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INEOS 9 th June 2009 : Langesund
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2 Agenda Impact of the recession on European Petrochemicals INEOS response to recession INEOS & Skanled Future plans for Rafnes
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Impact of the Recession
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4 OECD Composite Leading Indicator: May 09 UK USA Euro Zone China
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5 INEOS Overall Global Weekly Order Trend
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6 Ethylene: margin improvement becoming evident BOC : Feb 09
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7 Propylene: margin improvement becoming evident BOC : March 09
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8 Benzene: margin improvement becoming evident BOC : Feb 09
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9 Butadiene: margin improvement becoming evident BOC : April 09
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10 Pequiven (Venezuela) 400 KTe PVC 400 KTe EDC Essar (India) 400 KTe Innovene G 400 KTe Innovene S 900 KTe Innovene P BCPL/GAIL (India) 300 KTe Innovene G Sinopec, Wuhan (China) 300 KTe Innovene S Ineos Technologies: Major Licences won in 2008 SIBUR, Tomsk (Russia) 200 KTe Innovene P Leshan (China) 150 KTe BiChlor Braskem (Brazil) 200 KTe PVC 200 KTe EDC Polimerica (Venezuela) 430 KTe Innovene G 400 KTe Innovene S Example of Delays in new Plant Construction
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11 Pequiven (Venezuela) 400 KTe PVC 400 KTe EDC Essar (India) 400 KTe Innovene G 400 KTe Innovene S 900 KTe Innovene P BCPL/GAIL (India) 300 KTe Innovene G Sinopec, Wuhan (China) 300 KTe Innovene S SIBUR, Tomsk (Russia) 200 KTe Innovene P Leshan (China) 150 KTe BiChlor Braskem (Brazil) 200 KTe PVC 200 KTe EDC Polimerica (Venezuela) 430 KTe Innovene G 400 KTe Innovene S Delayed min 1 year, financing/market Payments delayed, 6 months, banking issues Delayed min 1 year, financing/market Payments delayed, 4 months, banking issues Delayed min 1 year, financing / market Few untouched by financial crisis Ineos Technologies: Major Licences won in 2008
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12 OPAL, ONGC (India) 1,080 KTe Innovene G 340 KTe Innovene P CNOOC (China) 400 KTe Innovene S 300KTe Innovene G 400KTe Innovene P Ineos Technologies: 2009 Licencing Opportunities Rosneft (Russia) 250 KTe Innovene P 320KTe Innovene S Sonatrach/Total (Algeria) 450 KTe Innovene G Unipetrol (Czech) 250 KTe Innovene S 200KTe Innovene P Yanchang (China) 300 KTe Innovene S 300KTe Innovene G 300KTe Innovene P Azerchimia (Azerbaijan) 400KTe Innovene S TBC (Egypt) 900 KTe Innovene G Salavat, Sibur (Russia) 300 KTe Innovene P 500KTe Innovene G Chimprom (Russia) 135 KTe BiChlor 35KTe PVC China 8 x 100KTe BiChlor Miandoab (Iran) 200 KTe BiChlor 300KTe VCM 300KTe PVC Thai Plastic (Thailand) 350KTe EDC BASF (Germany) 250 KTe EDC Jiangshan (China) 80 KTe MAN
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13 OPAL, ONGC (India) 1,080 KTe Innovene G 340 KTe Innovene P CNOOC (China) 400 KTe Innovene S 300KTe Innovene G 400KTe Innovene P Ineos Technologies: 2009 Licencing Opportunities Rosneft (Russia) 250 KTe Innovene P 320KTe Innovene S Sonatrach/Total (Algeria) 450 KTe Innovene G Unipetrol (Czech) 250 KTe Innovene S 200KTe Innovene P Yanchang (China) 300 KTe Innovene S 300KTe Innovene G 300KTe Innovene P Azerchimia (Azerbaijan) 400KTe Innovene S TBC (Egypt) 900 KTe Innovene G Salavat, Sibur (Russia) 300 KTe Innovene P 500KTe Innovene G Chimprom (Russia) 135 KTe BiChlor 35KTe PVC China 8 x 100KTe BiChlor Miandoab (Iran) 200 KTe BiChlor 300KTe VCM 300KTe PVC Thai Plastic (Thailand) 350KTe EDC BASF (Germany) 250 KTe EDC Jiangshan (China) 80 KTe MAN Delayed, min 1 year Delayed min 6 months Delayed, min 6 mths Delayed, min 1 year Delayed, min 1 year, financing Delayed, 9 months Delayed, min 1 year Delayed, min 1 year, financing Significant delays across most projects
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INEOS Response to Recession
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15 Cost Management 10% Reduction in fixed costs during Q4 2008 Further 10% reduction in fixed costs for 2009 Pay freeze across organisation Bonuses cancelled for 2009 Dividends cancelled for 2009 Contractors reduced by 26% in Q1 09 versus Q4 08
