RUSSIAN PETROCHEMICAL INDUSTRY - GROWTH POTENTIAL OF GLOBAL COMPETITIVNESS

Transcription

1 RUSSIAN PETROCHEMICAL INDUSTRY - GROWTH POTENTIAL OF GLOBAL COMPETITIVNESS Alexey Shakhov Deputy Director, Government Relations SIBUR LLC Conference «CIS PETCHEM 2014» Moscow, 16 April 2014

2 CONTENTS Petrochemicals - a bit of interesting (and not always obvious) facts Petrochemicals RF - huge growth potential (but realize it will not be easy) Petrochemicals - creating a competitive value (and what prevents it) 2

3 WITH NO PETROCHEMISTRY IN THE WORLD, DUBAI AND ALICANTE WON T HAVE ANY FRESH WATER The most popular treatment method is reverse osmosis, where membranes have petrochemical products External coat: polyamide 50% Among other things, it s used for water desalting Location: Alicante, Spain Daily freshwater production volume: 50, 000 m 3 Water source: Mediterranean sea Source: World Health Organization membrane: polysulphon Substrate: PET Location: Dubai, UAE Daily freshwater production volume: 822, 000 m 3 Water source: Persian Gulf 3

4 WITH NO PETROCHEMISTRY ONE COULD NOT POSSIBLY FEED PEOPLE OF THE WORLD PRODUCTION STORAGE RICE, kg/ha WHEAT, kg/ha Up to 5 days in a vacuum pack Up to 6 months in aseptic pack* No fertilizers No fertilizers Up to 25 days in a vacuum pack Note: * Tetra Pak Source: IFA, FAOSTAT 4

5 OR CLOTHE THEM. MOST PIECES OF CLOTHING CONTAIN SYNTHETICS. Fluoropolymers, polyamide, polyester, PVC, polyurethane Acryl Polyamide, polyester Polyamide, polyester, polyethylene, polypropylene Fluoropolymer, PVC Polyamide, polypropylene, polyester Polyamide, polyester 5

6 CAN HUMAN BEINGS LIVE WITHOUT SYNTHETIC CLOTHES? In total in mn t of textile fibres were produced Answer: yes, but it ll be too resource-intensive 1 t of PET = 1.2 ha of cotton fields W/o PET you ll need 46 mn ha in total = Spain Linen Wool 1 t of polyamide = 1.5 ha of linen fields W/o polyamide you ll need 6 mn ha in total = Austria 1 t of acryl = 167 sheep W/o acryl you ll need more sheep than there are in the US now Cotton Synthetics = Source: «Present and future polyethylene terephthalate fibres» E.M. Aizenshtein 6

7 WHAT DOES MODERN HOUSE LOOK LIKE? MINIMALISTIC AN GREEN Stretched ceiling Plastic lamp domes Polymer composite on the front sides of furniture Stuffing for mattresses and cushioned furniture Some synthetics in textile products Components of household appliances Household goods (vessels, frames, acrylic plastic, labels etc.) Paints, coatings etc. Nonwoven fabrics in carpets 7

8 IT S WARM IN A MODERN HOUSE. How buildings lose heat Windows and balconies materials contain PVC, BC for double-glass windows insulation, PU heat insulation Petrochemistry helps! Windows 10% Roof 25% Heat insulation from TEP, PU, plastic sandwich panels Insulants from EPS, PU Walls 35% Doors 15% Insulants from EPS, PU Floor/ foundation 15% Floor heat insulation from PE/PP, PU How petrochemistry helps to retain heat 8

9 LET S TALK ABOUT CARS Polymer components constitute up to 200 kg of a modern car Interior trunk upholstery Engineering polyurethane components Leather-like upholstery Plastic sliding sunroof Interior door upholstery Steering wheel Dashboard Fans, carcass fans fixtures Hood and fenders Noiseabsorbing engine cover Lights Moulding assembly Fuel tank safety valve Tires Source: 3М PC glass Side mouldings Battery box Wheel arc cover Radiator grill Bumper structural foam Engine cover 9

