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David Lines Principal Middle East
The Future for Middle East Petchem Downstream Developments
Session 4
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Agenda
n Overview of major downstream projects - Middle East new projects - Sadara – an example of diversified project potentials
n Key drivers for change - Social, economic, efficiencies, market developments,
incentives, industrial land
n Future implications for the Middle East Petrochemicals industry - Conclusions & Recommendations
1
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Downstream - Reduced methane/ethane availability is driving Middle East investment down the value chain
Ammonia Methanol PE (butene -1) PP (homo-polymer) MEG PVC
2030
Intermediates Basic Chemicals Diversification
2000 1980
Aromatics PE (hexene -1) PP (copolymer) Oxo-alcohols Acetic acid VAM LAO
Nylon 6 & 6,6 Bis-phenol A Polycarbonate EVA ABS Glycol Ethers Acrylates Acrylonitrile Elastomers PU
2010
2
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Downstream - Mega projects provide the opportunity for downstream investments
Feedstock Methane, ethane, LPG, naphtha Methanol, olefin, aromatic, co-product
Scale 2-3 million tons/year <500 thousand tons/year
Ownership will involve state Co. may be private, multiple stakeholders
Capital $5-10 billion <$500 million
Technology Readily available May be restricted
Key Success Factors
Feedstock advantage Capital cost
Marketing and sales, Technology, Logistics
SECONDARY PROJECTS PRIMARY PROJECTS
3
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Downstream – new developments in the Petrochemical Industry – moving away from the ‘typical’ regional C1-C4 chemistries Country Company Partners Key new products
KSA PetroRabigh Aramco/Sumitomo PO, EPDM, PMMA, TPO
KSA Sadara Aramco/Dow PO, MDI, TDI, TPO, Amines, PU, Polyols
KSA SABIC Kayan SABIC EO, Cumene, Phenol, BPA, PC
KSA SABIC Kemya SABIC/ExxonMobil halobutyl, SBR, PBR, EPDM, TPO & carbon black
KSA Sipchem Sipchem EVA, EA & BA
KSA SAAC Tasnee/Dow/Evonik Acrylic Acid, SAP
KSA Petrochemical Conversion Co
Chevron Phillips/SIIG PA6,6
4
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Sadara – Example of the new direction of the regions Petrochemical industry – supporting downstream industries
Products End Use
Amines herbicides & fungicides, oilfield chemicals, electronics, textiles and consumer products
Glycol Ethers electronics, coatings to surface and industrial cleaners
Isocyanates (TDI & MDI)
Polyether Polyols
PU rigid foams, flexible foams, polyurethane systems formulations, coatings,
adhesives, sealants & elastomers.
Polyethylene packaging, hygiene & medical, and electrical & telecommunication cable markets.
PO Elastomers (TPO)
Consumer Goods, Membranes, Transportation and Building & Construction
Propylene Glycol De-icing fluids , heat transfer fluids, pharmaceutical, food, flavouring, personal care
Transportation (Auto parts & fluids) Construction
(Pipes, Adhesives &
Sealants)
Packaging and
Containers (Food & non-
Food)
Consumer Goods
Adhesives & Sealants
Coatings industrial,
maintenance & marine
Oil & Gas
Downstream Downstream Industries
5
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Drivers - Demand side fundamentals are supported by developing markets – whilst a huge growth potential, changing dynamics
0%
2%
4%
6%
8%
10%
0 10 20 30 40 50 60
Proj
ecte
d C
AG
R 2
013-
18
Consumption per capita (2012) kg/capita
Bubble Size = Market size 2012
China
India South
America
W Europe
North America Africa
Asia Pacific
Middle East
Japan
C&E Europe
CONSUMPTION PER CAPITA OF POLYOLEFINS 2012 (forecast)
6
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Drivers - GCC GDP breakdown by sector - 2011
0%
20%
40%
60%
80%
100%
Saudi Arabia
Qatar UAE Bahrain Oman Kuwait
Other
Oil & Gas
Transport & Com.
