business petrochem industry

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Understanding Petrochemical Business

MBA Program at UPES

Integrated B. Tech & MBA / MBA in Oil & Gas

Venue: UPES DehradunNov 19-21,2011


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SCHEDULE FOR THE DAY

Module 7A Business Practices

Module 7B Demand Supply And Pricing

Module 7C Business Cycles


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BUSINESS PRACTICES

MODULE 7 A


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INTERNATIONAL TRADE PRACTICES

DIRECT TRADING

CONTRACT

LONG TERM

BENCH MARKED MEDIUM TERM, SHORT TERM

THROUGH MERCANTILE EXCHANGES

LME; NYMEX; SGX; HKMEx DME MCX

SPOT FUTURES

MAINLY FOR HEDGING


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BUSINESS INTELLIGENCE AGENCIES

DATA ON TRADE VOLUMES AND SPOT /

CONTRACTS ARE COMPILED, ANALYSED AND

PUBLISHED SUBSCRIPTION BASED ACCESS

PLATT

ARGUS MEDIA

IHS ACQUIED PUVIN GET) CMAI

ICIS ETC


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BUSINESS PROSPECTING

MARKET SURVEYS

DEMAND SUPPLY PROJECTIONS

GLOBAL BASIS

REGIONAL BASIS

DOMESTIC SCENARIO

PAST DATA

PRODUCTION IMPORTS / EXPORTS

CAPACITY AVAILABLE


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BUSINESS PROSPECTS

MARKET SURVEYS

PROJECTIONS

DEMAND PROJECTIONS

CONSUMER SECTOR ANALYSIS

GROWTH RATE MODEL

SUBSTITUTION ALTERNATES

SUPPLY PROJECTIONS

ANNOUNCED PLANS - NEW PROJECTS / EXPANSIONS / SHUT-DOWNS

GROWTH RATE MODEL


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BUSINESS PROSPECTS

PRICE PROJECTIONS

IDEAL SITUATION DOES NOT EXIST

PAST DATA ANALYSED THROUGH BENCH-MARKING CRUDE OIL BENCHMARKING

ETHYLENE BENCHMARKING

NAPHTHA BENCHMARKING

PRICE MARGIN / RATIO

INTERNATIONAL TRADE GEOPOLITICAL IMPACT


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BUSINESS PROSPECTS

INTERNATIONAL PRICES TERMS AND

CONDITIONS FOLLOW INCOTERMS

PRICE QUOTED

AT SALES POINT LOADED ONTO THE TRANSPORT

VESSEL - FEE-ON-BOAD

DELIVEED AT BUYES COUNTY POT

CFR INCLUDING BASE COST AND FREIGHT

CIF INCLUDING BASE COST, FREIGHT, INSURANCE

QUANTITY ISSUES AT POINT OF LOADING

ANY TANSIT LOSSES TO BUYES ACCOUNT


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BUSINESS PROSPECTS

SOME PRICING TERMINOLOGY SPOT PRICES QUOTED FOR A PROMINENT PORT IN A REGION

NWE Rotterdam

ME Dubai

SEA Singapore; Kuala Lumpur;

NEA Japan

CMP China Mainland Port / Shangai

USG US Gulf Coast

E

FREIGHT NETBACK

Adjusted for freight from point of supply / delivery to the respective port

B


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INTERNATIONAL REGIONS

NWE Northwest Europe (N. France, Germany, France, Benelux)

Mediterranean Southern France, Spain, Italy

NE Asia Taiwan, Korea, Japan, China

SE AsiaSingapore, Philippines, Indonesia, Malaysia, Thailand,

VietnamWest Asia Pakistan, India

East Asia NE Asia & SE Asia

GCC Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE

East Mediterranean Greece, Israel, Egypt, Syria, Jordan, Lebanon

FSUFormer Soviet Union: Russia, Ukraine, Belarus, Uzbekistan,Kazakhstan

USG US Gulf

NWE Northwest Europe (N. France, Germany, France, Benelux)


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BUSINESS PROSPECTS

DOMESTIC SCENARIO

INDUSTRY PROTECTION

TARIFFS

IMPORT / EXPORT BANS

INVESTMENT INCENTIVES

CONCESSIONS IN DOMESTIC TAXES & DUTIES

CASH SUBSIDIES DEFERRED TARIFF PAYMENTS

STATE-GOVERNMENT INCENTIVES


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BUSINESS PROSPECTS

PCPIRs

Government of India notified the Petroleum, Chemicalsand Petrochemical Investment Regions (PCPIR) policy inApril 2007 with an aim to develop global scale PCP industry

in an integrated and environment friendly manner throughsynergies and value added manufacturing, research anddevelopment.

A region with an area of around 250 square kilometerhaving a processing area (manufacturing facilities),associated logistics and other services and requiredinfrastructure; as also a nonprocess area comprisingresidential and commercial infrastructure facilities.


