SKG02 Industry Knowledge & Research (Level 1)

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Internal

SKG02 Industry Knowledge & Research (Level 1)

Tunku Nur Nabihah Najlaa Tunku Mazlan

Strategic Research, Corporate Strategy

6th March 2020

http://www.iconarchive.com/show/icons8-metro-style-icons-by-visualpharm/Objects-Tear-of-calendar-icon.html

http://www.iconarchive.com/show/icons8-metro-style-icons-by-visualpharm/Objects-Tear-of-calendar-icon.html

© 2020 Petroliam Nasional Berhad (PETRONAS) |

Learning objectives

At the end of this session, you will be able to …

Understand the basics and overall value chain of chemical industry

Internal

2


Table of content

Introduction to chemicals

Key drivers of chemical industry

Emerging trends in chemicalindustry

PETRONAS petrochemical

business

Internal

3

Part 1

Introduction to chemicals

Internal


Do you recognise these products?

Source: Internet, SR analysis

Nylon

Propylene glycol

Vinyl Polyester

5

Internal


What are chemicals?


• A large group of chemicals derived from petroleum, natural gas,coal and biomass

• These chemicals are used to produce products of commercialuses including plastics, soaps, fertilizers, synthetic fibers,rubber, paints, drugs and etc.

• Feedstock: light olefins (e.g. ethylene, propylene)

• Intermediate chemicals further used to manufacture finalproducts (e.g. ethylene glycol, acrylic acid, propylene oxide)

• Finished products: plastics, textiles, soaps

Term used in

Feedstock Intermediate Final product Application

Ethylene Ethylene glycol Polyester fiber Textile

6

Internal


How to differentiate the different types of chemicals

Internal Source: Internet, SR analysis

Commodity/Base and

Intermediate chemical

Differentiated/

Specialty chemical

Price Quoted in per ton Quoted in per kilogram

Volume Exist in large capacity regionally and globally

Limited regionally and globally

Product quality Minimal difference Generally different

Market access Logistics based, limited technical support, price sensitive

Significant marketing and technical support, R&D intensive, value-added focus

Downstream conversion

Local and regional market access

Access to key consumer sectors, i.e. personal care, automotive and wearables. Requires significant technical support

7


The use of chemicals in modern life is pervasive

Food safetyChild safety

Medical equipment Sports

performance & safety

Advanced Technology


8

Internal


Chemicals continue to be accepted and used as substitutes to natural and traditional products


Glass to

Polymer

Steelto

Polymer

Woodto

Polymer

Cottonto

Polymer

Light weight material

Heat-resistant material

Durable material

Cost-advantaged

material

9

Internal


There are seven basic building blocks in chemicals

Olefins

C2 – Ethylene

C3 – Propylene

C4 – Butadiene/Butylene

Methanol

C1 – Methanol (inc.Ammonia & Urea)

Aromatics

C6 – Benzene

C7 – Toluene

C8 – Xylenes (ortho, meta, para)


10

Internal

Internal

Refinery Shale Gas

Coal Bed Methane

Tight Gas

Crude Oil

Petrochemical Feedstocks

Naphtha Gas Oil Condensate

Aromatics Reformer

FCC Unit

Steam Cracker

Natural Gas

Conventional Unconventional

Non-Associated Gas (On Shore/

Offshore)

Associated Gas (On Shore/

Offshore)

Methane Reformer

NGL Extraction

Natural Gas Liquids

Xylenes & Derivatives

Toluene & Derivatives

Styrene & Derivatives

Polyester

Benzene & Derivatives

Cyclohexane & Derivatives

Phenol & Derivatives

Nylon

Ammonia & Derivatives

Methanol & Derivatives

Acetic Acid

MethanolDimethyl TerephthalateFormaldehydeMethyl MethacrylateMethyl Tert-Butyl EtherDimethyl EtherOlefinsMethylamine

ChloromethanePolyoxymethylene

FertilisersUreaUrea ResinsCaprolactamAcrylonitrile

Vinyl Acetate MonomerAcetic AnhydrideEstersPurified Terephthalic Acid

EthanePropaneButaneNatural Gasolines

Ethylene & Derivatives

Ethylene Oxide &

Derivatives

EthyleneEthylene DichlorideHigh Density PolyethyleneLow Density PolyethyleneLinear Low Density PolyethyleneEthylene Propylene Diene MonomerEthanolAlpha OlefinsVinyl AcetateEthyl ChlorideEthylbenzene

