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Deputy Managing Director (Olefins) Petrochemical Industries Company

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1 Deputy Managing Director (Olefins) Petrochemical Industries Company
Strategies for Improving Profitability and Competitiveness and PIC’s initiatives for achieving Growth   Yousef Al Ateeqi, Deputy Managing Director (Olefins) Petrochemical Industries Company 14th Feb 2012

2 Content PIC Introduction PIC Business Portfolio
Introduction to Petrochemicals Petrochemicals Industries Business within Kuwait Oil Sector Strategic Growth Challenges PIC efforts to implement LTS

3 PIC Among Kuwait Petroleum Corporation Subsidiaries
OSSC KOTC KPC KOC KNPC KGOC KAFCO ODC KPI KUFPEC PIC is the petrochemical arm of Kuwait Petroleum Corporation PIC is the Petrochemical arm of KPC …………….. KPC’s strategic direction for PIC is to : Pursue growth in petrochemicals inside and outside Kuwait, Focus on high growth Olefins, Aromatics and downstream products. Pursue full and effective integration. Leverage the technical and marketing skills of mature markets into new petrochemical projects in growth markets. Pursue partial or full privatization of the petrochemical activities. KPC’s Strategic Direction for PIC is : Increase petrochemicals contribution in KPC’s turnover

4 PIC Vision We aspire to be a recognized global petrochemical player leveraging Kuwait national resources in value added partnerships to drive growth and being admired by our stakeholders PIC Mission PIC ,as a subsidiary of Kuwait Petroleum Corporation, shall achieve a marked position with downstream extension into high value petrochemical business while ensuring integration with KPC activities both domestically and internationally through: Maximizing value addition of Kuwait hydrocarbons resources Excelling our organizational performance through peoples’ empowerment and infusing industry best practices Creating a challenging and fulfilling environment that will support skills and capabilities development Collaborating closely with our partners towards a sustained and diversified global growth Fostering National economy

5 2030 KPC Downstream Sector Mission & Vision

6 PIC Business Portfolio

7 Petrochemicals Growth in Kuwait
Realizing their long term potential, Kuwait ventured into commodity petrochemicals in 1990s A Historical perspective for PIC ….. 1963 : Started with Fertilizers business 1993 : MOU signed with UCC for setting up a world scale Olefins Complex 1995 : EQUATE Petrochemicals Company formed 1997 : PP Plant and EQUATE Complex successfully commissioned 2008/2009 : Olefins II, Aromatics and Styrene Plants start up 1997 Polypropylene, Ethylene, Polyethylene and MEG produced for the 1st time in Kuwait

8 PIC Business Portfolio
PIC has diversified its position as a significant player in Petrochemicals, with local and International investments International Investments Local Investments Fertilizer Business Polypropylene Business MEGlobal markets Ethylene Glycol produced inside and outside Kuwait EQUATE is the common operator for (PP, TKOC, TKAC and TKSC)

9 PIC Products 65% of the Petrochemicals products in PIC portfolio are produced in Kuwait PIC operates the Fertilizer plants PIC markets Fertilizer product from Kuwait & GPIC plants Polypropylene produced in Kuwait Paraxylene Produced in Kuwait PIC Joint Ventures Equate produce PE & EG and market Polyethylene & Styrene MEGlobal market Ethylene Glycol produced inside and outside Kuwait Equipolymers produce and markets PET Our primary motive to grow and diversify in petrochemicals has translated into implementation of three major Projects within Kuwait The Olefins Complex is an extension of EQUATE Complex and a joint venture between the EQUATE Partners Feedstock Ethane will be supplied by KNPC from their new Ethane Recovery Plant, which is now under construction in Mina Al-Ahmadi. The product slate is also similar to EQUATE with a new MEG Plant of 600 KTA capacity PE will be produced through expansion of existing EQUATE facilities. The Project is scheduled for commissioning ………..

