gcc petrochemicals industry · – world war i munitions – fertilizers in 1925, franz fischer and...
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GCC Petrochemicals Industry
11-12 February 2019
Singapore
1
The chemical industry was created by German scientists and grew in the
US and Saudi Arabia, enabled by feedstock, regulation and megaprojects
Germany US Saudi Arabia
▪ In 1909, Haber-Bosch
process for ammonia
production invented (1918
and 1931 Nobel Prizes)
– World War I munitions
– Fertilizers
▪ In 1925, Franz Fischer and
Hans Tropsch invented a
process to liquify coal / gas
▪ In 1950s, Ziegler and Natta
invented polymerization
catalysts (1963 Nobel Prize)
▪ Ronald Reagan deregulated
the US oil and gas industry in
the early 1980s
– Led to massive growth in
supply and infrastructure
– Enabled petrochemical
investments
▪ Master gas pipeline project
proved to be key enabler
– Allowed country to put
its ethane to good use,
as opposed to flaring it
– Attracted significant
local and foreign
investment to exploit
gas resources
2
Today, the size of the chemicals industry is USD ~4 trillion, with Asia and
GCC driving growth over the past decade
2.6 2.6
3.8
4.1
3.8 3.8
09 112007 201713 15
+4%
Source: European Chemical Industry Council, Chemdata International, American Chemistry Council, GPCA
Global chemicals revenue
USD trillion
Chemicals revenue growth by region
% CAGR 2007-2017
14.0%
9.0%
8.9%
0.5%
-0.7%
-0.7%
-1.8%
NAFTA
GCC
China
Latin America
Rest of Asia
Africa
EU28
3
GCC’s share in global petrochemical capacity has more than doubled over
the past decade, and Saudi Arabia is by far the biggest player in the GCC
Global petrochemical capacity
Million tons per annum (% of total)
GCC chemicals revenue by country
2017, % of total
Source: ICIS, GPCA
Others
20172000
167
(7%)
GCC
Europe
North America
Rest of Asia
China
1,186
2,545
38
(3%)
10%
29%
12%
25%
21%
33%
23%
14%
78%
8%
6%
5%
Kuwait
Oman
Saudi Arabia
Qatar
UAE0%
Bahrain
3%
USD 84 Bn
4
Middle East is the third largest gas producer globally, and is expected to
be the second largest driver of growth until 2035, after US shale gas
Source: BP Statistical Review 2018, BP Energy Outlook 2017
Forecasted gas supply growth
Billion cubic feet per day
2.5
0.5
0.0
1.0
3.5
1.5
3.0
2.0
4.0
Africa
2000 2005 2010 2015
North America
CIS
Asia Pacific
Middle East
Europe
Total natural gas production
Trillion cubic meters per year
5
Price of gas feedstock in Saudi Arabia has been significantly lower than
the rest of the world e.g., the US, although the gap has been closing
Source: Wood Mackenzie
0
2
4
6
8
10
12
14
16
18
2004 2006 2008 2010 2012 2014 2016 2018
US Mont Belvieu Ethane
KSA Ethane
2004 2006 2008 2010 2012 2014 2016 2018
US Mont Belvieu Propane
KSA propane
Ethane price advantage in Saudi Arabia
USD per mmBtu
Propane price advantage in Saudi Arabia
USD per mmBtu
6
Feedstock advantage accounts for ~60% of global annual EBITDA pool; GCC
players have historically focused on the upstream part of the value chain
Petrochemical value pools1,2
EBITDA USD Bn, 2013-2015 weighted average
Coal
Natural
Gas
NGL4
LPG
Naphtha
Gasoil
31
C2
C3
C4
C1
Aro-
matics
Ammonia
Methanol
Ethylene
Propylene
Butadiene,
Butene
BTX5
PE, PVC
PP, ABS
PBR, SBR
PS, ABS,
PET, PC
Urea, VAM,
Acetic Acid
EO, MEG, LAO
PO, Acrylics,
MMA , ACN, ECH
MMA
PX, PTA, SM,
TDI, MDI, Phenol
127
5
19
2.6
1
3.6
69
18
1
4
Final productsIntermediates
Building
blocks
POM
Total
36
Feed-
stock
10
5.5
4.4
0
0.2
0
12
1.2
2.4
8.0
0.1
0.2
74
30
42
2.6
0
0
Feedstock advantage3
First level
Stand-alone value contribution
1 Returns = EBITDA per ton/capital replacement cost per ton 2 Transfer between stages at market price 3 Value pool associated with advantaged feedstock
4 Natural Gas Liquids, both from conventional and shale 5 Benzene, Toluene, Xylene
Source: McKinsey & Company
7