10 CONTENTS Petrochemicals - a bit of interesting (and not always obvious) facts Petrochemicals RF - huge growth potential (but realize it will not be easy) Petrochemicals - creating a competitive value (and what prevents it) 10

11 PETROCHEMISTRY GIVES US MATERIALS WITH UNIQUE PROPERTIES, THAT INDUCE FURTHER DEVELOPMENT OF OTHER INDUSTRIES AND IMPROVE THE QUALITY OF LIFE, WHICH MAKES IT DAMNED TO SUCCESS Main advantages of petrochemicals have defined rapid growth of polymer consumption globally Lighter than other materials Growth of organic product and polymer consumption Compared to 1970 (times) 11.0x Durable and rustresistant Cheap and multifunctional Growth in Russia over this period of time 3.3x 1.1x 2.1x Wood Steel Aluminium Base polymers Source: IHS, BCG, McKinsey, Rosstat 11

12 PETROCHEMISTRY CAN BE A DRIVING FORCE FOR ECONOMY, WITHOUT IT AN EFFICIENT DEVELOPMENT OF OIL & GAS INDUSTRY IS IMPOSSIBLE Petrochemistry can be another locomotive pulling Russian economy Petrochemistry feedstock is by-products from oil and gas production and crude refining By-products come from the production sites remote from sales markets One job in petrochemistry means 4.5 jobs in other spheres of economy One petrochemical GDP rouble gives at least 1.9 GDP roubles for economy Petrochemical industry requires 2.5 less power than is retained by its products when they are applied Average growth rate of economy and particular industries in Russia in , % Economy (GDP) Oil & gas Chemistry and petrochemistry 1,6 4,1 Construction 5,6 Retail 5,3 5,9 Car manufacturing 6,1 Sources: BCG, McKinsey, Rosstat 12

13 Contribution of petrochemistry to Russian economy Industry development parameters FULFILMENT MAXIMUM INDUSTRY POTENTIAL WILL PUSH RUSSIAN PETROCHEMISTRY FORWARD BOTH IN TERMS OF QUANTITY AND QUALITY, AND DOUBLE THE IMPORTANCE OF THE INDUSTRY FOR THE ECONOMY Base polymer production (PP + PE) in Russia +23% Base polymer consumption (PP + PE) in Russia +7% Base polymer net export (PP + PE) PE PP PE PP PE PP New petrochemical GDP 2020*, RUR bn % of the GDP forecast in Budget contributions 2020*, RUR bn 69 New jobs, 2020* North- West Caspian region, Volga region, Western Siberia Eastern Siberia and Far East TOTAL North- West Caspian region, Volga region, Western Siberia Eastern Siberia and Far East TOTAL North- West Caspian region, Volga region, Western Siberia Eastern Siberia and Far East TOTAL Note: * Contribution to Russian economy for the account of capacity introduced in , best-case scenario, Plan 2030 Source: Plan for RF petrochemical development till 2030 developed by the Ministry of Energy of Russian Federation 13

14 EBITDA/employee BUT, SAY, LABOUR EFFICIENCY IN THE PETROCHEMICAL INDUSTRY IS RELATIVELY LOW, THOUGH POSITIVE DYNAMICS HAS BEEN OBSERVED Petrochemical companies labour efficiency, thousand dollars per employee, 2012 (log scale) Overseas companies Russian companies Russian petrochemical industry Summary Though there has been a significant progress in terms of performance, Russian petrochemical industry still lags behind international companies This is related to both technological level of capacities and regulation and business environment Revenue/employee Source: Capital IQ, company reports Note: for Total, Chemicals & Refinery segment was considered 14

