global chemical manufacturers, February 2015. The ongoing analysis examines revenue growth; return on capital; gross margin; debt to equity; and selling, general, and administrative (SG&A) expenses/research and development (R&D) as a percentage of revenue.

4Deloitte United States (Deloitte Development LLC) and The Manufacturing Institute, Boiling point? The skills gap in US manufacturing: A report on talent in the manufacturing industry, January 2011, http://www.deloitte.com/view/en_US/us/Industries/Process-Industrial-Products/6a67e7a878ee2310VgnVCM3000001c56f00aRCRD.htm?id=us:el:fu:boilpoi:awa:pip:011314; Cognizant, GHS Compliance: Challenges and Solutions, December 2013, www.cognizant.com/InsightsWhitepapers/GHS-Compliance-Challenges-and-Solutions.pdf; and American Chemistry Council (ACC), Year-End 2013 Chemical Industry Situation and Outlook, December 2013, www.americanchemistry.com/Jobs/EconomicStatistics/Year-End-2013-Situation-and- Outlook.pdf.

5International Energy Agency (IEA), Technology Roadmap: Energy and GHG Reductions in the Chemical Industry via Catalytic Processes (2013), accessed in November 2014, http://www.iea.org/publications/freepublications/publication/technology-roadmap-energy-and-ghg-reductions-in-the-chemical-industry-via-catalytic-processes.html.

6International Energy Agency (IEA), World Energy Outlook 2013 Factsheet: How will persistent disparities in energy prices alter global economic geography? November 2013, http://www.worldenergyoutlook.org/media/weowebsite/factsheets/WEO2013_Factsheets.pdf.

7BP, BP Energy Outlook 2035, January 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf; and IEA, World Energy Outlook 2013 Factsheet: How will persistent disparities in energy prices alter global economic geography? November 2013, http://www.

worldenergyoutlook.org/media/weowebsite/factsheets/WEO2013_Factsheets.pdf.

8BP, BP Statistical Review of World Energy, June 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full-report.pdf.

9The International Energy Agency (IEA), World Energy Outlook 2012, November 2012, http://www.iea.org/publications/freepublications/publication/world-energy-outlook-2012.html; Virginia Harrison, “U.S. to become top oil producer by 2015,” CNN Money, 12 November 2013, http://money.cnn.com/2013/11/12/news/economy/iea-oil-outlook; and Grant Smith, “U.S. to Be Top Oil Producer by 2015, IEA Says,” Bloomberg, 12 November 2013, http://www.bloomberg.com/news/2013-11-12/u-s-nears-energy-independence-by-2035-on-shale-boom-iea-says.html.

10U.S. Energy Information Administration (EIA), Annual Energy Outlook 2014 with projections to 2040, April 2014, http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf; Deloitte United States (Deloitte Center for Energy Solutions and Deloitte MarketPoint LLC), Made in America: The economic impacts of LNG exports from the United States, December 2011, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Energy_us_er/us_er_MadeinAmerica_LNGPaper_122011.pdf.

11BP, BP Statistical Review of World Energy, June 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full- report.pdf.

12O.R. Inderwildi, F. Siegrist, R.D. Dickson, and A. Hagan, The feedstock curve: novel fuel resources, environmental conservation, the force of economics and the renewed east–west power struggle, Applied Petrochem Research, Volume 4, Issue 1, pages 157 to 165, 22 May 2014, http://link.springer.com/article/10.1007%2Fs13203-014-0062-1; Observation by the DTTL Global Manufacturing Industry group, January 2015; and AT Kearney, Chemical industry vision 2030: A European perspective, August 2012, http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/chemical-industry-vision-2030-a-european-perspective/10192.

13Merriam-Webster definition of Eurasia: Landmass of Asia and Europe —chiefly used to refer to the two continents as one continent. Defines Eurasia as Europe and the following countries: Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, Yemen, and Other Middle East http://www.merriam-webster.com/dictionary/eurasia; and BP, BP Statistical Review of World Energy, June 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full-report.pdf.