In the late 90’s, GCC regulators put in place a number of key enablers that
unlocked the growth potential of the region in the period 2000-2017
Enablers put in
place in GCC
▪ Master gas project in the
late 1970s, enabling
access to feedstock
▪ Clear regulatory
framework and process
for feedstock allocation
▪ Development of dedicated
industrial cities with their
own authorities, industry-
friendly processes,
infrastructure etc
▪ Access to competitive
project financing
through government
funding agencies 1217
24
38
62
109
142
168
200019951985 20151990 2005 2010 2017
+7%
+9%
GCC petrochemical industry production capacity
Million tons per annum
Source: ICIS, GPCA
8
Regulators pushing GCC players to produce more complicated molecules
and integrate downstream to create more jobs
Regulators pushing for more complicated
molecules…
% base chemical
…and the result is more complicated chemistries
taking place in the GCC
Number of different products
97%
77% 72%62%
23% 28%38%
100%3%
20101990 20202000
C3 and higher
C1 and C2
1128
17
2
20
88
15
26
18
23
3
03
7
2
1990
Butadience
derivatives
35
2000
43
2010 2020
Methane
derivatives
Ethylene
derivatives
Propylene
derivatives
Aromatics
derivatives
1625
51
114
Source: GPCA
9
Success in specialty / downstream products requires customer
proximity, while GCC players rely heavily on long-distance exports
Source: UN Trade Statistics, GPCA
14
52%
2010
48%GCC sales
61%
39%
12
67%
33%
100%
61%
39%
16
66%
34%
2017
Exports
GCC chemicals industry sales
% exports
GCC chemicals exports
% by destination based on value of exports, 2017
64%
14%
6%
10%
3%
Asia
South America
3%
Western Europe
Africa
North America
Rest of the world\
USD 56 Bn
10
GCC players have been steadily increasing their overseas investments to
get closer to customers, as feedstock advantage at home erodes slowly
Drivers of overseas
investment by GCC players
▪ New sources of advantaged
feedstock in North America
– Limited availability of (new)
gas feedstock in GCC
– Increasing feedstock,
energy, utility and labor
costs in GCC
▪ Desire to move closer to
customers
– Better pricing decisions
– Greater ability to gain and
defend market share
– Fear of trade barriers /
trade wars
▪ Access to talent
Overseas capacity of GCC players
Million tons per annum
12%
54%
46%
0%
20172007
27%
24%
49%
29%
59%
2027F
North America
Europe
Asia11
19
39
+6%
+8%
Source: GPCA
11
Chemical industry accounts for ~3% of jobs and ~6% of GDP in the GCC;
in coming years, regulators will be trying to strike balance in their stance
Source: GCC Statistics, GPCA
Employment impact of GCC chemical industry
Thousand jobs in 2017
GDP impact of GCC chemical industry
USD Bn GDP contribution in 2017
166
880
498
216
Total
Direct
Indirect
Induced
▪ 3% of total GCC employment
46
84
27
12Induced
Indirect
Direct
Total
▪ 6% of total GCC GDP
Key factors for regulatory decision-making
▪ Historical objective in supporting industry was
to monetize stranded gas resources
– Convert gas to plastics and export, as
opposed to flaring
▪ Over time, industry became important
employer, GDP contributor and talent pool
▪ Preparing for non-oil economy, regulators need
to balance:
– Challenge of supplying competitive
feedstock
– Risk of losing industry growth and
investment
– Ensuring long-term sustainability and
competitiveness of local industry
12
In summary, GCC petrochemical players are facing a number of
challenges today
Key challenges for GCC petrochemical players
▪ Diminishing price advantage for ethane and propane due to e.g.,
– Competition from US shale gas
– Competition from coal to olefins in China
▫ Slower than before, due to environmental concerns
▪ Limited availability (i.e., volumes) of gas feedstock for petrochemical conversion
▪ No clear pricing framework for liquid feedstocks
1
2
3
13
THANK YOU
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