01 Day 0 1400 - 1530 Nexant - The Annual GPCA · PDF fileSenior Vice President ... PP:...

Richard Sleep Senior Vice President Europe, Middle East & Africa

Exploiting Change to Deliver Value

Opening Remarks

PP: Reference number

Change is inevitable and constant. Adapting to change provides competitive advantage

n  Technological Change n  Process technology n  Feedstocks n  Consumer markets

n  Market Change n  Unpredictable economic

growth n  Consumer evolution

n  Feedstock Change n  Oil growth and associated

gas n  Shale gas n  Coal n  Renewables

1

n  Energy & Environment Change n  Energy security n  Efficiency n  Consumer choices


Main Consulting Offices Other Offices

Houston San Francisco Washington

White Plains, NY London

Frankfurt

Cairo

Buenos Aires

Bahrain

Bangkok Kuala Lumpur

Shanghai Tokyo Seoul

Nexant has been providing industry insight to help our clients gain advantage from change for 50 years

Nexant’s Services in the Middle East n  Market Studies & Strategy n  Corporate & Business Strategy

Development n  Project Planning/Screening Studies n  Independent Technical , Market &

Environmental Support for Project Finance n  Merger & Acquisition: Industry Adviser

Support n  Process, Business and Cluster

Benchmarking n  Feasibility Studies n  Technology Evaluations

Nexant Offices

2


Nexant has worked with producers and the financial community in the Middle East since the 1970s

3

Nexant Middle East Clients include: n  Saudi Arabia: SABIC, Aramco, MinPet, NICDP,

RCJY, TASNEE, Sahara, Chemanol n  Qatar: QP, QH, QAFCO, QAFAC, QAPCO,

Q-Chem, Qatofin n  Kuwait: KPC, PIC, Equate, QPIC n  UAE: ADNOC, Borouge, Fertil, IPIC n  Oman: Oman Oil, Takamul,

Salalah Methanol, OMIFCO, Sohar PP n  Bahrain: Nogaholding, BAPCO, GPIC n  Egypt: EChem, EPP, EMethanex, EHC n  Jordan: JPMC, APC n  Banks: HSBC, BNPP, SC, Samba, ING


Change in consumption trends are driven by economic development

4

GDP GROWTH RATES Global Drivers n  Mature regional growth

n  Differentiated products

n  Fast development

n  Shorter life cycles

n  Emerging regional growth

n  Commoditised products

n  New applications introduction

n  Longer life cycles


Change in relative crude oil, coal, and gas prices creates opportunity for competitive advantage

n  If petrochemicals from crude oil via naphtha is the base case:

n  Ethane n  Advantaged

n  Coal n  Isolated

n  Gas n  Stranded n  Shale n  Conventional

5

METHANOL PRICES


Environmental driven choices lead to modified consumer behaviour

Environmental Challenges

Environmental Solutions

6


Successful exploitation of change requires insight into the industry

Our agenda explores change and the insights required to stay ahead and deliver sustainable competitive value

n  Asia – the global petrochemical consumption engine

n  North America – both market and advantaged feedstock

n  Middle East - downstream opportunities and innovation

n  Technology – opening new routes and providing advantage

n  Financing – the new order

8

Richard Sleep Senior Vice President Europe, Middle East & Africa

Exploiting Change to Deliver Value

Opening Remarks

Dr. Andrew Spiers Senior Vice President Asia

Asian Megatrends – Impact on Middle East Players

Session 2

PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Asian Megatrends - Andrew Spiers

Agenda

n  Drivers for Asian Development

n  Review of Asian Mega Trends

n  Implications for Middle East Players

1


The Emergence of the Developing World

By 2050 E7 GDP will be double G7, driving investment and opportunities Source: Smartcube

WORLD ECONOMIC DEVELOPMENT

GDP Share of the World

1970 2000 2010

G7 50% 45% 38%

E7 < 20% < 20% 30%

GDP AT PURCHASING POWER PARITY (PPP) ($ Billion, 2009 Constant) – G7 AND E7 Countries

29635

69674

21075

137198

0

50000

100000

150000

200000

2009 2050

G7 E7

2


Developing market demand side fundamentals present huge growth potential

CONSUMPTION PER CAPITA OF POLYOLEFINS, 2011

18 20 5

32

6 4

3 4 10

0

2

4

6

8

10

12

0 10 20 30 40 50 60 70

Mar

ket G

row

th

- % C

AG

R 2

011-

202

1

Consumption per Capita (2011), Kg/Capita

Bubble size indicates demand in 2011

India

Western Europe

China

Japan

U.S.

