Middle-East Polymers & Materials… - IoPP · – Demand outstripping supply ... • Rising...

Pac Advantage Consulting, LLC

Timothy H. Bohrer, PresidentPac Advantage Consulting, LLC

May 14, 2008

1

Middle-East Polymers & Materials…

How They Impact North American Packagers


Topics

• Significant shifts underway

• How those shifts play out in polymers and converted materials

• Key players and projects

• Implications – technical, economic, logistical, environmental

• Some final thoughts

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Significant Shifts Underway

• Balance of financial power shifting to input owners– Realization of finite aspect of key resources– Demand outstripping supply– Desire to extract most value possible– In society heavily based on oil and gas inputs, the holders of those

resources are dictating more of the terms

• Recent financial results illustrate the trend – not only in energy, but in food and other dependent industries

• Geographical shift in economic power also underway



Where are the reserves?


ROW

Kuwait

Canada

Egypt

Uzbekistan

Malaysia

China

Norway

Indonesia

Kazakhstan

Turkmenistan

Iraq

Venezuela

Algeria

Nigeria

US

UAE

SaudiArabia

Qatar

Iran

Russia

0 7.5 15.0 22.5 30.0

27.215.8

14.73.93.53.32.92.62.5

1.81.61.61.61.31.31.21.10.90.90.9

9.4

%WorldNaturalGasReserves

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ROW

India

Azerbaijan

Norway

Kazakhstan

Brazil

Algeria

Mexico

Qatar

China

US

Nigeria

Libya

Russia

Venezuela

UAE

Kuwait

Iraq

Iran

Canada

SaudiArabia

0 7.5 15.0 22.5 30.0

20.4013.80

10.308.90

7.907.60

6.204.60

3.102.80

1.701.401.201.000.900.900.700.600.500.40

5.10

%WorldOilReserves


The Data are Clear

Country % of World Oil Reserves % of World Gas Reserves

Saudi Arabia 20.4 3.9

Iran 10.3 15.8

Iraq 8.9 1.8

Kuwait 7.9 0.9

UAE 7.6 3.5

Qatar 1.2 14.7

Region 56.3 40.6


Important Notes: 1. These are proved reserves, not production2. Shifting picture as depletion and new exploration underway3. Two fastest growing energy users have almost no petrochemical resources


Forward Integration Inevitable• Huge cash flows provide funds for significant investment

– Middle-East countries (SWF’s) & companies– Multi-national petrochemical companies– Investment funds

• Maximizing current and long term value of the resource involves adding more value and upgrading

• High unemployment in many oil and gas rich countries motivating governments to provide incentives for new manufacturing

• Rising regional standards of living increase demand for plastics and converted products



Forward Integration Motivation

• Essentially no infrastructure in place to move natural gas to Americas – conversion to plastics and products gains additional market access

• ME natural gas prices relatively stable compared to oil, providing strong advantage

• Non-trivial objective is to eliminate imports of converted plastics materials from raw materials exported from region. Self-sufficiency in converted packaging and products an important goal – majority of products came from China and Indonesia

• Europe and Africa closer to Middle East than to China providing logistics and cost advantages and creating opportunity for shift in trade importance



Strong Regional Push for Investment

• Gulf Cooperative Council (GCC) formed in 1981• Current members Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE• Yemen has applied for membership• Objectives include harmonizing regulations, establishing research centers and

encouraging joint ventures

• Countries setting up investment ‘parks’ with provided infrastructure• Low or no taxes, ease of moving capital and profits, free port access, etc.• Still some variation between countries in terms of rule of law• Petrochemical investment parallels well-publicized building boom



Brief Look at Some Key Players & Projects

• Disclaimer

• Middle East PE additions in 2008

• Some of the players and their activities

• A quick look at converters with export interests


Disclaimer

• An incomplete view – many JV’s are narrowly discussed – SWF’s operate with great discretion

• Meant to show size and scale of investment and projects

• Won’t forecast what crude oil and gas prices will be – the ‘experts’ told us oil would peak at $70-80/bbl before settling down

• Additional wild cards include duties and tariffs– Already seen these for BOPP and BOPET films from other counties and regions



A Look at Rapid Capacity Additions In PolymersPE Projects Scheduled for 2008 Start-Up

Company Country B #/year LDPE

B #/year LLDPE B #/year HDPE

Eastern Petrochemical Co(50% owned by Sabic)

Yemen 0.88 0.88

Yanbu Nat’l Petrochemical Co (Affiliated with Sabic)

Saudi Arabia 1.1 0.88

Tasnee & Sahara Olefins Co(50% owned LyondellBasell)

Saudi Arabia 0.88

Saudi Ethylene & PE Co(50% owned LyondellBasell)

Saudi Arabia 0.88

Rabigh Refining & Petrochemical Co

Saudi Arabia 0.77

Kuwait Olefins Co(50% owned Dow Chemical)

