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Investment Opportunities in the Petrochemical Sector in Qatar

By: Hamad Rashid Al MohannadiVice Chairman of QAPCO Board of Directors

& General Manager of QAPCO

Qatar Economic Forum17-18 April 2006

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Presentation Outline• The Global Petrochemical Evolution1. Global Ethylene and Polyethylene supply demand2. Global Polyethylene evolution and per capita consumption

3. Regional petrochemical equivalent trade • The Middle East Petrochemical Scenario1. Regional Ethylene cost curve2. Factors for Middle East Cost Advantage

• Qatar’s Petrochemical Sector1. Background and introduction2. Qatar’s hydrocarbon resources strategy3. Advantages of investing in Qatar4. Qatar’s economic evolution5. Evolution of Qatar’s petrochemical industry6. Conclusion

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Petrochemical EvolutionPetrochemical Evolutionthe global Scenariothe global Scenario

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Global Ethylene Capacity GrowthGlobal Ethylene Capacity Growth

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 100

20

40

60

80

100

120

140

160Millions of tons - World

120

145

80

Source : CMAI

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North America Middle East Total Asia

West Europe Others Annual Demand Increase

World Regional Ethylene World Regional Ethylene Capacity AdditionsCapacity Additions

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Million Tons

Annual change in demand

Source : CMAI

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Polyethylene Evolution

0

20000

40000

60000

80000

100000

120000

140000

1990 1995 2000 2005 2010 2015 2020

PE - World

Capacity - 85% Demand

0

20000

40000

60000

80000

1990 1995 2000 2005 2010 2015 2020

LLDPE

0

20000

40000

60000

80000

1990 1995 2000 2005 2010 2015 2020

LDPE

0

20000

40000

60000

80000

1990 1995 2000 2005 2010 2015 2020

HDPE

In ‘000 ton/ Year

7 to 8%

8 to 9%

2 to 3%

Source : CMAI

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ChinaChinaEthylene Net Equivalent TradeEthylene Net Equivalent Trade

-14000

-12000

-10000

-8000

-6000

-4000

-2000

0

2000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Thousand Tons

Ethylene Vinyls Styrene Polyethylene Glycol Others

Net Imports

Source : CMAI

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Indian SubcontinentIndian SubcontinentEthylene Net Equivalent TradeEthylene Net Equivalent Trade

-2500

-2000

-1500

-1000

-500

0

500

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Thousand Tons

Ethylene Vinyls Styrene Polyethylene Glycol Others

Net Exports

Net Imports

Source : CMAI

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Middle EastMiddle EastEthylene Net Equivalent TradeEthylene Net Equivalent Trade

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Thousand Tons

Ethylene Vinyls Styrene Polyethylene Glycol Others

Net Exports

Net Imports

Source : CMAI

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Middle East: The World’s Future

Petrochemicals Production Hub

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Cumulative Capacity (Million Tons)

0

100

200

300

400

500

600

0 20 40 60 80 100 120 140

Brent Crude = $25/bblUS Nat. Gas = $3.30/MMBtu

World (274)

World (274)

Middle East (132)

Middle East (132)

Southeast Asia (266)

Southeast Asia (266)

West Europe (301)West Europe (301)

North America (294)

North America (294)

Northeast Asia (308)

Northeast Asia (308)

Source : CMAI

Global Ethylene Cost Curve Positions of Key Regions versus Asia

World Ethylene Cost Curve (Dollars per Ton)

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Returns for new Middle East investments in the polyolefins chain are substantially higher than in Europe

Integrated chain returns for cracker plus LLDPE plant * ROCE, percent

*Brownfield site; ethylene transferred at cash cost Source: Chem Systems, McKinsey analysis

Middle East, ethane

1100 kt cracker

300 kt LLDPE

NW Europe, naphtha

700 kt cracker

300 kt LLDPE

15.6

7.7

Factors of Middle East cost advantage:

• Cheap gas• Lower capital

cost for ethane crackers

• Scale benefits

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QATARQATARTaking off to become a global

leader in petrochemicals

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BACKGROUND1.Qatar was the first country in the Middle East to

establish a Petrochemical Plant (QAPCO) in 1974.

2.Diversification of the economy started with Phase one of North Field gas project starting in 1987.

