Introduction. Influence of Global Petchem Market on Asia

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1 Influence of Global Petchem Market on Asia Introduction Abdullah Fahad Al-Osaimi, PIC 2 nd Annual Aromatics Conference 2014 Seoul, South Korea 18 &19 Sep, 2014

2 PIC Business Portfolio's PIC s business has evolved from a single operation to multiple joint ventures and operations Past Present Future Joint Ventures & Operations Operations Fertilizers Joint Ventures (JVs) Operations Fertilizers Polypropylene Focused growth in petrochemicals through local and global JVs with world class practices and governance Countries 1 country 6 countries Kuwait Kuwait, Bahrain, Italy, Germany, Canada, Dubai more regions Asia, North America, Middle East and South East Asia

3 Oil Demand Trends by Product and Sector Asia Pacific Asia Pacific consumptions of oil represent 33.8% of total world consumption with 30,500 thousand barrel/day, the transport sector continues to be the main driver of oil demand growth in Asia Pacific. The petrochemicals industry expands in the long run, feedstock uses of oil, mostly naphtha, are expected to increase at an average of over 1.4% annually between now and Competition from other industry will have stringer impact on gas availability for Petrochemicals industry Source: WM

4 Global feedstock slate is changing with key developments in the United States and China Naphtha will remain the main petrochemical feedstock, however its share will decline Ethane exhibiting strong growth driven by investment in shale gas in North America Growth in coal consumption since early 2000s will significantly increase Source: Nexant

5 Naphtha is losing share in the steam cracking sector Global ethylene Production by Major Processes Thousand tons Currently the global ethylene production at 130 million tons and ~ 15% of ethylene is produced from ethane By 2025, over 20% of ethylene will be produced from ethane globally. It is expected that ethane exports will be available for ethylene producers in Europe, South America and Asia from 2016 Source: Nexant So far no firm uptake of MTO technology outside China, but projects will probably happen in some other gas-rich regions.

6 Shale gas represents only a modest portion of the global gas supply In China, gas represents a small share of total energy consumption and has not been a strong driver to date of energy production increases. Political and infrastructure issues mean shale gas will develop far more slowly in other regions than the U.S. On a global basis more incremental supply can be expected from conventional fields than from new shale gas. Source: Nexant

7 Feedstock are the key driver shaping investment trends in Petchem Industry China will remain leading the investment trend race North America is changing the game plan by adding more competitive investments driven by shale gas ME will remain in the investments expansion race. However, their advantageous feedstock equation is eroding against cheap gas producers with more utilization of heavier feedstock

8 Global Demand Growth for Basic building blocks and key derivatives Demand growth for aromatics and olefins with some key derivatives such as MEG and polyolefins are expected to double from 2000 to Source: WM

9 Basic Chemicals Demand for NE Asia PX, Benzene, Ethylene and Propylene The global market historical and forecast growth trends increased from below 200 million tons per year (MT) of demand for these chemicals in year 2000 to almost 300 Mt currently. The market for these four basic chemicals represents a global business size of about US$350 billion Source: WM importantly, Northeast Asia comprising of China, Japan, Korea and Taiwan has become one of the most important regional markets for these chemicals.

10 Effects of announced US steam crackers on Asia Development of shale gas industry in the US will have a long term implications on global petrochemical and downstream industries. In emerging economies there are not significant olefins additions post-2015 except for China and South America U.S. ethylene derivatives have become more competitive as a result of low ethane prices through shale gas developments. However, this is not expected to affect Middle Eastern producers. It is believed that U.S. increased competitiveness will force high-cost Far Eastern and European producers to shut down facilities. However, most of U.S. product is expected to serve domestic and Latin American markets. Many environmental, technical and operational challenges associated with shale gas developments are facing the operators, including: Low production and recovery rates of gas Increasing costs Ground Water Contamination Land Use Water Availability and Disposal Although operators in the US have moved up the learning curve, there is still room for new ideas to overcome the challenges

11 US Ethylene Expansion in Global contest Sasol ExxonMobil Chem CheronPhillips Chem Dow Shell Formosa OxyChem/Mexichem Despite lower gas prices in the U.S. the region will remain less competitive than low cost gas regions such as Middle Eastern producers In some consultants views, no more than three to four new world-scale crackers are expected in the U.S. in the next ten years. ~39m tonnes of additional capacity is expected globally by The US Shale gas announcements (New and expansions) for Ethylene accounts for 17%. Source: ICIS

12 Concluding Remarks According to Asian Development Bank, Asia-Pacific oil imports by 2035 will rise close to Middle East current crude output of 28 million bpd The Petrochemicals global demand will continue to be higher than supply Oil will remain the leading source of energy and still the major source for Petrochemical followed by Natural Gas and very slight stake coming from Coal Today we are seeing the Petrochemicals feedstock and technology supply and landscape is evolving and changing Feedstock cost & World-scale size plants with best selected technology will provide a competitive advantage Development of shale gas and CTO industry will shape the future of global petrochemical and downstream industries Middle East countries have changed their petrochemical focus away from gas and towards liquids, building large-scale refineries with associated chemicals complexes