Breaking new ground in the petrochemicals sector - The · PDF file · 2012-12-02Breaking new ground in the petrochemicals sector innovation and growth Louis Besland ... company websites,

Breaking new ground in the petrochemicals sector innovation and growth

Louis Besland Partner

Europe• Amsterdam • Berlin• Brussels• Bucharest• Copenhagen • Düsseldorf• Frankfurt• Helsinki• Kiev

• Lisbon• Ljubljana• London • Madrid • Milan • Moscow• Munich• Oslo

• Paris • Prague• Rome• Stockholm• Stuttgart• Vienna• Warsaw• Zurich

• Abu Dhabi• Bahrain• Dubai• Riyadh• Johannesburg• Manama

Middle East and Africa

Asia Pacific • Bangkok• Beijing• Hong Kong• Jakarta• Kuala Lumpur• Melbourne• Mumbai

• New Delhi • Seoul• Shanghai• Singapore • Sydney• Tokyo

Americas• Atlanta • Cambridge• Chicago • Dallas • Mexico City• New York

• San Francisco• São Paulo• Southfield• Toronto• Washington, DC

A.T. Kearney is a global top management consulting firm focusing on turning strategies into reality

•  Tradition – Founded in 1926 in Chicago

•  Global footprint – 57 offices in 39 countries

•  Local - Strong presence in the Middle East

•  Resources – Over 3,000 global employees

A.T. Kearney company profile

•  Industries – Wide breadth spanning

•  Competencies – Ranging from Strategy, Operations, Transformation

– Energy, Process & Utilities – Government – Telecom – Consumer Goods & Retail

– Financial Institutions – Automotive – Transportation – Healthcare

Overview of work

We use strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results

3

Source: A.T. Kearney

We deliver Immediate Impact and Growing Advantage through our collaborative, authentic and forward-thinking style

Forward-thinking Authentic Collaborative

Immediate Impact, Growing Advantage Our Promise

How we deliver

4


5

Navigating Global and regional trends

6

Customer Collaboration and Innovation

7

Sustainable and profitable downstream development

Agenda of today

8


8

Topic Speaker Duration

1 Navigating Global and Regional Trends

•  Thomas Rings •  Dr. Bernhard Hartmann 15:00 – 15:40

2 Customer Collaboration and Innovation

•  Dr. Tobias Lewe •  Richard Forrest 15:40 – 16:20

Break 15 min

3 Building Sustainable and Profitable Downstream Industries

•  Dan Starta •  José Antonio Alberich 16:35 – 17:15

4 Q&A and closing •  Louis Besland 17:15 – 17:30

9

Thomas Rings Head of Global Energy and Chemicals Practice

Dr. Bernhard Hartmann Head of Asian Energy and Chemicals Practice


Navigating global and regional trends that will transform the Chemical Industry landscape

Thomas Rings and Dr. Bernhard Hartmann Partners, A.T. Kearney

Global trends impact the Chemical landscape

Industry shifts to “CHIMEA”

Increasing volatility

Non-conventional feedstock

Fight for market access

1

3

2

4

11


Global chemical trends

Shale gas is becoming a material feedstock

•  Leverage non-conventional feedstock 1

12

Source: CMAI, Deutsche Bank chemical industry report, EIA, A.T. Kearney

0

500

1,000

1,500

South East Asia naphtha

Western Europe naphtha

North East Asia naphtha

China CTL

US AVG feedstock

mix

US shale gas

Saudi Arabia ethane

Ethylene cost-curve per feedstock (2012, US$ per mt)

2012 average price

US shale gas is becoming more cost competitive

China’s naphtha feedstock is high on cost curve

China

USA

Canada

Mexico

AustraliaSouth Africa

Argentina

Brazil6

3617

11

19

111422

Europe

India2

18

North Africa 15

Global shale gas reserves (in trillion m3)

Shale gas advantage is a game changer for NA The trends of the global chemical industry

