by mohammed h. al-mady vice chairman & managing director role of primary industrial projects in...
TRANSCRIPT
By
Mohammed H. Al-MadyVice Chairman & Managing Director
Role of Primary Industrial Projects in the National Economy
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy. Saudi Arabia’s Investment Prospects. Saudi Arabia’s Current Situation. Future Saudi Arabia Business Development Prospects. Partnership Financial Track Record
Agenda
Global Petrochemical Trends.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations.
1984-1999 1984-19991984 1999 Growth Rate 1984 1999 Growth Rate
North America 38% 34% 3% 42% 23% 0%
West Europe 28% 22% 1% 16% 11% 2%
North East Asia 16% 19% 4% 10% 6% 1%
Traditional Markets 82% 75% 2% 68% 41% 1%
Eastern Europe 8% 7% 2% 21% 12% 0.5%
Latin America 4% 4% 3% 1% 18% 24%
South Asia 3% 7% 11% 3% 13% 15%
Mid-East+Africa 3% 8% 8% 8% 17% 9%
Developing Regions 10% 18% 8% 11% 47% 14%
of which Saudi Arabia 0% 3% nc 3% 11% 13%
WORLD 100% 100% 3% 100% 100% 4%
Sources: SRI ( 1986 & 2000 "World Ethylene" and "World Methanol") ; DeWitt ( 1999 "Ethylene Annual") ; CMAI ( 1999 "World Methanol") .
METHANOL
% World CapacityREGION % World Capacity
ETHYLENE
FOR PAST 15 YEARS, GLOBAL PETROCHEMICAL INDUSTRY MIGRATING TO DEVELOPING REGIONS...
…DEVELOPING REGION CAPACITY HAS BEEN EXPANDING 4x FASTER THAN IN TRADITIONAL MAJOR MARKETS.
Chart 1
1990 - 1999
1999 - 2020
1990 - 1999
1999 - 2020
1990 - 1999
1999 - 2020
North America 399 1.5% 1.0% 9866 2.8% 2.3% 3.4% 2.9%
Western Europe 455 0.5% 0.4% 9179 1.8% 2.4% 4.0% 2.3%
Japan 127 0.3% -0.2% 4108 1.3% 1.5% 1.0% 1.1%
Traditional Markets 980 0.9% 0.6% 23153 2.1% 2.2% 3.2% 2.4%
Eastern Europe 409 0.4% 0.1% 962 -1.3% 3.8% 134% 11.1%
Latin America 406 1.6% 1.2% 1667 3.0% 4.2% 16.7% ^ 5.8%
Other Asia (ex-Japan) 3194 1.5% 1.2% 3731 5.5% 5.6% 6.2% 4.3%
Mid-East+Africa 904 3.5% 2.0% 1011 2.7% 4.4% 15.3% 6.9%
Developing Regions 4504 1.9% 1.4% 6409 4.4% 5.0% 10.4% 5.1%
of which Saudi Arabia 20 2.4% 3.3% 132 2.6% 5.6% 1.2% 1.9%
WORLD 5893 1.5% 1.2% 30524 2.3% 2.9% 10.8% 3.3%
* Source: Standard & Poor's DRI "World Outlook" (Fourth Quarter 1999 edition) .
^ 1990-1999 Latin American inflation averages exclude Brazil -- which averaged 256% /year.
Real GDP
Annual Growth
Population
1999
(million)
Inflation
(Consumer Price Index)
Standard & Poor's DRI World Projections*
REGION
Annual Growth Annual Growth 1999
(US$ billion)
INDUSTRY MIGRATION TO DEVELOPING REGIONS PARTLY REFLECTS THEIR FASTER ECONOMIC GROWTH ...
…PROJECTED TO CONTINUE FOR AT LEAST NEXT DECADE.