Turkey

South East Asia

Former Soviet Union

Brazil

3


Selected Mega Trends

n  Population growth is a key factor (excluded)

n  Geographic shift of investment

n  Increasing project complexity

n  Development of mega sites, move to clusters

n  The importance of China

n  Use of coal

n  Shale gas in Asia?

4


Polyolefins market is larger in China and the gap is continuing to widen

POLYOLEFINS CONSUMPTION PER CAPITA, 2000-2020

2000 2010

2020 2010

2000

2020

2000

2010

2020

2000 2010 2020

2000

2010

2010

0

10000

20000

30000

40000

50000

60000

0 10 20 30 40 50 60 70

Mar

ket

Size

(th

ousa

nd to

n pe

r yea

r)

Consumption per Capita (kg)

US WE China Japan Rest of Asia

5


0

10

20

30

40

50

China Europe United States

India South America

Middle East

South East Asia

Turkey

Mill

ion

tons

Demand in 2021 Capacity in 2011

A number of market drivers exist but sector has become dominated by China

INCREMENTAL POLYOLEFINS DEMAND - 2011-2021

China: Primary Driver for Investment

India: Secondary Driver for Asian Investment

Turkey: Tertiary Driver for Future Investments

6


North America

38%

Europe 14%

Asia 25%

China 6%

Middle East 17%

Middle East now has over 30% of global MEG capacity, China is increasing share too GLOBAL MEG CAPACITY – 2000

(Total = 25 million tons)

CAAG 5.9 % CAAG 2.5 % CAAG 4.2 %

North America

17%

Europe 8%

Asia 28%

China 16%

Middle East 31%

GLOBAL MEG CAPACITY – 2010 (Total = 27 million tons)

North America

11% Europe 5%

Asia 25%

China 17%

Middle East 42%

GLOBAL MEG CAPACITY – 2020 (Total = 32 million tons)

7


In spite of investment, Asia will remain a net importer especially in PE and MEG

ASIA NET TRADE

-12000

-9000

-6000

-3000

0

2000 2010 2020

Thou

sand

tons

PE PP MEG SM PX

9


n  One M tpy cracker may require - 5+ downstream derivatives units - ~3 M tpy feedstock - 200+ kbd refinery processing

crude/condensate mix or secure LPG, condensate supply

n  Complex logistics and infrastructure facilities

n  $10-20 Bn fully integrated investment

Scale imbalances between cracker and downstream create challenges, impacting Asian development

WORLD SCALE CAPACITY (thousand tons)

0

400

800

1200

1600

2000

1970 1980 1990 2000 2010

LLDPE/HDPE PP Steam Cracking

10


Polypropylene 71%

Acrylic acid 4%

Propylene Oxide

8%

2-Ethylhexanol

3%

Butanols 5%

Isopropanol 1%

Cumene 8%

PE 73%

EDC 6%

Styrene 6%

Ethylene Oxide 11%

Polypropylene 1%

VAM 1%

Propylene 2%

SEA ETHYLENE DEMAND - 2020

PE 74%

EDC 16%

Ethylene Oxide 10%

SEA ETHYLENE DEMAND - 1990

Polypropylene 89%

Isopropanol 11%

Diversification of industry over time can be clearly seen

SEA PROPYLENE DEMAND - 2020

2

4

1

SEA PROPYLENE DEMAND - 1990 3

Driver for investment remains PE and PP 11


Case Study: Development of Thai Petrochemical Industry

This model in being used in a number of locations

§  Gas driven development at Map ta Phut - ethane, propane

§  Replace Polymer

Imports

§  Expand base §  Diversify Product

Portfolio §  Position for Export

Markets

§  Improve Scale + Competitiveness

§  ‘Fill in the gaps’ §  Focus on Clusters

1st Phase Import Substitution

2nd Phase Diversify and Improve

Competitiveness

3rd Phase Consolidate and Cluster

12


THIRD GENERATION

New integrated sites in Asia & Middle East have captured further benefits. This requires a fully integrated approach at design stage