Ethylene GlycolDi/Tri-Ethylene GlycolEthanolamineEthoxylatesGlycol Ether

LPGNaphthaDistillates

Butadiene & Derivatives

ButadieneAcrylonitrile Butadiene StyreneAdiponitrile/HMDANitrile RubberPolybutadienePolycholoropreneStyrene Butadiene LatexStyrene Butadiene RubberThermoplastic Elastomers

Butylenes

MTBE/ETBE/TAME1-ButanolButyl RubberPolyisobutyleneRaffinate 1 & 21-ButeneMethyl Methacrylate

Propylene & Derivatives

PropyleneAcrylonitrilePolypropyleneAcrylic AcidButanols2-EthylhexanolIsopropanolNoneneDodecenePropylene OxideAcrylic Fiber

Acrylamide

Polypropylene Fiber

Nonwovens

StyrenePolystyreneExpanded PolystyreneAcrylonitrile Butadiene StyreneStyrene Butadiene LatexStyrene Acrylonitrile

Styrene Butadiene RubberUnsaturated Polyester Resin

BenzeneEthylbenzeneCumeneCyclohexaneAnilineAlkylbenzeneChlorobenzeneMaleic Anhydride

TolueneBenzeneMixed XylenesToluene DiisocyanateBenzoic AcidCaprolactam

PhenolBisphenol APhenol Formaldehyde ResinsCaprolactamAlkyphenolPolycarbonateEpoxy ResinsAcetoneMethyl Methacrylate

CyclohexaneCaprolactamAdipic Acid

Textile/ApparelIndustrial CarpetNylon Resins

Textile/ApprarelIndustrial CarpetPolyester Bottle ResinPolyester FilmPolybutylene TerephthalatePolytrimethylene Terephthalate

Mixed Xylenes

ParaxyleneOrthoxyleneMetaxylenePurified Terephthalic AcidDimethyl TerephthalatePhthalic AnhydrideIsophthalic Acid

There are various production methods to yield the basic building blocks

Other feedstock:

Coal

Biomass

Source: IHS


Key success factors in chemical production are feedstock, integration, technology and operational excellence

Internal Source: Nexant, SR analysis

Advantaged feedstock

Back integration to refinery

Process technology

Site integration

Scale Large size that reduces cost per unit

Site integration with utilities and downstream

plants

Innovative process and production

enhancement via catalyst, to achieve

resource optimization

Refinery-petrochemical integration

Cheap and abundant

feedstock is especially key

in commodity

petrochemical

12


The ‘ideal’ integrated model in chemical production

Internal

• The main feature is a strong integration between the downstream (converters andmanufacturers) with upstream (feedstock/main building blocks) to increase costefficiencies from feedstock supply down the petrochemical chain to finished products

• Other than full integration, access to abundant and cost effective raw materials willalso continue to be the key success factors in sustaining competitiveness

Source: SR analysis

13


How does chemical business fit with PETRONAS’ integrated petroleum model?

Internal Source: SR analysis

14


Let’s now go into ethylene …

Olefins

C2 – Ethylene

C3 – Propylene


Methanol


Aromatics

C6 – Benzene

C7 – Toluene



15

Internal


What is ethylene?

• Produced primarily by the steam cracking of petroleum-based products such asnaphtha, gas oil, natural gas liquids; or ethane, propane & butane (gas-based)in the most complex and expensive hydrocarbon processing plants

• Lightest olefinic hydrocarbon

• Does not freely occur in nature; colorless gas at atmospheric conditions andextremely flammable

• Base chemical - no immediate end-use

Crude Oil

Natural

Gas

Refinery

Gas

Separation

Unit

Naphtha

Gas Oils

Ethane

Propane

Butanes

Field Condensates

Propylene

Butadiene

Butylenes

BTX (pygas)

Ethylene

Heavy

Aromatics

Methane

Hydrogen

Fuel oil

Source: SR analysis

16

Internal


Major applications of ethylene derivatives

Source: SR analysis

17

Internal


Naphtha

39%

Ethane

40%

Propane

9%

Butane

5%

Gas Oil

3%

Coal to

Olefins2%

Others

1%

Methanol to

Olefins1%

Most of global Ethylene production is based on ethane feedstock, followed by naphtha

Global production in 2019 : 164 million tpa

Global ethylene production by feedstock, 2019

What feedstock does PETRONAS Chemical Group use to produce

ethylene?

