Middle East Investments Local Strategies Driving Global Industry Change Patrick Rooney Managing Director Middle East and India PRooney@cmaiglobal.com May 14, 29 Seoul, South Korea Singapore Shanghai Houston New York London Düsseldorf Dubai
Middle East Investments Major Project Updates Near Term Longer Term The local investment climate Middle East trade impacts the global industry Middle East impacts not just base chemicals and plastics
Nine Million Tons of Ethylene in Two Years 28 view: 29 view: Middle East Ethylene Capacity Addition, MMT 1 9 8 7 6 5 4 3 2 1 H1 '8 Q3 '8 Q4 '8 H1 '9 H2 '9
35 3 25 2 15 1 5 Middle East Ethylene Capacity Growth Will Continue Year-End Capacity, Million Metric Tons 4 23 24 25 26 27 28 29 21 211 212 213 214 215
Where Are the Ethylene Projects? Saudi Arabia Iran Other Middle East North Africa End '7 End '8 End '13 2 4 6 8 1 12 14 16 18 Year-End Capacity, Million Metric Tons
The Market Changes in Saudi Arabia Ethylene Year-End Capacity, Million Metric Tons 18 16 14 12 1 8 6 4 2 25 26 27 28 29 21 211 212 213 Sabic Affiliates Aramco Affiliates Other Crackers
Iran Progressing Ilam Tabriz Abadan Arak Gachsaran Bandar Assaluyeh Arya Sasol Jam Morvarid construction Kavyan construction Persian Gulf PC devel. Bandar Imam BIPC Amir Kabir Marun Bandar Imam Bandar Assaluyeh Existing Under Construction Under Development
Other Middle East/North Africa Projects Country Company Capacity (kt) Timing Total Capacity End-28 5335 Qatar RLOC 13 Q3 29 U.A.E Borouge 2 14 Q2 21 Algeria Total/Sonatrach 11 213/14 Qatar QP/ExxonMobil 13 213/14 Qatar QP/Honam 9 On hold Total Capacity End-213 1435
Propylene Capacity Additions 28-1 Saudi Arabia Iran Israel Oman Turkey Libya Kuwait Egypt UAE End 27 28-1 Additions 1 2 3 4 5 6 Capacity, Million Metric Tons
Saudi Feedstocks Are Changing 27 213 Ethane 73% Ethane 62% Naphtha 1% Butane 1% Propane 16% Others 1% Naphtha 8% Butane 6% Propane 23% KSA Ethylene Production = 7.4 Million Metric Tons KSA Ethylene Production = 14.8 Million Metric Tons
MDE Propylene is more than Crackers Propylene Capacity at Year-End, Million Metric Tons 6 5 4 3 2 1 Steam Cracker FCC Propane Dehydro Metathesis End 27 28 29 21-13
Middle East Investments Major Project Updates Near Term Longer Term The local investment climate Middle East trade impacts the global industry Middle East impacts not just base chemicals and plastics
Middle East Investment Context & Drivers Oil Prices and Production Oil Production Desire to diversify away from just oil Country / National Interests Strong Balance Sheets Growing Populations / Job Creation Differing States / Policies / Politics Differing State of Industry Development Strong Chemical Industry Profitability / Attractiveness High Capital Costs The petrochemical industry remains profitable even at the bottom of the cycle.and at low oil prices
Comparative Profiles 9 8 7 6 5 4 3 2 1 Oil & Gas Reserves & Production Selected Company Production MB / D XOM BP SHL CHV TOT SAO 35 3 25 2 15 1 5 Selected Company Reserves 361 Billion BOE XOM BP SHL CHV TOT SAO
National GDP s Track Crude Oil Price GDP ($Billion) Oil Price - $/B 1,6 1 1,4 9 1,2 8 7 1, 6 8 5 6 4 4 3 2 2 1 1998 1999 2 21 22 23 24 25 26 27 28 Iran Kuwait Qatar Saudi UAE Crude Oil Dubai
Oil Revenue gives rise to Sovereign Wealth.and State Owned Chemical Capacity Billion Dollars Oil Revenues Ethylene Capacity, KTA 9 45 8 Over 95% of MDE ethylene capacity has some portion of State Ownership 4 7 6 5 4 3 2 1 95 97 99 1 3 5 7 9 11 13 15 17 19 KSA UAE KUWAIT IRAN Total Ethylene Capacity (KTA) 35 3 25 2 15 1 5