Going forward the trend will be to more mega sites

DEGREES OF REFINERY-PETROCHEMICALS INTEGRATION FIRST GENERATION SECOND GENERATION

EXISTING SITE

NEW BUILD

Single Site Separate Ownership

Separate Ownership Single Site Same Ownership

Value of Integration

Benefits

§ Common location § Inventory reduction

§ Feedstock flexibility § Competitive scale § Hydrocarbon linkage § Shared site services

§ Purpose built § World Scale § Shared services § Common management

13


Global mega sites development involving refinery and petrochemical integration will be located mostly in Asia

§  Several shale gas based projects, many will come on stream post 2015

§  Reliance @ Jamnagar $12 Bn (refinery off-gas/cracker /paraxylene/PE/PP/MEG)

§  Sadara (Saudi Aramco/Dow JV) @ Jubail $20 Bn (refinery/mixed-feed cracker/PE/aromatics/ chemicals)

§  Petronas RAPID @ Johor, Malaysia $20 Bn (refinery/cracker/PE/PP/ chemicals)

§  PetroChina @ Sichuan $6 Bn (refinery/cracker/PE/PP/chemicals)

§  Sinopec-KP @ Zhanjiang $9 Bn (refinery/cracker/PE/PP/chemicals)

§  Shenhua-Dow @ Yulin $10 Bn (coal-to-chemicals)

NORTH AMERICA INDIA

MIDDLE EAST SEA

CHINA

14


TOTAL CAPACITY OF METHANOL PLANTS IN CHINA 2012

Unit is in thousand tons per year

~85% of domestic methanol capacity based on coal, only 15% based on methane

Xinjiang

Qinghai Tibet Gansu

Sichuan

Yunnan

Hainan

Guangxi

Guizhou

Ningxia

Inner Mongolia

Shaanxi Henan

Heilongjiang

Jilin

Liaoyang

Hebei Tianjin

Anhui

Jiangsu Shandong

Shanxi

Beijing

Fujian Hunan

Hubei Jiangxi

Guangdong

Zhejiang

22 072 2 280

10 809 6 599

1 520

7 644

13 396

METHANOL DEMAND 10%

90%

Olefins Other

ETHYLENE FEEDSTOCK SLATE

0%

20%

40%

60%

80%

100%

2012 2020

Naphtha AGO Coal

17


China has 4 CTO projects operating. Number of projects under planning and appraisal

Xinjiang

QinghaiTibet Gansu

Sichuan

Yunnan

Hainan

Guangxi

Guizhou

Ningxia

Inner Mongolia

Shaanxi Henan

Heilongjiang

Jilin

Liaoyang

Hebei Tianjin

Anhui

JiangsuShandong

Shanxi

Beijing

FujianHunan

HubeiJiangxi

Guangdong

Zhejiang

Shenhua Coal Chemical Project

Datang Power Shenhua Baotou Coal

Chemical

Zhongyuan Petrochemical

n  Could be up to 14 MT new E/P capacity by 2016 if firm plants completed on schedule n  Key success factors: mine mouth coal price, availability of water for methanol production

FIRM CTO/CTP PROJECTS

0 2 4 6 8

10 12 14 16

2012 2013 2014 2015 2016

Millio

n to

ns

Ethylene Propylene

18

CTO/CTP OPERATING PLANTS IN CHINA


Impacts of coal to chemicals in China and beyond

n  Coal to chemicals (CTC) projects changing the industry, especially in the value chains of CTO, C to MEG, C to urea, etc.