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Business prospects

Each PCPIR to have

a refinery/ petrochemical feedstock company

Internal infrastructure built and managed by a

Developer

External linkages by the Government of India and

the concerned State government.

PCPIRs IDENTIFIED West Bengal PCPIR ; Gujarat PCPIR; Andhra

Pradesh PCPIR ; Orissa PCPIR ; Tamil Nadu PCPIR ;


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Business prospects

DOMESTIC DATA Production statistics

GOI IIP

INDUSTRY ASSOCIATIONS

CHEMICALS PETOCHEMICALS MANUFACTUESASSOCIATION

Statutory taxes & duties IMPORT TARIFF

EXCISE / CENVAT/MODVAT/GST

HARMONISED CODING Inflation Statistics

WPI published by MoF


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INDIRECT TAXES

HARMONISED CODING SYSTEM

21 SECTIONS

99 CHAPTERS 2 DIGIT CODE

EACH CHAPTER HEADING 2 DIGIT

SUB-HEADING 2 DIGIT

SIX DIGIT CODE

UNIFORM CODING INTERNATIONALLYFOLLOWED


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BUSINESS PROSPECTS

CUSTOMS TARIFF

EXCISE TARIFF (EXCISE/VAT/CENVAT/MODVAT) -GST (GOODS AND SERVICES TAX)

FOR PETROLEUM & PETROCHEMICALS FOURCHAPTERS HAVE TO BE REFERRED Chapter 27 : Mineral fuels, mineral oils and products

of their distillation; bituminous substances; mineralwaxes

Chapter 29 : Organic Chemicals Chapter 39 : Plastics and articles thereof

Chapter 40 : Rubber and articles thereof


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HARMONISED SYSTEM

27.07 Oils and other products of the distillation of high temperature coal tar;

similar products in which the weight of the aromatic constituents exceeds

that of the non-aromatic constituents

2707.10 - Benzole 35%

2707.20 -Toluole 35%

27.11 Petroleum gases and other gaseous hydrocarbons

- Liquefied:

2711.11 -- Natural gas 10%

2711.12 -- Propane 10%

27.14Bitumen and asphalt, natural; bituminous or oil shale and

tar sands; asphaltites and asphaltic rocks

2714.10 - Bituminous or oil shale and tar sands 10%

2714.90 - Other 10%


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CUSTOMS TARIFF

% OFCENVAT

ADJ.

NET OF

CENVAT

A CIF 1250.00 1250.00

B ASSESABLE 101% A 1262.50

C BASIC DUTY 5% B 63.12 63.12

D CVD 10% A+B 132.56 Y

E CESS CVD 3% D 3.97 Y

F CESS CD 3% C+D+E 5.99 5.99

G SAD 4% B+C+D+E+F 58.73 Y

COST AT PORT INCL.

TARIFF

A+

(C TO G)

A+C+F


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IMPORT PARITY PRICE

COMPONENTS

PRICE AT PORT INCLUDING TARIFF

CUSTOMS DOCUMENTATION FEE

CLEARING & HANDLING

TRANSPORTATION COST TO LOCATION


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OTHER TAXES CONSUMER ANGLE

SALES TAX

CENTRAL

STATE

GOODS AND SERVICES TAX YET TO BE ENFORCED LIKELY IN FISCAL 2102-

2013

PHILOSOPHY TO HARMONISE TAXES ANDREMOVE CASCADING EFFECT

ORIGINAL PHILOSOPHY MODIFIED


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RIL PRICELIST HDPE

1) 4% VAT AGAINST DAMAN & 5% VAT BOKHARPADA SALES.

2) FREIGHT SHALL BE CHARGED EXTRA.

