Nexant Complete Report template · Section 1 Introduction and Report Objectives Figure 1.2 Natural Gas Derivatives Currently, less than eight percent of natural gas demand is destined

NexantThinkingTM

Evaluation of Gas Monetization Options in Latin America

Brochure June 2016

Special Reports

NexantThinkingTM

Special Reports

Evaluation of Gas Monetization Options in Latin America

Brochure June 2016

Special Reports

This Report was prepared by Nexant, Inc. (“Nexant”) and is part of the NexantThinking™ suite. Except where specifically stated otherwise in this Report,

the information contained herein is prepared on the basis of information that is publicly available, and contains no confidential third party technical

information to the best knowledge of Nexant. Aforesaid information has not been independently verified or otherwise examined to determine its accuracy,

completeness or financial feasibility. Neither Nexant, Subscriber nor any person acting on behalf of either assumes any liabilities with respect to the use

of or for damages resulting from the use of any information contained in this Report. Nexant does not represent or warrant that any assumed conditions

will come to pass.

The Report is submitted on the understanding that the Subscriber will maintain the contents confidential except for the Subscriber’s internal use. The

Report should not be reproduced, distributed or used without first obtaining prior written consent by Nexant. Each Subscriber agrees to use reasonable

effort to protect the confidential nature of the Report.

Copyright © by Nexant Inc. 2016. All rights reserved.

Special Reports-Prospectus

Evaluation of Gas Monetization Options in Latin America i

Contents

Section Page

1 Introduction and Report Objectives ........................................................................................ 1

1.1 INTRODUCTION ....................................................................................................... 1

1.2 REPORT OBJECTIVES ............................................................................................ 6

2 Study Scope and Coverage ................................................................................................... 8

2.1 REPORT OVERVIEW ............................................................................................... 8

2.2 GEOGRAPHIC COVERAGE .................................................................................... 9

3 Proposed Table of Contents................................................................................................... 10

4 Methodology ........................................................................................................................... 15

4.1 GENERAL ................................................................................................................. 15

4.2 GAS MARKET ANALYSIS ........................................................................................ 15

4.3 FORECASTING METHODOLOGY ........................................................................... 16

4.4 COSTING BASIS ...................................................................................................... 21

4.5 DELIVERED COST ANALYSIS ................................................................................ 22

5 Nexant's Experience............................................................................................................... 24

5.1 OVERVIEW ............................................................................................................... 24

5.2 GOBAL GAS PRACTICE .......................................................................................... 26

5.3 SPECIFIC EXPERIENCE RELEVANT TO NATURAL GAS ..................................... 27

5.4 SPECIFIC EXPERIENCE RELEVANT TO ENERGY ............................................... 29

5.5 SPECIFIC EXPERIENCE RELEVANT TO METHANOL .......................................... 29

5.6 SPECIFIC EXPERIENCE RELEVANT TO GAS TO LIQUIDS (GTL) ....................... 31

5.7 SPECIFIC EXPERIENCE RELEVANT TO FERTILIZERS ....................................... 32

5.8 SPECIFIC EXPERIENCE RELEVANT TO OLEFINS ............................................... 34

6 Contact Details ....................................................................................................................... 36

6.1 CONTACT DETAILS ................................................................................................. 36

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Evaluation of Gas Monetization Options in Latin America 1

Section 1 Introduction and Report Objectives

1.1 INTRODUCTION

Latin America(1) is well endowed with natural gas resources, and has the potential to considerably increase

its global importance as both a gas producing and consuming province. However, the region has notably

struggled to find its footing as both a natural gas producer and consumer. First and foremost, Latin

America’s natural gas resource distribution is far from uniform. Not all Latin American countries have the

wherewithal to produce gas or even import it from neighboring producers owing to geographical and/or

geopolitical realities. This limited access to supply has constrained gas’ share of the primary energy mix in

parts of the region. However, supply sufficiency has emerged as a hot-button issue even for some Latin

American nations that are richly endowed with natural gas resources.

Latin America’s overall gas supply outlook – which includes imported gas as well as indigenous production

– is a subject of great significance to an even wider body of players. These entities range from government

organizations to potential co-investors in Latin America’s potentially prolific upstream plays to prospective

investors in the downstream gas sectors of Latin American countries. Regional natural gas demand growth

is predicated on access to abundant quantities of economically-priced gas supplies, but the failure of Latin

America’s indigenous production plans to materialize as planned may result in one of three outcomes: a

greater-than-expected reliance on imported gas, a longer-than-expected reliance on imported gas, or a

combination of the two. This in turn could affect investment plans in the region’s power generation and

industrial sectors, and the price of gas for commercial and residential end-users.

Nexant plans to undertake a new multi-client study with the objective to profile and assess the current and

future Latin America’s natural gas market. Nexant will also review ways of creating value for natural gas

produced and consumed in Latin America. Nexant’s insights will be essential to all planners involved in the

industry, as well as for entities seeking opportunities to expand into the region/industry. Thanks to the

region’s growing natural gas supply availability – both in the form of production and imports - Latin America

offers significant investment opportunities for many new or current players. This study has been designed

to provide the necessary insight required by:

States and companies with substantial natural gas resources

Regional producers and consumers of natural gas derivative products

Global companies intending to invest in the region

Banks and financial institutions seeking to finance new gas-based projects in Latin America

Agencies responsible for analyzing and addressing regional policy issues

1.1.1 Latin America’s Natural Gas Demand

Regional natural gas demand increased at an average annual rate of 2.7 percent between 2009 and 2014.

This increase was driven partly by artificially-low gas prices in some countries stimulating consumption

(e.g., Argentina), economic recovery after the global economic crisis of 2008-2009, and of course, a wish

to diversify the regional power generation mix from oil and even clean sources of energy like hydropower.

The region also added to its LNG export capacity with the startup of the Peru LNG project in 2010, which

further underpinned consumption requirements.

1 For the purpose of this report, Nexant’s definition of the region encompasses Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Central America and the Caribbean, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

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The prospects for regional natural gas demand growth are great. Economic growth and the consequent

need for increased energy supply are obviously a strong factor. Nexant expects some regional economies

(e.g., Brazil) will continue to experience long-term economic expansion that will support growing demand

for natural gas. Conversely, regional economies that are less financially stable (e.g., Argentina and

Venezuela), may have a harder time sustaining economic growth.

Although the power and industrial sectors are expected to underpin regional gas demand growth, investor

confidence in the energy regimes of some Latin American countries is not strong. If this lack of confidence

prevails, the prospects for new domestic gas utilization projects will be affected. The outlook for gas

demand in the region is therefore subject to a strong degree of uncertainty.

The power sector accounted for the majority of Latin American gas consumption in 2015, at roughly 40

percent. The region’s sectoral demand is illustrated in Figure 1.1 Overall, gas competes with coal, oil,

nuclear, and renewables for market share in this sector. Coal generally competes favorably from a cost

standpoint with natural gas (although localized carbon taxes may erode this advantage), but obviously has

certain environmental disadvantages. By contrast, nuclear energy is exceedingly favorable from an

emissions viewpoint, but faces significant obstacles from cost-competitiveness and public relations

perspectives. Renewables generally have favorable environmental credentials, but may be costly to

develop without government support in some cases, and moreover, are highly location-dependent.

Renewables also require back-up from fossil fuel plants to ensure reliable electricity dispatch when output

from the renewable plant is unavailable (e.g., due to poor weather conditions).

Figure 1.1 Latin America Natural Gas Demand by Sector (Source: Nexant)

In addition to power generation, natural gas has numerous other end uses in Latin America, as summarized

in Figure 1.2. The industrial sector is the next largest end-user of gas, accounting for an estimated 21

percent of the region’s share in 2015. There are two types of energy use in the industrial sector: energy

consumed for fuel and energy consumed for feedstock. Energy consumed as a fuel includes all energy

used for heat, power, and electricity generation, regardless of where the energy was produced. Energy

used as a feedstock, sometimes referred to as non-fuel energy use, is the energy used as a raw material

for purposes other than for heat, power, and electricity generation. Natural gas is used as an industrial

feedstock to produce materials such as fertilizers, aluminum, steel, and cement.

0

50

100

150

200

250

300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

BS

CM

Power Generation Other TransformationEnergy Industry including losses IndustryTransport CommercialResidential Non Energy Use

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Figure 1.2 Natural Gas Derivatives

Currently, less than eight percent of natural gas demand is destined for non-energy use (i.e. as a raw

material for petrochemicals), a decline from the 11 percent seen in 2005. Natural gas is primarily used as

a feedstock for fertilizers and methanol.

Anhydrous ammonia is consumed principally in fertilizer applications. In some cases, anhydrous

ammonia is applied directly to soil in its pure form, although it mainly used in the production of other

solid or liquid fertilizers such as urea, ammonium nitrates (AN, CAN, UAN), ammonium phosphates

(DAP, MAP) and NPK compounds.

Industrial applications for ammonia include use in the fiber and plastics industry for the production

of caprolactam, the monomer for nylon 6, and acrylonitrile, which is used to make acrylic fibers and

resins. Ammonia is also used in the production of alkyl amines, ethanolamines, and aniline

(through nitric acid and nitrobenzene).

Minor miscellaneous uses are as a refrigerant in both compression and absorption systems; in the

pulp and paper industry for the pulping of wood and as a dispersant for casein in the coating of

paper; in metallurgy for detinning of scrap metal and in the extraction of certain metals from their

ores; and in the manufacture of household ammonia, detergents, and cleansers, among others.