Source: IHS, SR analysis

18

Internal

http://www.iconarchive.com/show/icons8-metro-style-icons-by-visualpharm/Charts-Combo-icon.html



North East Asia and North America are the world’s largest ethylene producers

Global ethylene capacity by key region, 2019

Global capacity in 2019 : 184 million tpa


Northeast

Asia26%

North

America25%

Middle East

18%

West

Europe12%

Southeast

Asia7%

Indian

Subcontinent4%

South

America 3%

CIS & Baltic

States3%

Cental

Europe1%

Africa

1%

19

Internal




Ethylene: main downstream chains

Polyethylene (PE)Ethylene Oxide

(EO)

Ethylene C2

Ethylene dichloride (EDC)/

Vinyl chloride

Low density PE (LDPE)

Linear low density PE (LLDPE)

High Density PE (HDPE)

Ethylene glycol (EG)

Polyester/PET

Polyvinyl chloride (PVC)

Reacts with itself Reacts with oxygen Reacts with chlorine

Reacts with PTA

Source: ICIS, SR analysis

20

Internal


Global ethylene demand is largely supported by polyethylene and ethylene oxide

Global ethylene demand by key applications, 2019

Global demand in 2019 : 165 million tpa


Total polyethylene (HDPE, LDPE & LLDPE): 62%

What are the differences between

HDPE, LDPE and LLDPE?

HDPE29%

LLDPE19%Ethylene

Oxide15%

LDPE14%

EDC9%

Ethylbenzene5%

Other5%

Alpha Olefins3%

Vinyl Acetate1%

21

Internal




0

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280

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & CFR SEA Price for Ethylene, 2015-2024

Ethylene demand for PE Ethylene demand for others Price

Internal Source: IHS, SR analysis

Automotive sector, for both ICE and EV, is expected to continue driving ethylene derivatives demand in the long term.

Packaging segment is projected to have significant growth, in line with strong GDP growth and rising world population.

Factors driving increasing demand growth

AAGR 2015-20194.0%

AAGR 2020-20243.6%

Demand(mtpa)

Price(US$/mt)

Ethylene demand is expected to grow at 3.6% pa until 2024

22


Let’s now go into propylene …

Olefins

C2 – Ethylene

C3 – Propylene


Methanol


Aromatics

C6 – Benzene

C7 – Toluene



23

Internal


What is propylene?

• There are three grades of propylene:

– Polymer grade with a minimum purity of 99.5%

– Chemical grade with a minimum purity of 93-94%

– Refinery grade with a purity of around 70%, and a minimumof 60%

How is propylene produced?

• Produced as a byproduct from the steam cracking of liquidfeedstocks such as naphtha, gas oil as well as LPG, and from off-gases produced in fluid catalytic cracking (FCC) units in refineries

• Propylene is also produced using on-purpose technologies suchas propane dehydrogenation (PDH) and metathesis (catalyticdisproportionate of ethylene and butane)

• Does not freely occur in nature, colorless gas at atmosphericconditions and extremely flammable

• Base chemical – no immediate end use

Source: SR analysis

24

Internal


Major applications of propylene derivatives

Source: SR analysis

25

Internal


Majority of propylene is produced by steam crackers, followed by FCC splitters


Global propylene production by method, 2019


How does PETRONAS Chemical Group

produce propylene?

Stm. Crackers

45%

FCC Splitters26%

Dehydro11%

Metathesis4%

HS FCC4%

Coal to Olefins

3%

Methanol to Olefins

2%

Coal to Propylene

1%

Others On-Purpose

1%

Refinery Grade

3%

26

Internal




North East Asia and North America are the major producers of propylene


Global propylene capacity by key region, 2019


Total Asia Pacific (North East Asia, South East Asia & Indian Subcon): 54%

North East Asia41%

North America

18%West Europe

12%

Middle East9%

South East Asia8%

Indian Subcontinent

5%

South America

3%

CIS & Baltic States

2%

Cental Europe

1%

Africa1%

27

Internal




Propylene: main downstream chains

Polypropylene (PP)

Acrylonitrile (ACN)

Propylene C3

Propylene oxide (PO)

Acrylic fibre

Polyurethane

Reacts with itself

Reacts with ammonia

Reacts with oxygen

Source: ICIS, SR analysis

Alcohols

• Isopropanol (IPA)

• Normal butanol (NBA)

• E-ethyl hexanol(2-EH)

• Isobutanol (IBA)

Propylene glycol

28

Internal


Global propylene demand is largely supported by polypropylene


Global propylene demand by key applications, 2019


What products that you know are made

from PP?

