7/31/2019 business petrochem industry
1/54
Understanding Petrochemical Business
MBA Program at UPES
Integrated B. Tech & MBA / MBA in Oil & Gas
Venue: UPES DehradunNov 19-21,2011
7/31/2019 business petrochem industry
2/54
SCHEDULE FOR THE DAY
Module 7A Business Practices
Module 7B Demand Supply And Pricing
Module 7C Business Cycles
7/31/2019 business petrochem industry
3/54
BUSINESS PRACTICES
MODULE 7 A
7/31/2019 business petrochem industry
4/54
INTERNATIONAL TRADE PRACTICES
DIRECT TRADING
CONTRACT
LONG TERM
BENCH MARKED MEDIUM TERM, SHORT TERM
THROUGH MERCANTILE EXCHANGES
LME; NYMEX; SGX; HKMEx DME MCX
SPOT FUTURES
MAINLY FOR HEDGING
7/31/2019 business petrochem industry
5/54
BUSINESS INTELLIGENCE AGENCIES
DATA ON TRADE VOLUMES AND SPOT /
CONTRACTS ARE COMPILED, ANALYSED AND
PUBLISHED SUBSCRIPTION BASED ACCESS
PLATT
ARGUS MEDIA
IHS ACQUIED PUVIN GET) CMAI
ICIS ETC
7/31/2019 business petrochem industry
6/54
BUSINESS PROSPECTING
MARKET SURVEYS
DEMAND SUPPLY PROJECTIONS
GLOBAL BASIS
REGIONAL BASIS
DOMESTIC SCENARIO
PAST DATA
PRODUCTION IMPORTS / EXPORTS
CAPACITY AVAILABLE
7/31/2019 business petrochem industry
7/54
BUSINESS PROSPECTS
MARKET SURVEYS
PROJECTIONS
DEMAND PROJECTIONS
CONSUMER SECTOR ANALYSIS
GROWTH RATE MODEL
SUBSTITUTION ALTERNATES
SUPPLY PROJECTIONS
ANNOUNCED PLANS - NEW PROJECTS / EXPANSIONS / SHUT-DOWNS
GROWTH RATE MODEL
7/31/2019 business petrochem industry
8/54
BUSINESS PROSPECTS
PRICE PROJECTIONS
IDEAL SITUATION DOES NOT EXIST
PAST DATA ANALYSED THROUGH BENCH-MARKING CRUDE OIL BENCHMARKING
ETHYLENE BENCHMARKING
NAPHTHA BENCHMARKING
PRICE MARGIN / RATIO
INTERNATIONAL TRADE GEOPOLITICAL IMPACT
7/31/2019 business petrochem industry
9/54
BUSINESS PROSPECTS
INTERNATIONAL PRICES TERMS AND
CONDITIONS FOLLOW INCOTERMS
PRICE QUOTED
AT SALES POINT LOADED ONTO THE TRANSPORT
VESSEL - FEE-ON-BOAD
DELIVEED AT BUYES COUNTY POT
CFR INCLUDING BASE COST AND FREIGHT
CIF INCLUDING BASE COST, FREIGHT, INSURANCE
QUANTITY ISSUES AT POINT OF LOADING
ANY TANSIT LOSSES TO BUYES ACCOUNT
7/31/2019 business petrochem industry
10/54
BUSINESS PROSPECTS
SOME PRICING TERMINOLOGY SPOT PRICES QUOTED FOR A PROMINENT PORT IN A REGION
NWE Rotterdam
ME Dubai
SEA Singapore; Kuala Lumpur;
NEA Japan
CMP China Mainland Port / Shangai
USG US Gulf Coast
E
FREIGHT NETBACK
Adjusted for freight from point of supply / delivery to the respective port
B
7/31/2019 business petrochem industry
11/54
INTERNATIONAL REGIONS
NWE Northwest Europe (N. France, Germany, France, Benelux)
Mediterranean Southern France, Spain, Italy
NE Asia Taiwan, Korea, Japan, China
SE AsiaSingapore, Philippines, Indonesia, Malaysia, Thailand,
VietnamWest Asia Pakistan, India
East Asia NE Asia & SE Asia
GCC Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE
East Mediterranean Greece, Israel, Egypt, Syria, Jordan, Lebanon
FSUFormer Soviet Union: Russia, Ukraine, Belarus, Uzbekistan,Kazakhstan
USG US Gulf
NWE Northwest Europe (N. France, Germany, France, Benelux)
7/31/2019 business petrochem industry
12/54
BUSINESS PROSPECTS
DOMESTIC SCENARIO
INDUSTRY PROTECTION
TARIFFS
IMPORT / EXPORT BANS
INVESTMENT INCENTIVES
CONCESSIONS IN DOMESTIC TAXES & DUTIES
CASH SUBSIDIES DEFERRED TARIFF PAYMENTS
STATE-GOVERNMENT INCENTIVES
7/31/2019 business petrochem industry
13/54
BUSINESS PROSPECTS
PCPIRs
Government of India notified the Petroleum, Chemicalsand Petrochemical Investment Regions (PCPIR) policy inApril 2007 with an aim to develop global scale PCP industry
in an integrated and environment friendly manner throughsynergies and value added manufacturing, research anddevelopment.