Latin America is an interesting region as some countries (e.g., Venezuela and Trinidad) are significant

ammonia producers while others are dependent on imports. This discrepancy is due to high demand growth

for fertilizers in the general region, which is driven by population and gross domestic product (GDP) growth,

and the limited number of countries in the region endowed with competitively-priced natural gas reserves

that facilitate ammonia production and exports. Many Latin American countries also have much arable land

and fertile soil which makes the region also a large exporter for meat, fruits, and increasingly also biofuels.

Ammonia end use markets in in the region are not very diverse, with ammonia being used mainly as a

source of nitrogen in fertilizer applications. Urea is the largest end use of ammonia, representing

ENERGY FERTILIZERS PETROCHEMICALSEXPORT

Naphtha

Kerosene

Diesel

Electrochemical

Industries

Water

LNG

Phosphate Rock

Urea

AN

SSP

TSP

MAP

DAP

Compound

Fertilizers

Ethylene

Propylene

Fuel

Water

Propylene

Fuel

Water

MTBE

Polymers (LDPE, LLDPE, HDPE, PP)

Intermediates (MEG, Styrene, EDC, ACN)

Other petrochemicals

Abbreviations:

AN Ammonium Nitrate

MAPMono-Ammonium Phosphate

DAP Di-Ammonium Phosphate

SSP Single Super Phosphate

TSP Triple Super Phosphate

MTOMethanol to Olefins

MTP Methanol to Propylene

LNG Liquified Natural Gas

LDPE Low Density Polyethylene

LLDPE Linear Low Density Polyethylene

HDPE High Density Polyethylene

PP Polypropylene

MEG Mono Ethylene Glycol

EDC Ethylene Di-chloride

ACN Acrylonitrile

Methanol

Acetic acid

Formaldehyde

Other petrochemicals

Pipeline Ammonia

Nitric Acid

Nylons

Aniline/MDI

ACN

Others

POWER GAS TO

LIQUIDS

NITROGENOUS MTO MTP MTBEPHOSPHATIC

NATURAL GAS

GasGas

MethanolAmmonia

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approximately 50 percent of demand in 2015, followed by the use of ammonia in non-fertilizer industrial

applications at 28 percent during the same year. Latin America’s ammonia consumption by sector is

illustrated in Figure 1.3.

Figure 1.3 Latin American Ammonia Consumption by Sector (2015, Total = 5.0 million tons)

Methanol use can be divided into two categories: chemical related and fuel related applications. Methanol

is used for the production of formaldehyde, acetic acid, methyl methacrylate, dimethyl terephthalate (DMT)

and the production of olefins (i.e., MTO and MTP). In the fuel sector, methanol us used for the production

of methyl tert-butyl ether (MTBE), biodiesel, gasoline blending, gasoline, dimethyl ether (DME), power, and

fuel cells.

The Latin American methanol market is unusual in that it is dominated by fuel applications, with biodiesel

and MTBE accounting for close to half of the methanol consumed in 2015. This is illustrated in Figure 1.5.

Formaldehyde is the largest chemical application for methanol in the Latin America, representing 22 percent

of demand in the region. Formaldehyde is predominantly used for producing glues for use in plywood and

chipboard/particle board production.

Urea51%

Industrial28%

Ammonium Nitrate Fertilizers

4%

Ammonium Phosphate Fertilizers

5%

Other N Fertilizers12%

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Figure 1.4 Latin American Methanol Consumption by Sector (2015, Total = 2.2 million tons)

As discussed previously, natural gas will be increasingly favored throughout Latin America as a power-

generation fuel and industrial feedstock (i.e., for construction, food and tobacco, paper, pulp and print,

transport equipment, etc.). Even Latin American countries that emphasize the importance of renewables in

the energy mix can stand to benefit from greater natural gas use: thermal power generation is a reliable

source of energy, whereas climate chaos may affect weather-dependent sources of power production, such

as rainfall for hydropower generation.

1.1.2 Latin America’s Natural Gas Supply

Regional dry gas production approached 223 billion standard cubic meters (bscm) in 2015, up from just

under 172 bscm in 2005, as shown in Figure 1.5. This is attributable to higher output from countries like

Bolivia, Brazil, and Peru. Much of Latin America’s increased gas production over the last several years

was consumed within the region, but some of it (e.g., Peru and Trinidad and Tobago) was allocated to the

export market.

Figure 1.5 Latin America’s Natural Gas Production, 2005-2015 (Source: Nexant)

Others32%

Formaldehyde22%

MTBE19%

Biodiesel27%

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

BS

CM

Argentina Bolivia Brazil Colombia Mexico Peru Venezuela Others

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A gap between indigenous natural gas output and consumption has emerged in some Latin American gas-

producing states in recent years. Although the region’s overall production has grown over the last decade,

only a few countries such as Peru and Venezuela have remained self-sufficient in natural gas. Others like

Argentina, Brazil, Chile and Mexico have struggled to produce sufficient volumes to meet demand. In the

past, various factors like the indifferent pace of energy market reform and an emphasis on oil production

adversely affected natural gas production in some Latin American countries. Adding a further layer of

complexity has been the struggle to attract outside investment to gas sectors, especially the upstream. Not

all Latin American countries have offered investors competitive terms and provided the requisite regulatory

and fiscal certainty, especially regarding the sanctity of existing contracts. Consequently, natural gas

production in parts of Latin America has struggled to keep up with demand – a demand that has in many

cases been stimulated by artificially low end-user prices. Due to the growing indigenous supply-demand

gap, certain Latin American countries such as Argentina, Brazil, Chile and Mexico are increasingly

dependent on imports. At the other end of the scale are Central American and some Caribbean countries

with no indigenous production and limited access to imports.

Pipeline gas imports have been the traditional source of external supply for several Latin American

countries if geography, geology and geopolitics allow for it, but in cases where this is not possible, Latin

American countries with access to the coast have sought liquefied natural gas (LNG) imports to bridge the

gap between supply and demand. Argentina, Brazil, Chile, the Dominican Republic, and Puerto Rico

comprise the line-up of current regional importers. So keen is the need for LNG in some of the region’s

countries that Argentina and Brazil have outbid top-tier Asia Pacific LNG importers for cargoes in recent

years. The emergence of Latin America as an LNG import province and its ability to occasionally compete

with east of Suez buyers is a significant development in the global LNG business. Existing and prospective

global LNG suppliers have taken note: Latin America has been targeted by potential sellers in export

provinces as diverse as the United States and East Africa.

The region’s gas import profile is set to change on the back of projected production growth in the key

countries of Argentina, Brazil, Mexico, and Venezuela. Argentina is believed to have significant

unconventional hydrocarbon resources, and there are hopes that additional exploration work will enable

Argentina to imitate, although not replicate, the shale gas production success currently enjoyed by the

United States. Meanwhile, Brazil’s pre-salt deposits in the Campos and Santos basin have been the focus

of great interest and investment, and are already contributing to Brazil’s indigenous gas supply-base. For

its part, Mexico is optimistic that the energy reforms instituted in 2014 will attract the foreign investment

needed to grow its gas production base. Unsurprisingly, all these optimistic gas production forecasts have

resulted in ambitious domestic gas utilization plans in the host countries. Consequently, there are hopes

that the region’s overall gas import dependence – especially LNG – will fall on the back of higher gas

production. While the needs of today’s major importers may decline if and when domestic gas production

plans come to fruition, several small Latin American countries with no domestic resources are already

gearing up to import LNG, such as Panama and Jamaica. Latin America’s position in the global gas trade

is therefore set to change dramatically over the couple of decades. These shifting supply patterns offer

new opportunities for infrastructure developers and their financial backers.

1.2 REPORT OBJECTIVES

This multi-client report will provide a valuable aid for strategic planning purposes, at a time of both

opportunity and challenge for natural gas exploitation. Key uncertainties that will be addressed include:

What is the outlook for regional natural gas production, especially in light of Argentina’s ongoing

credit issues, the current difficulties affecting Brazil's state-controlled petroleum giant Petrobras,

and Mexico’s recently-announced energy sector reforms?

What are the characteristic drivers of Latin American gas consumption, and what is the expected

trajectory of regional natural gas demand growth?

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What institutional and infrastructural impediments exist to the expansion of gas’ role in the region?

What will be the future availability and cost of natural gas feedstock?

What is the market outlook for the major derivatives of natural gas?

How will technology and capital cost developments impact these industries?

How competitive will these products produced in Latin America be with those from other regions?

These are just some of the business issues that will be addressed by this Special Report. Moreover, an

understanding of the fundamental issues that will challenge the industry in the future will allow strategic

planners to make the best use of the opportunities at their disposal.

The study has a target completion date of end of the fourth quarter of 2016.