Polypropylene66%

Propylene Oxide

8%

Acrylonitrile6%

Cumene5%

Acrylic Acid4%

2-Ethyl Hexanol

4%

Butanols3% Others

3%

Isopropanol1%

29

Internal




0

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120

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280

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & CFR SEA Price for Propylene, 2015-2024

Propylene demand for polypropylene Propylene demand for others Price


Propylene demand is expected to grow at 3.9% pa until 2028

Automotive sector, for both ICE and EV, is expected to continue driving propylene derivatives demand in the long term.

Packaging segment is projected to have significant growth, in line with strong GDP growth and rising world population.

Factors driving sustained demand growth

Demand(mtpa)

Price(US$/mt)

AAGR 2015-20194.2%

AAGR 2020-20243.9%

30


Let’s now go into butadiene …

Olefins

C2 – Ethylene

C3 – Propylene


Methanol


Aromatics

C6 – Benzene

C7 – Toluene



31

Internal


What is butadiene?

How is butadiene produced?

• Butadiene is a versatile raw material used in the production of a wide variety of synthetic rubbers, polymer resins and other intermediates

• The largest single use for butadiene is in the production of styrene butadiene rubber (SBR), which is principally used in the manufacture of automobile tires

• SBR is also used in adhesives, sealants, coatings and rubber articles such as shoe soles


• Over 95% of butadiene is produced as a by-product of ethylene production from steam crackers

• The crude C4 stream isolated from the steam cracking process is fed to butadiene extraction units, where butadiene is separated from the other C4s by extractive distillation

• The amount of crude C4s produced in steam cracking is dependent on the composition of the feed to the cracking unit

32

Internal


Major applications of butadiene derivatives

Source: SR analysis

Butadiene

Synthetic rubbers

Acrylonitrile butadiene

styrene (ABS)

Polyamide, Nylons

Elastomer

Tires

Lego blocks

Car dashboard

Hot air balloon

canvas

Cooking utensils

Car weather strip

33

Internal


Majority of butadiene is extracted from steam crackers as a by-product of naphtha crackers


Global butadiene production by method, 2019

Global production in 2019 : 12.0 million tpa

Steam

Crackers96%

Dehydro

(Houdry)2%

Recycled BD

1%

Dehydro

(Oxo-D)1%

34

Internal




North East Asia, Europe and North America have the world’s largest butadiene capacity


Global butadiene capacity by key region, 2019

Global capacity in 2019 : 15.5 million tpa


Northeast

Asia45%

West

Europe18%

North

America17%

Southeast

Asia6%

Indian

Subcontinent3%

CIS & Baltic

States4%

South

America 3%

Central

Europe2% Middle East

2%Africa

0.1%

35

Internal




Butadiene: main downstream chains

Butadiene Rubber

Butadiene C4

Polybutadiene Rubber (PBR)

Styrene Butadiene

Rubber (SBR)

Source: Nexant, SR analysis

AcrylonitrileButadiene

Styrene (ABS)

Styrene Butadiene Latex

(SBL)

HexamethyleneDiamine (HMDA)

36

Internal


Butadiene demand is mostly supported by poly-butadiene and styrene butadiene rubber (SBR)


Global butadiene demand by key application, 2019


What products that you know are made

from butadiene?

Polybutadiene27%

SBR (emulsion & solution)

27%

ABS Resins14%

Nitrile Rubber8%

S.B. Latex9%

Adiponitrile5%

Others9%

Polychloroprene Rubber

1%

37

Internal




InternalSource: IHS, SR analysis

Butadiene demand is expected to grow at 2.1% pa until 2028

Growing demand for synthetic rubber for tyres for automotive sector, in line with strong GDP growth and rising world population.

Rise of middle-class income earners increases demand for apparels such as shoes and sportswear.


Demand(mtpa)

Price(US$/mt)

0

400

800

1,200

1,600

2,000

0

5

10

15

20

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & CFR SEA Price for Butadiene, 2015-2024

Butadiene demand for others Butadiene demand for SBR

Butadiene demand for polybutadiene Price

AAGR 2015-20192.1%

AAGR 2020-20242.1%

38


Let’s now go into aromatics …

Olefins

C2 – Ethylene

C3 – Propylene


Methanol


Aromatics

C6 – Benzene

C7 – Toluene



39

Internal


What are aromatics?

How are aromatics produced?