Trade & Hospitality
Finance & Insurance
Government Services
Construction
Manufacturing
7
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
PP: 40935/Final Report/Sec_5
n Increased urbanization.
n Improved literacy n Increased openness n Large family units. n Improved quality of
life n Female working n Unemployment
KEY DRIVERS
n Population growth n Increase income n educated middle
class. n 80 % of population in
~ 30 cities n 60% of population <24
years n Literacy rates >80% n Households
increasing at 4.5% per year
DEMOGRAPHIC TRENDS
n Growing educated labour force
n Increased demand of domestic products.
n Increase in purchasing power.
n Products/services to women and families.
n Increasing public housing required
n Increasing private ownership of houses
IMPLICATIONS
Drivers - Social-Economic (GCC)
8
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
KSA - Royal Commission of Jubail & Yanbu
KSA – Modon Industrial Cities
KSA – PetroRabigh Polymer Park
KSA – Sadara/SABIC/RCJY PlasChem Park
UAE – Jebel Ali DFZ
UAE – Abu Dhabi Polymer Park
Oman – Sohar Complex
Egypt - 6th October City & 10th Ramadan City
Drivers - Government & Industry Enablers – Key to downstream application industrialization
MODON (SAUDI ARABIA)
9
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Drivers – Industrial Clusters
0
2
4
6
8
10
Infrastructure
ClusterSynergy
ProductDiversificat
ion
Level ofIntegration
InvestmentEnvironme
ntSize
Proximityto Market
Innovation
Experience
Eco IndustrialPetrochem. ClusterEdmonton, Canada
Abu Dhabi PlasticsPark Abu Dhabi,UAE
Kertih Plastics ParkMalaysia
Plastic City Turkey
Plastics Parks India
Key: 10 Excellent 8 Very Good 6 Good 4 Limited 2 Poor
Infrastructure
Diversification
Investment Environment
10
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Drivers - ‘Golden Projects’
INVESTMENT INCENTIVES (Downstream Industrial Developments)
n Incentives for industrial investment, by: (for example) China, Eastern Europe, Singapore, Thailand have spurred growth over the last decades.
n Without the feedstock advantages, enjoyed by the Petrochemical Sector, the downstream industrial development requires some government investment incentives
n ‘Golden Projects’ are required to lure global industrial leading companies to establish GCC manufacturing
11
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Future - investments to be more complex n Methane and Ethane availability much reduced
n Future investments to be increasingly based on heavier feedstocks or further down the value chain, adding complexity
n SABIC targeting 10% of 2020 revenue from specialities
- Encouraging ‘clustering’ with MODON for industrial integration, six new industrial cities for ‘underdeveloped’ regions in Saudi Arabia
n Governments:
- Wish to encourage job creation
- Understand that labour intensive industries at competitive disadvantage to China
- Need to balance profitability versus jobs and local economy
- Encouraging ‘clustering’ for coherent integration
- Feedstock allocations linked to downstream development criteria 12
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Future - Outlook for the longer term is still positive, although short-term difficulties still remain
LONG TERM • Fundamentals remain in
place; strong growth potentials
• Demand growth continues to drive new downstream developments
• Export will still be a major requirement SHORT TERM
• Poor industry margins
• Economic downturn • Significant new
product additions available
MID TERM • Economic recovery to trend
levels in the 2-3 year window? • Proliferation of downstream
specialty chemicals • Success of future government
measures starting to pay off KEY ISSUES • Pace of economic recovery • Government enablers for
investment • Job Creation
13
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Future for ME Petchem – David Lines
Future - Conclusions
n Middle East model has been very successful, but needs to adapt and change to downstream development needs
n Markets recovering with Middle East supply growth to continue as dominant exporter
n Future investments to be increasingly based on heavier feedstocks or further down the value chain, adding complexity however opening up many downstream development opportunities
n States to balance profitability versus jobs and local economy; encouraging investment by enablers and ‘clustering’ for coherent integration
14
David Lines Principal Middle East
The Future for Middle East Petchem Downstream Developments
Session 4
Manuel E. Asali Principal Middle East
Technology Trends Shaping the Future Petrochemical Industry
Session 5
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Agenda
n Beyond oil and gas? - The world’s energy and feedstock diet
n Different worlds - Traditional - Technology trends: from coal to renewables
n Implications for the Middle East Petrochemical Industry - Opportunities and challenges
1
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Beyond oil and gas?
