Qatar Chemicals 2016

QATAR CHEMICALS 2016

Chemicals - Petrochemicals Oil - Natural Gas Infrastructure - Economy Private Sector EDITORIAL Global Business Reports

Qa tar-I ran marit

CHEMICALS ime bound

ar y IN QATAR: NORTH FIELD TAKING A Persian Gulf Ras Laffan STEP BACK LNG Terminal

QATAR AT A GLANCE Source: CIA World Factbook Population: 2,194,817 (July 2015 est.) Doha Land Area: 11,586 sq km Of cial Language: Arabic Capital: Doha Umm Said Chief of State: Amir Tamim bin Hamad Al Thani (since June 2013) Head of Government: Prime Minister Abdallah bin Nasir bin Khalifa Al Thani (since June 2013) 0 100 Km Growth Domestic Product: $306.6 billion (2014 est.) Growth Rate: 4% (2014 est.) GDP per Capita: $137,200 (2014 est.) Economic Sector Breakdown: agriculture: 0.1%, industry: 68%, services: 32.1% (2014 est.) Exports: $131.6 billion (2014 est.): liqueed natural gas (LNG), petroleum products, fertilizers, steel Imports: $38.23 billion (2014 est.): machinery and transport equipment, food, chemicals Major International Trade Partners: Japan, South Korea, India, United States, China

EnergyPROJECTION is power, OF and ANNUAL Qatar’s PRODUCTION power comes GROWTHsteps toward developing its industrial base, trial Manufacturing Co. (QIMC). Air Liq- fromIN GLOBALits abundance CHEMICAL of cheap INDUSTRY energy through BY REGION including chemicals and petrochemicals. uide brought the technology and operational itsSource: natural Statistica gas reserves. Qatar attained the Qatar Petroleum (QP), the national oil and know-how; QIMC was already present with title of the largest globalNorth America exporter ofLatin lique Americ-a gas companyWestern Europe that owns a stake in nearly all local nitrogen production capacity and con- fied natural gas (LNG) throughAfrica & Middle the Eastdiligent theAsia major/ Paciﬁc chemical projects in the country tributed its own vision for how the market (percent change in market from year to year) efforts6 of its government to develop the in- has long sought to be a worldwide player, but should develop based on its local knowl- dustry through the necessary infrastructure, the country needed the expertise and systems edge. Through the efficient cooperation of 5 capital investments, and foreign partnerships from abroad to achieve the highest interna- these three entities, “Gasal has been able to for4 the export market. Having established a tional standards within the designated indus- plan its development efforts in order to meet world-class3 LNG export industry and local trial areas. An example of how the country the need for a highly reliable, cost-effective, feedstock2 system, Qatar has begun to diver- has created state-of-the-art industrial areas and safe supply of industrial gases,” accord- sify its rich economy by looking toward the can be seen in Gasal, a partnership formed ing to Eid Mubarak Al-Muhannadi, CEO of downstream1 sector and has taken significant between QP, Air Liquide, and Qatar Indus- Gasal.

2010 2011 2012 2013 2014 2015

QATAR GROWTH VS. INFLATION (2008 TO 2016) Source: International Monetary Fund

GROWTH % INFLATION % 18 18

16 16

14 14

12 12

10 10

8 8

6 6

4 4

2 2

0 0

-2 -2

-4 -4 FORECAST QATAR CHEMICALS 2016 - 2 - Industry Explorations 2008 2009 2010 2011 2012 2013 2014 2015 2016 Global Business Reports EDITORIAL

Qa tar-I ran marit the middle of 2014 by about 55% has had ime bound ANNUAL PRODUCTION GROWTH an impact on petrochemical product prices IN GLOBAL CHEMICAL INDUSTRY BY REGION, 2010-2015 and has raised buyer uncertainty,” states the ar y Source: Statistica Gulf Petrochemical Association (GPCA) in NORTH FIELD North America Latin America Western Europe its annual report, “The new reality creates new scenarios which impacted some planned Africa & Middle East Asia / Paciﬁc projects in the GCC region.” Persian (percent change in market from year to year) Gulf Natural-gas-rich Qatar was no exception to Ras Laffan 6 LNG Terminal this commodity plunge and has taken action 5 in light of the depressed prices. Shortly after oil prices began to fall in 2014 with no end 4 in sight, Qatar halted its two multi-billion-