10 Growth in PIC Profits (1995 – 2011)

11 Introduction to Petrochemicals

12 There are three major building blocks in petrochemicals
Ethylene, Propylene, and Aromatics are the essential building blocks for the major petrochemical chains Feed stocks Processes Petrochemical building blocks Petrochemical products Ethane LPG Steam Cracking 1 Ethylene Polyethylene's EDC/VCM/PVC Ethylene Glycol Pygas Pyrolysis Gasoil Fuel Gas Steam Propylene Polypropylene Acrylonitrile Light Naphtha Butadiene Butylenes C5s C4 and C5 Naphtha Splitter Whole Naphtha When we consider petrochemicals, there are four main streams of building block or “basic chemicals”. Ethylene, Propylene, C3s and C5s and finally the Aromatics (mainly benzene and paraxylene from a chemical market viewpoint). There are three main processes to produce these. All processes are mature and with the possible exception of “Methanol to Olefins” there seems little likelihood of a significant technology driven change in the next 20 years. Of the three processes two are very well know to refiners, the Continuous Catalytic Reformer (CCR) and the Fluid Catalytic Cracker (FCC). Both of these illustrate the symbiosis of refining and petrochemicals. While originally designed for the needs of the growing mogas pools, as the growth rates of the fuels demand reached plateau, the opportunity to extract propylene from the FCC and aromatics for chemicals from the CCR became economically compelling. In fact the paraxylene demand has been such that a string of dedicated CCRs have been built in Asia in the past 15 years. The yield of propylene from FCCs can be very significant, however the fundamentals of VGO conversion make it unlikely the FCC will ever become exclusively a propylene machine. The steam cracker is the best known dedicated basic chemicals process. Steam crackers can take a range of different feedstock all the way from ethane at the light end through to VGO and Resid at the heavy end, although the heavy feed know-how is currently on in the domain of two or three integrated refining/chemical companies. CLICK FOR REFINERY ANIMATION. One very interesting feature of all of these processes with the exception of ethane cracking as that they all exhibit significant levels of refinery integration. At one side is the sharing and optimisation of yields through tailoring naphtha to the very different needs of steam cracking (which likes high paraffin content, generally light naphtha) and reforming (where high N+A, generally heavy naphtha gives the most economic yields). At the other end the ability to push by-product feeds to their maximum fuel value is a discipline which makes EMCC stand alone as a the top integrated refining/petrochemical performer. Lets look a little closer at yield from different olefin feedstock as we build the thinking of the areas where Aramco may be able to develop competitive differentiation. Heavy Naphtha Naphtha Reforming 2 Styrene Nylon PTA/ Polyester Raffinate Aromatics Reformate Vacuum Gas Oil FCC 3 Propylene Cat Naphtha etc

13 Worldwide Trends in Petrochemicals
Source Nexant Since the 1990s, key petrochemicals have achieved above GDP growth rates globally.

14 Middle East Trends in Petrochemicals Market share
Source Nexant PIC into petchem ME started from a small presence & increasingly projected its importance in the petrochemicals sector, registering good growth in market share

15 Future Outlook Middle East producers are very competitive and well positioned to supply the fast-growing markets. Middle East feedstock slate will be heavier with lesser advantages. New projects will require access to technologies and new approaches to development. Innovation is a joint effort and requires a strong customer oriented culture. Higher expectation on Job creation and industry returns Industry cooperation can benefit all.

16 Maintaining Competitive Advantages
Feedstock allocation & pricing– need to be better than netback basis Competitive energy cost Improved product offering, packaging and logistics to target growing end users markets Government Support and incentives to promote investment Promote downstream units as small and medium business unlike conventional mega projects Expectation on returns and job creation objective need to be aligned

17 Shift to Differentiated Products
Commodity Products Differentiated/Downstream Products Low Value High Value High Volume Moderate to low volume Capital Intensive Low Capital Investment Low Labor requirements Labor intensive High level of integration Usually non-integrated Proximity to market not critical Links to market very critical Supply Chain/Logistics relatively less critical Supply Chain/Logistics very critical

18 Critical Success factors
Scale and level of integration Access to technology – Differentiated products Marketing and Distribution Customer Focus – Innovation and Customer Support Supply Chain / Logistics efficiency Improved Projects Management and Execution CAPEX control and reduce delays Developing and Retaining best skill

19 Petrochemicals Industries Business within Kuwait Oil Sector

20 KPC Strategic Directions - Petrochemicals
Pursue growth in petrochemicals, both inside and outside of Kuwait, with a partner focusing on high growth petrochemical products. Pursue full and effective integration between the petrochemical operations and KPC’s operations inside and outside Kuwait. Build and acquire leading petrochemical assets in mature markets outside Kuwait with a proper foreign partner. Pursue partial or full privatization of the petrochemical activity.

21 PIC’s previous growth path has resulted in the creation of a successful portfolio
KPC’s vision for PIC : Grow in Petrochemicals Inside and Outside Kuwait Time Frame 2001–2005 2005–2010 Expand domestic petrochemical capacities Achieve competitive regional position Downstream extensions Further international expansions Extend and defend core businesses Build emerging businesses Create viable options Horizon 1 Horizon 2 Horizon 3 Stage 1 Stage 2 Kuwait : Olefins-II, Aromatics, Styrene Overseas : PTA, PET, EG COMPLETED THE FUTURE Growth Parameters New core extensions Derivatives Integration Value creation thru partnerships In the current Horizon, PIC plans to further strengthen its position inside and outside Kuwait

22 PIC’s future growth portfolio will target three key growth themes
Enhance Core Olefins Derivatives Portfolio Broaden Portfolio through Refinery/PC Integration Financially Attractive/ Diversifying Investments