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Section 2 Study Scope and Coverage

2.1 REPORT OVERVIEW

The main objective of this multi-client study is to provide information of a number of natural gas monetization

options in Latin America. In order to meet this objective, Nexant first will profile and assess current and

future Latin American natural gas production, imports, and exports, and determine Latin America’s position

in the context of the global gas trade through 2035. Together with its outlook for global oil prices, this

analysis will inform Nexant’s view on global natural gas pricing benchmarks. Nexant will then provide an

overview of the gas monetization option by reviewing the major existing or potential uses for natural gas in

Latin America. An economic analysis of the gas monetization options on both current (2016) and projected

(2022) will provide delivered cost competitiveness to key regions. The fourteen selected potential options

include:

Ammonia and derivatives

Ammonia

Urea

Acrylonitrile

Methanol and derivatives

Methanol

Biodiesel

Methyl Tertiary Butyl Ether (MTBE)

Formaldehyde

Methyl Methacrylate (MMA)

Acetic Acid

Vinyl Acetate Monomer (VAM)

Terephthalic Acid (TPA)

Energy and fuel applications

Power

Gas-to-liquids (GTL)

Liquefied natural gas (LNG)

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Section 2 Study Scope and Coverage

2.2 GEOGRAPHIC COVERAGE

This study will consider the market dynamics of natural gas and its derivatives within the following Latin

American countries:

Argentina

Bolivia

Brazil

Colombia

Mexico

Peru

Venezuela

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Section 3 Proposed Table of Contents

Section

1 Executive Summary

2 Introduction

3 Macroeconomic Analysis

3.1 OVERVIEW

3.2 MACROECONOMIC CONDITIONS AND ASSUMPTIONS

3.2.1 Economic Growth

3.2.2 Crude Oil Scenarios

3.2.3 Inflation

3.2.4 Price Influences

3.3 REGIONAL MACROECONOMIC OVERVIEW

3.3.1 Gross Domestic Product

3.3.2 Institutional Policies

3.3.3 Financial Options for Industrial Players

3.4 ARGENTINA MACROECONOMIC OVERVIEW




3.5 BOLIVIA MACROECONOMIC OVERVIEW




3.5 BRAZIL MACROECONOMIC OVERVIEW




3.6 COLOMBIA MACROECONOMIC OVERVIEW




3.7 MEXICO MACROECONOMIC OVERVIEW




3.8 PERU MACROECONOMIC OVERVIEW




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3.9 VENEZUELA MACROECONOMIC OVERVIEW




4 Natural Gas Analysis

4.1 OVERVIEW

4.2 GAS RESERVES AND PRODUCTION

4.3 ARGENTINA

4.3.1 Reserves and Production

4.3.2 Gas Infrastructure

4.3.3 Supply and Demand Balance (2005-2035)

4.4 BOLIVIA




4.5 BRAZIL




4.6 COLOMBIA




4.7 MEXICO




4.8 PERU




4.9 VENEZUELA




4.10 NATURAL GAS PRICING IN LATIN AMERICA (2005-2022)

4.11 CONCLUSIONS

5 Regional Natural Gas Derivatives Supply and Demand Balance (2005-2035)

5.1 OVERVIEW

5.1.1 Ammonia and Derivatives

5.1.2 Methanol and Derivatives

5.1.3 Energy and Fuel Applications

5.1.4 LNG

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5.2 ARGENTINA




5.2.4 LNG

5.3 BOLIVIA




5.3.4 LNG

5.4 BRAZIL




5.4.4 LNG

5.5 COLOMBIA




5.5.4 LNG

5.6 MEXICO




5.6.4 LNG

5.7 PERU




5.7.4 LNG

5.8 VENEZUELA




5.8.4 LNG

5.9 CONCLUSIONS

6 Technology Options

6.1 OVERVIEW

6.2 AMMONIA AND DERIVATIVES

6.2.1 Ammonia

6.2.2 Urea

6.2.3 Acrylonitrile

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6.3 METHANOL AND DERIVATIVES

6.3.1 Methanol

6.3.2 Biodiesel

6.3.3 MTBE

6.3.4 Formaldehyde

6.3.5 MMA

6.4 ENERGY AND FUEL APPLICATIONS

6.4.1 Gas to Power

6.4.2 Gas to Liquids

6.5 LIQUEFIED NATURAL GAS (LNG)

7 Competitiveness of Latin America Production

7.1 OVERVIEW

7.2 ASSUMPTION AND METHODOLOGY

7.2.1 Cost of Production Methodology

7.2.2 Pricing Methodology

7.3 BASIS AND COVERAGE

7.3.1 Product Coverage

7.3.2 Location and Market Coverage

7.3.3 Reference Years and Scenarios

7.3.4 Inflation

7.4 CASH COST COMPETITIVENESS




7.4.4 LNG

7.5 DELIVERED COST COMPETITIVENESS (CURRENT (2016) AND PROJECTED

(2022))


7.5.1.1 Delivered Costs to the United States

7.5.1.2 Delivered Costs to Western Europe

7.5.1.3 Delivered Costs to South-East Asia


7.5.2.1 Delivered Costs to the United States

7.5.2.2 Delivered Costs to Western Europe

7.5.2.3 Delivered Costs to South-East Asia

7.6 CONCLUSIONS

8 Strategic Implications

8.1 OVERVIEW

8.2 REGIONAL ISSUES

8.2.1 Socio-Economic Issues

8.2.2 Feedstock Issues

8.2.3 Infrastructure Requirements

8.2.4 Logistics

8.2.5 Regional Financing Options

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8.2.6 Trade Agreement

8.2.7 Government Incentives

8.2.8 Added Value Opportunities in the Region

8.2.9 Growth of Global Markets

8.2.10 Future Prices and Margins

8.2.11 Impact of Scale Economics

8.2.12 Technology Availability

8.3 CONCLUSIONS

9 Conclusions and Recommendations

9.1 OVERVIEW

9.2 DRIVERS FOR INVESTMENT

9.2.1 Cost Driven

9.2.2 Maximization of Synergies

9.2.3 Added Value

9.3 OVERALL RECOMMENDATIONS AND DRIVERS

10 Glossary

Appendix

A Cost Competitiveness

B Cost of Production

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Section 4 Methodology

4.1 GENERAL

Nexant has extensive experience performing analysis of this nature. The basic approach will consist of:

Utilizing experience garnered from performing a number of similar recent assignments

Utilizing global in-house databases on market dynamics, pricing/margins and technology.

Drawing on industry data from prior (non-confidential) commercial analyses

Building upon analysis for multiclient studies and programs

The report will be prepared drawing on Nexant recent studies, both multiclient and single client. Commodity

petrochemical markets, prices, and competitiveness are followed closely by Nexant in its frequent multi-

subscriber programs, supplemented by a number of single client studies.

The price forecast analysis will be developed using Nexant’s proprietary Petrochemical Simulator which

provides an econometric model of the global petrochemical industry, allowing an unprecedented level of

analysis. The key principles of the price forecasting methodology are outlined below.

4.2 GAS MARKET ANALYSIS

Nexant will utilize its unique consulting skills and combination of global, regional and industry sector

experience to bring readers real insight into the supply availability and pricing of natural gas as a feedstock

for chemicals. The basic approach will consist of:

Drawing on Nexant’s in-house database on the specific gas markets in terms of understanding

supply, demand, infrastructure, pricing and the regulatory framework

Utilizing Nexant’s proprietary World Gas Model to generate prospective supply/demand/trade

balances and price projections under different scenarios

Utilizing Nexant’s economic and financial models and expertise to consider the comparative

economics in each country for each product for the relevant end-use markets

The market analysis for this report will be prepared drawing on Nexant’s recent studies, both multi-client

and single client, and the World Gas Model and its extensive database.

Nexant’s World Gas Model is available for clients to use under license on their own systems and is also

used by Nexant’s Global Gas experts to support our consultancy assignments and multi-client studies and

reports. Key elements of the model are shown in Figure 4.2. Nexant has used this modeling system to

provide the underlying foundation for the market and pricing assessments presented in this report.

WGM uses a powerful optimizer program, in conjunction with Microsoft Excel, which allows all inputs and

outputs to be analyzed by users and linked to other in-house systems. The model projects global, regional,

and national gas supply demand balances, international gas trade by pipeline and LNG and both contracted

and spot prices. Spot prices are estimated with reference to the cost of supply, competing prices, and the

“tightness” of the market. The model currently has an outlook period to 2040 and the model is balanced on

a quarterly basis

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4.2.1 Global Coverage

The model considers every country in the world which either consumes or produces natural gas. Large

countries including the United States, Canada, Russia, China, Australia, Malaysia, and Indonesia are

further segmented by regions. The focus is on the growing international trade of natural gas by cross-

border pipeline and as LNG. The model currently includes over 130 countries with space to add new

countries as needed.

Figure 4.1 World Gas Model

4.2.2 Cost Data and Gas Prices

Cost data is included for all facilities in the model including production, pipelines, liquefaction, and

regasification terminals, storage facilities, and LNG shipping. Shipping costs are built up from shipping

distances and assumed day rates and fuel costs.

Contract prices are calculated within the model based on assumed oil and oil product prices in Europe and

Asia. Spot prices are projected within a range determined by the cost of supply and price of alternative

fuels. The position within this range depends on how tight the market is at any time.

4.3 FORECASTING METHODOLOGY

Nexant has developed a proprietary simulation model of the global petroleum and petrochemical industry.

The state-of-the-art simulator is fully integrated model of the global business dynamics (global material

flows and cash flows) using the latest simulation software. In building the model the team took the 30+

years of Nexant’s knowledge and experience of the global industries and produced algorithms to simulate

business dynamics in petrochemicals, polymers, intermediates etc. The resulting simulator has been a

major advance in supply/demand and profitability forecasting technology.