Chart 2
Chart 3
1999 % World 1999 % World
North America 38% 34% 3% 7438 5% 9 54 5% 13
Western Europe 28% 22% 1% 4426 3% 15 18 2% 8
Japan 8% 8% 4% 40 0% nm 0 0% nm
Traditional Markets 74% 64% 2% 11904 8% 11 73 7% 11
Eastern Europe 8% 7% 2% 56700 39% 81 59 6% 22
Latin America 4% 4% 3% 6310 4% 61 90 9% 38
Other Asia (ex-Japan) 11% 18% 11% 10333 7% 41 44 4% 16
Mid-East+Africa 3% 8% 8% 60714 42% 202 755 74% 75
Developing Regions 18% 29% 8% 77357 53% 118 888 87% 59
of which Saudi Arabia 0% 3% nc 5777 4% 123 261 26% 92
WORLD 100% 100% 3% 145961 100% 60 1020 100% 42
* Reserves as per SRI "World Petrochemicals" ( 2000 ) and Petroleum Economist "World Gas" ( 2000 ); Reserve Years = 1999 Reserves divided by 1999 Production.
** Projections based on Tecnon "World Petrochemical Surveys" ( 1985 & 1995 ), SRI "World Petrochemicals" ( 2000 ), and Chem Systems "Ethylene Global Review " ( 1999 ).
1984 -
99
Growth
Reserves
(years)
Reserves
Natural Gas*
(billion cubic meters)
Reserves
(years)
(billion barrels)
Reserves
REGION1984
World Ethylene and Energy Resources*
Ethylene Capacity**
(% world total)
1999
Crude Oil*
INDUSTRY MIGRATION ESPECIALLY ENCOURAGED BY THE DEVELOPING REGION'S ENERGY RESOURCES ...
…PARTICULARLY IN MID-EAST AND SAUDI ARABIA.
Chart 4
1999 2004 1999 2004
Latin AmericaArgentina 0.3% 0.6% 0.1% 1.0% 0.5% 0.3% 6067 3.9% 2.3%
Venezuela 0.6% 1.4% 4.0% 3.3% 2.8% 7.1% 9458 3.5% 9.4%
South AsiaIndonesia 0.6% 0.5% 2.8% 2.3% 1.4% 0.5% 3552 4.8% 7.8%
Malaysia 0.7% 1.3% 1.9% 1.7% 1.6% 0.4% 10130 4.2% 4.1%
Mid East + AfricaAbu Dhabi - 0.5% - - 3.8% 9.4% 15898 3.9% 2.5%
Algeria 0.2% 0.2% 0.3% 0.3% 3.1% 0.9% 3529 4.0% 9.1%
K uwait 0.7% 0.6% - 1.5% 1.0% 9.2% 9443 3.7% 2.0%
Iran 0.8% 1.0% 0.3% 1.9% 15.8% 8.8% 4950 3.9% 5.0%
Qatar 0.6% 0.9% 0.6% 1.9% 5.8% 0.4% 16383 4.2% 2.5%
Saudi Arabia 3.5% 4.8% 11.3% 11.2% 4.0% 25.6% 11276 5.6% 1.9%
Mid East+Africa (total) 8% 10% 17% 22% 42% 74% 3880 4.4% 6.9%
WORLD 100% 100% 100% 100% 100% 100% 4970 2.9% 3.3%
* Sources: Standard & Poor's DRI "World Outlook" (Fourth Quarter 1999 ), SRI "World Petrochemicals" (January 2000 ); Petroleum Economist (May 2000 ).
** GDP per Capita based on 1998 'Purchasing Power Parity' estimates as per Standard & Poor's DRI analysis (Fourth Quarter 1999 ).
Representative Developing Region
Producers
1999 - 2020 Growth1998 GDP per
Capita** (US$)
Inflation
(CPI)
Economic OutlookEnergy Resource Position (% world)
Methanol % world capacity
Chemical Feedstock Outlook
Real GDP
Gas Reserves
Oil Reserves
Ethylene %
world capacity
INDUSTRY TRENDS SEEM FAVORABLE FOR MID EAST COMPARED TO OTHER DEVELOPING REGION PRODUCERS…
…AND SAUDI ARABIA SEEMS WELL PLACED WITHIN MID EAST.
