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The Great Indian Petrochemical Conundrum

Indian Petrochem- 2018 Mumbai, India

Balasubramaniam Ramani

Senior Consulting Manager

ICIS Analytics & Consulting

[email protected]

mailto:[email protected]

www.icis.com 2 www.icis.com 2

Macro-economic Overview & Key growth drivers for India

India’s current scenario for Ethylene & Propylene value chains

India’s ongoing project development across Ethylene & Propylene value chains

Indian import substitution opportunity in Ethylene & Propylene value chains

Indian Petrochemical Conundrum - Potential solutions & Way forward

AGENDA

www.icis.com 3

Macro-economic Overview & Key growth drivers for India

www.icis.com 4

India Economic Indicators – One of the fastest growing economies in the world - 3rd largest global economy by 2030

CHINA

FRANCE

GERMANY

INDIA

JAPAN

RUSSIA

SOUTH AFRICA

SOUTH KOREA

UNITED KINGDOM

UNITED STATES

BRAZIL

-10000

0

10000

20000

30000

40000

50000

60000

70000

0% 2% 4% 6% 8% 10%

GD

P P

ER C

AP

ITA

($

PER

CA

PIT

A)

13-YEAR ANNUAL GDP GROWTH (2017-2030)

GDP Outlook: Major Global Economies

High growth-High Population Economies

1.33 1.39 1.46 1.53 1.59 1.63

0

1

2

2016 2020 2025 2030 2035 2040

In b

illio

ns

Population

India will surpass

China and become

the Most

Populous country

in 2025 Potential to grow….

*Size of sphere indicates population

www.icis.com 5

Rapid economic, geographic & demographic growth are strong growth drivers for the petrochemical sector in India

Fast Economic Growth

Growing Consumer

Market

Accelerating Urbanization

Construction

Packaging

Agriculture

Consumer Goods

Automotive

Textile

2nd Largest Population

Main Consuming Sectors Petrochemicals

Synthetic Rubber

Synthetic Fiber

Synthetic Detergent/

Intermediates

Performance Plastic

GDP 2017: $2.454 trillion Growth rate: 6.7%

Population: 1,342,512,705

Growth rate: 1.18%

Market Size: $12.5 billion

CAGR: 13%

Urbanization Rate: 33.5% Growth rate: 0.4%

Polymers

Electric& Electronics

Growth Drivers

LLDPE, LDPE,

HDPE, PP, PS,

PVC, etc.

PBR, SBR, EVA,

EPDM etc.

Polyester Fiber,

PSF, Acrylic, etc.

LAB, Ethylene

Oxide, Propylene

Oxide, etc.

ABS, Nylon-6,

MMA, PMMA,

PET, etc.

Health Care

~ 8.1%

~ 9.2%

~ 12%

~ 11%

~ 8.7%

~ 10.1%

~ 4.2%

~ 16.5%

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Indian Market Indian scenario for Ethylene & Propylene value chains

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Ethylene Value Chain – Indian scenario

Eth

yle

ne

Ethylbenzene Styrene

Ethylene Dichloride (EDC) Vinyl Chloride Monomer

(VCM) Polyvinyl Chloride (PVC)

High Density Polyethylene (HDPE)

Low Density Polyethylene (LDPE)

Linear Low Density Polyethylene (LLDPE)

Ethylene Oxide (EO)

Ethylene Glycol (EG)

Ethanolamine

Vinyl Acetate Monomer (VAM)

Ethylene Vinyl Acetate Copolymer (EVA)

Linear Olefins

EPDM

Butene-1

36%

20%

0%

4%

0%

2%

1%

31%

5%

0%

0%

Indian Ethylene Demand breakdown (%) (2017)

PE=71%

Ethylene Demand (2017) -

4.8 Million Tonnes

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C2 Derivatives Demand Outlook: All C2 derivatives poised for demand growth rates over 5%. PVC has the highest demand among all C2 derivatives followed by MEG, LLDPE and HDPE. Other derivatives like Styrene, EVA, LDPE also offer moderate demand volumes and stable growth outlook.

EO-ETHANOLAMI

NES

STYRENE

EVA

LINEAR OLEFINS

EPDM

BUTENE-1

LDPE

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10-YEAR DEMAND CAGR (2017-2030)

India's C2 Derivatives Demand and Growth

LLDPE

HDPE

EO-MEG

EO-ETHANOLAMIN

ES

EDC-PVC

STYRENE

EVA LINEAR OLEFINS

EPDM

BUTENE-1

LDPE

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High Growth – High Volume Derivatives

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38%

26%

LLDPE 54%

64%

LDPE

100% 96%

LINEAR OLEFINS

76%

47%

ETHANOLAMINE

India typically has been importing over 45% of each of Ethylene derivatives to the meet domestic demand, with the exception of Butene-1, HDPE & LLDPE. Styrene, EPDM and EVA entirely dependent on imports.