•  Leverage non-conventional feedstock: North America

13

Q1-Q2 2012 2007

0%

North America Centric PetChem

Overview of profitability per region (% operating income)

30%

15%

Europe/ Asia Centric PetChem

Specialty

Nova

Westlake

Reliance Evonik

Total

LYB O&P Americas

Clariant SinopecChem

Eastman

AkzoNobel

Mitsubishi

DSM PKN Orlen

Westlake

Nova

LYB NA

Source: company reports, IEA World Energy Outlook, A.T. Kearney

1

•  North America becomes a net exporter of natural gas by 2020 and of oil by 2030

•  Natural gas demand will rise by 50% in 2035 of which almost half will come from shale gas

Shift in global energy balance

China is also considering to use shale gas…

14

63

93

65

7

28

3

2035

219

2020 2015 Golden rule - Government

targets Low unconventional -

14

Policies in 12th 5 year plan Shale gas production targets (bn m3)

Source: Public government information, IEA WEO 2012 Golden Rules for a Golden Age of Gas, Oxford Research Paper, A.T. Kearney

•  Leverage non-conventional feedstock: China 1

government decides to develop only a small share of shale gas

government adopts the best policy for shale gas

Clear shale gas classification

Complete shale gas volume assessment

Speed up exploration and development

Set incentives and market based pricing

Build new infrastructures

...but coal seems to be a more immediate option

15

EG Methanol Ammonia Coal-to-Liquid Coal-to-SynGas Coal-to-Calcium

Carbide Coal-to-Gas

Cap

acity

(in

MM

T)

14

+700%

2 2011 2015

23

+465%

4 2011 2015 2011 2015 2011 2015

119

+60%

74 28

+8%

26

Source: NSDR, HTSEC, KBR, Chemical Engineering(China), China 12th 5-year plan, ChinaCoalResearch Institute, Duke University, A.T. Kearney

15

App

licat

ion

•  Leverage non-conventional feedstock: China CTL 1

LNG Jet fuel Acetylene Clothing, timber, fuel

•  Industry shifts to CHIMEA

Following customers’ shift to the East

Automotive

21% 16% 17% 14% 9%8%8%8%

55%

22% 25%

51%

26%

50%

31%

40%

Rest of World North America Europe Asia

Construction

New players emerging in Fortune 500

23% 17% 17% 14%21%

27%

38%

18%

29%

37%

15%

31%

37%

10%

33%

34%

2011

93

CAGR 19%

481

2007

49

451

2003

19

407

Emerging Established

The trends of the global chemical industry

2

16

2007 2010 E2014 E2025

2007 2010 E2014 E2025

Source: Global Insight, IHS Global Insight Construction Data 2008, JP Morgan, Fortune 500, A.T. Kearney

•  Industry shifts to CHIMEA

Industry’s center of gravity is shifting to CHIMEA

2

RoW

NAFTA

Europe

Asia

2025E

4,276

312 544

671

2,749

2010

2,353

173

455

578

1,147

2009

1,871

133

396

508

834

1985

480

48

144

216

72

? 2-3 Europe

2-3 Middle East

3-5 Asia

Top 10 chemical players (rank by turnover)

1-2 NAFTA

1985 2010 2025E

1 Bayer 2 BASF 3 Hoechst 4 ICI 5 Dow Chem. 6 DuPont 7 Ciba-Geigy 8 Montedison 9 Rhone-Poul.

10 Monsanto

BASF Dow Chem. ExxonMobil Sinopec SABIC Ineos Group Shell DuPont LyondellBasell Total

Chemical market value (1985 – 2025E, € bn)

17

Source: CEFIC, Chemical Week, Verband Chemische Industrie, Chemical & Engineering News, annual reports, A.T. Kearney

Now and near future...

If China and US become exporters

Fight for market access will intensify

0%

25%

50%

2030 2025 2020 2015 2000

Will China become a net exporter? … and when?