Chart 5
1999 -2004
2004 -2009
1999 -2004
2004 -2009
1999 2004
North America 3% 3% 3% 5% 4% 3% 2210 2450 2700
Western Europe 1% 2% 1% 4% 2% 2% 295 -610 -1500
Japan 4% -1% 0% 3% -1% 0% -5 1400 550
Traditional Markets 2% 2% 2% 4% 3% 2% 2500 3240 1750
Eastern Europe 2% 1% 2% -3% 2% 3% 245 750 50
Latin America 3% 10% 4% 7% 11% 5% -245 -890 100
Other Asia (ex-Japan) 11% 6% 5% 11% 7% 8% -3800 -5020 -6250
Mid-East+Africa 8% 10% 5% 7% 11% 7% 1300 1920 4350
Developing Regions 8% 7% 5% 9% 9% 7% -2745 -3990 -1800
of which Saudi Arabia nc 11% 5% 13% 10% 7% 1580 2550 4300+
WORLD 3% 4% 3% 5% 4% 3% 0 0 0
* Ethylene + Ethylene contained within major ethylene derivative products (polyethylene, EDC/PVC, ethylene glycol, styrene and polystyrene).
** Sources: Tecnon "World Petrochemical Surveys" ( 1985 & 1995 ), SRI "World Petrochemicals" ( 2000 ), and Chem Systems "Ethylene Global Review" ( 1999 ).
REGION
Actual 1984-1999
Actual 1984-1999
World Ethylene and Ethylene Derivatives*
Estimated**
Ethylene Capacity Growth
Estimated** Estimated**
Net Exports Volume (ooo tons)Consumption Growth
Ethylene + Derviatives*
Actual
1989
MIGRATION TO DEVELOPING REGIONS EXPECTED TO CONTINUE…
…WITH MID-EAST AND SAUDI ARABIA AS MAJOR BENEFICIARIES.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products.
Chart 5
1999 -2004
2004 -2009
1999 -2004
2004 -2009
1999 2004
North America 3% 3% 3% 5% 4% 3% 2210 2450 2700
Western Europe 1% 2% 1% 4% 2% 2% 295 -610 -1500
Japan 4% -1% 0% 3% -1% 0% -5 1400 550
Traditional Markets 2% 2% 2% 4% 3% 2% 2500 3240 1750
Eastern Europe 2% 1% 2% -3% 2% 3% 245 750 50
Latin America 3% 10% 4% 7% 11% 5% -245 -890 100
Other Asia (ex-Japan) 11% 6% 5% 11% 7% 8% -3800 -5020 -6250
Mid-East+Africa 8% 10% 5% 7% 11% 7% 1300 1920 4350
Developing Regions 8% 7% 5% 9% 9% 7% -2745 -3990 -1800
of which Saudi Arabia nc 11% 5% 13% 10% 7% 1580 2550 4300+
WORLD 3% 4% 3% 5% 4% 3% 0 0 0
* Ethylene + Ethylene contained within major ethylene derivative products (polyethylene, EDC/PVC, ethylene glycol, styrene and polystyrene).
** Sources: Tecnon "World Petrochemical Surveys" ( 1985 & 1995 ), SRI "World Petrochemicals" ( 2000 ), and Chem Systems "Ethylene Global Review" ( 1999 ).
REGION
Actual 1984-1999
Actual 1984-1999
World Ethylene and Ethylene Derivatives*
Estimated**
Ethylene Capacity Growth
Estimated** Estimated**
Net Exports Volume (ooo tons)Consumption Growth
Ethylene + Derviatives*
Actual
1989
MIGRATION TO DEVELOPING REGIONS EXPECTED TO CONTINUE…
…WITH MID-EAST AND SAUDI ARABIA AS MAJOR BENEFICIARIES.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy.
Chart 6
Primary Manufacturing 0.6 1.2 14 31 28% 6% 15% % Total 2% 1% 5% 7% - - -
Oil and Related 18 99 133 210 3% 4% 3% % Total 66% 85% 46% 49% - - -
All Other ** 9 16 143 192 25% 2% 11% % Total 32% 14% 50% 44% - - -
Total ** 28 116 290 432 10% 3% 6% % Total 100% 100% 100% 100% - - -
Source: Ministry of Planning 5-Year Plan "Facts and Figures" .