15 AND LONG-TERM COMPETITIVENESS IS A KEY CONDITION FOR THE INDUSTRY TO REACH NEW HORIZONS GLOBAL COST CURVE 1 HС resources for petrochemical industry (volumes, structure, prices) Production costs result from the combination of all external and internal production conditions 3 4 Transport ad logistics (price, time, volumes) Markets and petrochemical products (price, quality, product range) 2 Petrochemical production (performance expressed through investment volume / unit cost) Source: IHS Chemical 5 Aspects influencing industry development (human resources, R&D, technology) 15

16 IN VIEW OF THE NEW TENDENCIES: DEMAND GROWTH IN THE DEVELOPING COUNTRIES, INCREASING INTEGRATION AND CAPACITY CONCENTRATION Geography of world petrochemicals, % of global petrochemical production, USA 32% USA 16% Europe 31% Japan 13% Others 24% Skyrocketing of China and Middle East share 76% 37% Europe 14% Japan 7% China 17% Middle East 13% Others 33% Sharp drop of OECD share Concentration rate of petrochemicals in various geographies, mln t of finished goods,* Global petrochemicals new geography and capacity growth New geography of world-scale petrochemical greenfield projects: Growing role of Middle East (based on subsidizing feedstock costs) Growing role of Asia (petrochemicals are vital for their growth) Increasing integration, capacity concentration and growth in number and types of facilities located at one site Unit capacity and CAPEX growth 10,2 18,7 Saudi Arabia (Al Jubail)** 0,4 9,7 China (Dalian) 4,3 5,1 Belgium (Antwerp) 0,0 3,8 Iran (Bandar Imam) 2,9 3,0 Germany (Ludwigsh afen) 0,8 Source: IHS, Nexant Note: * installed capacity; ** in 1995 was 4 million tons 1,4 Russia (N-Kama) 0,4 0,9 3,1 Russia (Tobolsk, ) In Europe integration is focused on the most competitive (integrated) locations, while smaller/older facilities are closed Russian petrochemical industry is among the most disintegrated 16

17 CONTENTS Petrochemicals - a bit of interesting (and not always obvious) facts Petrochemicals RF - huge growth potential (but realize it will not be easy) Petrochemicals - creating a competitive value (and what prevents it) 17

18 Key challenges Value chains Fractionating Pyrolysis/monomers VALUE CHAIN/COMPETITIVENESS CREATION IN PETROCHEMICALS MAJOR SEGMENTS (WHERE IT IS CREATED / NOT CREATED) Hydrocarbon feedstocks Basic petrochemical processing chains Key consumption segments Oil resources (associated petroleum gas) Natural gas resources (gas condensate, wet gas) Refinery resources (naphtha, aromatics) LPGs and fuel components Basic polymers (PP, PE, PVC) Synthetic rubber Plastics and organic synthesis products Small-scale and special chemicals Automotive industry Housing and construction Infrastructure Consumer goods Oil and gas industry Chemical industry Separate strategies of economically effective utilization of gas, oil and refinery resources (С2+ components extraction) Cost of logistics as proportion of total feedstock costs and total cost for different value chains Selection of the most economically effective (by cost competitiveness) greenfield projects (including intra-cluster optimization/specialization) Total internal optimization of existing capacities with competitive potential Selective closure of least competitive capacities Separate sectoral strategies for value chains which are based/not based on hydrocarbon costs Stimulation of internal demand and import substitution (localization of petrochemical production) Stimulation/prescriptive regulation of modern innovative materials usage 18

