150 years

Raw materials in the chemical industry –

regional trends in a globalized industry

Asia Petrochemical Industry Conference 2015, Seoul

Kurt Bock BASF May 8, 2015

150 years

150 years

05.07.2010 INTERN 2

Agenda

1 | Globalized world:

Development of the chemical industry

2 | Regional raw material trends

3 | BASF’s approach

150 years

Global challenges are shaping

the chemical industry

3

70% of the world population will live in cities by 2050

30% more food will be needed by 2050

>9 billion

people will live on this planet

by 2050

50% more primary energy will be needed in 2050

150 years

Chemistry is a key enabler to provide

solutions for today’s and future needs

4

Water & nutrition Health care

Mobility & transportation Construction & housing Consumer goods

Energy & resources

150 years

Highlighting the contribution of chemistry to mobility –

chemistry in today’s cars

standard and

engineering

plastics

chemicals

for adhesives

and coatings

coatings

fibers and

textiles

elastomers

lubricants

and oils

catalysts

carbon

black

plastizicers /

plastic additives

leather

metal

treatment

chemicals

engine

coolants fuel

additives

foams

brake fluid

rubbers

steel,

metals

adhesives,

sealants

glass

battery materials silica

ceramics

leather and

textile chemicals

polyurethanes

5

150 years

Global chemicals growth is above GDP growth,

driven by emerging economies

6

1.5

3.5

2.7

0.6

5.3

7.4

* Excluding pharma

Source: IHS Economics, Feri, BASF

Real chemicals* production versus GDP growth, 2000-2014 Percent (CAGR)

GDP Chemicals*

World

Advanced Economies

Emerging Economies

150 years

Emerging economies will account for 60 percent

of chemical production in 2020

7

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

2020 2014 2010 2000

2.1 %

CAGR 2014-2020:

1.4%

3.0%

2.9%

1.2%

6.8%

27%

73%

60%

40%

Western Europe

USA, Canada

Japan, South Korea, ANZ

Emerging Asia**

South America, incl. Mexico

Eastern Europe

Middle East, Africa

4.2 %

* Excluding pharma

** Asia Pacific excl. Japan, South Korea, ANZ

Source: IHS Economics, Feri, BASF

Real chemicals* production, 2000-2020 USD billions (2010 prices and exchange rates)

150 years

Trade in chemicals has strongly gained

in importance over the last 15 years

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

220

0

200

180

160

140

120

100

Trade

Production

Real global production and trade in chemicals*, 2000-2013 Index, 2000 = 100

* Excluding pharma

Source: IHS Economics, Feri, BASF

150 years

Trade in chemicals is strongest between

North America, Europe and Asia

Inter-regional trade

flows in chemicals*, 2013 % of global chemical production

* Excluding pharma

Source: UNCTAD, BASF

North America

Eastern Europe

Africa

Middle East Asia

Oceania

Western Europe

South America

>2.0%

1.0-2.0%

0.5-1.0%

<0.5%

Share in global production:

9

150 years

Increasing importance of intellectual property

in emerging markets

10

0

20000

40000

60000

80000

100000

120000

140000

160000

China Japan Germany France Great Britain South Korea USA

Source: Derwent World Patents Index

Number of priority chemical patent applications 2000 2011

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

150 years

Increasing investment into R&D: China already on EU level,

but still well below South Korea

11

0

1

2

3

4

5

% of GDP

Japan

3.5

USA*

3.1

4.2

1.7 1.9

EU 28

2.5

2.9

Germany

2.6 2.8

China

2.0

1.1

South Korea

2.4

Gross Domestic Expenditure on R&D, 2003-2013

* Data for 2012 instead of 2013

Source: OECD Main Science and Technology Indicators

2013 2003

150 years

How will the contribution of chemistry

based solutions look like in the future?

From molecules to multi-material systems

12

Chemicals,

base polymers

Performance

products

Advanced materials

Multi-material

systems

Value generation

Com

ple

xity

150 years

Having a look at the automotive industry again Lightweight composites will help to reduce weight

13

Legislation on reduction of CO2 emissions Germany (parallel in EU, J, KR, USA, CN)

2010

143g

2015

120g

2021

CO2/km

95g

2025

75g*

Hang-on parts

Whole modules

Body today

Structural parts

Composite Market Potential

Complete new vehicle concepts

2030

*under

discussion

150 years

Global common denominator – chemistry key enabler to provide solution for today’s and future needs

Increasing importance of R&D in all regions

Global chemical production growing above GDP, driven by emerging markets

Strong entanglement between regions via increasing trade

Conclusions –

trends in globalized chemical industry

14

150 years

05.07.2010 INTERN 15

Agenda

1 | Globalized world:

