The Middle East as an emerging Emerging economy Economy and The Linde Group's experiences Experience in in the Region region Dr. Aldo Aldo Belloni Belloni Abu IOMA Dhabi, Annual October Meeting, 2009 Prague, October 2009
Outline 1. The Middle East 2. The industry in the region 3. The gases market 4. The Linde Group s experience in the region 5. Conclusion 2
1.! The Middle East: A region in upwind 3
1. The Middle East: Macroeconomic indicators 2009 Population (mn) KSA UAE QAT Middle East* 25.9 4.6 1.6 208.5 World aggregat e CAGR 2010-13 GDP (bn USD) CAGR 2010-13 WEF Global Competitivenes s Index 2009/10 2.15 2.28 1.93 1.65 0.95 350.3 170.8 62.1 1,198.0 4.6 3.95 3.68 4.05 3.18 28 (!1) 23 ("8) 22 ("4) * KSA, JOR, IRN, KWT, UAE, BHR, QAT, EGT, ISR Source: Global Insight, June 2009; WEF 4
1. The Middle East: Political systems & economic framework Saudi Arabia Kuwait Bahrain Qatar UAE Oman Political System Most traditional Islamic, absolute monarchy Constit. monarchy, parliament Constit. monarchy, parliament, elections Constit. Monarchy, parliament Union, governed by Supreme Council of Rulers Progr. monarchy, oldest independ. GCC country Oil & Gas Largest oil exporter, 26% of proven reserves Strong oil exporter, 10% of proven reserves Beyond oil and gas production peak 6% of world gas reserves on small area Emirate Abu Dhabi as major oil and gas producer Oil production peak exceeded, depending on gas Banking System Al-Rajhi bank is largest Islamic bank in the world Highest rated banking system in GCC Leading service society in banking, finance, insurance Developing own banking system 7 Foreign Investment policy 100% foreign ownership possible, recently increm. law reforms 90% of economy is state owned and driven No restriction in foreign ownership, including property Foreign operations in JV, financial law based on English law Foreign operations in JV with local partner having min. 51% Foreign operations in JV Economic focus Depending on oil exports, diversifying into petrochemicals Depending on oil exports, small petrochemicals industry Oil exports shrinking, financial services increasing Depending on gas exports, some gas driven petrochemical industry (GTL) Dubai focused on real estate and tourism, Abu Dhabi depending on oil and gas Oil exports declining, agriculture, fishing, tourism 5
1. The Middle East: Arabian culture and business style Key Influences on business life in the Middle East:! The power of religion! The Arabic language! Honor and face! Hospitality! Family and relationships! Time! Legal system Source: Culturewise LTD 2004 6
Outline 1. The Middle East 2. The industry in the region 3. The gases market 4. The Linde Group s experience in the region 5. Conclusion 7
2. The industry in the region: Investment drivers for the GCC project boom!! Privileged hydrocarbon feedstock!! Worldscale plant size!! Proximity to Asian markets!! Oil revenue reinvestment!! Investment friendly climate (loans, funds)!! Investing power (Investors, IPOs)!! Creation of jobs and nationalization!! Long-term strategy (clusters) 8
2. The industry in the region: GCC investment forecast by segment (2009 2012) bn USD Source: MEED 9
2. The industry in the region: Petrochemical / refinery clusters in the Middle East Turkey Cyprus Lebanon Syria Iraq Tehran Alexandria Cairo Israel Jordan Bandar Imam Iran Egypt Yanbu Rabigh Kuwait Al Jubail Ras Tanura Riyadh Al Khobar Al Kharj Qatar Bandar Assaluyeh Sharjah Ruwais U.A.E. Bandar Abbas Muscat Jeddah Saudi Arabia Oman Jizan Duqm Refinery with Petchem Petchem Cluster Yemen (existing and planned) 10
2. The industry in the region: Sovereign wealth funds a growing factor in intl. investments 11
2. The industry in the region: Sovereign wealth funds during the crisis! Middle Eastern SWFs lost between a fifth and a quarter of their total portfolio value during the crisis.! From March 2008, MENA SWFs were still interested in financial services.! The crisis witnessed a marked upturn in domestic investments.! MENA SWFs performed significantly better than SWFs based in Asia and certain high-profile funds in North America and Europe.! Despite big losses incurred by some MENA SWFs, their portfolios have performed relatively well on balance.! Governments across the region face the common, long-term challenge of weaning themselves off energy dependence and diversifying their economies. Source: Testing Time; Monitor 2009 12
Outline 1. The Middle East 2. The industry in the region 3. The gases market 4. The Linde Group s experience in the region 5. Conclusion 13