19 INDUSTRY COMPETITIVENESS AND ITS IMPORTANCE TO THE NATIONAL ECONOMY ARE IN QUOTATIONS AND ASSIGNMENTS OF COUNTRY'S LEADERS Key quotations «we should become owners in our own market» «As for the increase of duties, it shouldn t be as a body blow for business, it should be careful. We need to show the future.» «Chemical and petrochemical industries remain important segments of our domestic economy. Almost all industries are consumers of their products» «Russia imports 18 billion dollars not only in the form of polymers, but also in the form of derivative products"... consider the possibility to subsidize part of the interest rates of loans raised for technical re-order» «Surplus value increases from 200% to 533% and then to 947%, if the movement to a very high-added value products - synthetic fibers and fabrics» «potential of stimulation of domestic petrochemical product demand is the elimination of petrochemical products import, which are the subject of almost one million tons per year» Key assignments The expansion of use of advanced materials of Russian petrochemical industry in road building and construction Arrangement of conditions for expansion of production and procurement of ecologically friendly (green) products of chemical and petrochemical industries Promotion of separate waste collection for secondary recycling of polymer products Expansionary measures for gas- and petrochemical products domestic demand by change of consumption standards and using of these products under technical and construction rules and regulations The Customs and Tariff regulation of petrochemical feedstock exports, including LPG exports Compensation mechanism of shortfall in income of Russian Railways under the current tariff regulation Relationships based of long-term contracts between petrochemical companies and the main feedstock suppliers, and infrastructure companies Protection of existing business entities as part of the WTO Establishing of rates of import customs duties on high- and lowadded value petrochemical products 19

20 BESIDES THERE ARE 2 ASPECTS OF THE INDUSTRY S COMPETITION INTERNAL AND EXTERNAL - Synthetic rubbers million tons per annum Export from the Russian Federation Production RF Consumption RF - Plastics - Products of organic synthesis Import to the Russian Federation +1,3% +3,8% 1,9 0,8 0,2 0,9 +5,9% 2,0 0,8 0,3 0,8 2,1 0,9 0,5 0,8 12,9 1,2 13,3 1,2 13,3 1,3 3,9 3,6 3,9 8,1 8,2 8,1 13,5 13,6 12,7 0,5 0,5 0,4 4,8 5,3 5,4 7,4 7,8 7,8 1,5 0,0 1,2 0,2 +28,5% 2,2 0,1 1,8 0,4 2,5 0,1 2,0 0, External competition Internal competition Source: CJSC «Alliance Analytics», MARKET REPORT 20

21 Competitive factors MOST OBJECTIVE QUANTITATIVE REFLECTION OF COMPETITIVENESS OF PETROCHEMICALS IS SO-CALLED "COST CURVE" Market price Producer margin (its degree of competitiveness) Growth factors of long-term competitiveness Feedstock (hydrocarbons) Long-term contracts Competitive price Integrated use of feedstock Government regulation Midstream Increasing the level of extraction of liquid raw hydrocarbon from APG New large capacity Consolidation of the feed streams Petrochemical industry Cost reduction through economies of scale Modern costeffective power system Diversified and marketable product portfolio Transport and logistics to market Refusal of transportation of liquid products Use of hard thread graphs for railway transportation Logistics outsourcing development Total cost of petrochemical products Volume growth of petrochemical feedstock More competitive (light) structure of feedstock Deep monetization of hydrocarbons, additional revenue receipts to the state and business, and jobs Reducing capital and operating costs Reduction of lead time in design engineering and construction of capacities Increased competitiveness of petrochemical industry in Russian Federation through logistics component Reduced commodity exports in favor of products with high added value Jobs in small and medium enterprises 21

22 THERE ARE 4 KEY FACTORS OF COMPETITIVE ADVANTAGE OF PETROCHEMICALS FEEDSTOCK PROCUREMENT Success factors Description SIBUR s case Long-term contracts Long-term fixation of conditions (minimal volume, guaranteed volume, delivery terms, etc.) Ability to plan large-scale investments (from both sides) Long-term contracts (until 2032) for APG procurement with Novatek and Rosneft. Guaranteed volumes of APG up to 10 BCM per annum Profitable and competitive price Integrated utilization of C 2+ resources Government policy Closeness to feedstock source The presence of free market / efficient market regulation Competitive price compared to the world's major producers of petrochemicals Feedstock basket (cyclical balancing / hedging) Involvement of ethane to processing Mixed feedstock steam-crackers Technical regulation (including new projects capital expenses efficiency) Customs regulation Tariff regulation Most production sites - near the feedstock. New projects are considered near the feedstock and competitive on the domestic and foreign markets (Europe, China) All SIBUR steam-crackers are mixed feedstock sourced Involvement of ethane (Zap-Sib 2, Transvalgas, Belogorskiy projects) Situational business model of processing /exports of raw materials Large scale investment program (including through competent state regulation) 22

