1. business and industrial
2. chemicals industry
3. plastics and polymers

POTENTIAL CHANGES TO THE FEEDSTOCK IN
THE MIDDLE EAST
May 12, 2015
FEEDSTOCK LANDSCAPE TRANSFORMATION
 What is happening to major regional companies financial statement last two quarters ?
 Why many projects announced getting on-hold in the region ?
 Where our regional competitive position will land ?
 Is regional petrochemical business under threat in future ?
 What is the right mitigation actions and future strategy to survive ?
No. 1
MAJOR CHANGES IN GLOBAL FEEDSTOCK
DYNAMICS
WHY ARE OIL PRICES FALLING?
• Rising shale oil production mainly from US and
Canada .
• Weak demand growth by Europe and Asia .
 Oil production outages counter balanced the
Oil prices had fallen by more than 30% in five months
oversupply from North America (shale oil)
 Disruptions in the Middle East and North Africa
delayed price decline to mid 2014
 Market realized the imbalance and prices began
to decline
Source: IHS
No. 3
WILL LOW OIL PRICES SLOW THE US SHALE BOOM?

Lower global oil prices has affected marginal barrel
output from shale

Most of US shale projects are vulnerable when oil drops
between $60 and 70 per barrel (breakeven price)

Drilling rigs count drop since Oct 2014 when crude
prices were heading below $80 per barrel

Number of US rigs has fallen 15% in January 2015.

Some companies have made big investment and need
to keep drilling. Others are trying to cut their costs.

As oil production growth slows, prices begin to recover.
Source: IHS
No. 4
MAJOR RAW MATERIALS FOR CHEMICAL INDUSTRY
Around 95 wt% of the chemical industry is based on seven building blocks
OLEFINS
STEAM
CRACKING
ETHYLENE
PROPYLENE
CATALYTIC
CRACKING
c4 OLEFINS
AROMATICS
CATALYTIC
PEFORMING
BENZENE
TOLUENE
𝐗𝐘𝐋𝐄𝐍𝐄
PYROLYSIS
GASOLINE
FROM STEAM
CRACKING
ALKANE
NATURAL
GAS
Source: Nexant
METHANE
No. 5
FEEDSTOCK DYNAMICS
Global Feedstock to chemicals - 2014
Source: IHS
No. 6
THE IMPACT OF LOW OIL PRICES ON PETROCHEMICALS
 Reduced competitiveness of China coal-to-chemicals operations
o
o
Chinese coal-to-chemicals plants depend on a high spread between coal and oil prices
Although the cost of coal in China is low, some coal-to-chemicals plants become
uncompetitive at oil prices below $70 per barrel
 Impacted cracker product economics in the Middle East
o Crackers using liquids feedstock have discount at up to 30% off international
condensate/naphtha prices
o Naphtha prices track crude oil prices
 Strong US dollar affects chemical trade and increased competitiveness of cracking in
Europe
 Shifted earnings from chemical industry to downstream consumers
 Reduced the CAPEX escalation
No. 7
FACTORS CAUSING THE WORLD OLEFINS COST REDUCTION
 Increased supply of US Liquefied Petroleum Gas (LPG)
o
o
LPG is being used as a cracker feedstock and to dehydrogenate to propylene
Increased supply of US LPG to Europe and Asia is reducing LPG prices globally and improved
cracking competitiveness in Europe.
 Ethane excess in North America and increased ethane in natural gas
o
o
Encouraged exporting ethane in larger volumes reduces its landed cost
US ethane lowered the feedstock cost to European and India crackers.
 Excess US condensates are being exported improving the overseas naphtha cracker
competitiveness.
No. 8
PROJECTED ETHYLENE CAPACITY ADDITIONS BY 2020
Source: IHS
No. 9
REALITY IN THE MIDDLE EAST
PETROCHEMICAL INDUSTRY FEEDSTOCK DYNAMICS
 The global industry is rapidly changing, creating a very strong competition.
 Taking advantage of lower prices and higher ethylene yields, many North America
ethylene producers have shifted their feedstock's from oil-based naphtha to natural gas
liquids, ethane, propane and butane.
 Middle East petrochemical industry has been focusing on the manufacturing of
commodities for export by leveraging the feedstock advantage and economies of scale.
 The supply of gas feedstock is becoming tighter while the liquid feedstock is abundant
No. 11
ME INDUSTRY COMPETITIVE POSITION VS. FEEDSTOCK'S
1400
1200
Ethylene cash cost $/ton
1000
800
600
400
New Comers
200
0
0
50
125
ME Reduction In
Ethane Abundance
CMAI/ ICIS sources

Most of new capacities will come around 2020

Some hypothetical projects are in the works

GCC crackers are in competitive position. Ethane abundance is reduced
No. 12
CRUDE OIL PRICE AND IMPACT ON CHEMICALS
2,000
2,000
1,800
1,800
1,600
1,600
Benzene
1,200
$/Ton
$/Ton
1,200
1,000
200
0
1,000
800
800
400
Propylene Polymer Grade
1,400
1,400
600
Ethylene
Benzene
Ethylene
Propylene Polymer Grade
Crude Oil Dubai (IMF)
600
400
200
0
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
$/bbl
 1$/bbl shift in Crude Oil  10-13 $/Ton shift in Ethylene/ Propylene and Benzene
CMAI sources
No. 13
NEW FEEDSTOCK LANDSCAPE FOR MIDDLE EAST
• Crackers moving towards
heavier feeds
• Downstream products
like propylene,
Butadiene, Benzene
derivatives going to
increase
• New mindset interims of full
integration with refineries is
expected
No. 14
MOVING FORWARD
WHAT ARE THE OPTIONS?
ME: FROM CHALLENGES TO OPPORTUNITIES
Supply/demand shift
Limited growth in Gas supply
Increase domestic consumption
Increased diversification in non-fossil industry
Shale gas
Increase in Ethane global supply
Reduction in C3+ supply
~ 10% propylene and 25% Butadiene
Geo-Political &
environment
Regional Stability
Sustainability regulations
Employment
Technology
GCC
How to turn
Feedstock
Challenge
into
Opportunity
Technologies to increase in take of
heavier feedstock
Technologies to Sweeten heavier Feeds
Engage in new
opportunities
On-purpose Technology
Shale Gas
Coal
Embrace changes
Embrace changes
Backward/forward integration
Flexibility
Gas to Liquid
Sustainability
No. 16
GCC CHALLENGES TRANSFORMED OPPORTUNITIES
0
China Shale Gas
Iraq Gas
ME Reduction In
Ethane Abundance
US Shale Gas
$/TON ETHYLENE
Reduction of cost gap
50
125
GLOBAL ETHYLENE CAPACITY MTPA
Technologies to Unlock Feedstock