Development of the chemical industry

2 | Regional raw material trends

3 | BASF’s approach

150 years

Raw material change is a historic reality,

but the future will see a regional diversification

16

Pre industrial Epoch Coal Oil Regional

Diversity in

Feedstock

1800 1850 1900 1950 2000 2050

Renewables

Coal

Gas

Oil

150 years

Raw material landscape is changing,

Europe in a sandwich position

* Natural Gas Liquids

** Liquefied Petroleum Gas

North America New capacities based on shale gas

Export of NGLs*/ LPG** and base-products

China Strong domestic demand will drive capacity additions

Abundant coal reserves support coal-to-chemicals investments

Europe Ongoing restructuring of olefins/ polyolefins industry

Focus on innovative chemistry

Middle East Diminishing feedstock advantage due to shale gas

(USA) and coal (China)

Export hub for raw materials and base-products

South America Focus on renewable resources

Will remain net importer of chemicals from the U.S.

17

150 years

USA: The shale gas boom increased

competitiveness in ethylene production

18 Source: American Chemical Society

Change in the Global Cost Curve for Ethylene 2005 versus 2012

Production Costs ($/pound)

Global Supply (Cumulative in billions of pounds)

2005

2012

Other Northeast Asia

Western Europe

United

States Other

Northeast

Asia

China

Western

Europe China

United

States Middle

East

Middle East

307 247 172 136 73 0

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

150 years

Current projects in China (# of projects) Coal-based capacities in China

China: First wave of coal-based capacities

focusing on ammonia and methanol…

19

Coal demand for running chemical projects in China exceeds total German coal demand

Shenhua Ningmei project (province Ningxia) at final stage of extension

10% of total German CO2 emissions

0

20

40

60

80

Million tons

per year

MEG

6

C2, C3

Olefins

32

PVC

24

Methanol

39

Ammonia

74

Under construction

Planned (until 2017)

Running Ningxia

(7)

Henan (11)

Jiangsu (5)

Shandong (5)

Anhui (2)

Inner Mongolia (42)

Shanxi (7)

Gansu (2)

Xinjiang (19)

Qinghai (4)

Shaanxi (11)

150 years

Coal

Calcium Carbide

Acetylene PVC

Coking Coal Tar Benzene

Syngas

Crude Methanol

Ammonia

Methanol

Ethylene

Propylene

Ethanol

MEG

MTO/MTP

Acetyl

Oxalate Ester

Old

Coal Chemicals

New

Coal Chemicals

… but product portfolio is broadening

20

150 years 0

2

4

6

8

10

12

14

16

18

1990 2000 2010 2020 20300

2

4

6

8

10

12

14

16

18

1990 2000 2010 2020 2030 2035

Renewables on the rise Strongly driven by national politics,

contributing to regional diversification of the raw material mix

21 International Energy Agency: World Energy Outlook 2009

Shares of energy sources (in billion toe)

Demand by region (in billion tons)

OECD

Non-OECD

2010 2030 1990

India

China

Other

Non-OECD

2010 2030 1990

Renewables

Fossil Fuels

Biomass

Nuclear energy

150 years

9%

68% 21%

Renewable feedstock in the chemical industry

Within the EU, renewables account for 9% of total feedstock

22

Shares in total organic raw materials (feedstock use only), 2011 Percent

Source: CEFIC

Natural gas

Coal

Renewables

Mineral oil

Coal 1%

Renewables

150 years

Washington

Canada

- Manitoba

Canada

- Ontario Japan

Thailand

Vietnam

Turkey

Ukraine

Mexico

Brazil

Chile

Russia

EU

Keep an eye on regulatory developments

Development of emission trading systems world-wide

In force

Scheduled

Considered

23

150 years

Increased diversity in the raw material base in future – despite a temporarily lower oil price

Most chemical value chains are affected

Process strategies need to adapt to regional raw material mix

Process and product innovation key

Conclusions

24

150 years

05.07.2010 INTERN 25

Agenda

1 | Globalized world:

Development of the chemical industry

2 | Regional raw material trends

3 | BASF’s approach

150 years

BASF’s approach Investing close to the markets

26

Singapore Kuantan

Hong Kong

Nanjing

Freeport

Florham Park

Geismar

Ludwigshafen Antwerp

São Paulo Regional centers

Selected sites

Verbund sites

Selected research

and development sites

150 years

Major investment project start-ups in 2015

* Capacity not published

.