23 THE KEY COMPETITIVE CHALLENGE IN MIDSTREAM IS ECONOMICALLY JUSTIFIED «EXTENSION» OF INFRASTRUCTURE Competitiveness factors SIBUR s case Gas feedstock processing Increase in NGL extraction rate from the APG. Processing volumes increase (new major capacities) Processing costs decrease (energy efficiency, etc.) Construction of Vyngapurovskiy, Yuzhno-Priobskiy GPP and extension of Yuzhno-Balikskiy GPP, increase in NGL extraction rate at Yuzhno-Balikskiy GPP up to 98%, Gubkiskiy up to 99%, Vyngapurovskiy GPP up to 99%) Gas feedstock transportation Access to growing volumes of NGL s and feedstock flows consolidation Logistics optimization (moving from railroad to pipeline transportation within one region) Construction of NGL pipeline Purovsk Pyt-Yakh Tobolsk (length 1100 km, 8 mln tpa of Raw NGL capacity) Fractionation Access to feedstock for petrochemical projects A wide range of fractions High quality of products (low rate of impurities, etc.) Gas fractionation capacity extension from 3,8 mln tpa to 6,6 mln tpa (construction of GFU-2) 23

24 CONSTRUCTION OF MODERN LARGE SCALE CAPACITIES AND DIVERSIFICATION OF PRODUCT PORTFOLIO ARE NEEDED TO CREATE LONG-TERM COMPETITIVENESS Large-scale capacities Competitiveness factors Construction of large-scale capacities allows to reduce costs through economies of scale Modern capacities are more efficient in terms of feedstock and energy, and requires less personnel The modern construction standards (if possible) are used in construction of new capacities SIBUR examples Tobolsk-Polymer ktpa (PP) RusVinyl ktpa (PVC) SBS ktpa CFU mln tpa (NGL) Product portfolio Companies need to diversify their product portfolio, it has to be focused on industries with minimal exposure to economic cycles Produce products, demanded in various industries PVC construction, housing and utility sector EPS construction and packaging SBS, geosynthetics road construction 24

25 LARGE-CAPACITY FACILITIES IN PETROCHEMICAL. PRODUCT RANGE EXPANSION EXAMPLE SIBUR Projects Years of project implementation 2006 `08 `09 `12 ` Capacity, ktpa Improvement of competition/ Business-model Tobolsk-Polymer 500 World-class power, low cost of raw materials, modern technology provide highly competitive products in the domestic and foreign markets RusVinyl 330 Low raw material costs Technological leadership through a joint venture with advanced technology licensor Orientation to the receptive and unsaturated internal market (the project is in the region of consumption) TPE Russia s only plant of high-tech additives in paving and roofing materials EPS 100 Polystyrene - modern efficient polymeric insulating material Production oriented to the receptive and an unsaturated domestic market Total investments in major petrochemical projects in amounted to 88 billion rubles 25

26 TRANSPORT AND LOGISTICS DECISIONS "TO MARKETS AND CONSUMERS" - A SERIES OF DECISIONS ALLOW TO COMPENSATE OBJECTIVE LOGISTICS CHALLENGES FOR RUSSIAN COMPANIES Optimization of railway chain Logistics platforms Description Refusal of transportation of liquid products (e.g. NGL) on the basis of processing into final and intermediates products polypropylene, polyethylene Use of hard thread graphs for railway transportation Development of shipping operation through the Shuttle Container Trains Logistics outsourcing development Creation of distribution centers in the regions of consumption Reduction of logistics costs for deliveries to the Russian market Improvement of the service performance indicators of logistic channel (turnaround time, just-in-time, reliability, quality of supply) Increase flexibility when shipped - Increase speed of reaction to market changes and customer needs Example SIBUR Elimination of deficiencies Industrial Railway Conversion "liquid to solid" - Tobolsk-Polymer, ZapSib-2 Least cost routing Tobolsk Tomsk Nizhny Novgorod RusVinyl Hub in the Moscow region New export channels Bulk cargo transportation development (bulk containers) Development of a network of distribution centers in Europe, China and India Infrastructure development of the Far East Development of maritime logistic chains Ust - Luga 26