3. The gases market: Industrial gas consumption, USD per capita, by region Still very low intensity in the emerging markets USA: $49 Western Europe: $38 Eastern Europe: $16 China: $2 Middle East: $4 South and East Asia: $3 South America: $13 South Africa: $13 Australia: $42 Gases market per capita Source: Spiritus Consulting/ Ifo 14
3. The gases market: Industrial gases revenues 2008 by country Total market size 2008: approximately USD 1.34 bn 4% 16% 31% 9% 6% 12% 10% Source: Spiritus Consulting 15
3. The gases market: Industrial gases revenues 2008 by sector 5% 9% 29% 38% 7% 3% Source: Spiritus Consulting 16
3. The gases market: Industrial gases revenues 2008 by players Source: Spiritus Consulting 17
3. The gases market: Industrial gases revenues 2008 by supply mode Source: Spiritus Consulting 18
3. The gases market: Growth forecast Annual growth rate in % CAGR = 8.6% CAGR = 7.2% * KSA, IS, JOR, IRN, IRQ, SYR, KWT, UAE, LEB, YEM, TUR, BHR, QAT, OMN ** KSA, KWT, UAE, BHR, QAT, OMN Source: Spiritus Consulting 19
3. The gases market: Gas application opportunities in the GCC Population growth Medical gases, CO 2 /N 2 for food applications Water / waste water O 2 applications From bulk to fine chemicals O 2, CO/H 2, H 2, N 2 in petrochemistry Infrastructure & Welding/shielding gases, construction GAR, CO 2 20
3. The gases market: On-site opportunities in the GCC (I) Oxygen for steel production (in bn #) Oxygen for GTL (in bn #) KSA KSA Other GCC Other GCC 21
3. The gases market: On-site opportunities in the GCC (II) Nitrogen and carbon dioxide for EOR (in bn #) Hydrogen for Refineries (in bn #) KSA CO 2 N 2 KSA Other GCC Other GCC N 2 22
3. The gases market: On-site opportunities in the GCC (III) Gases for chemicals production (in bn #) Additional demand comes from other emerging industries such as silane for solar cell manufacturing (MASDAR City, UAE). 23
3. The gases market: Proximity to Asia creates additional export potential The world s largest plastics demand from Asia fuels the export from the Middle East. 1990 ethylene production capacity 2011 24
3. The gases market: Factors favoring the outsourcing trend "! Predictable gas purchasing costs, reliable supply "! No capital costs for plant construction involved "! Focusing resources on core business "! No operational risk and costs "! Synergies, especially in clusters with integrated pipeline network Leveraging the benefits of supply schemes, the Americas and Europe have almost completely adopted the outsourcing trend for tonnage gas. 25
Outline 1. The Middle East 2. The industry in the region 3. The gases market 4. The Linde Group s experience in the region 5. Conclusion 26
4. The Linde Group s experience in the region: Linde Engineering - a leader in the region 50+ Linde plants operated by the industry in the GCC countries, including ASUs, gas processing, olefins and polyolefins plants. Some recent examples:!! 2 very large ASUs in Jubail, KSA (NIGC-Sabic)!! Polyolefins plant in Jubail, KSA (Sharq-Sabic)!! Steam cracker in Jubail, KSA (Tasnee)!! ASU in Yanbu, KSA (NIGC-Sabic)!! Steam cracker in Ruwais, UAE (Borouge)!! 8 ASUs in Ras Laffan, Qatar (Shell)!! ASUs in Ruwais and Mirfa, UAE (Elixier 1+2)!! Ethane cracker in Ruwais (Borouge 3) Suez Buraydah Yanbu Rabigh Jeddah Kuwait Al Jubail Bahrain Ras Tanura Qatar Riyadh Al Khobar Sharjah Saudi Arabia Yemen Al Kharj Ruwais U.A.E. Asab. Oman Muscat Air separation units Hydrogen and synthesis gas plants Gas processing plants Natural gas plants Petrochemical plants 27
4. The Linde Group s experience in the region: Business synergies between Gases and Engineering Div. ADNOC (Abu Dhabi National Oil Corporation) - customer relationship in Gases and Engineering: ADNOC - long-term customer of our Engineering Div. Ethylene cracker (Ruwais 1) signed in 1998 Ethylene cracker (Ruwais 2) signed in 2006 Ethylene cracker (Ruwais 3) signed in June 2009 JV ADNOC/Gases Division Elixier (founded Dec. 2007) First contract: ASU in the Ruwais cluster Serving Ethylene cracker (Ruwais 2) with nitrogen Linde to serve local merchant markets Second contract: Enhanced Condensate Recovery scheme for Habshan field 2 large air separation units going on-stream at the end of 2010. Capacity 670,000 standard cubic metres of nitrogen per hour. 28
Outline 1. The Middle East 2. The industry in the region 3. The gases market 4. The Linde Group s experience in the region 5. Conclusion 29
5. Conclusion The Middle East - and especially the GCC - is a very attractive market for gases and engineering companies due to!! oil revenue re-investments!! sustainable growth!! structural changes!! advanced gas applications 30
Thank you for your attention.