• Aromatics are colorless liquid. In themselves, they have no immediate end use

• When processed, there are a very large number of petrochemicals produced from the BTX


• Aromatics or BTX refer to benzene, toluene and the three isomersof xylene

• Benzene, toluene, and xylenes can be made by various processes

• However, most BTX production is based on the recovery ofaromatics derived from the catalytic reforming of naphtha ina petroleum refinery

40

Internal


Major applications of aromatics derivatives


41


Benzene is mainly produced through reformates and pyrolysis gas


Global benzene production by method, 2019


Reformate40%

Pygas33%

Coke Oven8%

Toluene Transalkylation

8%

PXE Co-prod7%

Selective TDP3% HDA

1%Toluene

Disproportionation0%

42




North East Asia is the largest benzene producer, followed by North America and Europe


Global benzene capacity by key region, 2019



North East Asia45%

North America

14%

West Europe14%

Middle East7%

South East Asia7%

CIS & Baltic States

4%

Indian Subcontinent

4%

South America

2%Cental Europe

2% Africa1%

43




Benzene: main downstream chains

Source: SR analysisInternal

Benzene

Aniline

Phenol

Nitro Benzene

Cyclohexane

Alkyl Benzene

Styrene

PS/EPS

ABS

SBR

Acetone Adipic Acid

Caprolactam

BisphenolA

PC

Epoxy Resin

Phenolic Resins

MMA Nylon 6-6

Nylon-6

CumeneEthyl Benzene


Benzene demand is mostly supported by ethylbenzene and cumene


Global benzene demand by key application, 2019

Global demand in 2019 : 51 million tpaEthylbenzene

48%

Cumene21%

Cyclohexane14%

Nitrobenzene10%

Alkylbenzene3%

Maleic Anhyd.

2%

Others1%

Chlorobenzene1%

45

Internal




Xylene: main downstream chains


46

Paraxylene Orthoxylene

Phthalic Anhydride

Mixed - Xylene

DOP (Dioctyl Phthalate)

DIOP(Di-isooctyl Phthalate)

Xylene

PTA(Purified

terephthalic acid)

DMT(Dimethyl

terephthalate)

Polyester


Let’s now go into methanol & ammonia …

Olefins

C2 – Ethylene

C3 – Propylene


Methanol


Aromatics

C6 – Benzene

C7 – Toluene



47

Internal


What is methanol?

How are methanol produced?

• Methanol is primarily used in making other chemicals

• About 40% of methanol is converted to formaldehyde, and from there into products as diverse as plastics, plywood, paints, explosives, and permanent press textiles

• It also has many general solvent and antifreeze uses, such as being a component for paint stripper and car windshield washer compounds


• Mainly produced from natural gas

• It is colorless and flammable liquids

• Base chemical, with no immediate end use

48

Internal


Major applications of methanol derivatives


Methanol derivatives

Fuel for vehicles

Blending component in

gasoline

Industrial-strength glue for plywood

Fuel in previous

Le Mans

AntifreezeCooking vinegar

Aerosol spray propellant

Blending in LPG

Paints

49


Majority of the world’s methanol production is based on natural gas


Global methanol production by method, 2019


Natural Gas59%

Coal to Methanol

34%

Others6%

Heavy Liquids1%

50





North East Asia accounts for more than half of the world’s methanol capacity


Global methanol capacity by key region, 2019


North East Asia53%

Middle East16%

South America

9%

North America

7%

South East Asia5%

CIS & Baltic States

5%

Africa3%

West Europe2%

Indian Subcontinent

0%Cental Europe

0%

51




Methanol: main downstream chains

Internal Source: ICIS, SR analysis

Methane

Synthesis Gas (Syngas)

AmmoniaMethanol

Urea

Acrylonitrile+ propylene

DME

OlefinsMTBE

Formaldehyde

Acetic acid

52


Methanol demand is supported by a wide range of derivatives, led by formaldehyde


Global methanol demand by key application, 2019


Formaldehyde32%

MTO/MTP16%MTBE/TAME

13%DMT1%

Dimethyl Ether9%

Others9%

Gasoline Blending

7%

Solvents5%

Methylamines

Chloromethanes

Methyl Methacrylate

53





Methanol demand will be supported by construction

activities, driven by robust economic growth

China is the global key market for methanol. The fast-growing MTO/MTP sector is resulting in unprecedented growth in methanol demand in 2012-2020.

Dramatic changes that originate from developments in the energy markets, changing gasoline composition, government regulations, and environmental concerns.

Factors affecting slower demand growth

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & CFR SEA Price for Methanol, 2012-2027

Methanol demand for others Methanol demand for formaldehyde Price

AAGR 2015-20194.4%

AAGR 2020-20241.8%

Demand(mtpa)

Price(US$/mt)

54


What is ammonia?