Chinese Polymer net imports (% of total demand)

Schematic chemicals trade flows

Impact on high cost feedstock regions like Europe and North Asia could be dramatic

•  Fight for market access: China net exporter 3

18

Source: CMAI, Shell, Chemical Week, A.T. Kearney

Chinese SOEs are pursuing their autarky goal

•  Fight for market access: Chinese growth and investments 3 Revenue 2009 and 2011 (in US$ bn)

Major 2012 investments of Chinese players

19

Source: IEA, company websites, press research, A.T. Kearney

•  33% stake in 5 U.S. shale gas fields

•  20% stake in Shell assets in Groundbirch •  Take over of Molopo's coal steam gas assets

•  Acquisition of Canada’s Nexen Inc. (Under Approval) •  33% stake of Tullow in 3 areas in Uganda

•  New production facility investment in Gansu •  Production facilities for para-aramid (5-year)

•  Acquisitions of Total's Colombian Assets

28

38

53

315

394

16

31

36

166

188

2009 2011

+110%

+90%

+49%

+23%

+75%

Description Value (US$ bn)

2.2

1.0 0.5

1.0

7.9 5.5

15.1 1.5

MNCs in China will need to better manage risks

•  Fight for market access: risks, challenges and uncertainties 3

20 Source: European Chamber of Commerce China; A.T. Kearney

Commodity pricing

•  Non-transparent reward of oil import and wholesale licensees

•  Adjusted prices of oil products for Chinese SOEs

Financial support

•  Direct subsidies to SOEs

•  Preferential financing to SOEs from national banks

•  R&D funding for local players

•  Lower capital cost for SOEs

Regulation

•  Enforcement of environmental and safety laws

•  Toxic chemicals’ registration

•  Local content regulation

•  Increasing volatility

Global economy more susceptible to crises

1973-74 Oil crisis

1980 Latin Am. debt crisis

2000 Dot- com

bubble

1979 Energy crisis

2008 Subprime mortgage crisis

1994 Economic crisis in Mexico

1989-1991 US savings & loan

crisis

What’s next?


More frequent boom/bust cycles (World GDP growth %, p.a.)

4

-2%

0%

2%

4%

6%

8%

21

Source: The World Bank – Data, IMF, US Bureau of Economic Analysis, A.T. Kearney

1971 1975 1980 1985 1990 1995 2000 2005 2010

1997 Asian financial crisis

11 Sept 2001

Military

Conflict

Currency

Devaluation

Global

Pandemic

Technical

Break- through

Political

Instability

Real Estate

Bubble

Renewable Energy

Crisis

Country

Disintegration

•  Increasing volatility: feedstock price volatility

High feedstock volatility despite no shortages

•  Short term production fluctuations

•  Macro-economic uncertainty

•  Speculation and decoupling of oil and gas prices

Oil resources and production costs


4

22

Source: International Energy Agency, U.S. Energy Information Administration, BP, Dow Jones, A.T. Kearney