14Ibid.

15U.S. Energy Information Administration (EIA), World Energy Outlook 2013, 12 November 2013, http://www.worldenergyoutlook.org/publications/weo-2013/; and BP, BP Statistical Review of World Energy, June 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full- report.pdf.

16U.S. Energy Information Administration (EIA), Shale oil and shale gas resources are globally abundant, 2 January 2014, http://www.eia.gov/todayinenergy/detail.cfm?id=14431.

24

17Environment America Research and Policy Center, Fracking by the Numbers, October 2013, http://www.environmentamerica.org/sites/environment/files/reports/EA_FrackingNumbers_scrn.pdf.

18International Energy Agency (IEA), World Energy Outlook, November 2013, http://www.worldenergyoutlook.org/pressmedia/recentpresentations/londonnovember12.pdf.

19Ibid.

20Ibid.


22Anthony Yuen et al, The Unimaginable: Peak Coal in China, Citi Research: Commodities, 4 September 2013, http://ir.citi.com/z5yk080HEXZtoIax1EnHssv%2Bzm4Pc8GALpLbF2Ysb%2Fl21vGjprPCVQ%3D%3D.

23BP, BP Energy Outlook 2035, January 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf.


25U.S. Energy Information Administration (EIA), Annual Coal Report 2012, December 2013, http://www.eia.gov/coal/annual/pdf/acr.pdf.




29Global Wind Energy Council, Annual installed capacity by region (2005-2013), accessed in November 2014, http://www.gwec.net/wp-content/uploads/2014/04/7_21-3_annual-installed-capacity-by-region-2005-2013.jpg. Note: Particular industry estimates, e.g., BP data, exclude nuclear and hydropower from renewables.

30International Energy Agency (IEA), Technology Roadmap: Hydropower, 29 October 2012, http://www.iea.org/newsroomandevents/news/2012/october/iea-report-sets-a-course-for-doubling-hydroelectricity-output-by-2050.html.

31REN21, Renewable Energy Policy Network for the 21st Century, Renewables 2014: Global Status Report, accessed in January 2015, http://www.ren21.net/portals/0/documents/resources/gsr/2014/gsr2014_full%20report_low%20res.pdf.

32U.S. Department of Commerce International Trade Association, Renewable Energy Top Markets for U.S. Exports 2014-2015: A Market Assessment Tool for U.S. Exporters, February 2014, http://export.gov/build/groups/public/@eg_main/@reee/documents/webcontent/eg_main_070688.pdf.

33Oak Ridge National Laboratory, An Assessment of Energy Potential at Non-Powered Dams in the United States, April 2012, http://www1.eere.energy.gov/water/pdfs/npd_report.pdf.

34Mekong River Commission, State of the Basin Report 2010, accessed in November 2014, http://www.mrcmekong.org/assets/Publications/basin-reports/MRC-SOB-report-2010full-report.pdf.


36BP, BP Energy Outlook 2035, January 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf; and OECD is the Organisation for Economic Co-operation and Development.

37World Nuclear Association, “Safety of Nuclear Power Reactors,” December 2014, http://www.world-nuclear.org/info/Safety-and-Security/Safety-of-Plants/Safety-of-Nuclear-Power-Reactors/.


39Nuclear Energy Agency, “Global uranium supply ensured for long term, new report shows”, Press release, 26 July 2012, http://www.oecd-nea.org/press/2012/2012-05.html; and BP, BP Energy Outlook 2035, January 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_ booklet.pdf.

40U.S. Department of Energy (DOE), Office of Inspector General, Office of Audits and Inspections, Audit Report: Follow-up Audit of the Department of Energy’s Financial Assistance for Integrated Biorefinery Projects, DOE/IG-0893, September 2013, http://energy.gov/sites/prod/files/2013/09/f2/IG-0893.pdf; Executive Office of the President of the United States, Office of Science & Technology Policy, National Bioeconomy Blueprint, 26 April 2012, http://www.whitehouse.gov/sites/default/files/microsites/ostp/bioeconomy_press_release_0.pdf.