3 dollar, world-class petrochemicals projects: Doha Al Karaana and Al Sejeel. 2 Al Sejeel, a venture to construct a world- Umm Said scale ethylene cracker between QAPCO and 1 ANNUAL PRODUCTION GROWTH IN GLOBAL CHEMICAL INDUSTRY BYthe stateREGION, energy 2010-2015 company QP valued at $6 Source: Statistica billion was put on hold, in an effort to re- 2010 2011 2012 2013 2014 2015 0 100 Km North America Latinevaluate America and assessWestern alternative Europe investments and petrochemical projects that will yield Africa & Middle Eastbetter economicAsia returns. / Paciﬁc (percent change in market from year to year) The Al Karaana development, QP’s 80-20 AsQATAR a result GROWTH of the investment VS. INFLATION in Gasal and (2008petrochemical6 TO 2016) sectors. To that end, Qatar’s partnership with Shell, intended to produce Source: International Monetary Fund other initiatives, Qatar now boasts a vibrant energy5 minister Mohammed Al-Sada, stated 1.5 million mt/y of mono-ethylene glycol chemicalGROWTH % sector as evidenced through world- in 2012 that the country was activelyINFLATION looking % and 300 kilotons per year of linear alpha ole- class18 companies such as Qatar Petrochemi- to 4diversify away from exporting LNG to 18us- fin, would have been significant and in line cal Co. (QAPCO), Qatar Vinyl Co. (QVC), ing the valuable resource to boost industrial with Qatar’s petrochemical industry expan- 16 3 16 and Qatar Fertiliser Co. (QAFCO) to name enterprises and domestic power generation, sion and ambitions. It was an ideal project 14 14 a few. In 2014, chemical exports from Qatar in 2order to double petrochemical output to given Qatar’s cheap and plentiful gas feed- amounted to 3.19% of its $101 billion total 23 million metric tons (mt/y) by 2020, a long 12 12 stock combined with Shell’s technology and exports, with nitrogenous fertilizers being way1 to go from the 2014 output of 10 mil- expertise in building large-scale plants for the10 biggest chemical product exported at lion mt/y. 10 processing petroleum into various industrial $1.33 billion, followed by acyclic hydro- When the2010 price of oil is2011 down, however,2012 ev- 2013 2014 2015 8 8 chemicals. Al Karaana, despite its promise, carbons ($536 million) and ammonia ($334 erything is down. “The fall in oil prices since was shelved due to continued at page 7 million).6 6

Clearly,4 the country has taken the neces- 4 sary steps to develop a robust chemical and QATAR GROWTH VS. INFLATION (2008 TO 2016) 2 2 petrochemical sector, yet, given that Qatar’s Source: International Monetary Fund

small0 population results in the highest GDP 0 GROWTH % INFLATION % per capita in the world and job creation is 18 18 less-2 of a concern, the question remains -2 16 16 whether-4 now is the time for the country to -4 further pursue its industrial ambitions? An FORECAST 14 14 important2008 dynamic2009 at play2010 is the 2011difference2012 2013 2014 2015 2016 between Qatar’s earnings from gas sales in 12 12

comparison to what Qatar could potentially 10 10 earn from the added value of a developed downstream industry. 8 8

6 6 Al Karaana and Al Sejeel: Nipped in the Bud 4 4

2 2 As competition increases from Australia and potentially the United States and East Africa, 0 0

Qatar’s position as leader in the global gas -2 -2 export market will be challenged in the next decade. As a response, Qatar is seeking a di- -4 -4 FORECAST versification strategy for export and revenue 2008 2009 2010 2011 2012 2013 2014 2015 2016 streams by expanding its downstream and

Industry Explorations - 3 - QATAR CHEMICALS 2016 COMPANY PROFILE Global Business Reports

Qatar Petroleum (QP) Company Profile

HISTORY

Qatar Petroleum (QP) was created in 1974 Qatar Rials (QR) Millions December 2014 December 2013 December 2012 following the government's nationaliza- Sales Revenue 138,872 152,192 154,129 tion of the oil sector. It acquired full own- Net Income 112,613 118,643 115,029 ership of all onshore and offshore conces- sions by 1977. Net Cash Flow from Operations 62,711 58,751 51,554 Capital Expenditures 10,555 9,100 10,249 LEADERSHIP Total Assests 400,512 396,503 370,790

Mohammed bin Saleh Al-Sada, Chairman and Minister of Energy Saad Sherida Al Kaabi, Managing Director cal complexes, natural gasSALES liquids REVENUE plant well- QR as MILLION the productionS and export of GTL, and a steel mill, in addition to oil receiving LNG and NGL. In addition, the main ac- EXPLORATION, APPRAISAL & DE- terminal and export facilities. The existing tivity of the refinery is to process crude oil