A region with an area of around 250 square kilometerhaving a processing area (manufacturing facilities),associated logistics and other services and requiredinfrastructure; as also a nonprocess area comprisingresidential and commercial infrastructure facilities.
7/31/2019 business petrochem industry
14/54
Business prospects
Each PCPIR to have
a refinery/ petrochemical feedstock company
Internal infrastructure built and managed by a
Developer
External linkages by the Government of India and
the concerned State government.
PCPIRs IDENTIFIED West Bengal PCPIR ; Gujarat PCPIR; Andhra
Pradesh PCPIR ; Orissa PCPIR ; Tamil Nadu PCPIR ;
7/31/2019 business petrochem industry
15/54
Business prospects
DOMESTIC DATA Production statistics
GOI IIP
INDUSTRY ASSOCIATIONS
CHEMICALS PETOCHEMICALS MANUFACTUESASSOCIATION
Statutory taxes & duties IMPORT TARIFF
EXCISE / CENVAT/MODVAT/GST
HARMONISED CODING Inflation Statistics
WPI published by MoF
7/31/2019 business petrochem industry
16/54
INDIRECT TAXES
HARMONISED CODING SYSTEM
21 SECTIONS
99 CHAPTERS 2 DIGIT CODE
EACH CHAPTER HEADING 2 DIGIT
SUB-HEADING 2 DIGIT
SIX DIGIT CODE
UNIFORM CODING INTERNATIONALLYFOLLOWED
7/31/2019 business petrochem industry
17/54
BUSINESS PROSPECTS
CUSTOMS TARIFF
EXCISE TARIFF (EXCISE/VAT/CENVAT/MODVAT) -GST (GOODS AND SERVICES TAX)
FOR PETROLEUM & PETROCHEMICALS FOURCHAPTERS HAVE TO BE REFERRED Chapter 27 : Mineral fuels, mineral oils and products
of their distillation; bituminous substances; mineralwaxes
Chapter 29 : Organic Chemicals Chapter 39 : Plastics and articles thereof
Chapter 40 : Rubber and articles thereof
7/31/2019 business petrochem industry
18/54
HARMONISED SYSTEM
27.07 Oils and other products of the distillation of high temperature coal tar;
similar products in which the weight of the aromatic constituents exceeds
that of the non-aromatic constituents
2707.10 - Benzole 35%
2707.20 -Toluole 35%
27.11 Petroleum gases and other gaseous hydrocarbons
- Liquefied:
2711.11 -- Natural gas 10%
2711.12 -- Propane 10%
27.14Bitumen and asphalt, natural; bituminous or oil shale and
tar sands; asphaltites and asphaltic rocks
2714.10 - Bituminous or oil shale and tar sands 10%
2714.90 - Other 10%
7/31/2019 business petrochem industry
19/54
CUSTOMS TARIFF
% OFCENVAT
ADJ.
NET OF
CENVAT
A CIF 1250.00 1250.00
B ASSESABLE 101% A 1262.50
C BASIC DUTY 5% B 63.12 63.12
D CVD 10% A+B 132.56 Y
E CESS CVD 3% D 3.97 Y
F CESS CD 3% C+D+E 5.99 5.99
G SAD 4% B+C+D+E+F 58.73 Y
COST AT PORT INCL.
