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Yousef Al Ateeqi, Deputy Managing Director (Olefins) Petrochemical Industries Company

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Strategies for Improving Profitability and Competitiveness and PIC’s initiatives for achieving Growth. Yousef Al Ateeqi, Deputy Managing Director (Olefins) Petrochemical Industries Company 14 th Feb 2012. Content. PIC Introduction PIC Business Portfolio Introduction to Petrochemicals - PowerPoint PPT Presentation
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PIC Joint Ventures

Strategies for Improving Profitability and Competitiveness and PICs initiatives for achieving Growth

Yousef Al Ateeqi, Deputy Managing Director (Olefins) Petrochemical Industries Company 14th Feb 2012 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 1ContentPIC IntroductionPIC Business PortfolioIntroduction to PetrochemicalsPetrochemicals Industries Business within Kuwait Oil SectorStrategic GrowthChallengesPIC efforts to implement LTS

2 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation KPCs Strategic Direction for PIC is :Increase petrochemicals contribution in KPCs turnoverPICis the petrochemical arm of Kuwait Petroleum CorporationPIC Among Kuwait Petroleum Corporation SubsidiariesOSSCKOTC

KPCKOCKNPCKGOCKAFCOODC

KPIKUFPEC

3 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 3PIC is the Petrochemical arm of KPC ..

KPCs strategic direction for PIC is to : Pursue growth in petrochemicals inside and outside Kuwait, Focus on high growth Olefins, Aromatics and downstream products. Pursue full and effective integration.Leverage the technical and marketing skills of mature markets into new petrochemical projects in growth markets. Pursue partial or full privatization of the petrochemical activities.

PIC VisionWe aspire to be a recognized global petrochemical player leveraging Kuwait national resources in value added partnerships to drive growth and being admired by our stakeholdersPIC ,as a subsidiary of Kuwait Petroleum Corporation, shall achieve a marked position with downstream extension into high value petrochemical business while ensuring integration with KPC activities both domestically and internationally through:Maximizing value addition of Kuwait hydrocarbons resources Excelling our organizational performance through peoples empowerment and infusing industry best practicesCreating a challenging and fulfilling environment that will support skills and capabilities developmentCollaborating closely with our partners towards a sustained and diversified global growthFostering National economy PIC Mission4 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 2030 KPC Downstream Sector Mission & Vision

5 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PIC Business Portfolio

Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation A Historical perspective for PIC .. 1963 : Started with Fertilizers business 1993 : MOU signed with UCC for setting up a world scale Olefins Complex 1995 : EQUATE Petrochemicals Company formed1997 : PP Plant and EQUATE Complex successfully commissioned 2008/2009 : Olefins II, Aromatics and Styrene Plants start upPetrochemicals Growth in KuwaitRealizing their long term potential, Kuwait ventured into commodity petrochemicals in 1990s1997Polypropylene, Ethylene, Polyethylene and MEG produced for the 1st time in Kuwait7 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PIC Business Portfolio PIC has diversified its position as a significant player in Petrochemicals, with local and International investmentsInternational InvestmentsLocal Investments

8Fertilizer BusinessPolypropylene BusinessEQUATE is the common operator for (PP, TKOC, TKAC and TKSC) MEGlobal markets Ethylene Glycol produced inside and outside Kuwait Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 8PIC Products65% of the Petrochemicals products in PIC portfolio are produced in Kuwait

PIC operates the Fertilizer plants

PIC marketsFertilizer product from Kuwait & GPIC plants Polypropylene produced in KuwaitParaxylene Produced in Kuwait

PIC Joint VenturesEquate produce PE & EG and market Polyethylene & StyreneMEGlobal market Ethylene Glycol produced inside and outside KuwaitEquipolymers produce and markets PET9 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 9Our primary motive to grow and diversify in petrochemicals has translated into implementation of three major Projects within KuwaitThe Olefins Complex is an extension of EQUATE Complex and a joint venture between the EQUATE PartnersFeedstock Ethane will be supplied by KNPC from their new Ethane Recovery Plant, which is now under construction in Mina Al-Ahmadi.The product slate is also similar to EQUATE with a new MEG Plant of 600 KTA capacity PE will be produced through expansion of existing EQUATE facilities.The Project is scheduled for commissioning ..Growth in PIC Profits (1995 2011)

10 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Introduction to Petrochemicals Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation There are three major building blocks in petrochemicalsEthaneLPGEthylene Heavy NaphthaLight NaphthaPolyethylene'sEDC/VCM/PVCEthylene GlycolPolypropyleneAcrylonitrileButadieneButylenes C5sStyreneNylonPTA/ PolyesterNaphtha ReformingAromatics PropyleneC4 and C5 Steam CrackingFCCVacuum Gas OilPropyleneNaphtha SplitterWhole NaphthaReformateRaffinateCat Naphtha etcPygasPyrolysis GasoilFuel GasSteam123Ethylene, Propylene, and Aromatics are the essential building blocks for the major petrochemical chains Petrochemical productsPetrochemical building blocksProcessesFeed stocks12 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation When we consider petrochemicals, there are four main streams of building block or basic chemicals. Ethylene, Propylene, C3s and C5s and finally the Aromatics (mainly benzene and paraxylene from a chemical market viewpoint).