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16 Cash Management Capital expenditure reduced from €600m in 2008 to €250m in 2009 Capital spend limited to essential items Stock volume reduction Stocks reduced by 22.5% in Q1 09 versus Q4 2008 Cash release from stocks of €317m
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17 Q1 Financial Performance EBITDA in Q1 2008 was €420m EBITDA in Q1 2009 was €200m Operating cashflow of €428m Net cash inflow after financing charges in excess of €100m
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18 Q1 2009 Industry Performance Major decrease in financial performance across the sector INEOS EBITDA Q1 09 = €200m Q1 08 = €420m Reduction = 52% Determined from Financial Statements Q1 09 Considers Chemical Business Activities only as appropriate
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INEOS and Skanled
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20 Original Concept for INEOS Skanled pipe comes through Grenland INEOS constructs and operates a Gas Separation Plant to extract … Ethane from dry gas Additional Ethane spiked into gas flow at Karsto
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21 Cancellation of GSP INEOS decided in January that the GSP project could not work Return on Investment was very poor World ethylene demand had collapsed further undermining the investment INEOS cash availability was limited Could not secure long term agreements for economic gas supply
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22 Revised Skanled Scope Branch line to Grenland Would allow Yara to consume dry gas and release the ethane currently used by Yara INEOS would use the Yara ethane to expand the cracker at Rafnes (+150kt NGL) €70-75m investment in cracker expansion
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Future Plans for INEOS in Grenland
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24 The INEOS Cracker Yara ethane expansion option not available without Skanled Expansion based on additional LPG’s s feasible and will be the subject of further study Expansion will need to be timed with recovery in European ethylene demand INEOS still believes that the best option for the Rafnes cracker is a significant expansion based on additional ethane
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25 Additional Ethane Ethane is a valuable chemical feedstock It should not be exported from Norway for fuel use when significant value can be added within Norway The challenge is to find ways to economically extract ethane from the dry gas system We believe that Norway can have a highly competitive petrochemical industry if a solution can be found to the ethane issue
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26 INEOS ChlorVinyls Securing feedstock for the Rafnes cracker opens the way for further expansion in ChlorVinyls chlorine/EDC in addition to cracker expansion BUT We need more confidence in the long term supply of economic power to Grenland
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27 Long Term Power INEOS in Grenland is a large consumer of electricity, ~1,3 TWh annually Electricity is a raw material and an important part of production costs Final products are mainly exported and competition is global Access to competitive, long-term power contracts is a key issue for investments
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28 The Power Challenge INEOS is partially covered by long term contracts to 2015 No long term contracts in place after 2015 Similar to many power intensive users in Norway Need to secure competitive, long term contracts within current market framework Indirect carbon costs increase power price (even for CO2 free generation) Illiquid market for long term contracts of 15-20 years Extensive up front guarantees required
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29 Summary INEOS remains very committed to Grenland Still seeking expansion options across our businesses Need competitive long term power supplies Opportunity for Norway to add significant value to Norwegian ethane in Grenland
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