n  CTC processes consume a large amount of water and discharge a large amount of carbon dioxide; most of the coal resources located in water-deficient and eco-environment fragile inland areas

n  Evident in Twelve Five-Years Plan that Government is taking measures to control the growth pace of CTC to prevent the disorder of project development

n  Technologies are feasible, but CTC projects will develop in carefully-planned manner

n  Consequently, some impact on the Chinese/global chemical industry, but scale moderate in next 5 years

19


n  Technically recoverable resources in key Asian nations est about 1 400 Tcf (EIA)

n  Majority in China (1 300 Tcf), India (63 Tcf), Pakistan (51 Tcf)

n  Data is scarce, so estimated figures highly subjective/questionable

n  China most advanced in shale gas development: -  PetroChina/Shell alliance have drilled first shale gas well -  Potential to displace some gas imports for Asian nations

attractive

n  China 12th FYP target for shale gas production: 50-80 bcm pa by 2020; very ambitious

n  Nexant est China shale gas production could reach 10 bcm pa by 2020; other Asian countries like India expected to struggle to reach significant production : Impact on the chemical industry?

n  Production challenges: water availability, disposal and potential contamination; lack of gas transport infrastructure/ deep reservoirs

What about Shale Gas in Asia? SHALE GAS RESOURCES AND GAS PIPELINES

SHALE GAS PRODUCTION PROJECTIONS

0

10

20

30

40

50

2016 2018 2020 2022 2024 2026

Bill

ion

cubi

c m

etre

s

20

Source: ARI


China set to remain significant importer of ethylene derivatives ME – ETHYLENE NET TRADE EQUIVALENT

0

4

8

12

16

20

2000 2003 2006 2009 2012 2015

Mill

ion

tons

Styrene Polyethylene MEG Other

CHINA – ETHYLENE NET TRADE EQUIVALENT

-16

-12

-8

-4

0

2000 2003 2006 2009 2012 2015

Mill

ion

tons

Styrene Polyethylene MEG Other

Negative trade implies net import position

n  Building greater inter-dependence between ME & Asia; further implications for global investment

21


Asian Opportunities: Implications for Middle East Players (I) n  Export existing products – more of the same, deficits clearly there – Asian

investments will not be able to keep up. Assuming the same competitiveness can be achieved in ME?

n  Export more diversified products – logistics more of an issue, accept reduced competitiveness. This against backdrop of more diversified investment in Asia, thus competitive intensity to increase

n  Asian companies becoming larger and international appetite increasing. Expect to see more overseas investments:

-  First wave: Japanese, Korean companies

-  Second wave: Thai, Chinese companies

22


Asian Opportunities: Implications for Middle East Players (II) n  Oil & gas rich players in the Middle East likely to acquire further businesses in

other geographies as means to process hydrocarbons close to market

n  Investing in Commodities

-  Why? To add value to hydrocarbons – Aramco, KPC, QP

-  Impact: Steady stream of investments

n  Investing in Diversified products

-  Why?

-  What do ME players bring?

-  Limited investment expected

Over time interdependence between the Middle East & Asia will continue to grow!

23

Dr. Andrew Spiers Senior Vice President Asia

Asian Megatrends – Impact on Middle East Players

Session 2

Prepared by Bruce F. Burke, Senior Vice President, Americas Presented by Richard Sleep, SVP, EMEA

The Rebound of North America under a Changing Feedstock Scenario

Session 3

PP: BD\Bahrain\GPCA Seminar 2012\Seminars\North America – Bruce Burke

Agenda

n  Economic growth in North America

n  Shale gas fundamentals and outlook

n  The cost of ethylene production in North America

n  Impact on North American/global competitive position

1


Key drivers supporting a rebound in North American chemicals

n  Reasonable economic outlook (recovery)

n  Benefits of cheap energy and feedstocks

n  Capital markets to support investment

n  Result is a groundswell of new investment

2


The global economy has weakened, but recover is expected in 2013

A minor peak in 2014 (4.1%), with trendline growth of 3.5% thereafter

WORLD ECONOMIC DEVELOPMENT

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1990 1995 2000 2005 2010 2015 2020 2025 2030