There are three main processes to produce these. All processes are mature and with the possible exception of Methanol to Olefins there seems little likelihood of a significant technology driven change in the next 20 years. Of the three processes two are very well know to refiners, the Continuous Catalytic Reformer (CCR) and the Fluid Catalytic Cracker (FCC).

Both of these illustrate the symbiosis of refining and petrochemicals. While originally designed for the needs of the growing mogas pools, as the growth rates of the fuels demand reached plateau, the opportunity to extract propylene from the FCC and aromatics for chemicals from the CCR became economically compelling. In fact the paraxylene demand has been such that a string of dedicated CCRs have been built in Asia in the past 15 years. The yield of propylene from FCCs can be very significant, however the fundamentals of VGO conversion make it unlikely the FCC will ever become exclusively a propylene machine.

The steam cracker is the best known dedicated basic chemicals process. Steam crackers can take a range of different feedstock all the way from ethane at the light end through to VGO and Resid at the heavy end, although the heavy feed know-how is currently on in the domain of two or three integrated refining/chemical companies.

CLICK FOR REFINERY ANIMATION. One very interesting feature of all of these processes with the exception of ethane cracking as that they all exhibit significant levels of refinery integration. At one side is the sharing and optimisation of yields through tailoring naphtha to the very different needs of steam cracking (which likes high paraffin content, generally light naphtha) and reforming (where high N+A, generally heavy naphtha gives the most economic yields). At the other end the ability to push by-product feeds to their maximum fuel value is a discipline which makes EMCC stand alone as a the top integrated refining/petrochemical performer.

Lets look a little closer at yield from different olefin feedstock as we build the thinking of the areas where Aramco may be able to develop competitive differentiation.

Worldwide Trends in PetrochemicalsSince the 1990s, key petrochemicals have achieved above GDP growth rates globally.

Source Nexant13 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 13Middle East Trends in Petrochemicals Market shareME started from a small presence & increasingly projected its importance in the petrochemicals sector, registering good growth in market share

Source NexantPIC into petchem14 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 14Future OutlookMiddle East producers are very competitive and well positioned to supply the fast-growing markets.

Middle East feedstock slate will be heavier with lesser advantages.

New projects will require access to technologies and new approaches to development.

Innovation is a joint effort and requires a strong customer oriented culture.

Higher expectation on Job creation and industry returns

Industry cooperation can benefit all.

15 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Maintaining Competitive AdvantagesFeedstock allocation & pricing need to be better than netback basis

Competitive energy cost

Improved product offering, packaging and logistics to target growing end users markets

Government Support and incentives to promote investment

Promote downstream units as small and medium business unlike conventional mega projects

Expectation on returns and job creation objective need to be aligned

16 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 16Shift to Differentiated ProductsCommodity ProductsDifferentiated/Downstream ProductsLow ValueHigh ValueHigh VolumeModerate to low volumeCapital IntensiveLow Capital Investment Low Labor requirementsLabor intensiveHigh level of integrationUsually non-integrated Proximity to market not criticalLinks to market very critical Supply Chain/Logistics relatively less criticalSupply Chain/Logistics very critical17 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 17Critical Success factors Scale and level of integration

Access to technology Differentiated products

Marketing and Distribution Customer Focus Innovation and Customer SupportSupply Chain / Logistics efficiency

Improved Projects Management and Execution CAPEX control and reduce delays

Developing and Retaining best skill18 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 18 Petrochemicals Industries Business within Kuwait Oil Sector Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 19KPC Strategic Directions - PetrochemicalsPursue growth in petrochemicals, both inside and outside of Kuwait, with a partner focusing on high growth petrochemical products.

Pursue full and effective integration between the petrochemical operations and KPCs operations inside and outside Kuwait.

Build and acquire leading petrochemical assets in mature markets outside Kuwait with a proper foreign partner.

Pursue partial or full privatization of the petrochemical activity. 20 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PICs previous growth path has resulted in the creation of a successful portfolioTime Frame20012005200520102010-2020Expand domesticpetrochemicalcapacitiesAchieve competitiveregional positionDownstream extensionsFurther internationalexpansions

Extend anddefend corebusinessesBuild emergingbusinessesCreate viableoptionsHorizon 1Horizon 2Horizon 3Stage 1Stage 2Kuwait : Olefins-II, Aromatics, StyreneOverseas : PTA, PET, EGCOMPLETEDCOMPLETEDTHE FUTUREGrowth ParametersNew core extensionsDerivativesIntegrationValue creation thru partnershipsIn the current Horizon, PIC plans to further strengthen its position inside and outside Kuwait21KPCs vision for PIC : Grow in Petrochemicals Inside and Outside Kuwait Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PICs future growth portfolio will target three key growth themes22 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Create scale and enhance the positioning of its core businesses and diversify its portfolio23 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Strategic Growth Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 24Opportunitiesfeedstock allocation to projects with a diversified product slates

Enhance business scale in near term with new olefins facilities

Access high growth international projects and markets through strategic partnerships

Opportunity to develop required local skills through knowledge transfer and support strategic growth

Investments in downstream specialty chemicals & polymers will add value and diversify the overall portfolio

Opportunity to boost private sector industrialization and participation in local economy.