41U.S. Energy Information Administration (EIA), World Energy Outlook 2013, 12 November 2013, http://www.worldenergyoutlook.org/publications/weo-2013/.

42BCC Research, Synthetic Biology: Emerging Global Markets, November 2011, http://www.bccresearch.com/market-research/biotechnology/global-synthetic-biology-markets-bio066b.html; and Pike Research (Navigant), "Global biofuels market value to double to $185 Billion by 2021," Press release, 11 October 2011, www.navigantresearch.com/newsroom/global-biofuels-market-value-to-double-to-185-billion-by-2021.

43Market Research Media, Global Biofuel Production Forecast 2015-2020, March 2014, http://www.marketresearchmedia.com/?p=630.

44Ibid.

45International Energy Agency (IEA), Renewable energy medium-term market report 2014 (executive summary), accessed in November 2014, http://www.iea.org/Textbase/npsum/MTrenew2014sum.pdf.


46Deloitte Netherlands, Opportunities for fermentation-based chemical industry: An analysis of the market potential and competitiveness of North-West Europe, September 2014, http://www2.deloitte.com/nl/nl/pages/Over%20Deloitte/articles/nederland-sterk-grondstoffen-biobased-chemische-industrie.html.

47Ibid.

48Ibid.


50Ibid.

51Federal Energy Regulatory Commission (FERC) Office of Energy Projects, Energy Infrastructure Update For September 2014, September 2014, http://www.ferc.gov/legal/staff-reports/2014/sep-infrastructure.pdf.

52European Photovoltaic Industry Association (EPIA), Global Market Outlook for Photovoltaics 2014-2018, accessed in November 2014, http://www.epia.org/fileadmin/user_upload/Publications/EPIA_Global_Market_Outlook_for_Photovoltaics_2014-2018_-_Medium_Res.pdf.

53World Economic Forum (WEF), Top 10 Emerging Technologies 2014, January 2014, http://www3.weforum.org/docs/GAC/2014/WEF_GAC_EmergingTechnologies_TopTen_Brochure_2014.pdf.

54International Energy Agency (IEA), Technology Roadmap: Energy Storage, 19 March 2014, http://www.iea.org/publications/freepublications/publication/technology-roadmap-energy-storage-.html.

55Ibid.

56U.S Department of Energy (DOE), Grid Energy Storage, December 2013, http://energy.gov/oe/downloads/grid-energy-storage-december-2013.

57International Energy Agency (IEA), Technology Roadmap: Energy Storage, 19 March 2014, http://www.iea.org/publications/freepublications/publication/technology-roadmap-energy-storage-.html.

58ChemManager International, Impact of American shale gas boom on Europe’s chemical industry, 4 September 2014, http://www.chemanager-online.com/en/news-opinions/graphics/impact-american-shale-gas-boom-europe-s-chemical-industry.

59International Energy Agency (IEA), Medium-term gas market report 2014 (executive summary), accessed in November 2014, http://www.iea.org/Textbase/npsum/MTGMR2014SUM.pdf.

60Observation by the DTTL Global Manufacturing Industry group, January 2015.

61AT Kearney, Chemical industry vision 2030: A European perspective, August 2012, http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/chemical-industry-vision-2030-a-european-perspective/10192.

62AT Kearney, Chemical industry vision 2030: A European perspective, August 2012, http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/chemical-industry-vision-2030-a-european-perspective/10192; and Cefic, Facts and Figures

2011, Chemicals Industry Profile, accessed in November 2014, http://www.cefic.org/Documents/FactsAndFigures/(Offline)%202011/FF2011_Full%20Report_Chapter/Cefic_FF%20Rapport%202011.pdf.


