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

©Petrochemical Industries Company 2005A 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

14th Feb 2012


Content

PIC Introduction

PIC Business Portfolio

Introduction to Petrochemicals

Petrochemicals Industries Business within

Kuwait Oil Sector

Strategic Growth

Challenges

PIC efforts to implement LTS

2


KPC’s Strategic Direction for PIC is :Increase petrochemicals contribution in KPC’s turnover

PICis the petrochemical arm of

Kuwait Petroleum Corporation

PIC Among Kuwait Petroleum Corporation Subsidiaries

OSSC

KOTC

KPC

KOCKNPC

KGOC

KAFCO

ODC

KPI

KUFPEC

3


PIC Vision

We aspire to be a recognized global petrochemical player leveraging Kuwait national resources in value added partnerships to drive

growth and being admired by our stakeholders

PIC ,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 practices─ Creating a challenging and fulfilling environment that will support

skills and capabilities development─ Collaborating closely with our partners towards a sustained and

diversified global growth─ Fostering National economy

PIC Mission

4


2030 KPC Downstream Sector Mission & Vision

5




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 formed 1997 : PP Plant and EQUATE Complex successfully

commissioned 2008/2009 : Olefins II, Aromatics and Styrene Plants start up

Petrochemicals Growth in Kuwait

Realizing their long term potential, Kuwait ventured into commodity petrochemicals in 1990s

1997Polypropylene, Ethylene, Polyethylene and MEG produced for the 1st time in

Kuwait

7


8


PIC has diversified its position as a significant player in Petrochemicals, with local and International investments

International Investments Local Investments

Fertilizer Business

Polypropylene Business

EQUATE is the common operator for (PP, TKOC, TKAC and TKSC)

MEGlobal markets Ethylene Glycol produced inside and outside Kuwait


PIC Products

65% of the Petrochemicals products in PIC portfolio are produced in Kuwait

PIC operates the Fertilizer plants

PIC markets─ Fertilizer product from Kuwait & GPIC plants ─ Polypropylene produced in Kuwait─ Paraxylene Produced in Kuwait

PIC Joint Ventures─ Equate produce PE & EG and market Polyethylene & Styrene─ MEGlobal market Ethylene Glycol produced inside and outside Kuwait

─ Equipolymers produce and markets PET

9


Growth in PIC Profits (1995 – 2011)

95/96

96/97

97/98

98/99

99/2000

2000/2001

2001/2002

2002/2003

2003/2004

2004/2005

2005/2006

2006/2007

20072008

2008/2009

2009/2010

2010/2011

E2011/2012

-50,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

Total Company Profit & Loss from 1995/1996 To 2011/2012

KD

10


Introduction to Petrochemicals


There are three major building blocks in petrochemicals

EthaneLPG

Ethylene

Heavy Naphtha

Light Naphtha

Polyethylene'sEDC/VCM/PVCEthylene Glycol

PolypropyleneAcrylonitrile

ButadieneButylenes C5s

StyreneNylonPTA/ Polyester

Naphtha Reformi

ng Aromatics

Propylene

C4 and C5

Steam Cracking

FCC

Vacuum Gas OilPropylene

Naphtha Splitter

Whole Naphtha

Reformate

Raffinate

Cat Naphtha etc

PygasPyrolysis Gasoil

Fuel GasSteam

1

2

3

Ethylene, Propylene, and Aromatics are the essential building blocks for the major petrochemical chains

Petrochemical products

Petrochemical building blocks

ProcessesFeed stocks

12


13

Worldwide Trends in Petrochemicals

Since the 1990s, key petrochemicals have achieved above GDP growth rates globally.

0

50

100

150

200

250

1990 1995 2000 2005 2010 2015 2020 2025

Tota

l M

MTPA

Historical Forecast

Ethylene

Propylene

PTA

Paraxylene

Source Nexant


14

Middle East Trends in Petrochemicals Market share

ME started from a small presence & increasingly projected its importance in the petrochemicals sector, registering good growth in market share

0%

5%

10%

15%

20%

1990 1995 2000 2005 2010 2015 2020 2025

ME M

ark

ets

hare

%

Historical Forecast

Ethylene

Propylene

PTA

Paraxylene

Source Nexant

PIC into

petchem


Future Outlook

Middle 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


Maintaining Competitive Advantages

Feedstock 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


Shift to Differentiated Products

Commodity Products Differentiated/Downstream Products

Low Value High Value

High Volume Moderate to low volume

Capital Intensive Low Capital Investment

Low Labor requirements Labor intensive

High level of integration Usually non-integrated

Proximity to market not critical Links to market very critical

Supply Chain/Logistics relatively less critical

Supply Chain/Logistics very critical

17


Critical Success factors

Scale and level of integration

Access to technology – Differentiated products

Marketing and Distribution ―Customer Focus – Innovation and Customer Support―Supply Chain / Logistics efficiency

Improved Projects Management and Execution― CAPEX control and reduce delays

Developing and Retaining best skill

18


Petrochemicals Industries

Business within Kuwait Oil Sector


KPC Strategic Directions - Petrochemicals

Pursue 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 KPC’s 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.