ANNU

AL C

HANG

E IN

GDP

ScenarioActual Scenario Actual


The United States has largely weathered the economic downturn

Continued slow recovery in 2013, peaking in 2014, with trendline growth of 2.5% thereafter

U.S. ECONOMIC DEVELOPMENT

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1990 1995 2000 2005 2010 2015 2020 2025 2030

ANNU

AL C

HANG

E IN

GDP

ScenarioActual Scenario Actual


Shale gas and oil production utilizes fully proven techniques SHALE GAS HORIZONTAL DRILLING AND HYDRAULIC FRACTURING

Horizontal drilling and hydraulic fracturing have made it feasible to extract huge amounts of natural gas trapped in shale formations.

Shale

Gun charges blast holes through the well casing and into the surrounding rock

Sand, water and chemicals pumped in at high pressure further fracture the rock

Gas escapes through fissures propped open by sand particles and up to the surface


Shale reserves are extensive throughout much of the United States and Western Canada

NORTH AMERICAN SHALE GAS RESOURCES

Drillingcontractor.org

Shale Resins Devonian / Mississippian Shale Fairway Mountain Thrust Belt


Economics of shale gas production are driven by recovery of liquids

n Case 1: Gas only $4,000 per day of revenue

n Case 2: Recovery $31,400 per day of condensate

n Case 3: Recovery $34,600 per day of condensate and LPG

Not surprisingly, shale gas preferentially is produced in association with liquids

7


0 2 4 6 8

10 12 14

2010 2015 2020 2025 2030

Tcf

Nexant EIA AEO 2012 S3_A01390.0010.4001 - Charts.xlsx \ F3.4

U.S. SHALE GAS PRODUCTION FORECAST

Production of shale gas in the U.S. is expected to roughly double from 2010 levels


Shale gas will drive overall gas production growth in North America

0102030405060708090

100

2006 2009 2012 2015 2018 2021 2024 2027 2030

Bcf/d

Canada U.S. Canada - Shale Canada - CBMU.S. - Shale U.S. - CBM U.S. - Tight

UnconventionalConventional

S3_A01390.0010.4001-Charts.xlsx\F3.37

U.S. AND CANADIAN GAS PRODUCTION FORECAST

Unconventional C

onventional

Canada US Canada Shale Canada-CBM US Shale US-CBM US Tight


0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025

Thou

sand

Barre

ls per

Day

PADD 1 PADD 2 PADD 3 PADD 4

S4_A01390.0010.4001-Charts.xlsx\F4.12

A key result is a dramatic increase in the availability of ethane U.S. ETHANE PRODUCTION BY REGION

Similar increases are taking place for propane and butanes 11

PADD 1 PADD 2 PADD 3 PADD 4


0

10

20

30

40

1990 1995 2000 2005 2010 2015 2020 2025

History Study Scenario

WTI

Crud

e Pric

e/Hen

ry Hu

b Natu

ral G

as P

rice ScenarioActual

S4_A01390.0010.4001-Charts.xlsx\F4.27

North American gas will remain very competitive relative to crude oil price and therefore naphtha

WTI CRUDE OIL VERSUS HENRY HUB NATURAL GAS PRICING

12

HISTORY SCENARIO

Scenario Actual


Resulting future gas prices will increase modestly, reflecting some tightening of supply balance

0

2

4

6

8

10

12

2006 2009 2012 2015 2018 2021 2024 2027 2030

Cons

tant 2

011 U

.S.$/

MMBt

u

Alberta Hub New York City Gate Socal Border Henry Hub

S3_A01390.0010.4001-Charts.xlsx\F3.42

13

ALBERTA HUB NEW YORK CITY GATE SOCAL BORDER HENRY HUB

WHOLESALE NORTH AMERICAN GAS PRICES


Cheap gas results in competitive ethane pricing while providing strong recovery economics