Ex-Bokharpada Depot

HDPE TYPE BASIC10.30%

Ex. DutyCREDIT Cash Disc. CASH

E 52009 PRIME 73140 7533.42 80673 550 80123

B56003 PRIME 69540 7162.62 76703 550 76153

F46003 PRIME 68690 7075.07 75765 550 75215

F56003 PRIME 67890 6992.67 74883 550 74333

M60075 PRIME 70640 7275.92 77916 550 77366

L60075 PRIME 72140 7430.42 79570 550 79020

UE UTILITY 68340 7039.02 75379 550 74829

UM UTILITY 65840 6781.52 72622 550 72072


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GAIL PRICE LIST HDPEDAMAN

BASIC DISC LOC EXCISE EX-WKS

BM B52A003A 67130 575 1697 10688.60 75546.60

BM B63A003A 67130 575 1697 10688.60 75546.60

SHETG E45A003A 66660 575 1685 10613.12 75013.12

EXTR E52A003A 67970 575 1719 10823.40 76499.40

EXTR E52U003A 71750 575 1815 11430.53 80790.53

HM FILM F55HM0003A 68900 575 1742 10972.88 77555.88

IM HIGH I50A180A 64920 575 1641 10333.62 73037.62

IM LOW I60A080A 64960 575 1642 10340.05 73083.05

IM-L-UV I60U080A 66460 575 1680 10580.98 74785.98

PIPE (PE 80) P54A001A 72810 575 1842 11600.77 81993.77

RAFFIA W50A009A 68660 575 1736 10934.32 77283.32

MF W52A009A 68910 575 1743 10974.36 77566.36

MFW52ASR009A

69160

575

1749

11014.57

77850.57


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LOGISTICS

MAIN TRANSPORTATION MODES

RAIL

LIQUID / LIQUIFIED --- TANKERS

SOLIDS --- CONTAINERS / WAGONS

ROAD


SOLIDS --- CONTAINERS / WAGONS

MARITIME


SOLIDS --- CONTAINERS

PIPELINE (LIQUID / LIQUIFIED PRODUCTS)


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STORAGE

LIQUIDS AT AMBIENT CONDITIONS

TANKS

LOW VOLATILITY FIXED ROOF

HIGH VOLATILITY FLOATING ROOF

LIQUIFIED MATERIALS PRESSURISED STORAGE

SPHERES

BULLETS

ATMOSPHERIC PRESSURE STORAGE DOUBLE WALLED INSULATED TANKS WITH VAPOR

RECOVERY SYSTEM


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STORAGE

SOLIDS

PACKING FORMATS

BAGS

GENERALLY 25kg

JUMBO BAGS 750 kg

STORAGE

PALLETISED FORMAT

STRCTURAL ARRANGEMENT TO BE MADE IF MULTI-

STACKING OF PALLETS NOT PERMISSIBLE


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DEMAND SUPPLY FORECASTING

MODULE 7B


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HDPE CAPACITY 2010 - 2011

Company Location LicensorCapacity (2010-11)

Swing Dedicated

Reliance

Industries

Limited

Hazira, Gujarat 7 280 180

Nagothane, Maharashtra 1 220

Gandhar, Gujarat 3 220

GAILAuraiya, Uttar Pradesh 7 210

Auraiya, Uttar Pradesh 5 200

Haldia

Petrochemicals

Limited

Haldia, West Bengal 5 334

Haldia, West Bengal 4 368

Indian Oil

Corporation

Limited

Panipat, Haryana 6 350

Panipat, Haryana 2 300

1428 1234


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HDPE PROCESS LICENSORS

CODE LICENSOR / PROCESS

1 B.P Chemicals U.K / Gas Phase Fludized Bed

2 Basell Polyolefine GmbH Germany / Hostalen

3 Hoechst, Germany / Slurry

4 Lyondell Basell / Spherilene

5 Mitsui Japan / Slurry Process

6 Nova Chemicals, USA / Sclairtech

7 Novacor, Canada / Solution


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HDPE PRODUCTION

Company 2006-07 2007-08 2008-09 2009-10 2010-11

Reliance Industries

Limited377 345 343 495 445

GAIL 166 188 203 196 203

Haldia

Petrochemicals

Limited

415 441 396 165 390

Indian OilCorporation Limited

0 0 0 0 98

958 974 942 856 1,136


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HDPE - CONSUMPTION

Year Production Import Export Consumption ACGR(%)

2006-07 958 113 200 871

14.2

2007-08 974 201 115 1059

2008-09 942 222 95 1069

2009-10 856 385 16 1225

2010-11 1,136 445 100 1481


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HDPE GRADEWISE CONSUMPTION

S. No. Grade 2000-01 2010-11

1 Raffia 175 310

2 HM/HDPE Films 128 350

3 Pipes 87 206

4 Monofilament 29 40

5 Blow Moulding 150 390

6 Injection Moulding 96 140

7 Misc. Applications 26 45

Total 691 1481


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HDPE OPERATING RATE HISTORY

2006-07 2007-08 2008-09 2009-10 2010-11

Overall Capacity 1,710 1,710 1,919 1,919 2,692

Overall Operating

Rate(%)56 57 49 45 42

Overall Production 958 974 942 856 1,136


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HDPE FUTURE AVAILABILITY

Year

Existing Units Exp. Total

SWING DEDICATED S + D

1. 2 3 1. 2 3 1. 2 3

2010-11 1428 40 571 1234 48 592 2662 44 1164

2011-12 1428 40 571 1234 60 740 2762 50 1372

2013-14 1428 40 571 1334 95 1267 2762 67 1839

2019-20 2768 40 1107 1674 95 1590 4442 61 2698

2025-26 2768 40 1107 1674 95 1590 4442 61 2698


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DEMAND SUPPLY GAPYear Demand Supply