Coal 27%
Oil 32%
Natural gas 22%
Nuclear 6%
Hydro 2%
Other * 11%
WORLD’S ENERGY DIET 2010
* Note, Other includes biofuels, geothermal, solar, wind, waste, etc Source: International Energy Agency – IEA – 2012 Key World Energy Statistics
n Oil, gas and coal make over 80% of the world’s energy supply
n Other sources still very small
n Continued dependence for energy and chemicals
2
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
The share of Petrochemicals is quite small
Source: International Energy Agency – IEA – 2012 Key World Energy Statistics
WORLD’S ENERGY USES 2010
n Petrochemical feedstocks represent no more than 5-7%
n Some GCC countries are shifting priorities
n Other energy sources would free-up feedstock for our industry
Industry 19%
Non-energy
6%
Transport 19% Residenti
al & Commerc
ial 24%
Power 32%
Residential & Commercial
24%
3
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Feedstocks Naphtha
NGLs
Natural gas
Coal
Building blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
Energy: Fuel Power Transportation
Traditional Petrochemical Build-up
4
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
But the world is changing with new feedstocks, new products and new routes to make old products
New entrants Green PE Green PP PHA PLA PTT DME Bio-routes GTL / FT liquids Synthetic naphtha
?
Feedstocks Naphtha
NGLs
Natural gas
Coal
Renewables Ethanol Biomass
Residue/waste
Building blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
Energy: Fuel Power Transportation
5
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Carbon-based feedstocks can be found in a wide range of sources
Cellulose Hemi - cellulose
Lignin Starch
Sugar Natural Oils
Amino Acids
Methane
Ethane LPG Condensate
Naphtha
Gas Oil Fuel Oil
Resid
Coal
RENEWABLES NATURAL GAS PETROLEUM COAL
CH2O CnH (2n+2) C
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
A “Coal-based world” can be built on Syngas, Methanol and MTO/MTP
Feedstocks Naphtha
NGLs
Natural gas
Coal
Renewables Ethanol Biomass
Residue/waste
Building blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
Energy: Fuel Power Transportation
New entrants Green PE Green PP PHA PLA PTT DME Bio-routes CTL / FT liquids Synthetic naphtha
6
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Coal to olefins (CTO) exemplifies recent Chinese innovation
n Three technology suppliers: - UOP [MTO] - Lurgi [MTP] - Dalian Institute of Chemical
Physics (DICP) [DMTO]
n 3 plants operating and several others underway
n Coal technology becoming more efficient
Methanol
SAPO-34 model
Ethylene Propylene
Heavies Water
7
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Other chemicals and fuels can be derived directly from Coal Building blocks
Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Intermediates VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
New entrants Green PE Green PP PHA PLA PTT DME Bio-routes CTL / FT liquids Synthetic naphtha Energy: Fuel Power Transportation
Feedstocks Naphtha
NGLs
Natural gas
Coal
Ethanol
8
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
27%
30%
43%
Reformate/Aromatics Complex
Coal tar
China is leveraging its cheap coal by going “back to the future” in at least 2 cases
Coke Oven Light Oil
Calcium Carbide
Acetylene VCM HCl
0
10
20
30
Millio
n Ton
s
VCM GROWTH IN CHINA
Ethylene Acetylene
Pygas
BENZENE VCM
9
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Coal to MEG is a new technology recently commercialized in China
MEG Dimethyl Oxalate