The simulator relates market demand drivers to petrochemical consumption. From a database of

petrochemical processes and plant capacity the regional consumption is then compared to the ability to

Covers all producing,

consuming, and transit

countries

Production and trade

flows to balance

consumption

Demand exogenous

with cut off above price

thresholds

Forecasts to 2040 on

quarterly basis

Nodal system with

pipeline network and

LNG routes

Production capacity,

pipeline, storage, and

LNG infrastructure

WGM

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produce. Global trade algorithms, driven by a comprehensive logistics model, add to the simulation of trade

and build to a full supply, demand and trade model of the industry. Basic commodity theory dictates that

market tightness, measured by average operating rates, is the primary driver of profitability with inter-

regional competition and inter-material competition adding to the complexity of price and cost drivers. A

schematic of the Nexant Simulator is shown in Figure 4.2.

Figure 4.2 Data Flow within Nexant Simulator

4.3.1 Market Dynamics Forecasting Methodology

The simulation model is used to forecast petrochemical consumption, production, and trade for all global

countries or trading blocks. The integrated simulation model includes both the market dynamics of product

flows and the economics of production costs, logistics, prices, and profitability. All of the commodity

petrochemical chains are integrated so, for example, the vinyls chain interactions with olefins and

polyolefins are modeled for end use substitution and cost integration.

4.3.1.1 Capacity Availability and Forecasting

The model includes a full capacity database for every petrochemical producing plant in all the global regions

to generate availability of petrochemical supply. The capacity listings include the production process, the

consumption factors of all raw materials, the yield of the main product and any co-products, the capacity to

produce, and changes to the capacity due to expansions, etc. The capacity to produce petrochemicals for

existing and planned projects is continuously researched and cross-checked with industry participants.

Announced new production plants and projects in the planning phase provide a guide on the likely capacity

available in each region for the next five to eight years. Thereafter, new capacity is forecast based on likely

investment strategies for the given macroeconomic scenario being considered.

Process EconomicsConsumption

Factors

Consumption

Capacity

End UsesGDP Sector

Growth

ProductionImports and

Exports

Regional

Competition Raw Material

Cost

Utility Cost

Labor Costs

Cost of

Production

Global Trade

Flows

PriceMargin

Operating Rate

Return on

Investment

ROI/Operating

Rate Correlation

Logistics Model

Investment Cost

Inventory

Change

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4.3.1.2 End-Use Consumption Forecasting

Consumption growth of commodity polymers and other “end use” intermediates may be related to economic

activity in the consuming region. Consumption of end use materials into the major economies is researched

to determine the link between sectors of the economy and consumption of the polymer/intermediate.

Demand for a particular polymer or intermediate can be linked to the sum of the demand into each of the

end use sectors. Growth in each end use sector is made up of four additive elements:

Demand due to growth of the end use sector

Demand due to penetration into the sector for new applications

Demand due to cyclical downstream inventory changes

This is illustrated in Figure 4.3.

Figure 4.3 End-Use Consumption Drivers (Major Economies)

For less developed economies, where data on individual sectors of the economy is less readily available

and where the “services” sector of the economy is a much lower proportion, GDP is a reasonable substitute

for petrochemical demand drivers. In these regions the end use growth is driven by the four elements, but

applied to a single economic driver.

4.3.2 Price Forecasting Methodology

Nexant’s proprietary simulation model also is used to develop pricing forecasts for the global chemical

industry. The advanced simulator is a fully integrated model of the global business dynamics (material

flows and cash flows) using sophisticated software. The industry outlooks draw on more than 40 years of

knowledge and experience of the global industry to develop algorithms to simulate chemical business

dynamics. The simulator is a unique offering, marking a major advance in supply/demand and profitability

forecasting technology. An overview of the methodology employed is presented in Figure 4.4.

Economic Growth

Industrial Production

Automotive

Construction

Agriculture

Packaging/Consumer

Products

Other Drivers

End-Use

Consumption

(per region, per

time period)

End-Use

Consumption

Drivers

Chain Inventory

+

New

Application

Growth

Downgauging &

Recycling

-

+

POPS2012 ER FR Sec 1

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Figure 4.4 Nexant’s Simulator Forecast Methodology

The forecast methodology relates market demand drivers to chemical consumption. From a database of

processes and plant capacity the regional consumption is compared to the ability to produce. Global trade

algorithms complete a full supply, demand and trade model of the industry. Basic commodity theory

dictates that market tightness, measured by average operating rates, is the primary driver of profitability

with inter-regional competition and inter-material competition adding to the complexity of price and cost

drivers.

4.3.2.1 Introduction

Prospects for the petroleum and chemical industry are shaped both by actions of participants in the industry

and the influence of larger global macro-economic forces. The chemical industry has some ability to

determine regional operating rates which influence profitability and ultimately prices. The industry has close

control of supply and trade, determining the location, technology and scale of future plant investments.

Long term chemical demand is largely beyond control of the industry, heavily influenced by global economic

activity. Meanwhile the industry has little influence on the cost component to pricing, which is shaped as

volatile energy prices pass down value chains. Pricing projection in this report illustrate how the industry

would perform under a specific set of macro-economic assumptions, framing each scenario. The key

assumptions which drive the cost structure and demand profiles are referenced in the following section of

this report.

Crude oil prices averaged $20 per barrel Through the 1990s. Crude oil pricing dynamics shifted by 2003,

with prices rising steadily and volatility became a key concern. Crude oil prices posted a record high of

almost $140 per barrel in the middle of 2008 before collapsing to less than a third of this by the end of the

year. The slump in crude oil price triggered a massive inventory reduction in the second half of 2008,

contributing to a rare global recession in 2009. The downturn in crude oil prices was short lived, and prices

rebounded above $100 per barrel in 2011 and remain near there through to the middle of 2014. However,

crude oil prices fell sharply since July 2014, and spot prices in January and February 2015 were significantly

below levels that have recently been used to evaluate investments in the oil and petrochemicals sectors.

From a high of $115 per barrel of Brent, the price fell below $50 per barrel in January 2015 and dropping

Primary Energy Pricing

(Crude Oil, Natural Gas &

Petrochemical Feedstocks)

Regional Economic Growth

Inflation Rates

Exchange Rates

Petrochemical Asset Investment

Profiles

NexantThinking™ Simulator

CAPACITY

CONSUMPTION

SUPPLY

DEMAND

MODEL

PLANT

MARGINS

PROFITABILITY

CORRELATIONS

OPERATING

RATES

COST

MODELS

PRODUCT

PRICES

PRICE

COMPETITION

ECONOMIC

GROWTH

CRUDE OIL

INFLATION

EXCHANGE RATE

SCENARIO INPUTS

Scenario

PP:00289 SBA/NH3 & Urea/2013-2014/Figs5

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below $40 per barrel by December 2015. However, the Brent crude oil price remains well below the average

of around $110 per barrel between 2011 and 2014.

Looking to the future, there exist a wide range of uncertainties for the world economy. These factors may

arise from political, market, sociological, and technological sources. In the case of oil prices, how will

changes in the political landscape influence behavior? How will prices impact demand? What will be the

impact of new technologies? Will supply growth keep up with demand?

Uncertainty over future operating environments renders attempts to “forecast” a single definitive future for

refining and chemical markets futile. Deviation of input parameters may rapidly exceed utility of the resulting

market projections. A rational response is to offer alternative projections based on scenarios with distinct

assumptions of the macroeconomic environment. The sets of prices and profitability presented here are

aligned with this more sophisticated methodology, and allow clients to understand how future market

developments may be shaped under various views of global energy markets and economic growth

trajectories.

Ability to offer alternative scenarios is facilitated by the Nexant simulator, a rules-based environment for

projecting industry developments. This state-of-the-art software tool allows Nexant, and its clients, to

develop distinct market projections based on a common methodology ensuring consistency in scenario

predictions. Distinct scenarios have been developed, together with projections of the petroleum and

chemical markets that would result under respective macro-economic scenarios. This provides a range of

credible industry outlooks, allowing risk and sensitivity analysis of decisions in the long term.

4.3.2.2 Crude Oil Price in Scenarios

The majority of commodity chemicals are derived from refined products, whose prices are intimately linked

to the crude oil price. It is important to understand the interrelationship between the various feedstocks and

their price drivers.

Nexant has prepared three distinct scenarios for 2015, spanning a broad range of crude oil prices that is

reasonably expected to capture the range of future pricing in most years. The crude oil prices selected for

Nexant’s 2015 scenarios (Brent FOB basis) are:

High oil scenario: set at $120 per barrel (2015 constant dollars)

Medium oil scenario: set at $85 per barrel (2015 constant dollars)

Low oil scenario: set at $50 per barrel (2015 constant dollars)

4.3.2.3 Price Forecast Influences

The primary drivers of price for most products are a combination of the cost of raw materials and the

supply/demand balance of the market. These two drivers combine to derive the price via the fundamental

relationship of cost plus margin.

The variable cost of production is determined from raw material costs and the cost of utilities less credits

for co-products. To this are added the fixed costs associated with running the plant consisting of operating

labor, maintenance, general plant and works overheads and local tax and insurance to give the cash cost

of production. Cash costs for the forecast period are projected based upon raw material costs (usually

strongly influenced by the prevailing crude oil price) and the other associated costs of production, making

assumptions about the reduction of costs over time due to experience curve effects. The margin is

determined from the return on investment (ROI) forecast that, in turn, is derived from an analysis of the

historical relationship of margin with average industry operating rate. The combination, cost plus margin,

making allowance where appropriate for freight and packaging, produces the price

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Secondary influences on the price forecasts include:

Forecast prices in other regions

Relationship to related products

Profitability of derivative products

4.4 COSTING BASIS

The cost analyses cover the cost of production at the plant gate and exclude the following:

Feedstock acquisition and trading costs

Distribution, selling, and marketing costs

Research and development (R&D) costs

Corporate (or head office) overhead costs

Interest on capital cost financing and other financing related charges

The methodology used to develop the cost estimates is briefly summarized below, while Appendix A and B

describe more fully the capital cost and operating cost elements that will be encountered in the cost of

production tables given later in this section.