Kuwait 0.495 0.495

Arya Sasol Polymer Co Iran 0.66 0.66Jam Petrochemical Co Iran 0.33 0.99

Region Totals 1.5 3.6 4.8


Source: Plastics News


Examples of Key Players and Projects

• Borouge (Abu Dhabi, U.A.E.) – joint venture between between Abu Dhabi National Oil Company (ADNOC) and Borealis A/S (Borealis is majority owned by the International Petroleum Investment Company (IPIC) of Abu Dhabi)

• Currently has 600,000 tpa of PE at Ruwais, U.A.E

• Borouge 2 project to start up in 2010 with 800,000 tpa of PP and 540,000 tpa of PE

• Studying Borouge 3 for completion by 2014 to add 2.5MM tpa additional PO, which would bring total PO capacity to 4.5MM tpa

• Output supports pipe, packaging and automotive grades



Conversion Parks Planned as Well

• Borealis and IPIC further plan new Chemicals Industrial City in Abu Dhabi to include world-scale cracker and associated derivative units

• As part of the complex, 4.1 sq-km set aside for Polymers Park for plastics processors to locate immediately adjacent to material supply facilities




• Saudi Basic Industries Corp (Sabic) – manufactures chemicals, fertilizers, plastics and metals. 70% owned by Saudi government. One of ten largest petrochemical companies in world.

• Subsidiary Sabic IP (Innovative Plastics) formed following purchase of GE Plastics Unit

• Major PO investments coming on stream shortly and imports to US market part of Sabic’s public dialogue

• Sabic has partnered with major multi-nationals such as ExxonMobil in the past




• Saudi Arabian Oil Company (Aramco) – explores, drills, extracts and ships oil and gas. Grew from extraction concessions first issued in 1931 and became fully owned by Saudi government in 1980 when bought out last foreign interest. Claims to be largest company in world in terms of assets

• Joint venture with Sumitomo Chemical on West (Red Sea) coast, Rabigh Conversion Industrial Park (RCIP)

• Intent is to create large park making converted plastic products for diverse markets, including BOPP

• As part of enticement, offering fixed electricity rate of roughly $0.03/kWh




• Qatar Petroleum (QP, Qatar) – handles all aspects of petroleum and gas industries in the country. Owned by Qatar government, formed in 1974

• Qatar has largest unassociated gas reservoir in the world, providing low cost and abundant supply for a variety of projects

• JV with ExxonMobil to crack natural gas, including derivatives such as PE and PP, also LNG, reports that PP will be available next year in Qatar



Example of New Entrant and Project

• Octal Petrochemical (Oman) – producer of APET thermoforming sheet, with plans to expand into PET resin for bottles

• Initial investment announced to produce 300,000 tpa of sheet with integration to on-site resin

• Recent follow-on investment for additional 500,000 tpa of resin to sell to European and Middle East bottle market for total resin of 800,000 tpa by end of 2010

• Using direct to sheet extrusion technology which ties melt from reactor directly to sheet line eliminating heat history and associated energy usage

• Explicit plan to export sheet to Europe, US and China, with sales from first lines already established in those markets



Some Comments on Other Converted Products

• Several discussions at Interpack with Middle East region film converters

• Significant BOPP capacity has been established in Turkey

• Companies such as Polibak, Polinas & Behar supplying the European and Middle East markets.

• Historically had some US sales, but currency valuation changes have made exports difficult today. Hoping for improvements to be able to reinvigorate sales



• Also several flexible packaging manufacturers have US sales offices • Flex Pak Middle East (India based with plant in Dubai), Positive Packaging (Dubai) and

Bak Flexibles (Turkey) • Similar issues with currency values, but have worked to maintain presence and some

business

• Turkish companies suggest they have unique situation to bridge Asia & Europe which can help them become established with multi-nationals

• Some history of small volume specialty products, such as CPET trays made in Israel distributed in US, but these are not significant in the market and are not part of a changing dynamic



What Does it Mean for N. American Packagers?

• Lots of resin coming on the market

• Newest investment will have the newest technology and efficiencies• Should translate to low operating costs

• Extraction costs of gas and oil in Middle East are lower than in Alaska or North Sea – by some estimates, ½ or less of those costs

• Advantaged raw material costs with operating efficiency and plentiful materials provides attractive value proposition



The Ports are Open 24/7



What Does it Mean for N. American Packagers?