VELOPMENT OPERATIONS infrastructure and utilities154,129 network is be152,192- and condensate into various finished prod- ing completely upgraded to ensure state- ucts to meet domestic demand as well as LQP has concluded EPSA and DPSA with of-the art facilities and services in support for export. the following major international oil and of existing as well as new industries. A 138,872 gas companies: ExxonMobil, Anadarko separate industrial zone for light and sup- Gas-to-Liquids (GTL) Qatar, Maersk Oil Qatar, Talisman Energy port industries is also being upgraded to The Oryx GTL plant in RLC started pro- Qatar, Wintershall Consortium, and Maru- attract new investors. duction in 2006 with a design capacity of beni. 2012 201334,000 barrels per2014 day (b/d) (naphtha, die- QP REFINING sel, LPG) with future expansion to reach MESAIEED INDUSTRIAL CITY NET INCOME - QR100,000 MILLION b/d. S Wholly owned by QP, the main finished Mesaieed Industrial City (MIC) is located products are liquefied petroleum gas 118,643Natural Gas Liquids (NGL) approximately 40 kilometers south of (LPG), petrochemical naphtha, premium There are four NGL plants in Mesaieed Doha on the east coast of Qatar. The City gasoline, super gasoline,115,029 jet fuel, diesel Industrial City (MIC) producing propane, and marine fuel oil (MFO). At its current butane, and condensate, which are mainly has transformed itself over the years from 112,613 a simple port facility exporting crude oil capacity of 137,000 barrels per day (b/d), produced for export. into Qatar’s main industrial city and center the refinery is capable of meeting local for petrochemical and oil refining activi- demand until 2020. Liquefied Natural Gas (LNG) ties. Qatargas is a joint venture originally QP’s refining activities2012 include the- pro2013formed to operate2014 three LNG trains with a MIC’s industrial area accommodates an oil cessing of crude oil and condensate into design capacity of two million metric tons refinery, a fertilizer complex, petrochemi- domestic and exportNET CASH petroleum FLOW products FROM as OPERA per yearTIONS (mt/y) - QR each, MILLION exportedS to Japan and

QATAR CHEMICALS 2016 - 4 - Industry Explorations 62,711 58,751 51,554

2012 2013 2014

CAPITAL EXPENDITURES - QR MILLIONS

10,555 10,249

9,100

2012 2013 2014

TOTAL ASSETS - QR MILLIONS

400,512 396,503

370,790

2012 2013 2014 Qatar Rials (QR) Millions December 2014 December 2013 December 2012 Sales Revenue 138,872 152,192 154,129 Net Income 112,613 118,643 115,029 Net Cash Flow from Operations 62,711 58,751 51,554

Global Business Reports Capital Expenditures 10,555 9,100 COMPANY10,249 PROFILE Total Assests 400,512 396,503 370,790

Spain. Three new LNG trains (Qatargas 2, SALES REVENUE - QR MILLIONS Qatargas 3 and Qatargas 4) were added 1 U.S. dollar equals 3.64 Qatari Rials. and operational by 2011, raising the total production to 42 mt/y in 2012. 154,129 152,192 RasGas, a joint venture producing LNG, has a total production that exceeds 36 mt/y after expanding in 2010. RasGas has a 138,872 25-year contract to sell 4.8 mt/y to South Korea and another agreement with India to sell 7.5 mt/y for 25 years. Other agree- 2012 2013 2014 ments are signed to provide LNG to several countries, including the United States and Italy. NET INCOME - QR MILLIONS

PETROCHEMICALS & FERTILIZ- 118,643 ERS 115,029

Qatar Fertilizer Company Ltd. (QA- 112,613 FCO) QAFCO’s total production capacity is 2 mt/y of ammonia and 3 mt/y of urea, making QAFCO the world’s largest single site 2012 2013 2014 producer of urea. QAFCO’s expansion (QAFCO-5) added around 4,400 metric NET CASH FLOW FROM OPERATIONS - QR MILLIONS tons per day (mt/d) of ammonia and 3,500 mt/d of urea to QAFCO’s production ca- 62,711 pacity. 58,751 51,554 Qatar Petrochemical Co. (QAPCO) QAPCO was established in 1974 as a joint multinational venture to utilize associated and non-associated ethane gas from petroleum production. QAPCO’s facilities con- sist of an ethylene plant with a capacity 2012 2013 2014 to produce 720,000 mt/y, two plants with a 650,000 mt/y capacity of low density CAPITAL EXPENDITURES - QR MILLIONS polyethylene (LDPE) and a sulfur plant producing 70,000 mt/y. QAPCO markets 10,555 10,249 its products worldwide and serves about 4,000 customers in 35 countries.

Qatar Vinyl Co. (QVC)

QVC was established to produce interme- 9,100 diates in the PVC industry. The company produces 180,000 mt/y of ethylene dichlo- 2012 2013 2014 ride, 350,000 mt/y of vinyl chloride monomer (VCM) and 370,000 mt/y of caustic TOTAL ASSETS - QR MILLIONS soda.