TARIFF
A+
(C TO G)
A+C+F
7/31/2019 business petrochem industry
20/54
IMPORT PARITY PRICE
COMPONENTS
PRICE AT PORT INCLUDING TARIFF
CUSTOMS DOCUMENTATION FEE
CLEARING & HANDLING
TRANSPORTATION COST TO LOCATION
7/31/2019 business petrochem industry
21/54
OTHER TAXES CONSUMER ANGLE
SALES TAX
CENTRAL
STATE
GOODS AND SERVICES TAX YET TO BE ENFORCED LIKELY IN FISCAL 2102-
2013
PHILOSOPHY TO HARMONISE TAXES ANDREMOVE CASCADING EFFECT
ORIGINAL PHILOSOPHY MODIFIED
7/31/2019 business petrochem industry
22/54
RIL PRICELIST HDPE
1) 4% VAT AGAINST DAMAN & 5% VAT BOKHARPADA SALES.
2) FREIGHT SHALL BE CHARGED EXTRA.
Ex-Bokharpada Depot
HDPE TYPE BASIC10.30%
Ex. DutyCREDIT Cash Disc. CASH
E 52009 PRIME 73140 7533.42 80673 550 80123
B56003 PRIME 69540 7162.62 76703 550 76153
F46003 PRIME 68690 7075.07 75765 550 75215
F56003 PRIME 67890 6992.67 74883 550 74333
M60075 PRIME 70640 7275.92 77916 550 77366
L60075 PRIME 72140 7430.42 79570 550 79020
UE UTILITY 68340 7039.02 75379 550 74829
UM UTILITY 65840 6781.52 72622 550 72072
7/31/2019 business petrochem industry
23/54
GAIL PRICE LIST HDPEDAMAN
BASIC DISC LOC EXCISE EX-WKS
BM B52A003A 67130 575 1697 10688.60 75546.60
BM B63A003A 67130 575 1697 10688.60 75546.60
SHETG E45A003A 66660 575 1685 10613.12 75013.12
EXTR E52A003A 67970 575 1719 10823.40 76499.40
EXTR E52U003A 71750 575 1815 11430.53 80790.53
HM FILM F55HM0003A 68900 575 1742 10972.88 77555.88
IM HIGH I50A180A 64920 575 1641 10333.62 73037.62
IM LOW I60A080A 64960 575 1642 10340.05 73083.05
IM-L-UV I60U080A 66460 575 1680 10580.98 74785.98
PIPE (PE 80) P54A001A 72810 575 1842 11600.77 81993.77
RAFFIA W50A009A 68660 575 1736 10934.32 77283.32
MF W52A009A 68910 575 1743 10974.36 77566.36
MFW52ASR009A
69160
575
1749
11014.57
77850.57
7/31/2019 business petrochem industry
24/54
LOGISTICS
MAIN TRANSPORTATION MODES
RAIL
LIQUID / LIQUIFIED --- TANKERS
SOLIDS --- CONTAINERS / WAGONS
ROAD
LIQUID / LIQUIFIED --- TANKERS
SOLIDS --- CONTAINERS / WAGONS
MARITIME
LIQUID / LIQUIFIED --- TANKERS
SOLIDS --- CONTAINERS
PIPELINE (LIQUID / LIQUIFIED PRODUCTS)
7/31/2019 business petrochem industry
25/54
STORAGE
LIQUIDS AT AMBIENT CONDITIONS
TANKS
LOW VOLATILITY FIXED ROOF
HIGH VOLATILITY FLOATING ROOF
LIQUIFIED MATERIALS PRESSURISED STORAGE
SPHERES
BULLETS
ATMOSPHERIC PRESSURE STORAGE DOUBLE WALLED INSULATED TANKS WITH VAPOR
RECOVERY SYSTEM
7/31/2019 business petrochem industry
26/54
STORAGE
SOLIDS
PACKING FORMATS
BAGS
GENERALLY 25kg
JUMBO BAGS 750 kg
STORAGE
PALLETISED FORMAT
STRCTURAL ARRANGEMENT TO BE MADE IF MULTI-
STACKING OF PALLETS NOT PERMISSIBLE
7/31/2019 business petrochem industry
27/54
DEMAND SUPPLY FORECASTING
MODULE 7B
7/31/2019 business petrochem industry
28/54
HDPE CAPACITY 2010 - 2011
Company Location LicensorCapacity (2010-11)
Swing Dedicated
Reliance
Industries
Limited
Hazira, Gujarat 7 280 180
Nagothane, Maharashtra 1 220
Gandhar, Gujarat 3 220
GAILAuraiya, Uttar Pradesh 7 210
Auraiya, Uttar Pradesh 5 200
Haldia
Petrochemicals
Limited
Haldia, West Bengal 5 334
Haldia, West Bengal 4 368
Indian Oil
Corporation
Limited
Panipat, Haryana 6 350
Panipat, Haryana 2 300
1428 1234
7/31/2019 business petrochem industry
29/54
HDPE PROCESS LICENSORS
CODE LICENSOR / PROCESS