How are ammonia produced?

• Ammonia is primarily used in making urea

• Almost 80% of ammonia is converted to urea for fertiliser

• Ammonia is also used in the manufacture of commercial explosives (e.g. trinitrotoluene [TNT], nitroglycerin, and nitrocellulose)

• In the textile industry, ammonia is used in the manufacture of synthetic fibres, such as nylon and rayon, as well as dyeing and scouring of cotton, wool, and silk


• Ammonia is a compound of nitrogen and hydrogen, mainlyproduced from natural gas

• Colourless gas with a pungent smell

55

Internal


Ammonia: main downstream chains

Internal Source: ICIS, SR analysis

Methane

Synthesis Gas (Syngas)

AmmoniaMethanol

Urea

Acrylonitrile

DME

OlefinsMTBE

Formaldehyde

Acetic acid

56


Internal

Ammonia and urea are widely used as fertiliser in

agricultural sector

Source: Fertecon, UN PRB, SR analysis

Fertiliser

74%

Non-

Fertiliser23%

Direct

Application3%

Global Ammonia Demand by Application 2019: 181 mtpa

Global Population

2018

7.6 bil

2030

8.5 bil

Plant nutrient solutions (fertiliser)

Smart fertiliser management system

Digital farming

Solutions

Food supply scarcity due to degradation of arable land

Issue

Fertiliser

77%

Non-

Fertiliser23%

Global Urea Demand by Application 2019: 171 mtpa

57


InternalSource: Fertecon, SR analysis

Ammonia demand is expected to grow at 1.5% pa until

2024, driven mainly by urea for fertiliser

Increased competition in direct application ammonia from other nitrogen products, slight shift in the nitrogen product mix and partial substitution due to new trends in applications of various premium/specialty fertiliser.

Demand growth for the production of urea for fertiliser applications in agriculture, technical applications (AdBlue/diesel exhaust fluid (DEF), use in power generation and melamine) and industrial applications will remain strong.


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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & FOB SEA Price for Ammonia, 2015-2024

Fertiliser Others Price

AAGR 2015-20190.3%

AAGR 2020-20241.5%

Demand(mtpa)

Price(US$/mt)

58


InternalSource: Fertecon, SR analysis

Urea demand is expected to grow at 1.4% pa until 2030,

driven by increasing demand from non-fertiliser applications

Urea demand for fertilisers in agricultural sector is expected to remain steady in line with population growth.

Urea demand for the production of resins, melamine, diesel exhaust fluid (DEF), and animal feed is expected to rise in line with global GDP growth.

Factors driving increasing demand growth

Demand(mtpa)

Price(US$/mt)

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global Demand & Middle East (granular & prilled) Prices for Urea, 2015-2024

Fertiliser Non-fertiliser Price ME granular

AAGR 2015-2020-0.8%

AAGR 2020-20241.4%

59

Part 2

Key drivers of chemical

industry

Internal


Chemical industry is driven by many factors …


Key drivers (direct)

Supply and demand dynamics

Prices (feedstock, product and derivatives)

Technological evolution and innovation

Forces from external environment(indirect)

Trade

Regulations and policies

Competitive landscape

Economic growth

Geopolitics

Concerns on environment

Societal behaviour

Sustainability

61


… impacting various business aspects


Earnings and margins

Issues and challenges

Opportunity for growth

Investment

Competitive position

62


Chemicals demand comes from many sources


Industry/manufacturing sector

Population

• Demand for basic chemicals and plastics to produce products to meet customer demand

• Subsistence income (basic food, shelter and clothes)

• Discretionary income (fashion, dining, entertainment, mobility)

• Middle income class

Government

• Infrastructure building

• Economic growth and diversification targets

Chemical, synthetic products and plastics

63


Long term growth of chemical industry is supported by major industrial and consumer sectors

Internal

.

Pharmaceutical Consumables Agriculture Electronics Automotive Construction

• Purchasing power

• Innovation

• Sales of electronics and IT equipment


• Vehicle sales

• Mobility options


• Population growth

• Urbanization

• House sales


• Aging population

• Health benefits


• Level of substitution in products

• Policy and regulation

• Commodity price

• Population growth

• Availability of arable land


• Changing diet


64


68%

32%58%

42%66%

34%60%

40%

61%39%

57%43%

62%38%58%

42%

Internal

Many petrochemical players are expanding further

downstream into specialty chemical business

2

0

1

0

2

0

1

8

Specialty chemicals Basic chemicals

US$73.3 Billion US$62.5 Billion US$55.3 Billion US$28.3 Billion

US$70.4 Billion US$53.7 Billion US$47.4 Billion US$27.7 Billion

+2% +4% +1% +7%

Source: BASF, Dow, DuPont, Sinopec and LyondellBasellAnnual Reports, SR analysis

BASF is leading the top chemical company in the sales of specialty chemicals globally, with an

increase from US$28 billion in 2010 to US$30 billion in 2018

65


Chemical prices are driven by many factors


.