400,512 Qatar Chemical Co. Ltd. (Q-Chem) 396,503 Q-Chem is a joint venture between QP and Chevron Phillips Chemical Co. Q-Chem’s world-class petrochemical plant produces 370,790 453,000 mt/y of high-density polyethylene (HDPE) and 47,000 mt/y of 1-hexene (alpha olefin) using CPChem’s proprietary technologies.• 2012 2013 2014

FOR ALL GRAPHS AND CHARTS, Source: Qatar Petroleum (QP) 2014 Annual Report

Industry Explorations - 5 - QATAR CHEMICALS 2016 INTERVIEW Global Business Reports

mately 180,000 mt/y of EDC for export, a vinyl chloride monomer (VCM) unit producing approximately 355,000 mt/y of VCM, and a "The price of ethylene, which has power unit. fallen as a result of the fallen oil and gas prices, constitutes a large portion QVC prides itself on being a low-cost, of the variable cost to QVC, such high-quality and efficient vinyl producer. that lower prices reduce this cost What strengths allow QVC to fulfill these significantly. There is also a slight goals? benefit on the freight costs as the fuel From its inception, QVC has strived to pro- for ships has dropped." vide a high-quality product at a low cost, which is what the global vinyls market de- mands from companies to stay competitive. QVC has always sought to keep the organiza- achieve for your organization. QVC is very tion lean and maintain fixed costs under tight diligent in this regard by partnering with lo- scrutiny. In addition, QVC has been able to cal universities to recruit talented individu- remain competitive in its energy costs by in- als and also by maintaining high standards of tegrating itself with the gas that QP provides. training within the organization. H.E. Hamad The products are still sold at market price, but they cost less to produce. The goal in the Health, safety and environment (HSE) Rashed near future is to fulfill the ethylene require- are concerns that are becoming ever more ment locally and no longer seek to import. present within the chemical industries of Al-Nuaimi This will allow QVC to further lower the cost the world. Can you tell us about QVC’s of production and expand its operations. approach to HSE? HSE has been engrained in the story and cul- CEO The global economy is currently operat- ture of QVC since the initial environmental QATAR VINYL CO. (QVC) ing in an environment of low oil and gas impact studies were being undertaken. In prices. How does this affect QVC’s opera- the construction of the plant, QVC imported tions? international standards so that the facility The low oil and gas prices have a mixed ef- could stand up to the global vinyl industry fect on QVC’s operations. The price of ethyl- standards. QVC has implemented several ene, which has fallen as a result of the fallen European standards of safety and is working oil and gas prices, constitutes a large portion closely with the Ministry of Environment to of the variable cost to QVC, such that lower improve certain aspects. For example, QVC prices reduce this cost significantly. There recently installed an additional incineration Can you please provide us with a brief his- is also a slight benefit on the freight costs unit and is well known throughout the chemi- tory and introduction to QVC and its cur- as the fuel for ships has dropped. However, cal sector here as the only plant that is not rent operations in Qatar? lowered prices can be harmful if they remain flaring. QVC is also currently engaged in a Qatar Vinyl Co. (QVC) is a fully Qatari- low for too long. A prolonged drop in oil project that aims to recycle as much water owned company that was established in and gas prices increase the amount of vinyl as possible to avoid discharging liquid to the 1997. Up until 2013, QVC maintained for- chloride monomer in the market, which can sea. Due to our processes that require wash- eign ownership, but the shareholder percent- depress prices. Furthermore, looking at the ing with industrial salt, salt water must go out ages have shifted such that there is currently larger macroeconomic picture, low oil and to the sea, but it is no more than salt water. no foreign participation, though the opera- gas prices affect an array of manufacturers; tions themselves have not changed. When this ultimately affects QVC as its intermedi- If GBR returned in five years, how would QVC was first founded, it was on a learning ate products are in less demand. QVC have changed? curve and needed the expertise in operations QVC’s main objective is to remain low-cost. and the transfer of knowledge from its for- What do you consider to be the greatest The company must strive to maintain the eign shareholders. Today, the company is challenge facing the chemical industry in same level of organizational and operational able to function independently and is able to Qatar? efficiency as well. In addition to the compa- operate more closely with Qatar Petroleum Access to feedstock and depressed oil and gas ny’s core operations, QVC will continue to (QP), from which QVC receives the majority prices are elements that chemical companies work to improve the public understanding of of its ethylene feedstock. must address seriously, but they are not nec- the chemical industry. This sector is not nec- The QVC plant comprises four major units: essarily operational challenges. A key chal- essarily looked on favorably or understood a chlorine unit producing approximately lenge to the chemical industry is maintaining by the public and QVC believes that it has a 370,000 metric tons per year (mt/y) of caustic a consistently high level of recruitment as duty to approach the public to help it better soda for export and local sales, an ethylene this can affect the way your operation is run understand what we provide and the kind of dichloride (EDC) unit producing approxi- and the ambitions for the culture you hope to business that we are running. •