Methyl Nitrite Methanol
Gasification Nitrite Formation
Carbony-lation
Hydro-genolysis
n Coal-to-MEG designated as one of the demonstration projects
n China’s coal resources provide cost advantage over traditional MEG
n MEG demand spurred by rapid growth of Chinese polyester industry
n … but, fiber-grade quality still an issue
MeOH Synthesis
&
10
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
The same approach via Syngas can be emulated with Methane – we could live in a “Natural Gas world”
Building Blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
New Entrants Green PE Green PP PHA PLA PTT DME Bio-routes GTL / FT Liquids Synthetic Naphtha Energy: Fuel Power Transportation
Feedstocks Naphtha
NGLs
Natural Gas
Coal
Renewables Ethanol Biomass
Residue/Waste
Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
11
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Gas to Olefins via MTO/MTP is considered around the world
Methanol
SAPO-34 model
Ethylene Propylene
Heavies Water
Methane
n Trinidad & Tobago is planning to use this approach
n Shale gas is prompting investment in the US: - PDH - Catadiene to Butadiene (BDH) - Methanex moving Chile plant to
the USGC - MTO/MTP
12
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Transportation fuels via Natural Gas (GTL)
n GTL an alternative to make fuels
n Abundant shale gas makes this possible elsewhere
n Electric cars based on natural-gas electricity?
Reforming
Hydrogen Production
Unit
Fischer Tropsch
Synthesis
Air Separation
Unit
Hydrotreating/ Cracking
LPG
NAPHTHA
DIESEL
FT products
Syngas
Steam
Natural gas
Pure Oxygen
Hydrogen
13
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
How about producing the Syngas from renewables or waste? Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
New Entrants Green PE Green PP PHA PLA PTT DME Bio-routes GTL / FT liquids Synthetic Naphtha Energy: Fuel Power Transportation
Feedstocks Naphtha
NGLs
Natural Gas
Coal
Renewables Biomass
Residue/Waste
Building Blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
14
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
A bio route to olefins via MTO/MTP
Biomass
n Biomass, residues and waste into syngas, methanol and olefins
n Municipal solid waste (MSW) to: - Electricity - Methanol and olefins?
n No fuel versus food issues
n Bio-MTBE?
Methanol
SAPO-34 model
Ethylene Propylene
Heavies Water
15
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
The Ethanol approach Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
New Entrants Green PE Green PP PHA PLA PTT DME Bio-routes GTL / FT Liquids Synthetic Naphtha Energy: Fuel Power Transportation
Feedstocks Naphtha
NGLs
Natural Gas
Coal
Renewables Ethanol Biomass
Residue/waste
Building Blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
16
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Braskem’s approach to Green Polyethylene
CH3CH2OH CH2=CH2 + H2O
Braskem is producing 200 000 ton of “green” polyethylene
Sugarcane
17
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Once Green Ethylene is available, then Green MEG (and Green PVC) are also possible
The label reads: “Up to 30% made from plants 100% recyclable plastic bottle”
18
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
“Green Propylene” is also possible
Ethanol Dehydration Dimerization Metathesis
Sugarcane Ethylene
Ethylene
Butenes Green Propylene
There are other routes such as Sugarcane to Propanol to Propylene; Vegetable oil FCC to Propylene, etc.