4.4.1 Investment and Pricing Basis

A process plant can be viewed as consisting of two types of facilities. The first is the manufacturing area

containing all process equipment needed to convert the raw materials into the product. The capital costs

of these facilities are commonly referred to as the inside battery limits (ISBL). The second group of facilities

contains the outside battery limits (OSBL) or offsites. These include general utilities (e.g., instrument and

utility air, nitrogen, fire water, etc.), administrative buildings, steam generation facilities, cooling water

system, electrical distribution systems, waste disposal facilities, etc.

For all the cases considered, investment costs assume “instantaneous” construction or implementation in

the designated year. This is a simplification because initiation, design, and construction can take several

years to complete. In order to undertake the instantaneous analysis, phased investment costs and

associated financial charges are consolidated into a single overall project cost.

In addition to the plant capital, the owner usually has other costs associated with the project such as project

management, startup, etc. Working capital is calculated to reflect raw material, byproduct, and supplies

inventories; accounts receivable; cash requirements etc., with credit for accounts payable.

4.4.2 Cost of Production Basis

Raw material costs, utility costs, and byproduct credits are considered variable since they are, to a large

extent, dependent on the plant’s operating rate.

Direct and allocated fixed costs, as their title indicates, are largely independent of the operating rate. Labor

costs are based on typical manpower rates, whereas direct overhead (fringe benefits) and maintenance

costs are at normal industry levels. It is to be noted that manpower requirements can vary tremendously

depending on local government regulations, company policy, and available skill level. What is given in the

table that follows is only intended to give a rough idea of such costs.

Other fixed costs included in the analysis such as general overhead and insurance/property taxes, are also

based on typical industry levels.

The sum of variable and fixed costs is termed the “cash cost”. This is the out-of-pocket expense that the

owner incurs before including depreciation and any return on capital employed (ROCE).

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Depreciation is assumed to be 20 years for OSBL and ten years for ISBL including the capitalized other

project costs (OPC).

The ROCE line in our cost of production estimates is intended as an estimate of the margin required over

the full cost of production (cash cost + depreciation), to achieve an arbitrary ten percent return on capital.

Thus, the final line in the cost of production estimate (cost of production + ROCE) can be thought of as a

way for factoring in a cost for capital investment. The arbitrary ten percent ROCE used in these analyses

is at the lower level for public companies and is more representative of the return expected for new

construction, at the bottom of the business cycle. Many firms would actually seek returns in the range of

15 to 20 percent over the course of a full business cycle.

Generally speaking, the cost of production and cost of production plus ROCE are the important costs to

consider for newly built or fairly new plants since these still have to factor in an account for depreciation

and a return on capital employed. As mentioned, Nexant estimates an investor would require at least ten

percent return for the risk involved in building such a plant. For old plants that have fully depreciated, it

would be more appropriate to consider the cash cost.

An operating rate of 100 percent is assumed, and is based on scheduled operation for 8,000 hours per

year. Information received at different on-stream time was normalized to 8,000 hours.

4.5 DELIVERED COST ANALYSIS

Nexant uses a standard pro-forma to calculate cash costs of production. As indicated in Figure 4.5, the

variable cost of production includes the costs of raw materials – feedstocks plus catalysts and chemicals –

and utilities at cash cost or purchase cost, with a credit for co-products. The direct fixed costs shown in the

figure below include:

Salaries of operating staff plus associated on-costs such as holiday cover, social insurance, fringe

benefits etc.

Maintenance costs including materials and labor, with periodic maintenance costs such as two or

three year shutdowns averaged over the period; maintenance costs are usually calculated as a

percentage of process plant capital cost

The allocated fixed costs are the site charges, which are necessary for production but which are not directly

associated with the operation of the specified process plant. They include packing and warehousing,

storage and workshops, site laboratories, safety and environment, security, site management, and on-site

amenities for the workers. Insurance of the fixed assets is also counted under allocated fixed costs.

In addition to the derived total cash cost of production, Nexant takes into account the freight and handling

costs as well as tariffs involved in delivering the product to a particular target market to calculate the total

delivered cost.

As defined by Nexant for its analyses of production costs and its price forecasting, the cash cost does not

include corporate overheads such as general marketing, company administration, and R&D. Nor does it

include working capital.

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Figure 4.5 Components of Cost of Delivery to Market

U.S. Dollars per Ton of Product

Raw Material

Costs

Utility Costs

Variable CostCo-Product

Credit

Direct Fixed

Costs

Allocated

Fixed Costs

Cash Cost of

Production

Freight and

Handling

Costs

Tariff

Total Delivered

Costs

Net Variable

Cost

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Section 5 Nexant's Experience

5.1 OVERVIEW

Nexant uses multidisciplinary project teams drawn from the ranks of our international staff of engineers,

chemists, economists and financial professionals, and from other Nexant groups to respond to the

requirements of each assignment. Most of the consulting staff possesses credentials in both scientific and

commercial disciplines plus substantial industrial experience. The collective talents of our staff are

strategically located and closely linked throughout the world, resulting in valuable insights gained through

a variety of perspectives.

Nexant is an international consultancy and is dedicated to assisting businesses within the global energy,

chemical, plastics, and process industries by providing incisive, objective, results-oriented management

consulting. Over four decades of significant activity translates into an effective base of knowledge and

resources for addressing the complex dynamics of specialized marketplaces. By assisting companies in

developing and reviewing their business strategies, in planning and implementing new projects and

products, diversification and divestiture endeavors and other management initiatives, Nexant helps clients

increase the value of their businesses. Additionally, we advise financial firms, vendors, utilities, government

agencies and others interested in issues and trends affecting industry segments and individual companies.

The Nexant Group was formed as an independent global consulting company in 2000, combining a number

of companies that had a long history of providing consultancy services to the chemical and refining-related

industries. Nexant’s experience covers all aspects of project development relating to major refinery,

petrochemical, and polymer investments, ranging from grassroots plants to revamps of existing process

units. Nexant’s key offices serving the petrochemical and downstream oil sectors are located in New York,

Houston, London, Bangkok, and Bahrain, and locations for other offices are shown in Figure 5.1.

Figure 5.1 Nexant Office Locations

Headquarters Main Offices

Representative Offices

San FranciscoWashington, DC

White Plains

LondonFrankfurt

Bahrain

TokyoSeoul

Shanghai

Singapore

Kuala LumpurBangkok

Buenos Aires

La PazRio de Janeiro

Project Offices

New Delhi

Pretoria

Abuja

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From major multinationals to locally based firms and governmental entities, our clients look to us for expert

judgment in solving compelling business and technical problems and in making critical decisions.

Nexant’s clients include most of the world’s leading oil and chemical companies, financial institutions, and

many national and regional governments. Nexant, Inc. is active in most of the industrialized countries of

the world, as well as in most of the developing areas including the Middle East, Africa, and East and

Southeast Asia.

Major annual subscription programs are:

Methanol Strategic Business Analysis (SBA)

Ammonia and Urea Strategic Business Analysis (SBA)

Process Evaluation/Research Planning (PERP)

Petroleum & Petrochemical Economics (PPE) – United States, Western Europe, Middle East, and

Asia

Polyolefin Planning Service (POPS)

NexantThinking Methanol Strategic Business Analysis (SBA) program provides a valuable aid for strategic

planning at a time of both opportunity and challenge for existing players and prospective new entrants. It

identifies the strategic trends and issues that will shape the industry based upon a review of the fundamental

business drivers and their dynamics with respect to markets, pricing, technology and delivered cost

competitiveness. This program is unique in offering the industry a high quality, in-depth analysis based

upon Nexant's knowledge built on its strategic consulting activities, its chemicals team (for chemical

methanol and derivative applications), its downstream oil team (for fuel applications including biofuels) and

its global gas team (for feedstock availability and pricing).

NexantThinking Ammonia and Urea Strategic Business Analysis (SBA) program provides a valuable aid for

strategic planning purposes, at a time of both opportunity and challenge for players and prospective

entrants into the nitrogenous fertilizer business. It combines a review of the fundamental business drivers

and their dynamics, as well as analysis of the wider trends in ammonia and urea to understand what these

entail for the short, medium and long-term outlook for the business.

The PERP program covers technology, commercial trends, and economics applicable to the chemical

industry. The program has more than 40 subscribers, including most of the major international chemical

companies. Many of the processes to be analyzed in this multi-client study have been assessed in the

PERP program.

The PPE program provides historic and forecast analysis of the profitability, competitive position, and

supply/demand trends of the global petroleum and petrochemical industry. The program includes capacity

listings and analysis, global supply, demand and trade balances, profitability, competitiveness, and price

analysis and projections for all the major petrochemical value chains. The PPE program is supported by

an internet-based planning and forecasting tool that provides online access to the database behind the

reports of the PPE program.

The POPS program provides reports on the global polyethylene and polypropylene industry. It is

recognized globally as the benchmark source for detailed information and analysis on current commercial,

technical, and economic developments in the polyolefins industry. Coverage includes: capacity listing and

analysis, detailed consumption, supply/demand, trade, operating rates, price forecasts, technological

developments, new products, inter-material substitution, and regional competitiveness.