* Data show n on current price basis.** Total ex cludes estimated Gov ernment Serv ices and Community and Social Serv ices ex penditures (equal to SR 111 billion in 1997) .
1974 -
1997
Saudi Arabia Gross Domestic Product*
Major Sector
Billion Saudi Riyals* Compound Growth Rate
19971972 1974 19841974 -
1984
1984 -
1997
PRIMARY MANUFACTURING HAS GROWN RAPIDLY...
...WITH AN INDIRECT 'MULTIPLIER' EFFECT ESTIMATED AT 5-8x ON DIVERSIFYING ECONOMY AS A WHOLE.
Chart 7
1974 - 1984 - 1974 -
1984 1997 1997
Primary Manufacturing 2% 1% 5% 7% 28% 7% 15%
Oil and Related 66% 85% 46% 49% 3% 4% 3%
All Other ** 32% 14% 50% 44% 25% 2% 11%
Total ** 100% 100% 100% 100% 10% 3% 6%
Manufacturing Indicators
Number Of Factories 250 357 1196 2533 - 6% 9%Direct Employment (ooo) 19 28 133 228 *** - 4% 10%
Gas Use (bill. cu. m.) ****
Gas P roduced - 47 26 45 **** - 4% 0% Gas Utilized - 6 23 44 **** - 5% 9%
SABIC P roduction (million tons) - - 2 24 - 17% -
Source: Ministry of Planning 5-Year Plan "Facts and Figures"; SABIC Marketing estimates.
* Data show n on current price basis.
** Total ex cludes estimated Gov ernment Serv ices and Community and Social Serv ices ex penditures (equal to SR 111 billion in 1997) .
*** Using a 5-8x multiplier, SABIC's 16,000 direct jobs w ould help create and support up to 100,000+ jobs elsew here in the economy .
**** Sources: Ministry of Planning summary of Ministry of Petroleum data (1974 and 1984); SABIC estimates reflecting Aramco data (1997).
Saudi Arabian Gross Domestic Product
Major Sector
Percent of GDP* Compound Growth
19971972 1974 1984
CHEMICAL INDUSTRY EXPANSION PROVIDES SOLID FOUNDATION FOR MANUFACTURING GROWTH...
...BY UTILIZATION OF 'STRANDED' GAS RESOURCES.
Chart 8
Chemicals, P lastics, Metals 1.9 1% 15.1 7%
Crude Oil and Oil Products 128 97% 206 90%
All Other Exports 3 2% 6 3%
TOTAL K SA EXPORTS 132 100% 227 100%
BALANCE OF TRADE 1997Chemicals, Plastics, Metals (only) Chemicals Only
Imports 8.7
Exports 9.9
NET IMPORTS -1.2
Source: Ministry of Planning 5-Year Plan "Facts and Figures"; Economist Intelligence Reports "EIU" (May 2000).
Saudi Arabian Imports and Exports (billion Saudi Riyals)
KSA EXPORTS
1984 1997
SR billion %
15.1
5.1
1984
25.8
1.9
23.9
SR billion %
1997
20.2
CHEMICAL INDUSTRY EXPANSIONS HAVE 'BEGUN' TO DIVERSIFY AND EXPAND TRADE...
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy. Saudi Arabia’s Investment Prospects.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy. Saudi Arabia’s Investment Prospects. Saudi Arabia’s Current Situation.