3.North Field is the world’s largest natural gas resource with reserves estimated over 25 trillion cubic meters.

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1. Based on these gas reserves, major fertilizer and petrochemical

complexes have been built and more are being created;

2. World scale size plants for Ethylene, Polyethylene and other petrochemical

products are being built;

3. “Qatar will be the GTL capital of the world” and the largest supplier of

LNG by the end of this decade.

INTRODUCTION

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1. To Utilize available large natural gas reserves

2. To establish World Scale projects with sizable Investments

3. To Develop new downstream value added industry

4. To capitalize on Qatar's world scale experience in producing and marketing derivatives

Qatar's Hydrocarbon Resources’ Vision & Strategy

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1.1. The Low Cost of Feed Gas StockThe Low Cost of Feed Gas Stock

2.2. Low cost Utilities and GasLow cost Utilities and Gas

3.3. Well Developed Infrastructure and SupportWell Developed Infrastructure and Support

4.4. Fiscal Incentives, Exemptions Fiscal Incentives, Exemptions

5.5. Government Support Through Policies and LegislationGovernment Support Through Policies and Legislation

6.6. Political and Social StabilityPolitical and Social Stability

7.7. Geographic Advantageous Positioning in targeting Geographic Advantageous Positioning in targeting

Asian, African and European MarketsAsian, African and European Markets

Qatar : A Petrochemical Investment Haven

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Oil, Gas, Utilities &

Hydrocarbons

Oil, Gas, Utilities &

Hydrocarbons

Industrial/ Commercial/

Transportation Infrastructure

Industrial/ Commercial/

Transportation Infrastructure

Tourism, Sports &

Recreational Facilities

Tourism, Sports &

Recreational Facilities

Education, Health & Training Facilities

Education, Health & Training Facilities

Over $120 Billion to be invested in Qatar over

the next few years

Qatar is in the process of transforming into a leading regional economy through a prudent

investment strategy in four key sectors

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Due to the tremendous investments and growth opportunities in the petrochemical sector, Qatar

needs to have several next generation services

Over $15 Billion to be invested in Qatar’s petrochemical sector by 2012

Over $15 Billion to be invested in Qatar’s petrochemical sector by 2012

Development of Human Resources

Increasing need of supply chain partners & logistics providers to transport increasing volume of petrochemicals globally

Strong commitment to build Small to Medium Enterprises (SMEs) to diversify our manufacturing industry

Increasing need to build next generation services to serve the core petrochemical sectors (e.g. Outsourcing, Information Technology)

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Oil & Gas Production Profile

0500

100015002000

25003000350040004500

1990 1995 2000 2005 2010

000

BOE/

day

Oil Production Gas Prdn TotalSource : Contax

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POLYETHYLENE - PRODUCTIONC

apac

ity

K/T

0

1000

2000

3000

4000

5000

2004 2008 2012

Qatar

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ETHYLENE - PRODUCTIONC

apac

ity

K/T

0

1000

2000

3000

4000

5000

6000

7000

2004 2008 2012

Qatar

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Cap

acit

y -

KT

0

1000

2000

3000

4000

5000

6000

7000E

TH

YL

EN

E

PO

LY

ET

HY

LE

NE

PO

YP

RO

PY

LE

NE

PO

LY

STY

RE

NE

ED

C

VC

M

CA

UST

IC S

OD

A

UR

EA

AM

MO

NIA

ME

TH

AN

OL

MT

BE

BE

NZ

EN

E

STY

RE

NE

GL

YC

OL

LA

B

PA

RA

FF

IN

2004 2012

CAPACITY - QATAR

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Cap

acit

y

0

5000

10000

15000

20000

25000

30000

2004 2005 2006 2007 2008 2009 2010 2011 2012

CAPACITY FOR MAIN PETROCHEMICALS IN QATAR

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ConclusionQatar’s Petrochemical industry is poised to

leverage its abundant gas reserves and is positioned to rapid expansion: establishing

itself as one of the world leaders in the Petrochemical production, where Qatar’s

petrochemical production capacity in 2012 will reach over 27 million MT per year with diversified product portfolio of covering 16

different products.

Such giant petrochemical development plans, will necessitate the creation and

development of associated and supporting services and industries required to serve

these projects, hence establishing additional tremendous horizon of small

and medium size investment opportunities for years to come.

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