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5.2 GOBAL GAS PRACTICE

Nexant’s Global Gas Practice is part of the Energy and Chemicals Advisory Business Unit. Nexant's gas

specialists have considerable experience and an established track record in every area of the gas business,

ranging from the initial investment strategy and planning stage through to the provision of institution and

capacity building services for gas sector development, as well as assessing the impact of natural gas on

overall energy sector development. Our teams have conducted a number of gas monetization assignments,

including domestic gas utilization studies for recovered associated gas volumes that were flared or

expected to be flared. We have also provided advisory support for the development of natural gas

export/import projects, LNG markets, gas to power projects, and cross-border gas pipeline projects.

We bring to all our assignments expert multi-disciplinary teams who can provide a broad range of services

and draw on the resources of Nexant's other businesses, such as the power, petrochemicals, clean energy,

and energy technology units, to deliver integrated energy solutions.

Our consultants offer a wide range of experience that has been gained through operational and executive

management positions with international and national oil and gas companies; major engineering

companies; management consultancies and international development banks.

Our range of services includes:

Investment Strategy and Planning

Strategic planning and policy development

Technical and commercial due diligence

National gas master plans

Gas contract structuring and negotiation

Economic and financial analysis of projects

Gas pricing and tariff strategies

Gas trading and risk assessment strategies

Gas Market Analyses

Gas monetization studies

Gas supply and demand side analyses

LNG market studies

Forecasts of gas prices and gas flows

Gas to power and chemicals assessments

Multi-client studies on market developments

Regulatory Services

Gas sector restructuring and privatization

Legal and regulatory advice and support

Development of regulatory pricing regimes

Design and modelling of gas tariffs and rates

Development of network codes

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Gas Infrastructure Studies

Gas processing, transmission, distribution, and storage

LNG export and import infrastructure

Cross-border gas pipeline infrastructure

Institution and Capacity Building

Institution building for gas sector development

Organization design and development

Public courses and tailor-made in-house training

Nexant’s consulting services cover all areas of the natural gas business and our Global Gas team is

excellently qualified to assist on a variety of assignments throughout the gas chain. As part of various gas

assignments, our team has conducted a number of detailed studies advisory services on gas distribution

projects in different regions of the world.

5.3 SPECIFIC EXPERIENCE RELEVANT TO NATURAL GAS

Gas-Based Industrial Complex: Pre-feasibility Study – Nexant conducted a USTDA-sponsored

study to evaluate and develop plans for a proposed gas-based industrial complex project in Nigeria.

Cameroon Gas Market Development Study – Nexant was selected by the World Bank to conduct

a study for the Government of Cameroon on the “Identification of Gas Market Development & Gas

Flaring Reduction Opportunities in Cameroon.”

Natural Gas Market Study – Nexant advised an international oil company on the

commercialization of its natural gas production in the country. The study included an assessment

of potential demand from the power and industrial sectors.

Ghana Gas Market Assessment – Nexant prepared for Government agencies and relevant

stakeholders an analysis of Ghana’s potential future gas market developments based on a number

of gas supply\demand scenarios.

Screening Analysis Tanzanian Gas Monetization – Nexant reviewed several gas monetization

options before shortlisting methanol, ammonia, and urea for which markets, pricing, delivered cost

competitiveness, market entry strategy, and technology options were reviewed as well as site

suitability and developing the financial model.

Gas Market Study – Nexant carried out a detailed China gas market study for an offshore natural

gas producer an evaluation of potential markets for domestic gas sales. Tasks under the

assignment included the following: supply and demand analysis, review of gas pricing structures

and gas price projections, review of contractual arrangements, assessment of local infrastructure

issues, and regulatory issues.

Petrochemical Market Dynamics Feedstocks – This multi-client report provides an analysis of the

feedstock requirements for basic chemical production, and addresses which feedstocks will be

important to the industry going forwards. This report highlights emerging feedstocks, such as shale

gas, as well as conventional materials including crude oil and coal. It includes identifying and

quantifying reported shale gas resources in the selected geographies, and characterizing existing

and proposed technologies to develop these resources as well as the potential downstream activities

to handle the potential supply in North America.

Cost-effective Development of Domestic Natural Gas Use – Nexant assisted the Egyptian

Natural Gas Holding Company (EGAS) and the Ministry of Petroleum in the preparation of a

strategic plan to accelerate the efficient local use of natural gas. Nexant provided support by

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analyzing and recommending a range of new policies and market initiatives to optimize the local

use of gas by industrial and large commercial end-users that will provide significant economic and

environmental benefits for the country. The plan’s core initiatives addressed the issues of fuel

pricing reforms, development of new downstream markets, and gas marketing programs.

Feedstock Impact Analysis and Strategy – Nexant carried out for a major Asian conglomerate a

comprehensive impact analysis of alternative petrochemical feedstock, such as gas (from

conventional & unconventional sources – shale gas) and coal and presented a set of

recommendations for a strategic plan.

Survey of World Natural Gas Markets – Nexant undertook for a major oil and gas company of an

emerging economy a comprehensive survey of natural gas markets in all the major gas producing

and consuming regions.

Strategic Growth: Assessing New Market Opportunities alongside America's Shale & Oil

Revolution – To help its client find opportunities for growth, Nexant analyzed the impact of low

cost shale gas and oil on chemicals, plastics, and other industries in NAFTA. The report included

a screening study to identify and rank opportunities and an examination of the regional market size,

expected growth rates, product offerings, key applications, and market structures of the four targets

that best match the client’s capabilities.

Trend Survey of Shale Gas/Oil Industry and Marketing Survey of Various Products in North

America as well as a Shale Gas & Tight Oil Outlook – The study consisted of several phases

which included: a North America Shale Gas & Tight Oil Outlook, covering history, E&P Processes,

Environmental Issues & Water Handling; a Shale Gas & Tight Oil Value Chain Analysis including

value chain step profiles, oil field supplier profiles, market segment rankings and a short list of

attractive market segments; an Identification of Opportunities for Nexant’s client by organic growth

through R&D or by acquisitions or partnerships.

Natural Gas Utilization Analysis – An Australian client was interested in developing natural gas

fields with undesirable amounts of inert gases located on the northwest coast for industrial gas

customers. Nexant assessed the applicability of these resources as chemical feedstocks (synthesis

gas) or as fuel in a variety of applications: direct reduction of iron, steel making, methanol,

ammonia/urea, chloralkali, and ethane based petrochemicals (fuel requirements). In each case

gas consumptions, specifications and cost of gas treatment and, if any, the problems or benefits

from impurities and the cost benefit of several levels of treatment

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5.4 SPECIFIC EXPERIENCE RELEVANT TO ENERGY

Development of Energy Strategy – In view of the recent important changes in international and

local energy markets and their impact on the domestic energy market in Egypt, the Government of

Egypt commissioned Nexant to undertake a study on the development of an Energy Strategy for

Egypt until 2030. One of the key tasks of this assignment focuses on the analysis of Egypt’s

existing and future gas demand needs for the local and export gas markets.

Jordan Energy Sector Master Plan – Nexant was commissioned by the Arab Bank in co-operation

with the Jordanian Government to develop a national Energy Master Plan to provide policy makers

with the tools and assessment framework within which decisions on possible future energy sources

could be made. The plan included an analysis of least-cost solution for energy supplies to meet

domestic energy demand over the period to 2020 and addressed responses to changes in the

relative prices and availability of alternative energy sources, notably new gas supply from Egypt

through the Arab Gas Pipeline.

West Africa Gas Market Study – Nexant conducted for a regional private\public consortium of

energy companies a Study on the potential markets for natural gas utilization in selected West

African countries.

Natural Gas Pricing Structure Review – Nexant advised an energy regulatory authority in the

review and revision of the pricing structures of natural gas and CNG for transport. The aim was to

recommend a new pricing policy consistent with the latest national economy and energy

development plan and cost of new LNG imports.

Natural Gas Utilization – A natural gas utilization study for Argentina, including:

Gasoline octane enhancement - preliminary licensor information

MTBE production and use pre-feasibility study

Economics, pricing and project financing

Study of the optimum use of natural gas in transport.

5.5 SPECIFIC EXPERIENCE RELEVANT TO METHANOL

Methanol Sourcing Study – Nexant analyzed methanol supply options for a potential new-build

large downstream unit for to be developed by a major oil and gas global player. The study included

options such as acquisition of distressed facilities, a tolling model through gas supply, building a

new methanol facility or sourcing methanol directly from the market.

Market Feasibility Study – Nexant reviewed methanol, ammonia and urea markets, pricing,

delivered cost competitiveness, market entry strategy and technology options for a potential new

entrant.

Methanol Feasibility Study – Nexant has recently completed a feasibility study for a 5,000 ton per

day methanol unit in the PARS economic zone, Assaluyeh, Iran, for a foreign investor. This

included market dynamics, price forecasts, cost competitiveness, marketing strategy, project

execution and implementation definition and economic evaluation.

MTO Commercial and Technical Risk Assessment – Nexant was retained by the sponsor and

its financial advisor to review market dynamics and pricing outlooks, perform risk assessments for

the air separation unit (ASU), methanol, methanol to olefins (MTO) with olefin cracking process

(OCP) and polyolefin process technologies, critical equipment risk assessment for the methanol,

MTO-OCP and ASU plants and also a high-level social and environmental awareness overview.