QATAR CHEMICALS 2016 - 6 - Industry Explorations Global Business Reports EDITORIAL

its high capital costs, which would render it Additionally, Qatar’s competitive edge in the looking to redress the balance with mixed commercially unfeasible in the current eco- petrochemicals sector has been undermined crackers and other industries, while also nomic climate. due to a combination of factors, including seeking to capitalize on the growth in global Such cancellations are not unique to Qatar, the rise in construction costs, the surge in demand. however. The huge drop in the price of oil shale gas production in the United States, also forced SABIC and Shell not to pursue and the diminishing cost advantage of eth- Moving into 2016 and 2017, experts expect the development of the planned polyure- ane, the country’s main feedstock. a reevaluation and either a reallocation of the thane project in Jubail, Saudi Arabia. “Be- Analysts believe that Qatar’s reliance on eth- gas that was previously set for Al Sejeel and fore oil and gas prices fell,” said Evonik’s ane as a feedstock has also limited the range Al Karaana to a different project, or a distri- Ehret, “the decision was clear to develop of by-products that it can produce in com- bution of it into two or three smaller projects the downstream to diversify the country’s parison to its competitors, which may cause in order to diversify the risk, and have a bet- income. At the moment, there seems to be the country to be sidelined in the special ter control of the production, regardless if an a critical discussion amongst Qatari decision chemicals market. economy of scale is not realized. makers as to whether the country should The Qatari government, however, is actively With that, Linde continued at page 9 enhance more downstream or keep the business model of producing as much gas as possible and then selling it to the world market at a good price.” For the time being, it seems that QP is shift- ing its focus to its core business, oil and gas. In an official statement released in 2015,

QP’s president and CEO Saad Sherida Al- www.evonik.com Kaabi stated: “We are in a period of over- supply in the industry and need to be very efficient as an organization. While we have no control over the markets and prices, we do have control over our cost and expenditure... We have ‘right-sized’ our organization to be more dynamic and efficient, and to be able to cope with our strategic needs in the new business environment. We now have total company focus on core businesses, and are exiting any non-core businesses activities.” Clear steps have been taken. The Al Sejeel and Al Karanaa projects are neither postponed, nor to be reevaluated. The projects, the way they were defined, have been cancelled.

Challenging Times Ahead

Qatar’s drive towards petrochemicals development over the medium term has significantly slowed down due to the cancelation of the Al Sejeel and Al Karanaa projects, We turn desert sand while shrinking Qatar’s stake in global pro- into fertile land. duction growth, further preventing the country’s plans of achieving multi-billion-dollar revenues from its strategy of downstream A winner for the environment, our superabsorbent diversification. Stockosorb®, for instance, helps with reforestation The petrochemical sector is further ham- in Morocco. It increases the survival rates of saplings pered by the fact that “Qatar is currently by up to 50 percent, thus halting desertification. The European Chemical Industry Council honored this very busy with major infrastructure projects, innovative solution with its Responsible Care Award. which have been prioritized, given their capital and resource intensity in view of completion time,” according to Ali Vezvaei, president of Linde Engineering, Middle East and North Africa.

Industry Explorations - 7 - QATAR CHEMICALS 2016 INTERVIEW Global Business Reports