Key drivers for feedstock price volatility

40

80

100

120

5,000 4,000 3,000 2,000 1,000

60

0 6,000 7,000 8,000 9,000 0

20

Price 2012

Pro- duced

Price 2000 Conventional

oil in MENA

Other Conven- tional oil

Heavy oil and

bitumen

Oil shales

Gas-to-liquids

Coal-to-liquids

Deepwater & ultra deepwater

CO

2-E

OR

Oth

er E

OR

A

rctic

USD 2010 / Barrel billion barrel

These trends lead to four strategic questions

Strategic imperatives for chemical players

23

Strategic questions


ü  Changed product trade flows and more volatility

ü  Alternative feedstock may drive volatility further

ü  State-driven players will change the landscape

ü  New target markets and customers


Industry shifts to CHIMEA



Implications for chemical players

1. What is the right business model to compete in?

2. How to secure access to a long term sustainable and low cost feedstock position?

3. Which regional and customer markets to serve?

4. How to withstand market unpredictability and volatility?

Global chemical trends

We see three business models to compete on

Specialties Polymers Basic Chemicals Petrochemicals

Focused specialty players

Asset driven players

Broad based specialty players

The chemical industry structure in 2025

24

Integrated players 1

2

3


•  Access to low cost feedstock •  Low cost manufacturing

•  Ability to fund growth investments

Key success factors •  Manage supply/ demand balance

•  Access to markets •  Customer intimacy •  Innovation

capability

•  Complexity management

Key success factors •  Supply chain excellence

•  Supply chain excellence

GCC players have to balance global and local development

25 25 Source: A.T. Kearney

•  Local employment

•  Diversification from oil

•  Development of knowledge economies

Global expansion Local economic development

Balance feedstock

position & financial

capability

•  Current business model ‒  React quickly to supply

demand trends ‒  Certify market access around

the world

•  Extend business model downstream ‒  Build capabilities in innovation

& technology ‒  Develop intimacy with different

industrial customers

27

Dr. Tobias Lewe Lead Partner Europe Energy and Chemicals

Richard Forrest Head of EMEA Energy and Chemicals Practice


Customer collaboration and innovation

Dr. Tobias Lewe and Richard Forrest Partners, A.T. Kearney

GCC has been successful in building a world- class petrochemical industry in a few decades

29

Source: GPCA, company websites, A.T. Kearney

1990 2000

GCC petrochemical evolution

2011 revenues

USD 100 bn

Selection

1970 1980 2010

Historical drivers of GCC petrochemical growth now appear at risk

−  Abundance of natural resources

−  Favorable geographic location

−  Extensive government investment

−  Low cost labor force −  JVs to bring external

know-how

Historical growth drivers Global chemical trends



Industry shifts to CHIMEA

Global chemical trends GCC growth drivers


30


Major GCC players have started to address these future challenges via innovation and collaboration

• Global Bridge Initiative –technology CoEs for Kuwaiti public and private organizations

• Pearl GTL technology – World’s largest GTL plant by Qatar Petroleum and Shell

Source: company / organization websites, A.T. Kearney

• SABIC and Cambridge Univ. – partnership to develop new chemical technologies

• KACST – R&D centers of excellence in Saudi Arabia

• Borouge innovation center –innovative plastics solutions tailored to Middle East needs

31

Regional selection

• KAUST – collaborative research to catalyze Saudi economic diversification

Innovation and collaboration initiatives

Our recent C3X study confirmed the importance of the Chemicals industry in the Gulf region

•  Yearly survey among global chemicals majors and their customers since 2008

•  Analyses the chemical industry based on managers’ market perspective

32

29%

Western Europe

21%

Far East

67%

84%

13%

Latin America

21%

8%

North America

29%

Other

6% 13%

Customers‘ view Manufacturers‘ view

2nd most important growth market

48%

Middle East

42%

Source: C3X, A.T. Kearney

All players agree on the raising importance of collaboration along the Chemicals value chain

End consumer

Chemicals customers

Chemicals manufacturers

Feedstock supplier

Degree of collaboration in the value chain

55%

In 5 years

82%

Today In 5 years

94%

Today

67%

Today

35%

In 5 years

90%

Today

59% 74%

In 5 years

Chemicals manufacturers view

Customers view

33


However, lack of people, strategy, processes, governance and trust are main obstacles to collaboration

Ineffective governance

Undefined strategy

Top-5 obstacles to collaboration Ineffective

management processes

Lack of trust in outside parties

Customer point of view

34


People (limited resources / wrong talent)

5

3

4 2

1

Even when collaboration exists, processes lack of consistency and expected payback is still short term

35

More than 5 years

0%

Within 4 - 5 years

18%

Within 2 - 3 years

52%

Within 1 year

24%

Collaboration benefits measurement

No benefit expected

6%

End consumer

Chemicals customers

Chemicals manufac-

turers Feedstock supplier

Repeatable processes for collaboration

46% 36%

72%

36%

82%

36%

29%30%74%

44%

59%

30%

Customers view

Chemical manufacturer

view Consistently deployed

Consistently deployed

Inconsistently deployed

Inconsistently deployed


Building a strong Customer/ Manufacturer collaboration is an opportunity to foster innovation

Innovation Design and development of new products, services, processes and business models

36

Supply chain mgt.