Evaluation of Gas Monetization Options – Nexant analyzed markets, pricing, capital and

operating costs, delivered cost competitiveness and financials (including sensitivities) for nine gas

monetization options including methanol, methanol to DME, methanol to olefins (with and without

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olefin conversion) and methanol to propylene. A SWOT analysis was performed and the options

were ranked by various financial measures.

Methanol Existing and New Potential Markets for an African Project – Nexant reviewed

methanol and DME market dynamics, with a special focus on African and Indian opportunities, and

developed pricing projections and a market entry strategy. New and emerging methanol markets

included DME, gasoline blending, gasoline/synfuels, propylene, biodiesel, power, fuel cells. A

value chain analysis (including cost of production and cost to market estimates) for each was

performed to identify segments which were most attractive to an African location.

Methanol Markets and Pricing – Nexant was retained by Europe’s leading methanol producer to

analyze historic market and pricing trends and develop future projections, with a special focus on

the European market.

Market and Pricing Projections – Market dynamics and pricing were reviewed and projected for

methanol, formaldehyde, urea, melamine, amino resins, UF85, hexamine, and paraformaldehyde.

Lenders’ Independent Engineer – Nexant is the lenders’ independent engineer for the Salalah

Methanol project in Oman. Activities performed include reviewing the projects: methanol process

technology, execution and management, agreements, cost and schedule, environmental, health

and safety, completion testing regime for lenders, financial model and operating parameters.

Russian and East European Cost Competitiveness – Nexant profiled producers in this region,

including any horizontal and vertical site integration, and analyzed methanol delivered costs,

including the outlook for the key cost factors of natural gas and freight costs.

Lenders’ Independent Market Consultant – Nexant was retained as the independent market

consultant by Mitsubishi Gas Chemicals, Itochu, and Petroleum Brunei for the Brunei Methanol

project. Historic and projected methanol market dynamics, price and profitability, delivered cost

competitiveness and marketing strategy were reviewed for the project.

Lenders’ Independent Technical Consultant – Nexant is the independent technical consultant

for the following Saudi Formaldehyde projects: methanol, formaldehyde, pentaerythritol,

methylamines and DMF. Activities performed include reviews of facility design, project

performance, site assessment, project schedule, capital cost estimate, licensing agreements,

contracting process and contracts, environmental status, economic analysis as well as ad hoc

technical advisory services and certifications. During the construction phase, Nexant has been

conducting site visits to review project progress, expenditure and has prepared a reliability test for

the new complex.

Lenders’ Independent Market Consultant – Nexant was retained as the independent market

consultant by Samba for this Saudi Formaldehyde methanol project. Historic and projected

methanol market dynamics, price and profitability, delivered cost competitiveness and marketing

strategy were reviewed for the project. Market dynamics and pricing were also reviewed and

projected for the company’s existing businesses of formaldehyde, hexamine, paraformaldehyde,

and concrete additives.

Methane to Polyolefins Feasibility Study – Nexant was retained to develop an independent

feasibility study for this project, including detailed market and price analyses and forecasts; market

strategy and off-take agreement development; gas feedstock analysis and agreement formulation;

technology analysis and selection (for methanol, olefins via MTO or MTP, and polyolefins);

configuration and product optimization; capital and operating cost estimation and forecasts;

detailed economic and cash flow evaluation; and investment recommendations.

Methanol Feasibility Study – Analysis of markets, pricing, delivered cost competitiveness,

technology selection, and financial attractiveness of a large scale project in Iran.

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Methanol Feasibility Study – Assessment of markets, pricing, delivered cost competitiveness,

technology selection, and financial attractiveness of a large scale project in Egypt.

Strategy Plan Development – The development of a 10-year strategic plan for margin

enhancement for a major Russian chemicals and fertilizer company whose portfolio includes four

methanol plants, incorporating conventional natural gas reforming and also acetylene off-gas

technologies. The strategy was based on technology and manufacturing assessments of the sites,

market characterization and a profitability assessment of each business versus the wider global

industry. Businesses and projects were identified within the substantial portfolio for

expansion/investment and others for exit.

Technical and Market Advice for New Methanol Project – Technical and market consultancy

services to Société Générale making assessments and recommendations from the standpoint of

potential lenders to a proposed methanol plant in Western Australia including technology selection,

project development, review of gas supply, EPC, O&M and offtake contracts and a market study

reviewing of the supply/demand and pricing prospects for methanol, the delivered cost

competitiveness of the plant and the marketing strategy for the product.

Feasibility Study Assessment and Ranking – An Asian national oil and gas company was

seeking new domestic investment opportunities to add value to its natural gas resources. It had

received a number of project proposals from global companies in the form of detailed feasibility

studies for methanol and/or ammonia production. The company retained Nexant to carry out an

independent due diligence of these studies and to recommend investment priorities. Nexant

undertook market opportunity studies, price forecasts, financial modelling, and other project

assessments, and rated and ranked the projects.

Methanol Plant Technical Review – A review of a producer's gas consumption against that when

the plant was originally built and the state of the art to assess the scope for future improvements

and to identify the disadvantage compared to new world-scale plants.

Evaluation of Methanol Sourcing Options – An evaluation of methanol sourcing options for a

Latin American Oil Company.

Point Lisas Methanol Project Assistance – A series of studies including evaluation of the project,

assessment of the global markets for methanol and the evaluation of engineering contractor

submissions for a 1 200 tons per day methanol plant for the National Energy Corp of Trinidad and

Tobago Limited.

5.6 SPECIFIC EXPERIENCE RELEVANT TO GAS TO LIQUIDS (GTL)

Small-Scale Gas to Liquids Technologies – This PERP report is a comprehensive assessment of

developments in small-scale gas-to-liquids (GTL) technology to produced gasoline, jet fuel, diesel,

and other specialized products such as LPG and lubricant base oils.

GTL Feasibility Study – Nexant undertook a technical and market feasibility study on behalf of

LGI and Turkmengas to develop a gas to liquids (GTL) complex at Ovadan Depe near Ahal Area

in Turkmenistan. The study covered market assessment for GTL products in Turkmenistan as well

as the surrounding CIS region, considerations of potential logistics routes to transport the products

for export markets as well as a review of various GTL technologies. The study was complimented

with a site visit by Nexant to the project site in Ovadan Depe.

GTL Market Study – A Japanese company engaged Nexant to evaluate the marketability of diesel,

kerosene, and naphtha products to be produced by proposed GTL plants in Canada and

Mozambique. Nexant identified logical target markets and developed product prices and netbacks

to support the economic evaluation of the proposed GTL plants. In Phase 2, Nexant evaluated

competitiveness and premiums for GTL products in target markets and compared conventional and

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unconventional naphtha. Then Nexant tested the sensitivity of GTL products to supply and price

changes in natural gas, methanol, ammonia/urea, and power.

GTL Plant Site Study – A Japanese oil company engaged Nexant to assess, screen and rank

candidate sites for a GTL plant to be located in British Columbia.

GTL Technical Due Diligence – The client retained Nexant to provide a due diligence review of

their technology and product offering. The objectives for Nexant were to provide an independent

review of the client’s proprietary technology, review the risks involved in the up-scaling, and review

the potential commercial applications of the client’s products.

Refinery Compatibility and GTL Product Value Add Study – A leading South African petroleum

company sought to expand its GTL distillates market. The company hired Nexant to assist the

company to determine how GTL kerosene and diesel can add value to specific refineries in U.S.

Nexant screened and ranked relevant refineries in the US with certain criteria, evaluated the

potential benefits of GTL distillates, interviewed refiners and identified potential candidates for GTL

distillates for the client.

Preliminary U.S. Gulf Coast GTL Plant Site Survey – The technology arm of a Japanese

petroleum company sought to build a small scale GTL plant on the Gulf Coast of the U.S., and the

client hired Nexant to provide a preliminary study of four potential sites for this project. Nexant

assessed the four regions including Norco, Louisiana, Port Arthur/Beaumont, Texas, Texas City,

Texas, and Lake Charles, Louisiana in terms of the land availability, utility infrastructure, port

infrastructure, proximity to refineries and terminals, tax considerations, availability of local incentive,

marketing and pricing. Finally Nexant also made recommendations to the clients basing on the

evaluation.

5.7 SPECIFIC EXPERIENCE RELEVANT TO FERTILIZERS

Business Plan for Ammonia–Urea Plant – Nexant developed a conceptual engineering study

and business plan for an integrated ammonia and urea complex. Nexant conducted comprehensive

characterizations of markets for fertilizer in South America and Asia, taking into account laws,

customs, economics, seasonality and logistics. The report also addressed a market entry strategy

– identified intermediaries, strategic partners, storage mechanisms and even the types of business

documents needed for marketing the ammonia and urea products within South America.

Lenders’ Independent Technical Consultant – Nexant was the independent technical consultant

for the Rustavi Azot ammonia revamp project at Rustavi in Georgia. Activities being performed

include site visit, reviews of project contracts and documents, construction arrangements, schedule

and capital costs, operating and maintenance philosophy and costs, financial model and projected

performance, main contractors and vendors and completion testing.

Lenders’ Independent Technical Consultant – Nexant was the independent technical consultant

for the GPO ammonia project at Topolobampo in Mexico, a joint venture between Proman, Pinsa,

and Helm. Activities being performed include reviews of facility design, site assessment, permits

and licenses, project execution and plan, capital cost estimate, operating and maintenance costs,

project performance, contracting process and contracts, economic analysis, project risk analysis

as well as ad hoc technical advisory services and certifications.

