First Saudi Arabian International

Gas Conference
The Global Petrochemical Industry..
…and the Impact of New Saudi
Hydrocarbon Supplies

Pat Rooney
Managing Director – CMAI Middle East
May, 2004
Singapore
prooney @ cmaiglobal.com
Dubai
Houston London

971Saudi
Saudi Arabian
Arabian
-4-391 International
International
-2930 (Office) Gas
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971-4-391-2930
Use This Presentation to Help Frame
Your Answers To These Questions…
• How is the global petrochemical industry doing?
• What is the status of the industry in Saudi
Arabia and the GCC?
• What will new gas supplies mean to the Saudi
petrochemical industry?
• How could the Saudi industry further evolve to
add more value to the Saudi economy?

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 What are the Current Conditions…
As we entered 2004, global
petchem markets were still
yielding inadequate returns
The rate of new capacity
additions remains measured
Economic recovery gaining
momentum – esp. Asia & US
U.S. gas and crude oil prices
are high and are defining
global competition
Producers protecting and
leveraging their low total
cost role in servicing and
maintaining their markets
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 Pricing Strength and Profits remain at
the poles… The Wellhead and Wal-Mart

Energy Plastics
Base Chemicals

Durables
Consumers and Non-
Durables
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 World GDP Growth Rates
Percent Change
Constant 1997 Dollars
5.0
Forecast
4.5

4.0
3.5
3.0
2.5

2.0 Current
Current recovery
recovery
appears
appears toto be
be
1.5 following
following aa
slightly
slightly similar
similar
1.0
pattern
pattern
0.5
0.0
Houston
82
82
London
84
84
Singapore
86
86
Dubai
88
88 90
90 92
92 94
94 96
96 98
98 00
00 02
02 04
04 06
06 08
08
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 Petrochemicals Markets Will Recover
a.k.a. How to turn around a soft commodity
petrochemicals market…

• Seven years of unattractive

earnings
• Industry consolidation and
cautious approach to new
capacity investment
• Strong global consumption
growth year-after-year

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 Global Base Chemicals and Plastics
Weighted Average Earnings Before Interest & Taxes
$180
$180 (U.S. Dollars per Metric Ton)
$160
$160
$140
$140
$120
$120 Ten to Eleven
$100
$100
Years from
$80
$80
Peak to Peak
$60
$60
$40
$40
$20
$20
$0
$0
-$20
-$20
-$40
-$40
85
85 86
86 87
87 88
88 89
89 90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02 03 04
02 03 04 05 06 07
05 06 07
Global Earnings Recovery Continues in 2004!
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 What about the global competition?
Secret to success in commodity petrochemicals…

• It is not all about who

has the biggest plant
• It is not all about who
has the best technology
• It is not all about who
traded there first
• It is literally about
cost…
…as much as 60% of integrated cash costs are hydrocarbon based!
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 Saudi Arabian Ethane Advantage
Feedstock Costs - $/Ton
Feedstock price ($/ton)
350

300 USGC Ethane

250

200

150 SE Asian
Naphtha
100
KSA Ethane
50

0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
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 World Ethylene Cash Costs - Regional Averages
Dollars
Dollars per
per Ton
Ton 2003
650
650
USGC
USGC Natural
Natural Gas
Gas == $5.45/MM
$5.45/MM Btu
Btu
Brent Crude = $28.75 /Bbl
Brent Crude = $28.75 /Bbl
550
550 Average
Average US
US Feedstock
Feedstock Basis
Basis
North
North America
America
Wt'd
Wt'd Avg == $420/ton
Avg $420/ton
450
450
Northeast
Northeast Asia
Asia
Wt'd Avg = $310/ton
Wt'd Avg = $310/ton
350
350
West
West Europe
Europe
250 Wt'd
Wt'd Avg
Avg == $315/ton
$315/ton
250 Southeast
Southeast Asia
Asia
Wt'd Avg = $270/ton
Wt'd Avg = $270/ton

150
150
Middle
Middle East
East
Wt'd
Wt'd Avg
Avg == $140/ton
$140/ton
50
50
00 20
20 40
40 60
60 80
80 100
100 120
120
Cumulative
Cumulative Capacity
Capacity (Million
(Million Tons)
Tons)
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Low Ethylene Cash Costs Translate to Low Delivered
(Dollars Per PE
Ton) Costs to China (2007 Estimate)
800
USGC
USGC Natural
Natural Gas
Gas == $4.50
$4.50 // MM
MM Btu
Btu
700 Brent
Brent Crude
Crude == $25.00
$25.00 /Bbl
/Bbl