20
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Some renewable routes bypass the traditional building blocks Intermediates EDC / VCM MEG Styrene Acrylic Acid ACN MMA Cumene / Phenol Cyclohexane MDI / TDI PTA Methanol NH3
Energy: Fuel Power Transportation
Feedstocks Naphtha
NGLs
Natural Gas
Coal
Renewables Sugars Biomass
Residue/Waste
Building blocks Ethylene
Propylene
C4s
Benzene
Toluene
Xylenes
Syngas
Polymers PE / PP PVC PS ABS PMMA Polycarbonate Nylons Polyurethanes PET Elastomers POM / Resins Fertilizers
New Entrants Green PE Green PP PHA PLA PTT DME Bio-routes GTL / FT Liquids Synthetic Naphtha
21
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Renewable/Biodegradable Polylactic Acid has been making inroads
22
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
DuPont has pioneered a process to produce Bio-PDO to make PTT
GLUCOSE 1,3 - PROPANEDIOL GENETICALLY MODIFIED
MICROBES
DuPont/Tate & Lyle started up in 2006 (45 000 tons per year)
Bio-PDO
23
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Researchers are working on numerous routes to many chemicals and plastics via fermentation, algae farms, etc.
Heterotrophic Algae Tailored oils APR, Bio - gasoline,
jet, aromatics
Fermentation Iso - butanol, derivs.
EDGE™ Fermentation 3 - HP, BioAcrylic acid
Fermentation Isoprenoids
In - silico biotech, BDO, others
PHAs, derivs. Natural oil
Metathesis Prods. Syngas, CO fermentation.
Pyrolysis fuels Bio - succinic acid Bio - succinic acid Cellulosic sugar
fermentation
24
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
No single answer: in the end, it will boil down to fragmented solutions for different regions based on markets and economics
+16
+12
+3
+3
Gas Oil CoalShaleGas
CornSugarcane
PalmOil
SoyN. America§ Coal§ Shale gas *§ Corn*§ Soy*§ Oil§ Gas*
S. America§ Sugar cane*§ Gas*§ Shale gas§ Oil§ Soy§ Corn
China§ Coal*§ Shale gas§ Corn§ Soy§ Sugarcane
Middle East§ Oil§ Gas*§ Shale gas
SE Asia§ Palm* § Shale gas§ Sugar cane§ Gas
Russia§ Coal§ Gas§ Oil§ Shale gas
25
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
What does this mean for the Middle East?
OPPORTUNITIES CHALLENGES
n Renewed competition from gas-rich areas, especially US
n Energy prices equalized?
n Competing materials
n Technology access difficult
n Beyond commodities
n Petrochemicals from methane and NGLs will be continue competitive
n Region has plenty of resources:
- Hydrocarbons
- Solar energy
n Alternative sources of energy can free-up feedstock
The GCC will continue to be an important petrochemical hub
27
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Technology Trends Shaping the Future Petrochemical Industry – Manuel E. Asali
Conclusions
n Oil and gas still here for a while
n Regional solutions based on local feedstocks will grow - Coal in China - Shale gas in the US, and elsewhere? - Green ethylene in Brazil and India
n … and innovation will continue: new routes and products
n Middle East will continue to be a strong petrochemical player
n Technologies more complex as companies move down the value chain
Our industry is more exciting today than it was 10 years ago!
28
Manuel E. Asali Principal Middle East
Technology Trends Shaping the Future Petrochemical Industry
Session 5
Project Development and Financing – Keys to Success
Graham Hoar Vice President Middle East
Session 6
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Agenda
n Project Drivers
n Project Implementation
n Project Financing
n Conclusions
1
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Success factors in petrochemicals are clear and robust…
Size
Location
Capture economies of scale
Access to feedstocks/logistics/markets
PARAMETER KEY OBJECTIVES
Technology Cost advantage/product differentiation
Synergies with adjacent facilities Integration
PETROCHEMICALS COMPETITIVENESS CRITERIA
2
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Multiple ideas are evaluated to deliver an optimal project
Concept Screening Pre-feasibility Feasibility Implementation
Idea Generation
Feasibility Study
Pre-Feasibility Study
Opportunity Screening FEED
EPC
Partner Evaluation
Technology Evaluation
Market Evaluation
Check Financials
Project Concept
Project Definition Project Scope Project Outline Basic Design
Partner Selection
5
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Market Environment – Determines Revenue n Market Dynamics and Price Forecasting
- Demand segment drivers need to be clearly understood - Key assumptions need to be clear - Exploit Nexant’s highly respected methodologies to assist you!
n Delivered Cost Competitiveness - Need to understand projected plant and logistics costs - Need to develop knowledge of potential competitors - Shows which plants can survive a downturn
n Market Entry Strategy - Where will market deficits be? - Netbacks should be maximised but multiple sales channels is wise - In-house marketing & sales department vs offtaker?