50%

100%

150%

200%

250%

300%

1990 1995 2000 2005 2010 2015 2020 2025

Study Scenario Historical

Etha

ne a

s % o

f Nat

ural

Gas

Actual Forecast

S4_A01390.0010.4001-Charts.xlsx\F4.29

0

10

20

30

40

50

1990 1995 2000 2005 2010 2015 2020 2025

2011

cent

s per

gall

on

Actual Forecast

S4_A01390.0010.4001-Charts.xlsx\F4.30

ETHANE PRICE RELATIVE TO NATURAL GAS VALUE INCREMENTAL ETHANE RECOVERY ECONOMICS

14

HISTORY SCENARIO

Scenario Actual Scenario Actual


U.S. ethane crackers will have a measurable advantage versus naphtha

0

200

400

600

800

1,000

1,200

Saud

i A. -

E

Othe

r ME -

E

W. Ca

nada

- E

USGC

- E

China

- N

USGC

- N

Singa

pore

- N

Japa

n - N

W. Eu

rope -

N

S. Ko

rea - N

Curre

nt U.S

. Doll

ars pe

r Ton

Net Raw Materials Net Utilities Fixed Costs

S7_A01390.010.4001_Charts.xlsx\F7.3

REGIONAL ETHYLENE CASH COST OF PRODUCTION, 2020

The Middle East, even with some increase in gas price, will remain the world’s low cost supplier

15

NET RAW MATERIALS UTILITIES FIXED COSTS


U.S. ethane crackers will have a measurable advantage delivering HDPE into China

Again, the Middle East’s position as the world’s low cost supplier will not be challenged

0

200

400

600

800

1,000

1,200

1,400

1,600

Saud

i A. -

E

Othe

r ME

- E

W. C

anad

a - E

China

- N

USGC

- E

Singa

pore

- N

USGC

- N

S. K

orea -

N

Japa

n - N

W. E

urope

- N

Curre

nt U.

S. D

ollars

per T

on

Net Raw Materials Net Utilities Fixed Costs Freight Tariff Bagging

S7_A01390.010.4001_Charts.xlsx\F7.9

HDPE DELIVERED COST TO CHINA, INTEGRATED ETHYLENE, 2020

16

NET RAW MATERIALS UTILITIES FIXED COSTS FREIGHT TARIFF BAGGING


As a result, ethane will remain the preferred cracker feedstock in the U.S.

55% 46%65% 68% 70% 73%

27% 32%15% 12% 10% 9%

0%

25%

50%

75%

100%

2000 2005 2011 2015 2020 2025

Ethane Propane Butanes Naphtha & Heavier

Wei

ght P

erce

nt

S5_A01390.0010.4001-Charts.xlsx\Figure 5.6

U.S. ETHYLENE FEEDSTOCK SOURCES

17

ETHANE PROPANE BUTANES NAPHTHA & HEAVIER


Shale gas will allow a significant increase in North American cracker capacity

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Thou

sand

Ton

s

North America South America Western Europe Central EuropeEastern Europe Middle East Africa Asia Pacific

S6_A01390.010.4001.xlsx

GLOBAL ETHYLENE CAPACITY ADDITIONS

18

North America South America Western Europe Central Europe Eastern Europe Middle East Africa Asia Pacific


Shortfalls have developed in a number of naphtha by-products

n  Ethane cracking primarily produces ethylene, whereas naphtha produces significant yields of by-products

n  Balances for propylene, butadiene and benzene have all tightened in the U.S. and globally as traditional supplies from U.S. naphtha cracking have declined

n  Higher prices have provided incentives for increased production from refining

n  Higher prices have also improved the economic attractiveness of alternative production routes, including from renewable sources

19


The rebound of North America under a changing feedstock scenario n  Positive economic outlook

n  Low cost, abundant ethane

n  Investment

n  Co-products opportunities

n  Low threat to Middle East ethane based production

n  Competitive threat to Middle Eastern naphtha based production

20

Prepared by Bruce F. Burke, Senior Vice President, Americas Presented by Richard Sleep, SVP, EMEA

The Rebound of North America under a Changing Feedstock Scenario

Session 3

01 Day 0 1400 - 1530 Nexant - The Annual GPCA · PDF fileSenior Vice President ... PP:...

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