Surplus /

(-)DeficitYear Demand Supply

Surplus /

(-)Deficit

2010-11 1,481 1,164 -317 2019-20 3,343 2,698 -646

2011-12 1,642 1,372 -271 2020-21 3,635 2,698 -938

2012-13 1,804 1,638 -165 2021-22 3,918 2,698 -1,221

2013-14 1,982 1,839 -144 2022-23 4,224 2,698 -1,526

2014-15 2,180 2,379 199 2023-24 4,554 2,698 -1,857

2015-16 2,397 2,498 100 2024-25 4,911 2,698 -2,214

2016-17 2,604 2,642 38 2025-26 5,297 2,698 -2,600

2017-18 2,830 2,698 -132


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PRICE PROJECTION

0

500

1000

1500

2000

2500

3000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Price Forecast


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BUSINESS CYCLES

MODULE 7C


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BUSINESS CYCLES

ALMOST ALL BUSINESSES AFFECTED BY PRICESAND DEMAND BEHAVIOUR CHRACTERISED BYLONG RANGE (DECADES) AND / OR SHORTRANGE DURATION (YEARS) CYCLES

WHY CYCLES

OPPORTUNITY

INVESTMENT RUSH

SUPPLY-DEMAND IMBALANCE PROFITABILITY AFFECTED

DOWNTURN


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BUSINESS CYCLES

Cycle/Wave Name Years

Kitchin 35 Inventory

Juglar 711 Fixed Investment

Kuznets 1525Infrastructural

Investment

Kondratiev wave 4560 Technology Cycle


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KNODRATIEV CYCLE


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PETROCHEMICAL BUSINESS

Petrochemical industry is characterized by large plants

that take several years to build;

finally, they come to stream, together creating oversupplyand

thus the bottom of the cycle.

Mathematical models of the petrochemical industry

Define inherent technical structure linking chemicalindustry formed by the large but linked number of

chemicals that are available on a commercial scale and bythe rigid feedstock, byproducts, and energy requirementsof these chemicals.


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A TYPICAL CASE STUDY

MIDEASTSCENARIO


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INDUSTRY MODELLING

Deterministic Models Assume that all parameters included in the model, for example, prices

and demand, are known with certainty.

Select the optimal technology paths for production of a given amountof chemicals under an environmental or economic objective.

Assumed that a set of feedstocks is locally available in a limitedquantity

Several alternative processes technologically are accessible fortransforming feedstocks into final products

These technologies are characterized by technical coefficients ofconsumption of raw materials, chemicals, utilities, labor, byproductproduction, and investment cost for different plant sizes and operationand maintenance costs.

These technologies introduce intermediate chemicals, which areproduced and consumed in the system.


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INDUSTRY MODELLING

Models with Uncertainty.

Models Proposed

Proposed for the chemical or petrochemical industry thatincluded uncertainty in formulating the model and not as a

final stage of the solution in sensitivity analysis. Systems modelled

batch plants, small operations, or process networks consideringuncertainty in product demand only

Another model considering uncertainty in processing time, size,and product demand

considering uncertainty in process reaction parameters

considering uncertainty in product demand and due dates.


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INDUSTRY MODELLING

Models of continuous processes

System parameters, operating temperature,

reaction constants, and yields Uncertain demand

Uncertain demand, plus supply and process yield

Supply

supply and prices.


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FORECASTINGTime-Series Models

Use past time ordered sequences of observations of theforecasted variable.

Time-series history of the variable being forecasted is usedin order to develop a model for predicting future values.

Then forecasts are made by extrapolating the fitted model The extrapolation is based on the assumption that the

future will continue on the same basis as the past

Four types of patterns usually seen in the data series: Horizontal

Seasonal Cyclical

Trend


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FORECASTING

The cyclical pattern is a difficult one to predict

because it does not repeat itself at constant intervals

of time and its duration is not uniform.

One of the useful tools in analyzing time-series data

of the cyclical nature is the Fourier analysis; it is

based on the concept that series can be

approximated by a sum of sinusoids, each at adifferent frequency.


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FORECASTINGCausal Models

Relate statistically the time series of dependent variable to one

or more other time series dependent variables over the same

time period.

If a logical correlation appears then a statistical model describing

this relationship can be constructed.

The most applied causal model is the regression model relating a

dependent variable to the independent variable(s) i.e. It is a

mathematical procedure formulating a relationship

Regression is more powerful than a subjective qualitative

estimate because it measures explicitly the apparent associationbetween variables over time, thus eliminating most of the

guesswork.


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PRODUCT PRICING FORECAST MODEL

TIME SERIES


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OIL PRICE FORECAST MODEL

TIME SERIES


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PETROCHEMICAL PRICE MODEL

CAUSAL MODEL


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ABS PRICE FORECAST

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