25 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Linking our growth plan to KPC downstream businessesPIC business growth has key linkages with KPC, KNPC, KPI and KOC :KPC/KOC for Gas feedstocks for EQUATE and TKOC.

KNPC for liquid feedstocks like Propylene/Naphtha for PP and TKAC

KPI for diversified refinery streams as feedstock to proposed China ProjectThis value-adding collaboration within downstream sector of KPC will continue, building upon its integrated approach with new petchem projects, inside and outside Kuwait.26 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Sources of Integration Value27Opportunity to create value for both sides refining & petrochemicals exists on a large scaleLarge new petrochemicals facilitiesExisting and planned refineries optimizationBroad product offering to meet Petrochemicals market demand, commodity and specialty products for the integrated complexFlexibility to process a wide variety of feedstocksCost synergies while maintaining resources allocationCapital optimization through planning to execution

Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Competiveness in International MarketsBuilding upon core portfolio positions to expand advantaged business positions in olefins and aromatics both within Kuwait and in selected regional locations

Partnering with sister K companies to build downstream cracker projects linked to current portfolio

Investing in selected downstream investments that have connectivity to PIC and Partner business interests

Establishing criteria for and pursue opportunistic, financial investments (i.e. M&A) with key caveats

28 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Aggressive investment in core portfolio with objective of increasing overall regional/global share

Build shared investment projects with KPI & KNPC to achieve refinery /petrochemicals integration diversifying feedstock base

Develop a linked specialty platform

Major geographic diversification investment

Grow/maintain market share in core businesses

Competiveness in International Markets29 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Access to advantaged feedstocks (e.g. methane, ethane, naphtha etc.)Integration with KPC refining sector, inside & outside KuwaitAccess to world class technology and marketing tie-up with partnershipsKPC financial strength and global positioningTrack record in managing world scale petrochemical complex projects and plantsGeographically located close to high growth Asian marketsWell established relationship with financial sectorContinuing the development of local skills through knowledge transfer and support strategic growth Enhance private sector industrialization and participation in local economy.Contribute to the local Economy ( GDP )

Key Drivers for Growth30 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemicals industries are a major player in Kuwait GDP creation Petrochemicals is a key enabler for industrialization1$ of direct GDP creation in the chemical sector produces ~1.87 $ of total GDP creation in the Kuwaiti economyManufacturing share of GDP approx 6%Manufacturing share of non Oil GDP approx 10%Contribution of manufacturing sector to GDP lowest in Kuwait among GCC countries

31 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Project Opportunities under developmentChina Project with Kuwait Petroleum International to implement an Integrated Refinery/Petrochemicals Complex

Olefins III Project World-scale project opportunity in Kuwait

PTA/PET Project in Kuwait.

Refinery/Petrochemicals integration Projects in Kuwait

32 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Challenges Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation ChallengesLimited ethane availability, tightening lighter feedstock availability with less feedstock advantageConstraints related to land availability, utilities and infrastructural facilitiesLimited exposure to specialty petrochemicals businessIncreased global competition from low cost high scale operators in Middle East and market regionsInterlinked and highly leveraged global economyIncreasing reliance on emerging markets economic prosperity34 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PIC efforts to implement LTS Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation PIC transition to Product Oriented OrganizationChairman & Managing DirectorBoard SecretaryMarketingBusiness Analysis & PlanningBusiness Dev.MarketingBusiness Analysis & PlanningBusiness Dev.Business Analysis & PlanningMarketingFertilizers (Manufacturing)DMD FertilizersDMD AromaticsDMD OlefinsFinanceCorporate Planning Information TechnologyDeputy Chairman & DMD PlanningSix Sigma DMD Admin & Finance Human ResourcesServices & Comm. Engineering and HS&EMEGlobalEquipolymersPP Olefins IIEQUATEKAROGPICTKSCERMThe organization is Product Focus

Introduced new functions like Corporate ENGHSE

Established the basis for Growth focused Team work

Introduced best practices and business governance 36 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 36Developing the PIC-PGS : A conceptual Gated System was developed for overall execution of Capital Projects

Continuous improvement Six sigma program

Competency development

Responsible Care and CSR program

Focus on certified management systems in Quality, Environment, Safety & Health Initiatives supporting PIC LTS implementation 37 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation 37Thank you38 Petrochemical Industries Company 2005A Subsidiary of Kuwait Petroleum Corporation

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© Petrochemical Industries Company 2005 A Subsidiary of Kuwait Petroleum Corporation Strategies for Improving Profitability and Competitiveness and PIC’s initiatives for achieving Growth Yousef Al Ateeqi, Deputy Managing Director (Olefins) Petrochemical Industries Company 14 th Feb 2012
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