21%

18%

HDPE

39%

48% MEG

43%

54% PVC

100%

STYRENE

91%

100%

EVA 100%

EPDM

0%

0%

BUTENE-1 2012: Inner Ring 2017: Outer Ring

- Import Dependency

- Domestic

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Propylene Value Chain – Indian scenario

Pro

pyl

en

e

Butyraldehyde

Isobutanol (IBA)

N-Butanol (NBA)

2-Ethyl Hexanol (2-EH)

Acrylonitrile (ACN)

Polypropylene (PP)

Ethylene Propylene Diene Monomer (EPDM)

Cumene

Acetone

Phenol

Acrylic Acid (AA)

Superabsorbent Polymer (SAP)

Acrylic Acid Ester (AAE)

Propylene Oxide (PO)

Polyether Polyols

Propylene Glycol (PG)

Isopropanol (IPA)

Indian Propylene Demand breakdown (%) - 2017

96%

<1%

0%

~1%

~1%

0%

<1%

<1%

<1%

<1%

0%

0%

~4% Propylene Demand (2017)

~4.2 Million Tonnes

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C3 Derivatives Demand Outlook: Polypropylene clearly stands out amongst C3 derivatives dwarfing demand for other derivatives. However, other C3 derivatives like EPDM, Acrylic Acid Esters, SAP and Oxo-Alcohols (NBA and 2-EH) exhibit moderate demand volumes and stable growth rates in excess of 6%.

PP

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CUMENE-PHENOL/ACET

ONE

ISOPROPANOL

2-EH

NBA IBA

PO-POLYETHER POLYOLS

PO-PG

ACRYLIC ACID - ACRYLIC ACID

ESTERS

ACRYLIC ACID-SAP

EPDM

ACN

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India's C3 Derivatives (excluding PP) Demand and Growth

High Polypropylene demand dwarfs that of other C3 derivatives

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India imports over 50% of each of its C3 derivatives demand, with exception of PP which is almost entirely domestically supplied. India imports over 90% of its Acrylic Acid Esters, SAP, EPDM & IBA demand.

0%

8%

PP

70%

91%

ACN

73%

87%

Phenol 36%

58%

ISOPROPANOL

57%

2-EH

70%

79%

NBA

95%

IBA

77%

POLYETHER POLYOLS

71%

78%

PG

96%

97%

ACRYLIC ACID ESTERS

100%

100%

SAP

100%

105%

EPDM

- Import Dependency

- Domestic

2012: Inner Ring 2017: Outer Ring

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India’s ongoing project development across Ethylene & Propylene value chains

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Ongoing Investments - Ethylene & Derivatives: Majority of firm investments in Ethylene value chain continue to focus on HDPE/LLDPE while MEG is the only other derivative which is a part of such investments. Investments into other ethylene derivatives remain largely speculative.

Nayara (VADINAR) Ethylene- 900kta Route- Steam Cracker Derivatives-HDPE/LLDPE/LDPE/EVA

Source: ICIS Supply and Demand Database

HMEL (PHULO KHARI) Ethylene- 1200kta Route- Steam Cracker + ERU Derivatives-HDPE/LLDPE/Linear Olefins/Butene-1

IOCL (PARADEEP) Ethylene- 200kta Route- ERU Derivatives- MEG

IOCL (PANIPAT) Ethylene- 947kta (+90) Route- Steam Cracker Derivatives-MEG

HPCL (PACHPADRA) Ethylene- 897kta Route- Steam Cracker + ERU Derivatives-HDPE/LLDPE/Butene-1

BPCL (COCHIN) Ethylene- 75kta Route- ERU

MRPL (MANGALORE) Ethylene- 40kta Route - ERU Derivatives - Styrene

RRPL (RATNAGIRI) Ethylene- >5,000kta Route-Steam Cracker + ERU Derivatives-LLDPE/HDPE/LDPE/MEG/ PVC/Butene-1/EPDM

GAIL (AV NAGARAM) Ethylene- 1000kta Route- Steam Cracker Derivatives-HDPE/LLDPE/Butene-1/PVC

HALDIA (HALDIA) Ethylene- 770kta (+70) Route- Steam Cracker Derivatives-HDPE/Butene-1

RIL (JAMNAGAR) Derivatives- PVC

RIL (NAGOTHANE) Derivatives-MEG

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Greenfield Project

Brownfield Project

Firm Projects in Black

Speculative Projects in RED

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Import Dependency- Import dependency for C2 derivatives (excluding PE) expected to exceed 7 million tonnes in 2025 from under 4 million tonnes in 2017. Most derivatives are expected to have import dependency in excess of 40%. Styrene, EVA and EPDM are expected to remain almost entirely import dependent.