• Lots of resin coming on the market

• Newest investment will have the newest technology and efficiencies• Should translate to low operating costs

• Extraction costs of gas and oil in Middle East are lower than in Alaska or North Sea – by some estimates, ½ or less of those costs

• Advantaged raw material costs with operating efficiency and plentiful materials provides attractive value proposition

• BUT...Need to – Create the capability to make high quality polymers and products– Do so in a cost effective and efficient manner– Bring it from the Middle East to N. America– Do all of this in an environmentally responsible manner



Implications - Technology

• New investments will offer newest capability– Enhanced or optimized properties– Potential for improved quality and consistency– Operating and energy efficiency should be superior as well

• Should translate into advantages for users– Reports from early Octal sheet users documents extremely precise gauge control is

allowing meaningful reductions in weight with no compromise in part performance

• Joint ventures or those importing technical know-how will have best opportunities to achieve these potentials



Implications - Economics

• Unclear what final impact will be, but strong case can be made for several outcomes– With large increments of new capacity coming on almost simultaneously, should expect

some downward price pressure– Question is whether continued high feedstock costs will instead drive the impact to be

closure of highest cost units, as market pricing approaches their costs

• Different polymers will be affected differently, as feedstock dynamics vary substantially for different resins (PS vs. PO vs. PET)

• Shipping costs and availability of space on key routes also impact ease and volume shipped



Implications - Logistics

• Container loads from the Middle East to US for large quantities vary from 3 to 4 weeks, depending on proximity of ports to shipping lanes– Ports directly on Gulf take longer as traffic passing Straits of Hormuz is slower – ports

on Arabian Sea better and Red Sea offers good access as well to Mediterranean

• Suppliers and customers will need to work out needs for stocking programs, etc., with more difficulty for fully converted products than for resin

• Sabic plans to ship resin in ‘super sacks’, which apparently has met with less reluctance than they earlier anticipated

• Full container loads of sheet or film efficiently ‘weigh out’, making them more cost effective to ship than further converted products

• Will there be enough containers available for exports around the world?



Implications - Environment

• Needs more study and evaluation, with some possible advantages accruing to forward integrated product supply

• Newest technology should result in more efficient production, with lower emissions and waste – but that should be achievable with new investment regardless of location

• Not much consideration given thus far to relative impacts of extraction, but certainly superior to that of shale oil or tar sand oil, or extreme secondary and tertiary recovery approaches (Unless CO2 sequestration play possible)

• Shipping finished products rather than crude oil should mean less total weight shipped – could translate into energy savings

• Since total amount of oil and gas for plastics is small compared to fuel end use, not sure whether meaningful reduction in crude spillage potential results



Some Final Thoughts

• Possession of a raw material critical for the world economy is largely a matter of geographic luck

• Extraordinary concentration of oil and gas in relatively small region heightens the economic, political and emotional stakes



Some Final Thoughts

• Possession of a critical raw material for the world economy is largely a matter of geographic luck

• Extraordinary concentration in relatively small region heightens the economic, political and emotional stakes

• We have not worked out on any level the highest and best uses for many materials – oil and gas are among those with plenty of room for disagreement

• The rise of forward integration may shift economic power from the popularly identified ‘new giants’ (China and India) to the countries holding the key resource the giants need right now to be able to grow



What We Don’t Know for Sure

• How will US and other economies fare near term and 5 to 10 year horizon?

• Over this time frame, will patterns of energy consumption continue, or will conservation and alternative sources make meaningful changes in gas and oil use for fuel?

• How will US and other countries resolve emerging conflicts between use of crops (land and energy inputs) for food, fuel and as chemical sources?

• COAL - what technologies will be developed and what role to be played?

• Will economic interests lead to resolutions or heightening of political tensions between major oil producers and users?

• Is a major disruption of offshore gas and oil supply inevitable, or will North America (and the World!!) dodge a bullet?



What We Do Know

• Those with key resources will work to maximize their return on what they possess, and are motivated to maintain steady income streams

• Not all experiments in adding value succeed

• Petrochemical materials from the Middle East will be part of the equation for the N. American economy for the foreseeable future

• A lot more polymers and polymer products will be made there, and will impact the global market

• One more dynamic to closely track, and to understand how to exploit



This is an exciting topic with much more to be learned

What questions do you have?


Please direct further correspondence to

Timothy H. BohrerPac Advantage Consulting, LLC

5012 S. Woodlawn Ave #1Chicago, IL 60615-2814Tel/Fax 773-268-2232

Email [email protected]

mailto:[email protected]

mailto:[email protected]

http://www.pacadv.com

http://www.pacadv.com


2006 Top Oil Producers

Country MM bbl/daySaudi Arabia 10.7Russia 9.7US 8.3Iran 4.13China 3.85Mexico 3.7Canada 3.3UAE 2.95Venezuela 2.8Norway 2.8Kuwait 2.7Nigeria 2.4Brazil 2.2Algeria 2.1Iraq 2.0 Source: US eia


2006 Top Natural Gas Producers

Source: US eia

Middle-East Polymers & Materials… - IoPP · – Demand outstripping supply ... • Rising...

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Transcript of Middle-East Polymers & Materials… - IoPP · – Demand outstripping supply ... • Rising...