Feasibility Study for an Ammonia, Urea, AN, CAN, UAN Plant – Nexant has provided Rustavi

Azot with a feasibility study to allow a clear understanding of the opportunity presented by

expanding Rustavi’s Azot ammonia plant as well as constructing a new ammonia unit and

assessing the bankability of a urea, AN, CAN, and UAN downstream plant through installing a new

complex at Rustavi Azot, Georgia. The study included products such as ammonia, urea, AN, CAN

and UAN and consisted of a market, pricing analysis, technology evaluation, project costs analysis,

project competitiveness, financial modelling and marketing strategy.

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Fertilizer Market Study – For a chemical and petrochemical producer considering the

development of an Ammonia/Urea project in Angola, Nexant developed an independent study in

the target markets of the project: Brazil and selected markets in Africa, South America, and Asia

(India). Scope of work included long-term price and market forecasts (up to 2040) for ammonia and

urea in each target market, and netback pricing from each market to the project in Angola. Forecast

sales of product to each target market and a comparison of natural gas pricing for fertilizer projects

in key regions of the world were also provided.

Feasibility Study for an Ammonia/Urea Plant – Nexant has provided a full feasibility study to its

client for a prospective ammonia/urea plant to be located in Brunei. The study included a market

analysis as well as profitability and pricing forecasts, CAPEX estimations and an economic

evaluation of the project.

US Urea Market Assessment – The lender of an integrated gasification combined cycle fertilizer

and power plant in Texas asked Nexant to project likely prices for granular urea and assess the

overall domestic market for nitrogen fertilizers: supply / demand; trade; consumption by region and

crop. The study discusses urea producers, global and US trends, and pricing.

Feasibility Study – Ammonia/Urea – The viability of developing an ammonia and urea complex

in Azerbaijan was assessed in this study. Work carried out included a review of the market

opportunities and price forecasting of the products of the proposed complex, technology

assessment and cost competitive analyses. The findings from these aspects of the study

contributed to an economic evaluation to determine the feasibility of the project.

Feasibility Study – Ammonia/Urea – Assessment of market dynamics, pricing outlook, delivered

competitiveness to various markets, technology evaluation, project definition, contracting strategy

and financial attractiveness of a large scale ammonia/urea project.

Strategic Plan Development - Ammonia/Nitric Acid/AN/Urea/UAN Solution – The

development of a 10-year strategic plan for margin enhancement for a major Russian fertilizer

company based on technology and manufacturing assessments of its sites, market characterization

and a profitability assessment of each business versus the wider global industry. Businesses and

projects were identified within the substantial portfolio for expansion/investment and others for exit.

Feasibility Study Assessment and Ranking – Ammonia/Methanol – An Asian national oil and

gas company was seeking new domestic investment opportunities to add value to its natural gas

resources. It had received a number of project proposals from global companies in the form of

detailed feasibility studies for ammonia and/or methanol production. The company retained Nexant

to carry out an independent due diligence of these studies and to recommend investment priorities.

Nexant undertook market opportunity studies, price forecasts, financial modelling, and other project

assessments, and rated and ranked the projects.

Price Forecasts – Ammonia – A study for evaluating various scenarios to consider the potential

impact of global oil/gas pricing, changing market dynamics and shipping costs.

Strategic Benchmarking – Nexant performed a study for a major fertilizer company,

benchmarking the value chains for major nitrogen and phosphate fertilizer companies. The study

involved in-depth key performance indicator and key success factor analysis for a number of

companies for functions of sales, marketing, operations, strategy, and technology and supply chain.

Lenders Market Independent Advisor – Lender’s Market Advisor to an ammonia project in

Indonesia which has recently reached financial close. This included an assessment of markets for

ammonia/urea and derivatives across Asia with specific focus in SE Asia and Indonesia. Gas

supply arrangements for petrochemicals and industrial suppliers in Indonesia were reviewed and

competitive assessments versus other Asia and Middle East producers were developed.

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Integrated Fertilizer Complex Independent Engineer Study – Technical due diligence for

lenders to a fertilizer plant in the US to develop, build, own and operate a new state of-the-art

nitrogen-based production facility. The plant will produce ammonia, urea, urea ammonium nitrate

(UAN) and diesel exhaust fluid (DEF).

Ammonia and Methanol PWR – A study of the components of the cost of production of ammonia

and methanol, plus depreciation and ROI.

C1 Value Chain Analysis – For a large IOC Nexant provided a study that profiles 32 chemicals in

the C1 value chain: process technologies, feedstock consumptions, production economics, major

producers, technology licensors, market size, market growth forecasts, and end-uses.

Lenders Market Consultant – This report has been prepared to support the Lenders’ activities in

the financing of a fertilizer project in Gabon. The report reviews the global market prospects and

the cost competitiveness of the proposed facility, and provides commentary on future urea pricing

and profitability, as well as critiquing the marketing plans for urea into the marketplace.

Nitrogen Fertilizer Production Opportunities in the US: Search, Screening and Feasibility –

Nexant reviewed the status of nitrogen fertilizer demand and supply, and production and logistics

infrastructure, as well as natural gas market dynamics in the United States, and of the regulatory

and economic development landscape relevant to new or expanded N-fertilizer production in the

US. Nexant identified feasible, permitted, logistically and politically advantaged production sites

with a focus on the USGC and Mississippi Basin and Sarnia, ON. Nexant visited a short list of

qualified sites, developed contacts with regional and local authorities and other stakeholders.

5.8 SPECIFIC EXPERIENCE RELEVANT TO OLEFINS

MTO Commercial and Technical Risk Assessment – Nexant was retained by the sponsor and its financial

advisor to review market dynamics and pricing outlooks, perform risk assessments for the air

separation unit (ASU), methanol, methanol to olefins (MTO) with olefin cracking process (OCP)

and polyolefin process technologies, critical equipment risk assessment for the methanol, MTO-

OCP and ASU plants and also a high-level social and environmental awareness overview.

MTO Marketing Plan – A gas complex operator in Uzbekistan engaged Nexant to explore the

market opportunities for further sales of polyolefins produced via a methanol to olefins route.

Nexant submitted a marketing plan taking into account demand and logistics.

Olefin Technology Presentation – Nexant was engaged to prepare and present a presentation

on alternative olefin technologies and US shale gas, at a Borealis/Borouge Summit Meeting.

Pre-feasibility Study – To evaluate the feasibility of a grassroots natural-gas-to-methanol project,

Nexant was engaged to lead workshops on global methanol supply and its demand – as a fuel, as

a second derivative and as a substitute for Chinese coal to olefins.

Feedstock Strategy – A Korean petrochemical maker engaged Nexant to assess the impact of

shale gas, coal and natural gas to methanol, and methanol to olefins, and to make

recommendations for a strategic plan.

Market Study – The state agency of Trinidad and Tobago hired Nexant to survey the downstream

methanol market and make recommendations as to the best options for developing downstream

methanol projects, including methanol to olefins.

Feedstock Strategy – A major developer of a methanol to olefins facility in Europe engaged

Nexant to develop a strategic plan to secure feedstock.

Technology Review – Reviews the multitude of syngas-to-products processes, assesses their

integration in co-production with power, and indicates where R&D investigations may lead to

increased efficiency, improved economics, and reduction of greenhouse gas emissions and water

resources.

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Natural Gas Monetization Study – Nexant analyzed markets, pricing, capital and operating costs,

delivered cost competitiveness and financials (including sensitivities) for nine gas monetization

options including methanol, methanol to DME, methanol to olefins (with and without olefin

conversion) and methanol to propylene. A SWOT analysis was performed and the options were

ranked by various financial measures.

Technology Assessment – A U.S. client interested in identifying applications for a membrane-

based oxygen enrichment technology engaged Nexant to evaluate technologies to convert natural

gas to liquid fuel, including Mobil’s MGT/MTO.

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Section 6 Contact Details

6.1 CONTACT DETAILS

AMERICAS

Nexant, Inc.

44 South Broadway, 4th Floor

White Plains, NY 10601-4425

U.S.A.

Attn: Nelly Mikhaiel

Senior Consultant

Tel: + 1-914-609-0315

Fax: + 1-914-609-0399

Email: [email protected]

Or

Attn: Marisabel Dolan

Senior Consultant

Tel: + 1-914-609-0342

Fax: + 1-914-609-0399


Or

Attn: Heidi Junker Coleman

Global Programs Support Manager

Tel: + 1-914-609-0381

Fax: + 1-914-609-0399


EUROPE

Nexant Limited

1 King's Arms Yard, 1st Floor

London EC2R 7AF

United Kingdom

Attn: Anna Ibbotson

Global Director, Petrochemical Markets &

Profitability, NexantThinking


ASIA

Nexant (Asia) Ltd

22nd Floor, Rasa Tower 1

555 Phahonyothin Road

Kwaeng Chatuchak, Khet Chatuchak

Bangkok 10900

Thailand

Attn: Tiankanok Sirichayaporn

Managing Consultant, E&CA, NexantThinking


mailto:[email protected]



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Nexant, Inc.

San Francisco

New York

Houston

Washington D.C.

London

Frankfurt

Bahrain

Singapore

Bangkok

Shanghai

Kuala Lumpur

www.nexant.com

www.nexantthinking.com

Documents

Nexant Complete Report template · Section 1 Introduction and Report Objectives Figure 1.2 Natural Gas Derivatives Currently, less than eight percent of natural gas demand is destined