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C2 Derivatives Import Dependency (2017)

Import Domestic

Total Import- 3.8 Million Tonnes

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Import Domestic % Import Dependency


% Import Dependency


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Ongoing Investments - Propylene & Derivatives: A vast majority of firm investments continue to focus on PP. Phenol-Acetone, Polyols, Oxo-Alcohols and Isopropanol are some other firm investments, even though India is expected to remain import dependent for all derivatives except PP.

Nayara (VADINAR) Propylene-650kta Route- Steam Cracker/FCC Derivatives-PP

HPCL (VIZAG) Propylene-320kta Route- RFCC Derivatives-PP


HMEL (PHULO KHARI) Propylene-1190kta (+750) Route- Steam Cracker + FCC Derivatives-PP

IOCL (PARADEEP) Propylene- 700kta Route-FCC Derivatives-PP

IOCL (PANIPAT) Propylene- 465kta (+40kta) Route- Steam Cracker Derivatives-PP

IOCL (BARAUNI) Propylene- 200kta Route-FCC Derivatives- PP

HPCL (PACHPADRA) Propylene-965kta Route- Steam Cracker+ FCC Derivatives - PP

BPCL (COCHIN) Propylene- 435 + 240kta Route- FCC Derivatives- • 2-EH/NBA/IBA/Acrylic Acid Ester • SAP/PG/Polyether Polyols

RRPL (RATNAGIRI) Propylene- >3000kta Route-Steam Cracker + PRU Derivatives- PP / Acrylic chain / Polyether Polyols / Oxo-alcohols

GAIL (AV NAGARAM) Propylene- 315kta Route- Steam Cracker Derivatives-PP

Greenfield Project

Brownfield Project

HALDIA (HALDIA) Propylene-385kta (+35) Route- Steam Cracker Derivatives-Phenol/Acetone

Deepak Phenolics (DAHEJ) Derivatives-Phenol/Acetone

GAIL (GANDHAR) Derivatives-Phenol/Acetone

Deepak Fertilizers (TALOJA) Derivatives-Isopropanol

IOCL (KOYALI) Route - FCC Derivatives- PP / Acrylics

MANALI PC (CHENNAI) Derivatives-Polyether Polyols

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Firm Projects in Black

Speculative Projects in RED

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Import Dependency- Import dependency for C3 derivatives (excluding PP) expected to exceed 1.5 million tonnes by 2025 from 1.2 million tonnes in 2017. Import dependency for most derivatives is over ~60%, with exception of Phenol, Isopropanol and NBA. EPDM and SAP are entirely dependent on imports.

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% Import Dependency


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Indian import substitution opportunity in Ethylene & Propylene value chains

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Indian import substitution opportunity for ethylene derivatives translates to at least ~28 plants across other Ethylene derivatives (excluding PE) by 2030.

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-78 -66 -110 -279 -1102 -1187

-4091

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-110 -131 -160 -369

-1381

-2312

-5691 -6000

-4000

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2000BUTENE-1 EPDM EO-ETHANOLAMINES LINEAR OLEFINS EVA STYRENE EO-MEG EDC-PVC

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India Demand vs Capacity- C2 Derivatives (except PE)

2020 2025 2030

0

0

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1

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3

5

16

LINEAR OLEFINS

BUTENE-1

EO-ETHANOLAMINES

EPDM

EVA

STYRENE

EO-MEG

EDC-PVC

No. of Avg. Sized Plant Required

Avg. Sized Plants* required by 2030

* Avg. Plant size is determined by analysing existing petrochemical capacities (average and world scale) and size of likely future capacities expected to come up

0 500 1000 1500 2000

HDPELLDPELDPE

MEGBUTENE-1

STYRENEPVCEVA

EPDMETHANOLAMINES

Gross Margin ($/tonne of product)

Average Gross Margins: 2012-2017

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Indian import substitution opportunity for Propylene derivatives translates to at least ~16 plants across other Propylene derivatives (excluding PP) by 2030.