Technologies to Unlock Feedstock and overcome reduced Ethane availability in the ME.

Backward and forward integration to increase profitability

On purpose technologies and Gas to Liquid to reduce C3+ supply gap due to shale gas

Technology Sweeteners for Feedstock Flexibility: Catalytic, OTC …
No. 17
REFINERIES AND PETROCHEMICAL INTEGRATION BENEFITS
 Continuous supply of quality feedstock at relatively lower prices
 Shared utilities, maintenance, and administrative costs
 Logistics savings
 Ability to reprocess byproducts produced in the petrochemicals complex
 Integration is most suitable for large refineries (> 200 kbpd)
No. 18
REFINERIES-PETROCHEMICALS INTEGRATION:
SELECTED PROJECT
Expanded participation of oil companies in chemicals
Ethylene
Ethane
Ethane
Cracker
LLDPE,
HDPE,
MEG
Ethylene
LPG
Ethane
Ethane Cracker
EPR
C3
TPO
Propylene
MMA
Metathesis
Topping Refinery
Crude
Oil
LDPE/EVA
pMMA
Kerosene
Cumene
Diesel
Phenol
Benzene
Naphtha
Naphtha reformer &
Aromatics
Isobutylene
C2s
Mixed C4
Residue
Butane
Higholefins
FCC
Paraxylene
Gasoline
Fuel oil
Propylene
Nylonl
Acrylic Acid
SAP
PTA
PET
MTBE/IB
PP,
Propylene
Oxide
No. 19
PETROCHEMICAL REFINERY DERIVATIVES
Propylene
C4’s
Refinery
with
Naphtha
Reformer
and FCC
Unit
Aromatics
Polypropylene
Acrylic Acid,
Acrylonitrile
Propylene Oxide,
Oxo Alcohols,
Isopropanol
EPDM
Butadiene,
Butene-1,
MTBE,
Maleic
Anhydride/Butanediol
MMA,
Butyl Rubber
Benzene
Toluene
Xylenes
No. 20
PROPYLENE DERIVATIVES
Allyl Chloride
Epichlorohydrin
Epoxy Resins
Acrylic Esters
Acrylic Acid
Propylene
Acrylic Acid
SAP
Acrylic Fibers
Poly Acrylonitrile
Carbon Fibers
ABS
Adiponitrile
HMDA
Acrylamide
Polyacrylamide
Polyether Polyols
Polyurethanes
Nylon 66
Polypropylene
Propylene Oxide
Propylene Glycol
Epoxy Resins
Glycol Ethers
Cumene
Phenol
Bisphenol-A
Polycarbonate
Acetone
MMA
PMMA
N-Butanol
N & Iso
Butyraldehyde
2-Ethyl Hexanol
Dioctyl
Phthalate
Neopentyl Glycol
Isopropanol
EthylenePropylene
Elastomers
Produced in
KSA
Existing
Projects
Future Projects
No. 21
C4 DERIVATIVES
ABS
Butadiene
SBR
PBR
MTBE
Isobutylene
Butyl Rubber
MMA
PMMA
Mixed C4’s
1-Butene (PE
Co-monomer)
2-Butene
1,4-Butanediol
Maleic
Anhydride
Polybutylene
Terephthalate
Gama Butyrolactone
Tetrahydrofuran
Unsaturated
Polyester Resins
Produced in
KSA
Existing
Projects
Future Projects
No. 22
AROMATICS DERIVATIVES
Polystyrene
Benzene
Ethylbenzene
Styrene
ABS
SBR
Phenol
Cumene
Caprolactam
Nylon 6
Adipic Acid
Nylon 66
Cyclohexane
Benzene/Toluen
e/Xylene
Nitrobenzene/
Aniline
Bisphenol A
Polycarbonate
Acetone
MDI
Toluene
Nitrotoluene
Toluene
Diisocyanate
P-Xylene
Terephthalic
Acid
Polyethylene
Terephthalate
O-Xylene
Phthalic
Anhydride
Alkyd Resins
M-Xylene
Isophthalic
Acid
Unsaturated
Polyester Resin
Rigid
Polyurethanes
Flexible
Polyurethanes
Produced in
KSA
Existing Projects
Future Projects
No. 23
CONCLUDING REMARKS
CONCLUDING REMARKS
 Future growth in ME petrochemical capacity should be based on abundant liquid
feedstock
 Liquid Feedstock is enabling the move from commodity to more value added
downstream products
 Middle East start late in Liquid feedstock utilization
 This will give opportunity for bringing new technology knowhow to the region
 Inspire innovation and technology development
 Create more jobs for growing population
 Middle East should not be late in considering the future sustainability trends in chemical
industry to prevent future challenge and next transformation.
No. 25
No. 26