1 B.P Chemicals U.K / Gas Phase Fludized Bed
2 Basell Polyolefine GmbH Germany / Hostalen
3 Hoechst, Germany / Slurry
4 Lyondell Basell / Spherilene
5 Mitsui Japan / Slurry Process
6 Nova Chemicals, USA / Sclairtech
7 Novacor, Canada / Solution
7/31/2019 business petrochem industry
30/54
HDPE PRODUCTION
Company 2006-07 2007-08 2008-09 2009-10 2010-11
Reliance Industries
Limited377 345 343 495 445
GAIL 166 188 203 196 203
Haldia
Petrochemicals
Limited
415 441 396 165 390
Indian OilCorporation Limited
0 0 0 0 98
958 974 942 856 1,136
7/31/2019 business petrochem industry
31/54
HDPE - CONSUMPTION
Year Production Import Export Consumption ACGR(%)
2006-07 958 113 200 871
14.2
2007-08 974 201 115 1059
2008-09 942 222 95 1069
2009-10 856 385 16 1225
2010-11 1,136 445 100 1481
7/31/2019 business petrochem industry
32/54
HDPE GRADEWISE CONSUMPTION
S. No. Grade 2000-01 2010-11
1 Raffia 175 310
2 HM/HDPE Films 128 350
3 Pipes 87 206
4 Monofilament 29 40
5 Blow Moulding 150 390
6 Injection Moulding 96 140
7 Misc. Applications 26 45
Total 691 1481
7/31/2019 business petrochem industry
33/54
HDPE OPERATING RATE HISTORY
2006-07 2007-08 2008-09 2009-10 2010-11
Overall Capacity 1,710 1,710 1,919 1,919 2,692
Overall Operating
Rate(%)56 57 49 45 42
Overall Production 958 974 942 856 1,136
7/31/2019 business petrochem industry
34/54
HDPE FUTURE AVAILABILITY
Year
Existing Units Exp. Total
SWING DEDICATED S + D
1. 2 3 1. 2 3 1. 2 3
2010-11 1428 40 571 1234 48 592 2662 44 1164
2011-12 1428 40 571 1234 60 740 2762 50 1372
2013-14 1428 40 571 1334 95 1267 2762 67 1839
2019-20 2768 40 1107 1674 95 1590 4442 61 2698
2025-26 2768 40 1107 1674 95 1590 4442 61 2698
7/31/2019 business petrochem industry
35/54
DEMAND SUPPLY GAPYear Demand Supply
Surplus /
(-)DeficitYear Demand Supply
Surplus /
(-)Deficit
2010-11 1,481 1,164 -317 2019-20 3,343 2,698 -646
2011-12 1,642 1,372 -271 2020-21 3,635 2,698 -938
2012-13 1,804 1,638 -165 2021-22 3,918 2,698 -1,221
2013-14 1,982 1,839 -144 2022-23 4,224 2,698 -1,526
2014-15 2,180 2,379 199 2023-24 4,554 2,698 -1,857
2015-16 2,397 2,498 100 2024-25 4,911 2,698 -2,214
2016-17 2,604 2,642 38 2025-26 5,297 2,698 -2,600
2017-18 2,830 2,698 -132
7/31/2019 business petrochem industry
36/54
PRICE PROJECTION
0
500
1000
1500
2000
2500
3000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Price Forecast
7/31/2019 business petrochem industry
37/54
BUSINESS CYCLES
MODULE 7C
7/31/2019 business petrochem industry
38/54
BUSINESS CYCLES
ALMOST ALL BUSINESSES AFFECTED BY PRICESAND DEMAND BEHAVIOUR CHRACTERISED BYLONG RANGE (DECADES) AND / OR SHORTRANGE DURATION (YEARS) CYCLES
WHY CYCLES
OPPORTUNITY
INVESTMENT RUSH
SUPPLY-DEMAND IMBALANCE PROFITABILITY AFFECTED
DOWNTURN
7/31/2019 business petrochem industry
39/54
BUSINESS CYCLES
Cycle/Wave Name Years
Kitchin 35 Inventory
Juglar 711 Fixed Investment
Kuznets 1525Infrastructural
Investment
Kondratiev wave 4560 Technology Cycle
7/31/2019 business petrochem industry
40/54
KNODRATIEV CYCLE
7/31/2019 business petrochem industry
41/54
PETROCHEMICAL BUSINESS
Petrochemical industry is characterized by large plants
that take several years to build;
finally, they come to stream, together creating oversupplyand
thus the bottom of the cycle.