6
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Technology Selection – Determines Costs n Capital cost (including license fee) n Operating cost
- Specific consumption of raw materials and utilities - Catalyst requirements (change frequency, number of suppliers) - Plant capacity limits and product quality specification
n Experience - Number of plants at or above the proposed scale - Licensor market share; reliability of existing references
n Innovation is an essential part of our business - Need to balance risk versus reward (lenders tend to be risk averse) - Advances in technology and scale CAN be financed BUT will attract scrutiny
Some technology is closely held so a JV with marketing rights may be a pre-requisite
7
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
A disciplined approach to setting and achieving deadlines is essential to deliver a successful project on time
Proceed? Financial Close
Handover Handover
REVIEW DEVELOPMENT EPC START UP OPERATION
Technology Technology BDP BDP
EPC EPC
Agreements Agreements
S - U Owner Project Management Owner Project Management
Set up Company Set up Company Operate Operate
Hire, train Hire, train
Engineering
Feasibility Study
Position
TIME
Invite, receive bids, evaluate, select, negotiate BDP BDP Basic Design Package PP: BD/C/2860_AW
Construction
Procurement Financing
First Review
8
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
A number of contracting strategies exist, which vary in the risk to each party
n Reimbursable basis - Offers shorter implementation time at risk of poorer project definition - Cost may be lower than LSTK as EPC contractor may price risk more
conservatively than owner n Lump Sum Turn Key (LSTK) - Preferred by lenders but has cost premium, especially if changes are
necessary n Hybrids - ‘Convertible’ LSTK shortens FEED stage but then fixes price - EPCM – fixed with reimbursable construction
9
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
There is no right or wrong contracting strategy although lenders will prefer LSTK and need to be persuaded of merits of an alternative
A LSTK contract does not mean zero risk to the owner, although the EPC contractor does bear more risk (for which it should charge)
10
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Project Finance now widely used for Energy and Chemicals projects n Offers debt with limited recourse by lenders:
- Interest rate above corporate debt but higher leverage and longer tenors - Attractive to protect balance sheet of parent company - Attractive to JV companies even if partners have different credit ratings
n Experienced Financial Advisor required, which will appoint independent market, technical, environmental, insurance and legal advisors
n Advantaged portion of financing available (e.g. SIDF and PIF in KSA)
n Export Credit Agencies (ECAs) playing a more substantial role - Commercial banks reduced participation since liquidity crisis - ECA funds available for loan at lower interest rates - Typically take longer as public bodies unwilling to act in “undue haste”
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PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Project Finance Global and Regional Trends and Issues n Global project finance: - 2011 loans market totalled US$214 billion, up 3% on 2010 - Over half lent to energy and chemicals sectors - Liquidity reduced since financial crisis with pricing higher - Financiers far more selective, focussing on key clients
n Middle East trend to diversify along chemical value chain: - Returns lower than past gas-based projects - Technology security issues - Added complexity; mitigation needed (e.g. tougher lender reliability tests) - Availability of equity (esp. Saudi Arabia) but investor expectations high - Increasing use of ECA’s, Islamic financing/Sukuk and SIDF/PIF loans
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PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Lenders Require Robust Market Outlooks to Test Project Viability n Robust market forecasts required
- Realistic growth and price/margin forecasts - Sound, proven methodology required as lenders
will test this and demand convincing answers
n Solid understanding of competitiveness issues
- Can a project survive in downturn conditions?
n Market entry strategy - Analysis of target customers/markets with realistic
penetration assumptions - Are offtake arrangements reasonable?