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-293 -296 -329

-505 -600

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0IBA ISOPROPANOL

ACRYLIC ACID-SAP EPDM PO-PG NBA 2-EH ACN CUMENE-PHENOL

PO-POLYETHERPOLYOLS

ACRYLIC ACID -ACRYLIC ACID

ESTERS

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India Demand vs Capacity across Propylene Derivatives (except PP)

2020 2025 2030

0 0

1 1

1 1

1 2 2

3 4

ISOPROPANOLNBA

ACRYLIC ACID-SAPCUMENE-PHENOL

ACNEPDM

2-EHIBA

PO-PGPO-POLYETHER POLYOLS

ACRYLIC ACID - ACRYLIC ACID ESTERS

No. of Avg. Sized Plants Required

Avg. Sized Plants* required by 2030

* Avg. Plant size is determined by analysing existing petrochemical capacities (average and world scale) and size of likely future capacities expected to come up

0 500 1000 1500 2000 2500

PP

ISOPROPANOL

IBA

NBA

2-EH

PHENOL

ACRYLIC ACID ESTERS

PG

POLYETHER POLYOLS

EPDM

ACN

SAP

Gross Margin ($/tonne of product)

Average Gross Margins: 2012-2017

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Indian Petrochemical Conundrum - Potential solutions & Way forward

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Indian Ethylene Balance without PE: India’s Net Deficit for Ethylene (C2 derivatives demand except PE) is expected to reach ~6 Million tonnes by 2030 depending on progress of speculative capacities. This is the total ethylene required to meet the domestic demand across C2 derivatives (except PE), if all of them were to be manufactured domestically.

11

68

22

59

30

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37

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89

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-28

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-39

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-59

87

2015 2020 2025 2030

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INDIA ETHYLENE BALANCE (EXCLUDING PE) (2015,2020,2025,2030)

Ethylene Capacity (not dedicated to PE) C2 Derivative Demand (except PE) Ethylene Deficit


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Indian Propylene Balance without PP: India’s Net Deficit for Propylene (C3 derivatives except PP) is expected to exceed 1.1 Million tonnes by 2030, with very limited capacity developments. This is the total propylene required to meet the domestic demand across C3 derivatives except PP, if all of them were to be manufactured domestically.


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INDIA PROPYLENE BALANCE (EXCLUDING PP) (2015,2020,2025,2030)

Propylene Capacity (not dedicated to PP) C3 Derivative Demand (except PP) Propylene Deficit

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Key reasons for limited capacity development of other Ethylene / Propylene derivatives

Economies of Scale –

Balancing World scale olefin capacity vs. requirement for smaller downstream derivative

Access to Process Technology

Synergies with existing business

Capital investment constraints

Volatility in prices i.e. cyclical nature of business

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Several possible combinations exist for accessing olefins across different scales of capacity & investment.

Investment case Business model Feedstock Typical Light olefin capacity (KTA)

CAPEX / tonne Cash Costs

Brownfield Propylene recovery from FCC Unsaturated LPG 750 Lowest Low

Ethylene recovery from ROG Refinery Off Gas 250 Low Low

Greenfield

Refinery Off-Gas Cracking (ROGC) Refinery Off Gas 1,200 Mid Low

LPG cracking Domestic / Imported LPG 1,700 Mid Mid

Propane Dehydrogenation (PDH) Domestic / Imported Propane 750 Mid Mid

Naphtha Cracking Domestic / Imported Naphtha 1,800 Mid Mid

Ethane Cracking Imported Ethane 1,200 High High

Petcoke-based MTO Domestic / Imported Petcoke 650 High Low

Petcoke-based MTP Domestic / Imported Petcoke 500 High Lowest

Methanol to Olefin Imported Methanol 659 Low High

Methanol to Propylene Imported Methanol 500 Low High

Coal-based MTO Domestic / Imported Coal 650 Highest Low

Choice of feedstock & scale of investment shall be crucial

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Potential Solutions & Way forward

Sheer dominance of PE & PP investments in India cannot be denied

Under-penetration of investment in Propylene chain not as apparent as Ethylene chain

Choice of feedstock & scale of investment shall be crucial

Brownfield expansions at existing sites

Ethylene recovery from Off-gases

Propylene from FCC/RFCC

Propane Dehydrogenation (PDH)

Cluster concepts & Joint venture options could be explored for Offtake arrangements, Technology access etc.

Investment into other C2/C3 derivatives offer good business diversification options especially in a world of unpredictability and uncertainty

All possible project configuration options with different product mix should be assessed before taking a final investment decision

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