23 Create scale and enhance the positioning of its core businesses and diversify its portfolio
PIC’s olefin portfolio will be measurably enhanced by building scale and share and diversifying feedstock exposure, product mix and asset location Joint investments with “sister” K companies will provide the basis for overall advantage and allow PIC to leverage a core strength of KPC (i.e. hydrocarbon advantage) Investments in “linked” downstream specialties and diversified chemicals provide capital cycle diversification and the prospect of higher less cycle earnings component Targeting Asian investments will provide diversification of asset base outside and also allows for capital optimization and enhancement of channels to market Opportunistic M&A Grow/maintain market share in core businesses

24 Strategic Growth

25 Opportunities feedstock allocation to projects with a diversified product slates Enhance business scale in near term with new olefins facilities Access high growth international projects and markets through strategic partnerships Opportunity to develop required local skills through knowledge transfer and support strategic growth Investments in downstream specialty chemicals & polymers will add value and diversify the overall portfolio Opportunity to boost private sector industrialization and participation in local economy.

26 Linking our growth plan to KPC downstream businesses
PIC business growth has key linkages with KPC, KNPC, KPI and KOC : KPC/KOC for Gas feedstocks for EQUATE and TKOC. KNPC for liquid feedstocks like Propylene/Naphtha for PP and TKAC KPI for diversified refinery streams as feedstock to proposed China Project This value-adding collaboration within downstream sector of KPC will continue, building upon its integrated approach with new petchem projects, inside and outside Kuwait.

27 Sources of Integration Value
Margin Maximization Operating Cost Reduction CAPEX Optimization Portfolio Options Sustainability Benefits Opportunity to create value for both sides “refining & petrochemicals” exists on a large scale Large new petrochemicals facilities Existing and planned refineries optimization Broad product offering to meet Petrochemicals market demand, commodity and specialty products for the integrated complex Flexibility to process a wide variety of feedstocks Cost synergies while maintaining resources allocation Capital optimization through planning to execution

28 Competiveness in International Markets
Building upon core portfolio positions to expand advantaged business positions in olefins and aromatics both within Kuwait and in selected regional locations Partnering with sister “K” companies to build downstream cracker projects linked to current portfolio Investing in selected downstream investments that have connectivity to PIC and Partner business interests Establishing criteria for and pursue opportunistic, financial investments (i.e. M&A) with key caveats

29 Competiveness in International Markets
Aggressive investment in core portfolio with objective of increasing overall regional/global share Build shared investment projects with KPI & KNPC to achieve refinery /petrochemicals integration diversifying feedstock base Develop a linked specialty platform Major geographic diversification investment Grow/maintain market share in core businesses

30 Key Drivers for Growth Access to advantaged feedstocks (e.g. methane, ethane, naphtha etc.) Integration with KPC refining sector, inside & outside Kuwait Access to world class technology and marketing tie-up with partnerships KPC financial strength and global positioning Track record in managing world scale petrochemical complex projects and plants Geographically located close to high growth Asian markets Well established relationship with financial sector Continuing the development of local skills through knowledge transfer and support strategic growth Enhance private sector industrialization and participation in local economy. Contribute to the local Economy ( GDP )

31 Petrochemicals industries are a major player in Kuwait GDP creation
Petrochemicals is a key enabler for industrialization 1$ of direct GDP creation in the chemical sector produces ~1.87 $ of total GDP creation in the Kuwaiti economy Manufacturing share of GDP approx 6% Manufacturing share of non Oil GDP approx 10% Contribution of manufacturing sector to GDP lowest in Kuwait among GCC countries

32 Project Opportunities under development
China Project with Kuwait Petroleum International to implement an Integrated Refinery/Petrochemicals Complex Olefins III Project – World-scale project opportunity in Kuwait PTA/PET Project in Kuwait. Refinery/Petrochemicals integration Projects in Kuwait

33 Challenges

34 Challenges Limited ethane availability, tightening lighter feedstock availability with less feedstock advantage Constraints related to land availability, utilities and infrastructural facilities Limited exposure to specialty petrochemicals business Increased global competition from low cost high scale operators in Middle East and market regions Interlinked and highly leveraged global economy Increasing reliance on emerging markets economic prosperity

35 PIC efforts to implement LTS

36 PIC transition to Product Oriented Organization
The organization is Product Focus Introduced new functions like Corporate ENGHSE Established the basis for Growth focused Team work Introduced best practices and business governance Chairman & Managing Director Board Secretary Marketing Business Analysis & Planning Business Dev. Fertilizers (Manufacturing) DMD Fertilizers DMD Aromatics DMD Olefins Finance Corporate Planning Information Technology Deputy Chairman & DMD Planning Six Sigma DMD Admin & Finance Human Resources Services & Comm. Engineering and HS&E MEGlobal Equipolymers PP Olefins II EQUATE KARO GPIC TKSC ERM

37 Initiatives supporting PIC LTS implementation
Developing the PIC-PGS : A conceptual Gated System was developed for overall execution of Capital Projects Continuous improvement – Six sigma program Competency development Responsible Care and CSR program Focus on certified management systems in Quality, Environment, Safety & Health

38 Thank you

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