Supply Demand Feedstock Logistics

• New plant startups

• Maintenance/turnarounds

• Operating rates

• Seasonal factors

• Holidays

• Trade policies

• Inter-product competition

• Economic outlook

• Business and consumer sentiments

• Product substitution

• Health of end-markets

• Feedstock demand and supply fundamentals

• Charter rate

• Freight demand and supply fundamentals

66

Internal


Resource constraint, high costs and environmental pressure encourage innovations in alternative feedstocks


The three major routes for coal to

chemicals

Biotransformation process can generate

chemical derivatives from commodities to

specialties

COAL CONVERSION BIO PLATFORM

BIOMASS

PROCESSES

Municipal

Waste

Agricultural

Waste

Natural

Oils

Energy

Crops

C1 Chemistry

C2 Chemistry

C3 Chemistry

Methanol, etc

Ethylene, etc

PDO/PG;

3-HP/HAOCH

Lactic/PLA, etc

Succinic/BDO, etc

Lysine, etc

C4 Chemistry

C5/C6

Chemistry

SOLVENTS

POLYMERS

INTERMEDIATES

SPECIALITIES

Bioethanol

Biobutanol

Unfermentables

ETBEFUELS

POWER

COAL CO+H2

Methanol Olefins

Gasification MeOHSynthesis MTO/MTP

Coal to Olefins

COAL CO+H2

Ammonia Urea

Coal to UreaGasification NH3 Synthesis

COAL Coke

Calcium

CarbideAcetylene

BDO

VAM

VCM

Acrylic

Acid

Coal to Chemical via Acetylene

Coke

Production

67


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

GDP Growth Ethylene Demand Growth

Chemical demand is primarily influenced by economic growth and activities


World GDP and ethylene demand growth rates, 2001-2019

2001Global economic slowdown

in major economies

2007Robust global

demand, led by China

2008-2009Financial crisis

2010Large stimulus programmes in

major countries

68




Trade policy play an important role in shaping chemical business landscape

Internal

United States–Mexico–Canada

Trade Agreement (USMCA)

Source: SR analysis

ASEAN Free Trade Agreement

(AFTA)

Southern Common Market

(MERCOSUR)

Regional Comprehensive

Economic Partnership (RCEP)

Gulf Cooperation

Council (GCC)

East African Community

(EAC)

European Economic Area

69


Government regulation and policy have impact on chemical industry


Phase-out of lightweight plastic bags

Phase-out or bans on suspected carcinogenic or

mutagenic chemical substances

Control of toxic substances and any other

unsafe compounds for consumption

70


Geopolitics in key producing and consuming countries can affect the chemical business


China's chemical sector faces slow post-holiday recovery on

labor, logistics due to coronavirus

Chemical Week, Feb. 19, 2020

Australia launches antidumping probe into HDPE from

Singapore, South Korea, Thailand, US

Chemical Week, July 3, 2019

A trade agreement with Mexico and Canada, USMCA, revises

Mexico’s labor laws and encourages more auto production in

North America

Economy, Jan. 20, 2020

Saudi Arabia in aggressive downstream push in Asia

Argus, March 8, 2019

71

Internal


Competitors also help shape and influence the chemical industry landscape


Changing business model on integration

Expanded product portfolio

Deepened market focusFocus on effective

supply chainGreater technology &

innovation

Diversification of feedstock

72


Changing consumer habit will drive the demand for new range of green products and services


73


Internal

Societal changes play a vital role to drive up demand

of various chemicals


Nutraceutical

Ingredients

AAGR: 4.8%

High-Performance

Thermoplastics

AAGR: 5.0%

Semiconductors,

silicon & IC process

chems

AAGR: 4.2%

Flavors &

Fragrances

AAGR: 3.3%

Coatings, radiation

curable

AAGR: 4.2%

54321

109876

Oilfield chemicals

AAGR: 5.0%

Specialty polymers

- films

AAGR: 4.5%

Plastic additives

AAGR: 3.7%

Globally, high performance thermoplastics led the top 10 ranking of various specialty chemicals segments by

demand growth rate in 2018-2023

Printed circuit

boards &

packaging

AAGR: 4.6%

Coatings, high

performance

anticorrosion

AAGR: 3.3%

74


Sustainability is increasingly embedded in chemical players’ strategies & business models

75

Internal

PETRONAS strategic focus

areas from the 17 UN SDGs

• CO2-neutral growth until 2030 and increase sales of

sustainability-driven products to US$24B by 2025.