Mathematical models of the petrochemical industry
Define inherent technical structure linking chemicalindustry formed by the large but linked number of
chemicals that are available on a commercial scale and bythe rigid feedstock, byproducts, and energy requirementsof these chemicals.
7/31/2019 business petrochem industry
42/54
A TYPICAL CASE STUDY
MIDEASTSCENARIO
7/31/2019 business petrochem industry
43/54
7/31/2019 business petrochem industry
44/54
7/31/2019 business petrochem industry
45/54
INDUSTRY MODELLING
Deterministic Models Assume that all parameters included in the model, for example, prices
and demand, are known with certainty.
Select the optimal technology paths for production of a given amountof chemicals under an environmental or economic objective.
Assumed that a set of feedstocks is locally available in a limitedquantity
Several alternative processes technologically are accessible fortransforming feedstocks into final products
These technologies are characterized by technical coefficients ofconsumption of raw materials, chemicals, utilities, labor, byproductproduction, and investment cost for different plant sizes and operationand maintenance costs.
These technologies introduce intermediate chemicals, which areproduced and consumed in the system.
7/31/2019 business petrochem industry
46/54
INDUSTRY MODELLING
Models with Uncertainty.
Models Proposed
Proposed for the chemical or petrochemical industry thatincluded uncertainty in formulating the model and not as a
final stage of the solution in sensitivity analysis. Systems modelled
batch plants, small operations, or process networks consideringuncertainty in product demand only
Another model considering uncertainty in processing time, size,and product demand
considering uncertainty in process reaction parameters
considering uncertainty in product demand and due dates.
7/31/2019 business petrochem industry
47/54
INDUSTRY MODELLING
Models of continuous processes
System parameters, operating temperature,
reaction constants, and yields Uncertain demand
Uncertain demand, plus supply and process yield
Supply
supply and prices.
7/31/2019 business petrochem industry
48/54
FORECASTINGTime-Series Models
Use past time ordered sequences of observations of theforecasted variable.
Time-series history of the variable being forecasted is usedin order to develop a model for predicting future values.
Then forecasts are made by extrapolating the fitted model The extrapolation is based on the assumption that the
future will continue on the same basis as the past
Four types of patterns usually seen in the data series: Horizontal
Seasonal Cyclical
Trend
7/31/2019 business petrochem industry
49/54
FORECASTING
The cyclical pattern is a difficult one to predict
because it does not repeat itself at constant intervals
of time and its duration is not uniform.
One of the useful tools in analyzing time-series data
of the cyclical nature is the Fourier analysis; it is
based on the concept that series can be
approximated by a sum of sinusoids, each at adifferent frequency.
7/31/2019 business petrochem industry
50/54
FORECASTINGCausal Models
Relate statistically the time series of dependent variable to one
or more other time series dependent variables over the same
time period.
If a logical correlation appears then a statistical model describing
this relationship can be constructed.
The most applied causal model is the regression model relating a
dependent variable to the independent variable(s) i.e. It is a
mathematical procedure formulating a relationship
Regression is more powerful than a subjective qualitative
estimate because it measures explicitly the apparent associationbetween variables over time, thus eliminating most of the
guesswork.
7/31/2019 business petrochem industry
51/54
PRODUCT PRICING FORECAST MODEL
TIME SERIES
7/31/2019 business petrochem industry
52/54
OIL PRICE FORECAST MODEL
TIME SERIES
7/31/2019 business petrochem industry
53/54
PETROCHEMICAL PRICE MODEL
CAUSAL MODEL
7/31/2019 business petrochem industry
54/54
ABS PRICE FORECAST