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PIC’s previous growth path has resulted in the creation of a successful portfolio

Time Frame2001–2005 2005–2010 2010-2020

Expand domesticpetrochemicalcapacities

Achieve competitiveregional position

Downstream extensions Further international

expansionsExtend anddefend corebusinesses

Build emergingbusinesses

Create viableoptions

Horizon 1 Horizon 2 Horizon 3

Stage 1 Stage 2

Kuwait : Olefins-II, Aromatics, StyreneOverseas : PTA, PET, EG

COMPLETED COMPLETED

THE FUTURE

Growth Parameters New core extensions Derivatives Integration Value creation thru partnerships

In the current Horizon, PIC plans to further strengthen its position inside and outside Kuwait

21

KPC’s vision for PIC : Grow in Petrochemicals Inside and Outside Kuwait


PIC’s future growth portfolio will target three key growth themes

Enhance Core Olefins

Derivatives Portfolio

Broaden Portfolio through

Refinery/PC Integration

Financially Attractive/

Diversifying Investment

s

22


Create scale and enhance the positioning of its core businesses and diversify its portfolio

will be measurably enhanced by building scale and share and diversifying feedstock exposure, product mix and asset location

PIC’s olefin portfolio

will provide the basis for overall advantage and allow PIC to leverage a core strength of KPC (i.e. hydrocarbon advantage)

Joint investments with “sister” K

companies

provide capital cycle diversification and the prospect of higher less cycle earnings component

Investments in “linked” downstream specialties

and diversified chemicals

will provide diversification of asset base outside and also allows for capital optimization and enhancement of channels to market

Targeting Asian investments

Grow/maintain market share in core businesses

Opportunistic M&A

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Strategic Growth


Opportunities

feedstock 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


Linking our growth plan to KPC downstream businesses

PIC 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 Project

This value-adding collaboration within downstream sector of KPC will continue, building upon its integrated approach with

new petchem projects, inside and outside Kuwait.

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Sources of Integration Value

Margin

Maximizati

onOperating Cost

ReductionCAPEX

Optimizatio

nPortfolio

OptionsSustai

nability

Benefits

27

Opportunity to create value for both sides “refining & petrochemicals” exists on a large scale─ Large new petrochemicals facilities─ Existing and planned refineries optimization─ Broad product offering to meet Petrochemicals

market demand, commodity and specialty products for the integrated complex

─ Flexibility to process a wide variety of feedstocks

─ Cost synergies while maintaining resources allocation

─ Capital optimization through planning to execution


Competiveness in International Markets

Building 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


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 Markets

29


Access to advantaged feedstocks (e.g. methane, ethane, naphtha

etc.)

Integration with KPC refining sector, inside & outside Kuwait

Access to world class technology and marketing tie-up with

partnerships

KPC financial strength and global positioning

Track record in managing world scale petrochemical complex

projects and plants

Geographically located close to high growth Asian markets

Well established relationship with financial sector

Continuing 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 Growth

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Petrochemicals industries are a major player in Kuwait GDP creation

Petrochemicals is a key enabler for industrialization

1$ of direct GDP creation in the chemical sector produces

~1.87 $ of total GDP creation in the Kuwaiti economy

Manufacturing 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


Project Opportunities under development

1. China Project with Kuwait Petroleum International to implement an Integrated Refinery/Petrochemicals Complex

2. Olefins III Project – World-scale project opportunity in Kuwait

3. PTA/PET Project in Kuwait.

4. Refinery/Petrochemicals integration Projects in Kuwait

32


Challenges


Challenges

Limited ethane availability, tightening lighter feedstock

availability with less feedstock advantage

Constraints related to land availability, utilities and

infrastructural facilities

Limited exposure to specialty petrochemicals business

Increased global competition from low cost high scale

operators in Middle East and market regions

Interlinked and highly leveraged global economy

Increasing reliance on emerging markets economic prosperity34


PIC efforts to implement LTS


PIC transition to Product Oriented Organization

Chairman & Managing Director

Board Secretary

MarketingBusiness Analysis & Planning

Business Dev.

MarketingBusiness Analysis & Planning

Business Dev.

Business Analysis & Planning

Marketing

Fertilizers (Manufacturi

ng)

DMD Fertilizers DMD Aromatics DMD Olefins

FinanceCorporate Planning

Information Technology

Deputy Chairman & DMD Planning

Six Sigma

DMD Admin & Finance

Human Resources

Services & Comm.

Engineering and HS&E

MEGlobalEquipolymers PP

Olefins IIEQUATE

KAROGPIC

TKSC

ERM

•The organization is Product Focus

•Introduced new functions like Corporate ENGHSE

•Established the basis for Growth focused Team work

•Introduced best practices and business governance

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Developing 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


Thank you

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