Pasir Gudang

Theodore

Polymer dispersions*

Trilon® M*

Automotive coatings*

Shanghai

Camaҫari

Acrylic acid

+160,000 mt

SAP

+60,000 mt

Automotive

catalysts*

Chennai

Chongqing

Nanjing

Geismar

Maoming

Neopentylglycol

+40,000 mt

Specialty amines*

Ethylene oxide*

MDI

+400,000 mt

Isononanol*

TDI complex

+300,000 mt

Specialty amines*

Crop protection products*

Formic acid

+50,000 mt

Polyurethane systems

Polyamides

+100,000 mt

Ludwigshafen

Yesan

Specialty plastics*

Precious metals

recycling*

Cinderford

Guaratingueta

Crop protection

formulations*

Major capex projects for start-up in 2015

Upstream businesses

Downstream businesses

27

150 years

Chemical

Intermediates

Portfolio of technologies needed to adapt

to regional feedstock mix

28

Oil

Coal

Natural Gas

Renewables

150 years

Cost leading gas-to-propylene technology covers supply gap

U.S. Gulf Coast (Freeport, TX)

World-scale plant

Port Arthur cracker and new on-purpose propylene complex to cover entire captive propylene demand

Lower cost than alternative PDH technology

Propylene supply North America

Acrylic acid Oxo-alcohols Polyols …

Propylene Propylene (Port Arthur cracker)

Down- stream

products

Methanol

Methane (from shale gas)

Flexible feed (NGL’s, Naphtha)

Natural gas Exploiting the shale gas potential in North America – Methane to Methanol

to Propylene (MMTP) project

29

150 years

Plant oil processor

Lignocellulosic Biorefinery

Vegetable oils

Glucose

Saccharose

Glucose

Xylose

Lignin

Renewable feedstock

Biorefineries giving access to known and new chemicals

30

1st generation

Rape seed

Corn

Sugar cane

Wood

Switchgrass

Straw

Corn mill

Sugar mill

2nd generation (ex non-edible biomass)

Food,

Fuels,

Chemicals

Fuels,

Chemicals

150 years

Operational excellence

Running existing plants highly efficiently – example: the energy Verbund

Steam consumption in Ludwigshafen

Steam export

Acrylic acid plant

Sulfuric acid plant

Urea plant

Adipic acid plant

Steam consumption

Power plant

Administration

31

150 years

Growth fields

White

Biotechnology

Materials, Systems

& Nanotechnology

Raw Material Change

Key customer industries

Health & Nutrition

Consumer Goods

Transportation

Energy & Resources

Electronics

Agriculture

Construction

Technology fields

...

Batteries for Mobility

Enzymes

Heat Management for Construction

Organic Electronics

Functional Crop Care

Plant Biotechnology

E-Power Management

Wind Energy

Lightweight Composites

Water Solutions

Continue to invest in chemistry-based innovations

Growth and technology fields

32

150 years

BASF‘s approach in a nutshell

33

Investment close to the markets

Adaption to regional raw material mix via portfolio of technologies, e.g.

MMTP

2nd generation biorefineries

Increased flexibility to process different feedstock materials

Strengthening value chains (e.g. backward integration)

Operational excellence as basis to stay competitive

Globalizing R&D platform to exploit regional innovation potential

Continued investment in chemistry-based innovations

150 years

150 years

150 years

China has become the biggest chemicals producer

within the last 15 years

35

Real chemicals* production USD billions (2010 prices and exchange rates)

2000 2014

614

506

225

205

183

86

China

South Korea

Germany

Japan

United States

EU 28 659

549

205

194

148

1,181

* Excluding pharma

Source: IHS Economics, Feri, BASF

150 years

Global chemicals growth is above GDP growth,

driven by China

36

4.0 4.0

9.1 13.3

0.8

3.5 2.7

-0.7

1.0 0.4

1.8 0.6

0.5 1.2

GDP Chemicals*

Real chemicals* production versus GDP growth, 2000-2014 Percent (CAGR)

EU 28

Japan

Germany

United States

South Korea

China

World

* Excluding pharma

Source: IHS Economics, Feri, BASF

150 years

Overview on raw material costs

Heating value as a proxy, disadvantage for renewables

37

5-year-average 2009-2013 (€/GJ)

0

5

10

15

20

25

Europe Brazil USA

Western

China

Naphtha Sugar Natural gas Coal

*Source: BASF

150 years

C5 / C6 sugar & aromatic structures

based value chains

Woody Biomass

Hydrolysis

C6 - Glucose Lignin

Example: BASF Venture Capital –

Renmatix Biorefinery RENMATIX Plantrose®

Technology scope

C5 - Xylose

US-based biotech start up

Hydrolysis of woody biomass

with super critical water

Separation of sugar streams and lignin

Renewable feedstock

2nd generation biorefineries not in competition to food

38