further in the region. The third partner in Gasal, QIMC was already present with local nitrogen production capacity before the partnership was formalized and helped to form "Mesaieed and Ras Laffan have the first leg of Gasal. state-of the art infrastructure, are The partners that form Gasal each contribute well operated, and are on par with to the work that the company performs in industrial basins that you find in supporting the development of the Mesaieed mature economies such as Europe and Ras Laffan industrial cities. Air Liq- and America." uide is the foreign partner that has brought the technology and operations know-how. Qatar Petroleum brings the vision as to how these industrial areas should develop. QIMC, which is the historical partner, also brings its own vision of how the market should devel- with industrial basins that you find in mature op. Through the efficient cooperation of these economies such as Europe and America. three entities, Gasal has been able to plan its Looking at the industrial gas sector transfor- development efforts in order to meet the need mation as an example, before Gasal, the sup- Eid Mubarak for a highly reliable, cost effective, and safe ply of industrial gases was done by trucks. supply of industrial gases. With the pipeline system that we have today, Al-Muhannadi the process is centralized, meaning that the What are Gasal’s current supply capabili- supply is more sustainable in the longer term ties and how has it prepared itself for fu- (e.g. less trucks on the roads leading to a re- ture customer needs? duced risk of accidents and a much reduced In 2006, Gasal first invested in oxygen and carbon footprint). In addition, Gasal brought CEO nitrogen plants in Mesaieed to supply the in- the safety standards to unprecedented lev- GASAL CO. dustrial city end users by pipeline, as well as els, bringing along better reliability in pro- other customers in the country by cryogenic duction and supply. Ultimately, this lead to tankers. In 2008, Gasal began operations at cost optimization for end users, for example its nitrogen plant in Ras Laffan. At present, through shorter time required to restart after Gasal has five air separation units that pro- maintenance turnarounds. The Mesaieed and duce oxygen and nitrogen with an additional Ras Laffan industrial cities are well designed unit in construction. As of 2015, the com- with foreign investors in mind. pany’s industrial pipeline networks for the delivery of oxygen, nitrogen, and hydrogen Qatar’s chemical and petrochemical in- Gasal Co. was formed in 2006 as a joint to customers is nearing 50 kilometers. dustry is considered by many to be at a venture between Air Liquide, Qatar Petro- Gasal is an integral piece of the infrastruc- standstill. What are your future expecta- leum, and Qatar Industrial Manufactur- ture puzzle that Qatar Petroleum is putting tions for this sector? ing Co. (QIMC). Can you tell us how this in place in Ras Laffan and Mesaieed. Every- In recent months, following the sudden drop partnership came to be and how the three thing that the company has invested in thus in crude oil prices, several large projects got entities work together today? far has been done thoughtfully, keeping in cancelled or postponed. The sector is now Gasal was formed as an answer to Qatar mind that business will grow and those new waiting to see how Qatar Petroleum decides Petroleum’s need to have a stable industrial enterprises will need to be connected to sys- to move the petrochemical sector forward. gas partner in Qatar. Prior to the creation of tems that will enable them to grow easily. For Regardless, the industry’s fundamentals are Gasal, Qatar Petroleum entities had to rely example, in Ras Laffan, Gasal has developed very strong. In Qatar, there is available feed- extensively on liquid supplies by trucks, a large pipeline network that covers the entire stock, and the country has the investment which largely came from outside Qatar, and industrial city, making it easy for current and capabilities meaning that financial consid- small production units spread out between its future operators to benefit from its offering. erations are not a constraint. In addition, as different operating entities, which led to sub already mentioned, the country has the infra- optimized and insecure supplies. In addition, To foreign investors looking to invest in structure in place. at that point in time, Qatar Petroleum had the country’s chemical sector, how would the intention to grow larger quickly; it made you describe Qatar’s industrial infrastruc- How will Gasal evolve in the next five sense to have a large industrial gas player ture at present? years? in Qatar to invest in central manufacturing Qatar is a small country but with strong Gasal expects to be larger, supplying to a facilities and distribution pipeline systems. leadership that has had the foresight and number of customers in both the petrochemi- From the Air Liquide side, the company rec- manpower to develop. As a result, Mesaieed cal and steel industries, yet certain basic prin- ognized a need for its products and services and Ras Laffan have state-of the art infra- cipals will not change, such as Gasal’s focus in the Middle East and was willing to invest structure, are well operated, and are on par on maintaining a strong safety record. •

QATAR CHEMICALS 2016 - 8 - Industry Explorations Global Business Reports EDITORIAL

Engineering’s Vezvaei argues favorably that long. A prolonged drop in oil and gas prices tion capacity reaching 147million mt/y. Qa- the “growth aspiration for the petrochemical will increase the amount of vinyl chloride tar will be no exception to this trend. Once industry is still there and will emerge in a monomer in the market and that can depress oil prices recover, Qatar will once again turn smarter and more efficient structure, whether prices for this product. But looking at the its eyes to its long-held desires to further in the previous size or a different constella- larger macroeconomic picture, low oil and develop its downstream capacity. For global tion...Perhaps diversification of feedstock gas prices affect an array of manufacturers, specialties companies, like Evonik, they can and integration of the value streams would which ultimately affects QVC as its interme- hardly wait: “Evonik is closely watching be an avenue to be explored. A flexible, diate products are in less demand.” how this decision-making process unfolds mixed-feed cracker with carefully selected The GCC region is slowly moving into the and remains behind Qatar every step of the derivative streams could yield a competitive next phase of product development— spe- way, ready to come in with its technological return on investment, if executed properly.” cialty and intermediate chemicals instead of expertise and potentially establish a manu- only commodities. The amount of chemicals facturing presence as well. Evonik is con- Private Players Committed to Qatar and produced by the region has almost doubled vinced that the Qatari cost-position would be its Value Proposition between 2005 and 2013, with total produc- one of the best in the region,” said Ehret. •

Macro issues aside, the petrochemical industry in Qatar is still at an emerging phase, as the country has for years been focused on building its world-class LNG industry, and the capacity and growth rates are yet to catch up with other major players in the Gulf. Variable costs, on the other hand, are decisive for a chemical company’s ongoing operations. When considering a company’s cost position, a very important factor is the sourcing of raw materials; being able to produce near the source can drive costs down significantly. “Qatar, in that respect,” argues Evonik’s Ehret, “can offer one of the best platforms. Gasal likewise remains positive, as Al- Muhannadi explained: “The industry’s fundamentals are very strong. Qatar is a small country but with strong leadership that has had the foresight and the manpower to develop the country. As a result, [the industrial areas] Mesaieed and Ras Laffan have state- of the art infrastructure, well operated and are on a par with industrial basins you find in mature economies such as Europe and America.”