27 KEY FACTOR OF INTERNAL COMPETITIVENESS STATE POLICY OF DEMAND STIMULATION AND IMPORT SUBSTITUTION What is happening in the world Stimulation of domestic production to reduce dependence on imports and to create additional jobs Industry restructuring and transition to deeper processing Active support for development and application of new technologies Development of new Industry standards Demand stimulation in petrochemical-consuming industries Regulation of customs to protect domestic production (import duties) Direct state support of R & D Preferential taxation and tariff regime Simplification of administrative procedures What should be done in Russia To stimulate domestic demand in key petrochemical consuming industries (Housing and utility, construction, auto industry, packaging, etc): Promotion of application of new high-performance materials Changes in technological standards and regulations Introduction of new specific requirements and bonuses, to stimulate consumption of petrochemical products 27

28 «EXTERNAL» (EXPORT) COMPETITION OF THE RF PETROCHEMISTRY DEPENDS NOT ONLY ON COST COMPETITION, BUT ALSO ON MEASURES OF EXPORT AND EXPORT CHANNELS STIMULATION Business tasks New capacities constructing Improving the competitiveness of Russian industries Expanding the range of RF production (including high value-added) Product certification for access to international markets Opening up new international markets USD per ton The world cost curve for PP PP with delivery to Western Europe (2013) ME avg SIBUR = Russia avg ME Middle East; NA North America NEA Northeast Asia; WE Western Europe WE avg NEA avg NA avg Government tasks Legitimate programs of domestic market protection within the Customs union, the WTO and other international organizations (customs and tariff regulation improvement) To provide a support of the international expansion projects of petrochemicals companies To promote regional integration programs in order to simplify an access to the Russian Federation production (EU, SEA) To compensate a part of the export credits interest rates from the federal budget, the export credits insurance To draw up the Program of the national standards development harmonized with the international and regional standards and providing the competitiveness of the Russian chemical and petrochemical industry Participation in exhibition actions, the organization of expositions of achievements of the chemical and petrochemical industry at the largest international exhibition forums, informational and organizational support of the industry s companies and scientific institutes taking part in these actions The world market of chemical and petrochemical production monitoring Total capacity (mt) 28

29 HORIZON SIBUR S VISION OF ITS STRATEGIC DEVELOPMENT AND FUTHER GROWTH An integrated petrochemical site ZapSibNeftekhim will be created on the basis of available resource base and infrastructure in the region (Currently the project has not received a final investment decision status) and one of the global leaders of the industry One of the largest single ethylene-producing capacities in the world 5 world industrial site of polyethylene producing 6 world industrial site of polypropylene producing the project will be one of the largest industrial construction in RF More than 120 thousand tons of a metalwork More than 16,000 workers and engineers Satisfy about 1% of global consumption of polymers in thousand tons of reinforced concrete petrochemical feedstock from oil chain (from APG processing) Available feedstock for SIBUR*** mln tpa 6,1 Preliminary configuration of ZapSibNeftekhim Ethylene 1,5 PE 1,5 PP 0,5 petrochemical feedstock from gas chain (from gas preparation for transportation) 5,3 1,7 4,7 3,0** 1,7 Propylene 0,53 Other 0,25 Other 0,2 Total 2, ZSN Source: IHS, SIBUR s data Note: * - ** - resource gain due to fat gas ; *** - domestic production + purchase 29