ADHESIVES PAINTS
CARPETING RUBBER
FABRICS COSMETICS
FERTILIZERS PLASTICS
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PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
What are the Key Elements of Technical Risk which lenders wish to be addressed?
n Is the design proven at this scale? n Can project facilities be constructed by
contractor within schedule proposed? n Will facilities operate as planned? n Are interfaces well defined and managed? n Will capital cost estimates and contingencies
prove adequate for project completion? n Are the main contracts reasonable from a
technical perspective? n Is the financial model a realistic reflection of
likely project performance?
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PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
International commercial banks and ECAs require environmental due diligence which confirms compliance with Equator Principles
n Evaluate whether Project complies with: - National Regulatory requirements - Internationally accepted World Bank
and other Guidelines
n Advise Lenders whether Project complies with Equator Principles
n Nexant has wide ranging regional experience providing advice on Environmental issues
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PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Project Development and Financing Conclusions – Keys to Success
n Ensure secure feedstock supply
n Screen options and determine feasibility through detailed analysis to create a robust project, selecting JV partners as required
n Select optimal project implementation strategy; if project financing: - LSTK contracting strategy no longer essential (but still preferred) - Select experienced financial advisor and ensure that all project risks are
clearly understood with mitigants in place - Middle East projects finding financing more challenging with multilateral
blending of finance options more attractive
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Middle East projects still attractive but returns lower than past gas-based projects
PP: BD\Bahrain\GPCA Seminar 2012\Seminars\Project Development and Financing – Graham Hoar
Nexant has a Strong Track Record as Lenders’ Independent Market, Technical and Environmental Advisor
n Lenders Independent Advisor since 1977
n Highly qualified experts with extensive experience advising on global investments
n Experience and credibility advising lenders on market, technical and environmental issues in energy and chemicals sectors
n Fully familiar with project implementation from finance initiation to construction and operation performance monitoring
Nexant’s record includes acting as advisor in over $75 billion worth of successfully financed engagements
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Project Development and Financing – Keys to Success
Graham Hoar Vice President Middle East
Session 6
Richard Sleep Senior Vice President Europe, Middle East & Africa
Exploiting Change to Deliver Value
Concluding Remarks
PP: Reference number
Successful exploitation of change requires insight into the industry
Our agenda explored 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
PP: Reference number
Many sources of sustainable competitive advantage are possible Advantaged feedstocks
Innovative products Talent
Adaptability & insight
Operational excellence
Access to finance
Infrastructure & integration
Restricted technology
Market access
Unique market
offerings
PP: Reference number
Sustained competitive market advantage can come from unique offerings or restricted market access
n Population growth n Per capita increase n Household growth
n Increasing consumption
n Mature but large n Mature but large
PP: Reference number
Downstream products provide opportunities to differentiate for sustained competitive advantage
n Feedstocks
n Commodity Petrochemicals
n Polyolefins
n Intermediates
n Differentiated Products
n Innovative Materials
Technology can provide a greater advantage further downstream
PP: Reference number
Restricted advantageous technology gives further differentiation
n Feedstocks
n Many Technology Providers
n Competitive Licensed Offerings
n Restricted Technology
n Differentiated Products
n Innovative Materials Partnerships and operational know-how are critical
PP: Reference number
Easy finance has gone so competitive advantage is now possible
Liquid Equity Markets
Funds from Commercial Banks
Pre 2008: Easy Money!
Export Credit Agencies
Middle East Equity Markets
Islamic Finance
Partnerships and intelligence are critical
Post 2009: Smart Money
PP: Reference number
Exploiting change requires intelligence and deep industry insight
In the absence of low cost feedstocks all avenues to competitive advantage must be secured
Adaptability and speed of
implementation
Operational excellence and
process know-how
Talent
Partnership
Innovation and market Intimacy
Richard Sleep Senior Vice President Europe, Middle East & Africa
Exploiting Change to Deliver Value
Concluding Remarks