Conclusion

The price of oil is one of the most important factors to consider when evaluating investments in Qatar and the GCC. Commenting on QVC’s current downstream operations, CEO Hamad Rashed Al-Nuaimi said: “The low oil and gas prices have mixed effects. On one hand, the price of ethylene, which has dipped as a result of the low prices, constitutes a large portion of the variable cost to QVC, such that low prices reduce our in- put costs significantly. There is also a slight benefit on the freight costs, as the fuel costs for ships has dropped...Low prices, however, can be harmful if they remain low for too

Industry Explorations - 9 - QATAR CHEMICALS 2016 INTERVIEW Global Business Reports

the highest in the world and that job creation is less of a concern. As such, the decision "At the moment, there seems to be comes down to how much Qatar earns from a critical discussion amongst Qatari the gas versus how much it will earn from the decision makers as to whether downstream industry that it develops. Before the country should enhance more oil and gas prices fell, the decision was clear downstream or keep the business to develop the downstream to diversify the country’s income. The government is now model of producing as much gas as reevaluating which route to take. possible and selling it to the world Evonik is closely watching how this deci- market at a good price. Qatar is rich in sion-making process unfolds and remains globally sought-after raw materials, behind Qatar every step of the way. We will but has a small local population, which still be there, when Qatar has decided which means that GDP per capita is one of way to go. Evonik would be ready to come the highest in the world and that job in with its technological expertise and po- creation is less of a concern." tentially establish a manufacturing presence as well. Evonik is convinced that the Qatari cost-position would be one of the best in the Tilman region. sidering Qatar or the United Arab Emirates as Can you elaborate on the advantages of Ehret a hub for downstream production. Evonik’s the Qatari cost-position and other benefits products work primarily in a certain level that companies like Evonik see in doing within the value chain of the chemical indus- business in Qatar? What are some of the try; as such, Evonik’s customers normally challenges? have advanced processes that really need Variable costs are decisive for a chemical President, Middle East & North Africa specialized applications with added value. company’s ongoing operations. When con- EVONIK sidering a company’s cost position, a very How is Evonik evaluating opportunities to important factor is the sourcing of raw ma- expand its operations into Qatar? terials; being able to produce near the source Evonik’s portfolio is very broad and serves can drive costs down significantly. Qatar, in various industries, like consumer goods and that respect, can offer one of the best plat- healthcare, which are attractive for this re- forms. In addition, the ease of doing business gion. A main objective of Evonik is to par- in Qatar is rather good, with reliable business ticipate in the downstream industry not only partners, who are often educated outside of through selling, but also by working as an the country and have worked in the United Could you please provide us with a brief active producer. Evonik would be interested States or Europe, diminishing the intercultur- history and introduction to Evonik’s op- to have more exposure in Qatar by produc- al differences. There is also a strong financial erations in the Middle East? ing there and then exporting a good part of structure, tested by European and interna- With roots in the German chemical industry, the products, as the Qatari market is still very tional companies, as well as a variety of com- Evonik began its operations in the Middle much export-oriented. panies that offer attractive financing options. East nearly 50 years ago, as it was looking The products that Evonik offers to the pet- Since the Qatari population is comparatively to expand its sales activities. Now we sell our rochemical industry are also sold into Qatar, small, a company will need foreign employ- specialty chemical products through seven but in order to increase our sales further, ees, which Qatar is prepared for by being offices in the region. In 2014, Evonik estab- the downstream industry still needs to grow open to receiving foreigners. Foreign com- lished a major production presence in the re- there. Qatar’s current business model has panies, however, must understand that Qatari gion through a joint venture in Saudi Arabia, been largely based on producing and selling enterprises can stand on their own in many of which Evonik owns 25%. Partnering with the gas, though there is some big volume in- ways, and that when establishing partner- Saudi Acrylic Acid Co. (SAAC), we formed dustry like fertilizers that has been growing ships or joint ventures, foreign companies the Saudi Acrylic Polymer Co. (SAPCO) to impressively. will need to give the majority share to the produce super absorbent polymers, an area At the moment, there seems to be a critical Qataris, which is mandated by law anyway. where Evonik is a worldwide leader. These discussion amongst Qatari decision makers At the same time and in close coordination superabsorbents are largely used in baby dia- as to whether the country should enhance with a potential Qatari partner and authori- pers and are sold to multinational consumer more downstream or keep the business mod- ties, Evonik would make sure that sustain- goods companies. el of producing as much gas as possible and ability and responsible care are guiding prin- At present, Evonik’s primary markets in the selling it to the world market at a good price. ciples. We take our worldwide responsibility Middle East are Saudi Arabia and Egypt Qatar is rich in globally sought-after raw for our business, our employees, the environ- in terms of both population and industry. materials, but has a small local population, ment and the local community that we are Amongst other options, Evonik is also con- which means that GDP per capita is one of part of very seriously.•

