SB ELASTOMERS AN OVERVIEW

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DOWNSTREAM PETROCHEMICAL INDUSTRY DEVELOPMENT
IN KINGDOM OF SAUDI ARABIA
Dr. Balaji B. Singh Dr. M.A.
RamadyPresident ProfessorChemical Market
Resources, Inc. King Fahd
UniversityHouston, TX Saudi
Arabia
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Presentation Outline

• Introduction
• Saudi Arabia Overview
• Planning Oil vs. Non Oil Economies in Saudi
  Arabia
  
• Current Goals of Saudi Arabian Economy
• Offset Program - Foreign Direct Investment
• Saudi Petrochemicals - Government Incentives
• Mega Petrochemical Projects
• Strategies for participation
• Conclusions

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GULF NATIONS
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Proven World Oil Reserves
Barrels World Billion
Share
Saudi Arabia 261 25.0 UAE 97.8 9.3
Kuwait 96.5 9.2 Mexico
28.3 2.7
USA 29.7 2.8 China 24.0
2.3 Iran 87.7 8.6 Iraq
112 10.8 Venezuela 76.9
7.3 Russia 48.6 4.6 Libya
29.5 1.4
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Estimated Gas Reserves Trillion Cu Ft, 2002
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Top 10 Oil Consuming Countries
Source Aramco
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Real Oil Prices (Base Year 1970)
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KSA Revenues Billions of US
Source SAMA
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Saudi Arabia Business Cycles SR Billions
800 700 600 500 400 300

200 100
Source SAMA
70
87
2004
82
92
95
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Saudi Arabia Economic Development Options
Positives Negatives
Large Oil Production Foreign Investment Economic
Dependency Surplus Finances International Imp
act
Less non-oil economy Resource Depletion
Oil Production Optimum Development World Oil
Shortages To meet National Need Conserve Resource
s World Recession Non-Oil Economy Alternate E
nergies
Smaller Oil Production Economic
Independence Large Imports Economic Diversificati
on Skills Acquisition Domestic Inflation
Export Potential Mismatch of labor
Source The Saudi Arabian Economy, Ramady
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Saudi Arabia 8th Five-Year Plan
2005-2009 Priorities

• Solve Human Resource Problems
• Diversify the Economy
• Increase Gas Production
• Optimize production, refining and distribution
• Develop Downstream Petrochemicals to capture
  Value, improve technology, sustainable growth
  
• Increase Saudization
• Prepare for Globalization WTO
• Downstream Value Addition
• Privatization

Source Ministry of Planning, KSA
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Petrochemicals Developments

• Based on abundant natural gas
• 61 associated gas rich in ethane
• Increased tenfold during the last 20 years
• from 3.7 million tonnes/year to 36 million
  tonnes/year
  
• expected to reach 70 million tonnes/year by 2010
• Production so far focused on
• the basic 6 with more ethylene aliphatics,
• chemical intermediates methanol, ethylene
  glycol, PTA, 2-EH, DOP, VCM Styrene etc., and
  
• basic polymers PE, PP, PS, PVC and PET
• SABIC currently owns 95 of the petrochemicals
• expected to decrease to 75 by 2010 with
  increasing private investments

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Petrochemicals Historical Developments

• The Future Downstream Developments will be faster
  due to
  
• A total of 41 Billion planned for 2005-2010 for
  petrochemicals
  
• The focus is more on levels II and III
  derivatives and moving the Saudi industry into
  value added products
  
• With the liberalization of downstream industry in
  1995, Govt has opened up more opportunities and
  removed SABICs lack of expertise in downstream
  development as the major stumbling block

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Saudi Arabia Petrochemicals Historical
Developments

• The Future Downstream Developments will be faster
  due to
  
• Acceleration of privatization process
• Partnering between the private companies in
  developing upstream petrochemicals and refinery
  projects e.g.., The Sahara cracker owned by
  Sahara, SipChem and Tasnee all part of The Zamil
  Group
• Formation of marketing alliances, off take
  agreements and converting operations JVs all
  are designed to fully develop the downstream
  industry

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So, How Does KSA Plan to Do It?
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Saudi Economic Offset Program

• The economic offset programs are one form of
  counter trade in which the importing country can
  offset the price by providing opportunities for
  the selling nation
• Direct Offsets - purchasing countries join
  selling countries to supply elements of the goods
  produced Indirect offsets - the selling country
  assists the buying country in its economic or
  investment plans

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Saudi Economic Offset Program

• BENEFITS
• Generation of Advanced Technology/Training
• High Value employment for Saudi Nationals
• Import substitution as well as Exports
• Development of Local technical, professional and
  managerial expertise
  
• Technology Transfer via RD
• Make optimum use of Kingdoms hydrocarbon raw
  materials to develop a diverse economy

Source Ministry of Planning, KSA
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Saudi Economic Offset Program

• HOW DOES IT WORK?
• Saudi private sector encouraged to participate in
  industry development via Foreign Direct
  Investment (FDI) program with potential
  candidates
• Saudi organization will hold a majority stock,
  but will be eligible for SIDF Funds at no
  interest cost and favorable raw material costs
  
• For smaller investment, international investors
  can expand operations, compete globally, while
  assisting KSA move forward
  
• KSA/GCC, at present may not be able to absorb all
  of the production, but are located close to the
  growth areas China, India, E.Europe and Africa
  
• Labor The labor rates are expected to be more
  competitive in future The most optimized Guest
  Worker Program
  

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Offset Program Mechanism

• Funding Structure for a joint venture
• 1. 50 Saudi Industrial Development Fund
• 25 Local Banks
• 12.5 Saudi Partner
• 12.5 Technology Partner
• Source BAE Systems, 2002

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Saudi Petrochemicals Government Incentives

• DOWNSTREAM PETROCHEMICALS
• The basic raw materials (Cracker output)
  allocated on a value addition basis
  
• Private investors, Existing Petrochemical players
  can approach the Govt. with their plans
  
• Govt. assigns funding via SIDF (Saudi Industrial
  Development Fund) for approved plans
  
• Approved organizations have limited time to
  attract investors, licensors, to implement the
  program - or give up the allocation
  
• The raw materials are provided on a Western
  Europe freight equalization to the project
  partners, who in turn are allowed to negotiate
  with potential partners

Source CMR Inc.
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Conclusions and Options
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Saudi Arabia Downstream Petrochemicals Industry
Drivers

• Minimal technology barriers
• Strong political support for export industry
• Emerging domestic markets
• Closer to growing markets
• Vertical integration
• Ability to leverage foreign support

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Future
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Future
Excellent Opportunities for Compounders Ad
ditive Suppliers Injection Molders Film Extr
uders Mold Makers Formulators Other Inter
mediate Participants
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Strategic Participation Options

• First in - benefits outweigh long term risks
• Provides opportunities for new technologies and
  prove innovative concepts
  
• Opportunity to work in the most advanced green
  field projects money can buy
  
• Work with established groups
• Evaluate long term options down the chain

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16 Years of Excellence
Chemical Marketing Research 1990-2007