600

500

400

300

200

100

-
Saudi E/P China Sing Canada US US
Naphtha Naphtha Ethane Naphtha Ethane
Net Feedstock Cost Variable Cost Fixed Cost Packaging & Logistics Duty
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 Advantaged Feedstock Prices
Significantly Impact Earnings
Millions of Dollars

2,000 2002 Earnings ex. Unusual Items 2003 Earnings

1,500
SABIC’s
SABIC’s petrochemical
petrochemical asset
asset base
base is
is
significantly
significantly smaller
smaller than
than either
either Dow
Dow
1,000
or
or ExxonMobil….
ExxonMobil….
Lyondell
Lyondell and
and Nova
Nova have
have no
no Middle
Middle
500 East
East based
based production
production

(500)
Dow ExxonMobil Lyondell Chevron Nova SABIC
Phillips
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 Saudi Arabia is a key producer for many chemicals
today……

– Methanol and Urea/Ammonia – methane based

– Ethylene and Derivatives – ethane and LPG based
– MTBE – butane based

……..and Saudi Arabia will be a larger producer

of chemicals tomorrow

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 Saudi Arabian Petrochemical Projects
(-000- Metric Tons)
PROJECT LOCATION CAPACITY TIMING COMMENTS

ETHYLENE / DERIVATIVES
Jubail United Petrochemical Al Jubail 1,200 2005 Ethane/Propane
Jubail Chevron Phillips Al Jubail 300 2007 Naphtha/Gas Oil
SABIC Yanbu 1,300 2008 Ethane/Propane
SHARQ Al Jubail 1,200 2008 Ethane/Propane
Saudi Aramco / Sumitomo Rabigh 1,250 2008 E/P + FCC Gas

PROPYLENE / DERIVATIVES
NPIC (Saudi Polyolefins) Al Jubail 450 2004 Propane DH / PP
NPPC Al Jubail 450 2006 Propane DH / PP
Al-ujain Yanbu 300 2008 Propane DH / PP
SABIC Yanbu 350 2008 Co-Product
Saudi Aramco / Sumitomo Rabigh 900 2008 Co-Product

BENZENE / DERIVATIVES
Jubail ChevronPhillips Al-Jubail 700 2007 Styrene
SABIC Al-Jubail 500 2007 Styrene

METHANOL
SIPC Al-Jubail 1,000 2006 Acetic Acid

OTHERS
SAFCO – Ammonia / Urea Al-ujain - Isooctane GACIC – Butanediol / MAN

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 Africa & Middle East
Basic Chemicals & Plastics Capacity
Million Percent
Percent of
of World
World Total
Total
Million Metric
Metric Tons
Tons
80
80 40%
40%
Plastics
Plastics Represents Just Over
70
70 35%
35%
10% of World
Methanol
Methanol
60
60 Capacity in 2008 30%
30%

50
50 Chlor-alkali
Chlor-alkali 25%
25%
40
40 Aromatics
Aromatics 20%
20%

30
30 Olefins
Olefins 15%
15%
20
20 Percent
Percent of
of World
World 10%
10%

10
10 5%
5%
00 0%
0%
85
85 86
86 87
87 88
88 89
89 90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02
02 03
03 04
04 05
05 06
06 07
07 08
08
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 Saudi Arabian Industry Status
• Strong base chemical production growth utilizing
methane, ethane, and gas liquid feedstock
– Best in class cost performance

• Profitable industry generating re-investment quality

earnings year over year
– Underpinned by bountiful hydrocarbon supplies

• Well established economic clusters in Jubail and

Yanbu
– Highly skilled technical and crafts personnel

• Attracting new participants / growing the industry

– SABIC success story being emulated

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 KSA Industry Transformation
• Competition
– Not just based on product prices

• Expansion into Tertiary Products / Industries

– Not just producing primary base chemicals (ethylene) or
secondary products (polyethylene)

• Diversification of the industry

– Not just petrochemicals, but other chemicals that use energy

• Overcoming barriers to development

– Case by case: No “magic pill” that will cure everything
• Understand the industry structure and opportunities
• Collaborative relationships with all participants

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We See a Robust Future in the KSA and GCC,
Underpinned by Hydrocarbon Developments
– Industry Built on Advantaged Feedstock – which will
support future petrochemical expansion
– Exploitation of the Energy Advantage – Not just
methanol and ethylene, but energy intensive
chemicals (Chlorine)
– Development of Plastic / Chemical Conversion
Industries – Why ship KSA materials to China for
conversion ? Serve the finished and semi-finished
plastic goods markets directly from the KSA
– Understand the industry and the incentives – those
who are modern and cost competitive will prosper….
…the rest will be challenged to survive.
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