QATAR CHEMICALS 2016 - 10 - Industry Explorations Global Business Reports INTERVIEW

nich and operates globally out of four re- currently very busy with major infrastructure gions: the Americas; Middle East & North projects, which have been prioritized, given Africa; India (covering South East Asia); and their capital and resource intensity in view of the China region. completion time. Yet the growth aspiration is still there and will emerge in a smarter and What are the strengths of Linde Engi- more efficient structure, whether in the pre- neering within the chemical sector in the vious size or a different constellation. Given Middle East and, more specifically, Qatar? the impact of the low oil price on the feed- Linde Engineering is a major player in the stock and derivatives, perhaps diversification natural gas, chemicals, and petrochemical of feedstocks and integration of the value markets thanks to a technology-rich portfo- streams could be explored. A flexible, mixed lio of offerings, the execution capability for feed cracker with carefully selected deriva- large-scale projects, and the very unique val- tive streams could yield a competitive return ue proposition that comes from being an EPC on investment, if executed properly. company on one hand and a world-class op- erator on other hand. The synergies here are What is your assessment of the petro- of a high relevance and value to customers, chemical industry in Qatar and where do especially when technology, constructability, opportunities lie? Ali and operability are jointly taken into account The opportunities within Qatar’s petrochemi- when developing a project. cal industry are built upon the wealth of com- Vezvaei Linde Engineering has been involved in petitive gas as a feedstock, which provides some of the flagship projects in the MENA options and alternatives. Also, the efficiency region, such as Bourouge 3, the world's larg- enhancement in better utilizing the existing est ethylene cracker in the UAE, and SAB- feedstock and the installed capacity, through IC’s United CO2,the world's largest CO2 smart revamps and retrofits, will boost the re- President, Middle East & North Africa purification and liquefaction facility in Saudi turn on existing assets. Last but not least is LINDE ENGINEERING Arabia. They represent the commitment of diversification of feedstock, not only to gain Linde Engineering to the region and, above flexibility through market cycles, but also that, the close and trustful relationship with to optimize the derivatives and the revenue our customers and partners, which is the most streams. Qatar’s commitment to sustainabil- valuable asset for us in the region. ity has been well portrayed through the NQV Linde Engineering has different product lines 2030. Implementation of some of the key that are the foundation of its technology port- sustainability measures in the downstream folio and enable us to address a wide range industry, perhaps around carbon dioxide of upstream, midstream, and downstream capture and reutilization, would also unlock Can you provide us with an introduction projects, from gas treatment to mid-size or some new potential. to Linde and Linde Engineering? world-scale LNG to mega crackers in petro- Linde group is the world’s largest gases and chemical industry; the interesting part is that Where will Linde Engineering be in five engineering company with approximately it all gravitate towards the fascinating world years? $18 billion in revenue and 65,000 employ- of gases. We will be right here, close to our custom- ees. Gases, Engineering and Healthcare are Linde has been involved both in industrial ers and partners as their reliable technology the main divisions of Linde group’s unique gases and petrochemicals in Qatar. We built partner of choice. Our commitment to our portfolio. Linde Gas, a leading industrial gas- the air separation plant for the Pearl project customers goes beyond selling and building a es pioneer, invests, owns and operates plants with Shell and have been closely involved in plant. Our plants life cycle services are aimed around the globe and delivers the much- the Al- Karaana and Al-Sajeel petrochemical to help our clients in operational excellence, needed gases to various energy and indus- projects. revamps, retrofits and also training their staff trial sectors. Linde Engineering is the group's to not only meet but also exceed their goals. technology and EPC arm, focusing not only Do you expect the projects to come back The Middle East, one of the world's largest on building the plants for the Gases division on line in the near future, and if so, what petrochemical clusters, has a unique poten- but also being a technology focused EPC aspects would need to be different? tial and an undisputed role in the future of the player in the oil and gas and petrochemical Although the projects changed direction in re- petrochemical industry, which will translate arenas. The third pillar is healthcare, which sponse to the changing hydrocarbon industry into exciting opportunities. • is a growing part of the group’s portfolio that dynamics, there will be future opportunities has been further strengthened through the given the growth aspiration of Qatar and the acquisition of Lincare in USA. Healthcare’s need to diversify its value chain. Sustainable main focus is in the respiratory sector and growth requires the uplifting of the hydrocar- homecare services. bon value chain, as well as a strategy to di- Linde Engineering is headquartered in Mu- versify export and revenue streams. Qatar is

Industry Explorations - 11 - QATAR CHEMICALS 2016