Chart 4
1999 2004 1999 2004
Latin AmericaArgentina 0.3% 0.6% 0.1% 1.0% 0.5% 0.3% 6067 3.9% 2.3%
Venezuela 0.6% 1.4% 4.0% 3.3% 2.8% 7.1% 9458 3.5% 9.4%
South AsiaIndonesia 0.6% 0.5% 2.8% 2.3% 1.4% 0.5% 3552 4.8% 7.8%
Malaysia 0.7% 1.3% 1.9% 1.7% 1.6% 0.4% 10130 4.2% 4.1%
Mid East + AfricaAbu Dhabi - 0.5% - - 3.8% 9.4% 15898 3.9% 2.5%
Algeria 0.2% 0.2% 0.3% 0.3% 3.1% 0.9% 3529 4.0% 9.1%
K uwait 0.7% 0.6% - 1.5% 1.0% 9.2% 9443 3.7% 2.0%
Iran 0.8% 1.0% 0.3% 1.9% 15.8% 8.8% 4950 3.9% 5.0%
Qatar 0.6% 0.9% 0.6% 1.9% 5.8% 0.4% 16383 4.2% 2.5%
Saudi Arabia 3.5% 4.8% 11.3% 11.2% 4.0% 25.6% 11276 5.6% 1.9%
Mid East+Africa (total) 8% 10% 17% 22% 42% 74% 3880 4.4% 6.9%
WORLD 100% 100% 100% 100% 100% 100% 4970 2.9% 3.3%
* Sources: Standard & Poor's DRI "World Outlook" (Fourth Quarter 1999 ), SRI "World Petrochemicals" (January 2000 ); Petroleum Economist (May 2000 ).
** GDP per Capita based on 1998 'Purchasing Power Parity' estimates as per Standard & Poor's DRI analysis (Fourth Quarter 1999 ).
Representative Developing Region
Producers
1999 - 2020 Growth1998 GDP per
Capita** (US$)
Inflation
(CPI)
Economic OutlookEnergy Resource Position (% world)
Methanol % world capacity
Chemical Feedstock Outlook
Real GDP
Gas Reserves
Oil Reserves
Ethylene %
world capacity
INDUSTRY TRENDS SEEM FAVORABLE FOR MID EAST COMPARED TO OTHER DEVELOPING REGION PRODUCERS…
…AND SAUDI ARABIA SEEMS WELL PLACED WITHIN MID EAST.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy. Saudi Arabia’s Investment Prospects. Saudi Arabia’s Current Situation. Future Saudi Arabia Business Development Prospects.
Agenda
Global Petrochemical Trends. Migration to “The Best Cost” Locations. Evolution to Higher Value “Downstream” Products. Impact on Saudi Arabian Economy. Saudi Arabia’s Investment Prospects. Saudi Arabia’s Current Situation. Future Saudi Arabia Business Development Prospects. Partnership Financial Track Record.
Chart 9
> Partner Average Annual Operating Income as % Initial Equity: 42%/year
8 JOINT VENTURES > Average Cash Dividends Paid to Partners as % Initial Equity: 28%/year
( 11 PARTNERS )WHICH BEGAN > None of the 8 Joint Ventures Gave SABIC Partners a Negative Return.
OPERATIONS IN
EARLY - MID 1980'S > Cash Dividends Paid Rate of Return:
> Compound Growth of Partner Equity Value:
Source: SABIC Treasury Department
* Note : combined financials shown assume all joint ventures began in 1987 -- which
would tend to slightly overstate actual returns of those joint ventures with earlier start-ups.
1987 STARTUP
Total Return to Partners (1987 - 1999 ) 36%/ year
1987-1999 SABIC PARTNER RETURNS *
25%/year
11%/year
PAST FINANCIAL RESULTS WERE GENERALLY SATISFACTORY…
…EVEN THOUGH 1987-1999 WAS A VOLATILE PERIOD …FOR MANY GLOBAL PETROCHEMICAL COMPANIES.
Chart 10
> Add value to our natural resources> Supplement traditional oil exports> Introduce new technologies> Provide basic linkage backwards to raw material and forward to variety of secondary industries
> Diversify economy and make a profit in the process
P rinciple
Objectives
U ltimate Aim
> Make use of comparative advantages available to us
EXCERPTS FROM SABIC'S 4th ANNUAL REPORT ( 1980 )
20 YEARS AGO, SEVERAL GOALS ESTABLISHED FOR SABIC AND PRIMARY INDUSTRIAL DEVELOPMENT IN THE KINGDOM...
… 20 YEARS LATER, GOALS ARE NOT MUCH DIFFERENT.
WHAT IS DIFFERENT IS THE KINGDOM'S ABILITY TO SHOW INVESTORS A TANGIBLE TRACK RECORD OF INDUSTRIAL DEVELOPMENT SUCCESS.