64Wall Street Journal, “Oil Prices Fall to Fresh Lows,” 12 January 2015, http://www.wsj.com/articles/brent-crude-falls-below-50-in-asian-trading-1421039495.

65Bloomberg.com, “Shale boom tested as sub-$90 oil threatens US drillers,” 8 October 2014, www.bloomberg.com/news/print/2014-10-07/shale-boom-tested-as-sub-90-oil- threatens-u-s-drillers.html.

66Energy Resources Conservation Board and Oil & Gas Journal data, cited in Canadian Association of Petroleum Producers, About Canada’s oil sands, June 2013, http://www.capp.ca/getdoc.aspx?DocId=228182.

67Natural Resources Canada data, cited in Canadian Association of Petroleum Producers, About Canada’s oil sands, June 2013, http://www.capp.ca/getdoc.aspx?DocId=228182.

68Canadian Association of Petroleum Producers, Crude oil forecast, markets, and transportation, June 2014, http://www.capp.ca/getdoc.aspx?DocId=247759&DT=NTV.

69This excludes other than gas transmission and nuclear power; Deloitte United States (Deloitte Development LLC), Mexican energy reform: Opportunity knocks, accessed in November 2014, http://www.deloitte.com/view/en_US/us/Services/consulting/industry/c53bab6e3f194410VgnVCM2000003356f70aRCRD.htm; and Bloomberg.com, “Mexico passes oil bill seen luring $20 billion a year,” 13 December 2013, http://www.bloomberg.com/news/2013-12-12/mexico-lower-house-passes-oil-overhaul-to-break-state-monopoly.html.


71DTTL Global Manufacturing Industry group analysis of WEF data included in a presentation for a monthly Project Board guidance “WELCOM” virtual meeting and Chief Innovation Officers of World Economic Forum Partner Organizations and bilateral discussions at The Forum in a slide titled “Nine global trends selected for discussion,” (as developed by the Community of Chief Innovation officers at The Forum) on 21 July 2009.

72World Economic Forum (WEF), Global Risks 2014, 9th edition, accessed in November 2014, http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2014.pdf.


74Ibid.

26

IWall Street Journal, “China GDP Growth Rate Is Slowest in Five Years,” 20 October 2014, http://www.wsj.com/articles/china-third-quarter-gdp-slows-to-7-3-growth-1413857081.

IIU.S. Energy Information Administration (EIA), Short Term Energy Outlook (STEO), September 2014, http://www.eia.gov/forecasts/steo/archives/sep14.pdf.

IIIU.S. Energy Information Administration (EIA), “Early Release Overview of Annual Energy Outlook 2014 (AEO2014),” 16 December 2014, http://www.eia.gov/forecasts/aeo/er/executive_summary.cfm.

IVU.S. Energy Information Administration (EIA), Short Term Energy Outlook (STEO), December 2014, http://www.eia.gov/forecasts/steo/archives/dec14.pdf.

VDeloitte United States (Deloitte MarketPoint) analysis, January 2015.

VIDeloitte United States (Deloitte MarketPoint) analysis, January 2015; and U.S. Energy Information Administration (EIA), Short Term Energy Outlook (STEO), December 2014, http://www.eia.gov/forecasts/steo/archives/dec14.pdf.

VIIOrganization of the Petroleum Exporting Countries (OPEC), OPEC Bulletin, November to December 2014, http://www.opec.org/opec_web/static_files_project/media/downloads/publications/OB11_122014.pdf.

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Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

DTTL Global Manufacturing Industry groupThe DTTL Global Manufacturing Industry group is comprised of around 2,000 member firm partners and over 13,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line experience, and thought leadership allows them to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, and commitment to each other and strength from diversity. Deloitte member firms provide professional services to 78 percent of the manufacturing industry companies on the Fortune Global 500®. For more information about the Global Manufacturing Industry group, please visit www.deloitte.com/manufacturing.

DisclaimerThis communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

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