• Co-founded AEPW and pursue ChemCycling.

2025 sustainability goals include:

• Advancing a circular economy.

• Safe materials for a sustainable planet.

• Improve operational efficiency and the environmental

performance of facilities.

• Pursue low carbon energy solutions and reduce

flaring to zero by 2030.

• Launch Sustainable Development Roadmap.

• By 2025, committed to reduce energy consumption,

GHG emissions and water usage by 25%, against a

2010 baseline.

• Adopt circular economy concept.

• Accumulative Energy Reduction by 10% within 2022,

against a 2012 baseline.

Major chemical companies’ sustainability agenda and roadmap are built around the UN

Sustainable Development Goals (SDGs)

Source: Various news sources, SR analysis

Part 3

Emerging trends in

chemical industry

Internal


Internal

Eight key trends will shape the global and regional

petrochemicals industry in the medium term

Source: SR analysis

The US gas renaissance

Aggressive value-adding

strategies by ME companies

China’s pursuit of self-sufficiency

Robust chemicals

growth in ASEAN

Companies pursuing growth

in specialties

Fast pace of technology and

innovation

Escalating US-China trade

tension

Stricter regulations in the industry

77

Part 4

PETRONAS petrochemical

business

Internal


PETRONAS Chemical Group contributed 8% of PETRONAS’ total revenue in 2018

Internal

PETRONAS gross revenue for 2018

RM billion, %

PCG revenue for 2018

RM billion, %

Petrochemical contributed to 8% of PETRONAS gross revenue for 2018 …

… with 31% of PCG revenue led by olefins & derivatives unit

Total revenue: RM19.6 billion

Petroleum

Products36%

LNG

21%

Crude Oil &

Condensates16%

Natural &

Processed Gas

Petrochemicals

8%

Others

8%Olefins &

Derivatives31%

Fertilisers &

Methanol19%

Others

50%

Total revenue: RM251.0 billion

Source: PCG Annual Report

79


PCG produces 27 major petrochemical products with total capacity of 12.7 mtpa

Internal

1

3

2

4

5

6

7

Note:

* Products produced by joint venture and associate companies

KedahGurun

• Ammonia,

• Methanol

• Urea

• NPK Fertilisers*

TerengganuKertih Integrated

Petrochemical Complex

• Ammonia

• Benzene

• Butanol

• Butyl acetate

• Carbon monoxide

• Ethanolamines

• Ethoxylates

• Ethylene

• Ethylene glycols

• Glycol ethers

• Oxogas

• Paraxylene

• Polyethylene

• Propylene

• Acetic acid*

JohorPasir Gudang

• Styrene Monomer*

PahangGabeng Integrated

Petrochemical

Complex

• MTBE

• n-Butane

• Propylene

• Acrylics*

• Butanediol*

• Oxo-alcohols*

• 2-EHAcid*

• HR-PIB*

SabahSipitang

• Ammonia

• Urea

Federal Territory

of LabuanFederal Territory of

Labuan

• Methanol

SarawakBintulu

• Ammonia

• Urea

1

2

3

4

5

6

7

The Group comprises 30 subsidiaries, joint ventures and associate companies, producing and marketing a

wide range of chemical products

4.9 mtpa production of olefins & derivatives

from 11 plants7.8 mtpa production of fertilizer & methanol

from 6 plants• PC MTBE

• PC Derivatives

• PC Glycols

• PC Polyethylene

• PC Olefins

• PC Ethylene

• PC Aromatics

• PC LDPE

• BASF PETRONAS Chemicals Sdn Bhd

• Idemitsu SM (Malaysia) Sdn Bhd

• BP PETRONAS Acetyls Sdn Bhd

• PC Methanol

• ABF

• PC Fertiliser Kedah

• PC Ammonia

• PC Fertiliser Sabah

• Malaysian NPK Fertilizer Sdn Bhd

80

Source: PCG, SR analysis


PCG aspires to strengthen basic petrochemical while selectively diversifying into specialty

Internal Source: PCG Annual Report

81

Thank you for your passion!

Internal

SKG02 Industry Knowledge & Research (Level 1)

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