Better information enabling efficient Operations planning, inventory and distribution optimization, leveraging better sourcing conditions

Production Better production planning, capital spend optimization, product complexity management, specifications rework and joint process improvement

Sales and marketing Joint value proposition definition, co-branding possibilities

Ranked 1st benefit of collaboration(1)

(1)  66% of respondents, Source: A.T. Kearney

Collaboration benefits

Innovation is strongly and increasingly valued by customers…

Key buying criteria for clients over time Customers innovation vision

37


60%

40%

0%

Commercial sales support

Social sustainability

Supply chain services

100%

80% Environmental sustainability

Technical sales support Innovation

Product performance/ features

Price (per performance)

Availiability Delivery reliability

Spring 2012

Spring 2011

Spring 2010

Fall 2009

Spring 2009

Fall 2008

New special value-added, Commercial services 15%

New special value-added Logistical services 29%

New business model 41%

New chemical products 71%

New product features 71%

New applications 74%

Perception of company as innovative leader 76%

New technologies 79%

… but not yet fully recognized by manufacturers who have a limited understanding of their customers

Customers perceive a limited understanding from their manufacturers

Importance of innovation

No

Basic 21%

Fair 50%

Good 23%

Expert 5%

38


56%

82%-26%

Manufacturers view Customers view

Only 43% of Manufacturers regularly meet their customer’s customers

Value levers of excellent innovation management

T Launch T 0 T Profit

Time-to- Market

Time-to-Profit

Cumulative profit

Time Idea

Increase growth through innovation

Improve product profitability

Increase innovation efficiency and speed

Idea

Idea

Idea

Project #1 Project #2

Project #3

Idea Idea

Idea

Idea

Four main levers can be activated to generate significant value through better innovation management

Innovation portfolio

Idea Idea Idea

Idea

Innovation life cycle

Build foundation for innovation (to support growth, efficiency, speed and profitability)


1 2

3

4

Illustrative

Idea

Idea

39

Convenience Use of specific coatings to “self-clean”

Anti-dirt composite panels

Self cleaning car interior & exterior

Use of electric / magnetic technology to change color

Easy transform color and effects on panels

Chameleon car

Potential innovation platforms

Potential innovation platforms identification Example Suppliers of raw materials

Chemicals … OEM Automotive Consumers

Trendy

Low maintenance

To be successful in innovation, it is key to develop a clear perspective on your value chain

Global trends

Well being & personalization

A more sustainable

planet Use of metal hydride to reflect heat

Metal hydride systems for air conditioning

Reduced emissions

Environ-mentally friendly


Formulations

40

Value Chain collaboration can generate fruitful triggers in all the dimensions of innovation

Procter & Gamble's strategy of open innovation now produces > 35% of the company's innovations and billions of dollars in revenue

• Evonik and Daimler are partnering to develop Lithium Ion batteries for automobiles to increase driving range, pushed by customers needs

Venture capital fund ($200mn) by Alstom, Schneider and Rhodia to identify and develop new Cleantechs

Global selection

Extended leverage Product development Early scouting

Source: company websites, A.T. Kearney

Examples of successful value chain collaboration

41

Impact of best practice collaboration on ME petrochemicals could represent significant impact

Expected customers impacts Costs

With collaboration

Without collaboration

+3-5%

-2-4%

With collaboration

Without collaboration

Source: GPCA, A.T. Kearney

$ +3.0 ~ +5.0 bn revenue

$ -1.7 ~ -3.4 bn costs

GCC additional potential Revenue

42

$ +2.2 ~ +4.3 bn profit

Documents

Breaking new ground in the petrochemicals sector - The · PDF file · 2012-12-02Breaking new ground in the petrochemicals sector innovation and growth Louis Besland ... company websites,