As an Investor, It Might be a Good Time to Wait... Cracker projects awarded in 26/7 were 7-8 % more expensive per ton ethylene than contracts in 1999-22 Capital costs are correcting downwards Steel prices are half of prices last year Engineering rates reducing Huge potential savings on $2 billion + complexes
Middle East Advantage Significantly Reduced at Lower Oil Prices Ethylene Production Cash Costs, $/MT 18 Brent Crude Prices: 16 28 = 98 $/bbl 14 29 = 45 $/bbl Average Feedstock Basis 28 12 1 8 SEA NAM WEP NEA 8 $/t 29 6 4 2 MDE 36 $/t 2 4 6 8 1 12 14 16 Cumulative Ethylene Capacity, Million Metric Tons
But Middle East Returns Remain Attractive Compared to Other Regions % ROI for integrated Ethylene-HDPE Producer 8 7 6 5 4 3 2 1-1 -2 23 24 25 26 27 28 29 21 211 212 213 N. America W. Europe S.E. Asia M. East Ethane M. East E/P
Middle East Investments Major Project Updates Near Term Longer Term The local investment climate Middle East trade impacts the global industry Middle East impacts not just base chemicals and plastics
Ethylene Net Equivalent Trade, Million Metric Tons 18 16 14 12 1 8 6 4 2 Asia Cannot Absorb Everything 23 24 25 26 27 28 29 21 211 212 213 MDE Net Equivalent Exports Asia Net Equivalent Imports
Ethylene Net Equivalent Trade, Million Metric Tons 25 Exports 2 15 1 5-5 -1-15 -2-25 Nowhere Is the World Immune Imports 3 4 5 6 7 8 9 1 11 12 13 North America South America West Europe Middle East Indian Sub. Northeast Asia Southeast Asia Others
The Middle East Becomes A Major Propylene Player Propylene Net Equivalent Trade, Million Metric Tons 6 Exports 4 2-2 -4-6 Imports 3 4 5 6 7 8 9 1 11 12 13 North America West Europe Middle East Asia Others
Middle East Investments Major Project Updates Near Term Longer Term The local investment climate Middle East trade impacts the global industry Middle East impacts not just base chemicals and plastics
Middle East Projects are Extending Well Beyond Basic Chemicals By 213, we expect world scale capacities for many derivatives far down the value chain Sabic Saudi Kayan Polycarbonate ExxonMobil C4 s joint venture ABS capacity in Jubail Saudi Aramco PO, MMA, PMMA at PetroRabigh Numerous derivatives at Dow Ras Tanura project Other projects in planning for Nylon, TDI, PO derivatives, PE & PP Downstream investments
Industry has lost significant market value.creating opportunities Asset utilizations low due to: Increased Middle East supply Durable goods demand drop due to global economy Price - $/Share 45 4 Permanent facility shutdowns announced at several sites in the US and Europe Transactions facing difficulty K-Dow Dow / Rohm & Haas Hexion / Huntsman 35 3 25 2 15 Market valuations down significantly LyondellBasell in Chapter 11 Bankruptcy 1 5 Nova sold to IPIC of Abu Dhabi Dow Chemical Feb-28 Jun-28 Oct-28 Feb-29 Dow Jones Industrial Average (rebased)
Situation Analysis Middle East View Track Record of Large Acquisitions Sabic: DSM / GE Plastics / Huntsman Olefins IPIC: Borealis / OMV / Nova Tasnee: Millenium TiO2 Low Asset Values in the Stock Markets Reinvestment level economics for Middle East based assets Need for Technology / Marketing expertise Particularly in Asia
Conclusions Some cracker project delays, but these are mostly past. Large new capacity impacts global balances. Middle East profitability reduced at lower oil prices, but the region remains profitable Several projects underway to push downstream Expect Middle East producers to be acquisitive The Middle East is shaping global industry changes