Transformation in the GCC Chemical Industry Dave Witte, SVP IHS, Division Head, Energy & Chemicals

Transcription

1

2 Transformation in the GCC Chemical Industry Dave Witte, SVP IHS, Division Head, Energy & Chemicals

3 Agenda Challenges facing the GCC economies Chemicals as a solution Challenges to chemicals Transformation framework

4 The GCC faces difficult macro-oriented challenges Energy Supply The nature of short-cycle shale creates a new set of oil dynamics Energy Demand Lower oil demand growth due to environmental regulations and emerging/disruptive technologies Geopolitical Landscape Continuing economic mediocrity, expanding workforce, political tensions and protectionist risks Requirements Reduce economic dependence on oil Create quality jobs Stimulate GDP growth Accelerate structural reforms Expand private sector

5 Budget deficit For most, current account deficits are moving toward a better balance, but budget deficits remain problematic 2018 Oil Parity Budget Break-evens One break-even lower than Brent and one higher = budget deficit UAE Both break-evens higher than Brent = current account and budget deficit Iraq Iran Kuwait Saudi Arabia Qatar Oman Source: IHS Markit Current account 2017 IHS Markit

6 US$, Billions Dependence of GCC economy on oil creates volatility; future risks to oil amplify uncertainty Oil and Non-oil GDP Contribution to GCC Economy 1,200 Chart Title 1, Oil Non-Oil

7 Million Bbl / day OPEC Share, % Million Bbl / day OPEC market share volume growth constrained first by shale, then by demand growth - with considerable volume & price risk OPEC & Non-OPEC Crude Oil Production Total oil (liquids) demand, % 45% Base Case 60 40% OPEC Non-OPEC % OPEC 35% 30% 25% History Mobility Disruption Case

8 Labor Force (Millions) Demographics show an expanding workforce that needs economic expansion to create high-quality private sector jobs GCC Labor Force and Participation Saudi Arabia United Arab Emirates Oman Kuwait Qatar Bahrain

9 Investment in value-add chemicals is enabler of and part of a mix of solutions to the GCC economic challenges Leverages hydrocarbon resources Enhances refinery competitiveness Creates highvalue jobs Enables downstream development Fosters innovation

10 Million metric tons Leverages the vast hydrocarbon resources while reducing economic dependence on oil World Base Chemical Annual Change In Demand

11 Net cash margin Enhances refinery competitiveness; de-risks strategy of refining as a pull-through strategy of equity barrels East-of-Suez refinery margin analysis Source: IHS Markit 1st Quartile 2nd Quartile 3rd Quartile 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Cumulative crude capacity, thousand b/d 4th Quartile 2017 IHS Markit

12 Enables downstream manufacturing industry to further accelerate job creation and economic diversification More than 96% of all manufactured goods are directly touched by the business of chemistry Supporting more than 25%, of a diversified economy across virtually ALL key end sectors

13 Investment in chemicals creates employment with a significant multiplying affect on growth in other economic sectors U.S. Business of Chemistry Industry Snapshot Total jobs = 6,298 (thousands) Multiplier = 6.8 Direct jobs 812 Supplier jobs 2,707 Expenditureinduced jobs 2,779 Multipliers understate the economic importance of the chemical industry by ignoring downstream affects Source: 2017 ACC Guide to the Business of Chemistry

14 Fosters innovation by funding core research activities that solve tomorrow s problems US chemical companies invested $91 billion in leading research & development in 2016 Plastics are critical in improving vehicle safety and fuel efficiency Solar power relies on siliconbased chemistry Building insulation saves up to 40 times energy used to create it Chemistry needed to create lithium rechargeable batteries Source: 2017 ACC Guide to the Business of Chemistry

15 US$ Million Middle East share performance demonstrates a shift in investor sentiment to other regions and a more diversified portfolio Index Share Price Performance Middle East Commodity Chemical EBITDA 300 Middle East Commodity US Diversified EU Diversified 196% 184% 25,000 20, , % 10,000 5,000 0 April-10 April-12 April-14 April Source: IHS Markit, Company Disclosures 2017 IHS Markit Source: IHS Markit, Company Disclosures 2017 IHS Markit

16 Millions Metric Tons Million Metric Tons Regional expansion shifts away from advantaged gas to a more diversified liquid hydrocarbon backbone GCC Total Aromatic & Olefin Capacity 100 GCC Aromatic & Olefin Feedstocks Source: IHS Markit Ethylene Propylene (PG/CG) Paraxylene Benzene 2017 IHS Markit Naphtha to Aromatics LPG Stm. Cracking Propane to PDH Naphtha Stm. Cracking Ethane Stm. Cracking

17 North America Central and South America Western Europe Central and Eastern Europe Middle East and Africa Japan China Other Asia World North America Central and South America Western Europe Central and Eastern Europe Middle East and Africa Japan China Other Asia World average Low consumption and evolving demographics in nearby markets suggest opportunities in value-add chemicals Specialty chemicals consumption per capita, 2015 ($) Specialty chemicals volume growth rates, (%) BUT Key Success Factors for Value-add are Vastly Different than Commodity Chemicals

18 Agenda Challenges facing the GCC economies Chemicals as a solution Challenges to chemicals Transformation framework

19 To achieve high performance in a shifting external environment, GCC chemical companies must transform and adapt High Performance Framework Strategy Business Model Process Resources Capabilities People

20 Begin by developing a clearly-articulated strategy High Performance Framework Business Model Strategy Process Set Ambitious goals Diversify from monetization to value-add and growth Increased market awareness and customer intimacy Align portfolio/organization Resources Capabilities People

21 Recognition that new strategies likely require new business models High Performance Framework Strategy Clearly define model that aligns with overall strategy Business Model Process Value proposition/offerings and value capture mechanism Structure, process and capability requirements Resources Capabilities People Proactive model management

22 Build a unique set of agile customer-facing capabilities High Performance Framework Business Model Strategy Process Competitor differentiation Market impact/valued by customers Transferable and adaptable to new opportunities Resources Capabilities People Understanding of potential deficiencies

23 Conclusions GCC faces economic headwinds; diversification is needed to meet expansion challenges The chemical industry is a key enabler and a part of the solution for economic growth Commodity chemical investment for resource monetization is unlikely to meet the challenges GCC chemical producers have an opportunity to refocus/retool business models and strategies GCC chemical companies and policies will need to adjust to improve agility and capability