middle east: why do major crude exporters continue to add ... · pdf fileled master plan for...

Middle East: Why do major crude exporters

continue to add capacity?

Presentation by

Khaled Mubarak Al-Mushaileh Vice President – Europe

Kuwait Petroleum International

30th September 2016

About the Presenter

Khaled Mubarak Al-Mushaileh, Vice President - Europe, Kuwait Petroleum International

Chemical Engineer from University of Akron, Ohio, USA

Over 30 years of experience in Petroleum downstream sector

o Strategy and Finance as Q8 VP-S&F

o Projects Planning

o Operational Planning and Optimization

o Plant Operations and commissioning

KNPC experience till May 2013 (prior to joining Q8) :

o Long Term Strategic Plan-2030 for Kuwait’s Downstream sector

o Initiated & led development of Strategic & Mega Projects :

New Refinery Project (Al-Zour : 615 KBPD)

Clean Fuels Project

Permanent LNG import facility

Gas Processing Trains (IV & V)

Challenging situations of Q8’s European business : Refinery, huge Retail & B-to-B

marketing, Aviation, Lubricants and a range of other allied services

Led successfully a major acquisition and a major divestment

Led master plan for Q8Oils with construction of a new state-of-the-art blending plant

Disclaimer

This presentation has been prepared only for the “Platts European Refining Summit-2016”.

The presentation is intended solely for the benefit of attendees and its contents and

conclusions are confidential and may not be disclosed to any other persons or companies

without the prior written permission of Kuwait Petroleum International.

The information upon which this presentation is based has either been supplied to us by

consultants or comes from our own experience, knowledge and databases.

The opinions expressed herein have been arrived internally and are being shared for

purpose for discussions at the Conference, which are directional and not for commercial

decisions, are however as on this date, subject to changes.

We do not accept any liability or claims for your reliance upon them.

Outline

1. Introduction to KPC/Q8

2. Middle East: Why do major crude exporters continue

to add capacity?

3. KPC Strategic role in Kuwait’s downstream sector

4. Q8 downstream expansions in Asia and Europe

5. Closing remarks

Q8 is an international subsidiary of Kuwait Petroleum Corporation

(KPC), the state-owned & world top 10 energy conglomerate

responsible for Kuwait's hydrocarbon interests worldwide.

Our business encompasses research, refining, marketing and sales of

petroleum products outside Kuwait.

Introduction to Kuwait Petroleum International (Q8)

KPC

UPSTREAM DOWNSTREAM TRANSPORTATION

KUFPEC

KGOC

KOC

Q8

KNPC

KAFCO

• Manages the domestic production of hydrocarbon

• Invests in opportunities in exploration, development and production of crude oil and natural gas outside Kuwait

• Manages Kuwaiti share of natural resources in the divided area

• Owns 50% of the two companies that work in the divided area.

• Manages and operates 3 refineries, 1 gas plant, marine export facilities and supply petroleum products to local market (Filling stations, KAFCO, KOTC) and international market (Q8 and others)

• Manages petrochemicals businesses (aromatics, olefins and fertilizers): Operates 3 plants, Invested in 7 companies

• Responsible of refining crude and marketing petroleum products to diverse customers outside Kuwait

KOTC

PIC

• Provide aviation fuel services in Kuwait National airport & two Kuwaiti military bases. It also operates & maintains the main fuel station in Ahmad Al-mubarak military base.

• Transports Kuwait oil & petroleum products around the world (covers 15% of total oil and petroleum product exports of KPC). It provides also marine services to oil tankers at Kuwaiti ports as well as operating LPG Filling Branch to provide gas cylinders to local market.

KPC Organization

New company under establishment: KIPIC (Kuwait Integrated Petrochemical industries Company)

Integrating the new domestic refinery project, LNG terminal, Aromatics plant

KPC Downstream – Mission & Vision

Sustainable profitability is a key theme for Q8 to reshape its European & Asian portfolio

Q8 2030 Strategy

Secure outlet for

Kuwaiti crude

• Add high-conversion

refining capacity in

expanding Asian

markets

Integrate refining &

marketing operations

• Capture additional

value from integration

of refining assets into

respective retail

Pursue sustainable

profitability • Reduce exposure to

unprofitable assets,

invest in top-quartile

assets, enhance existing

portfolio performance

Integrate

KPC Downstream • Optimize integration of

downstream businesses,

with Petrochemicals &

International Marketing

2 3 4 1

Securing outlet for crudes produced &

Maximization of the value of these hydrocarbons

A mission not only of KPC or Q8 but all the ME crude producing countries

Outline


2. Middle East: Why do major crude exporters continue to add

capacity?



5. Closing remarks

Challenges before ME crude exporting countries

Securing outlet for crudes being oil based economies

Extracting maximum value from crudes

Meeting ever increasing energy demand as Gulf states transforming into key energy consumers:

Growing populations

Expanding middle classes

Increasing consumerism

The Middle East now using nearly 33% of the produced oil compared to just 20% in 2000

Oil and gas are the only energy sources in the Middle East at present

Huge consumption of oil in Middle East region for electricity generation

Fastest-growing area for petrochemical oil demand

Middle East Fuel Demand (1/2)

ME accounts for around a tenth of global fuel demand @8.5 MBD in 2015 and growing rapidly (expected to be 11.0 MBD in 2035)

Demand increase in almost all sectors especially transportation and petchem

Demand by product Demand by sector

Source : Wood Mackenzie

Middle East Fuel Demand (2/2)

Average annual demand growth for ME during 2015-35 @ 1.3%, (GDP growth @ 3.2%)

The transport sector to remain main source of future oil demand growth

Growing industrial demand for energy

Total Demand Demand and GDP growth


Middle East capacity additions: 2015 - 2022

Currently, 49 refineries in ME with total capacity of 9.0 MBD

Large number of projects ongoing for 2.9 MBD additions during 2015-22

Projects supported by several favorable factors


Major factors favoring the capacity addition in Middle East:

Access to cheaper crude supply through upstream integration

Very low production costs riding upon

o Cheaper energy supplies

o High refinery complexity

Strong demand parallel to high economic growth

Easy access to capital markets

Growing need to replace costly imports with domestic production

Targeted profitable export markets in Asia and Western markets thanks to strategic location of ME

Fastest-growing area for petrochemical oil demand

Why capacity additions by Middle East crude exporters?

o Economies of scale

o Tax incentives

As the European refining industry is declining, Asia and ME is expanding and positioning themselves as prime refinery centers with a competitive edge and the ability to dominate the global refining industry

Global Diesel Trade outlook by 2020


New Refining capacity moves Middle East to Diesel surplus, its exports directed towards Europe & Africa

Arrow width proportional to trade volume

Middle East: Improving refinery yields: 2000-2015-2022

Refinery yields are forecast to change significantly by 2022

o Fuel oil yield drop: ~ 5%

o Rise in diesel/gasoil yield: ~ 2%

o The gasoline yield increases by 5%.

The uplift is solely due to investment in high complexity new refining capacity and upgrading capacity


Outline



capacity?



5. Closing remarks

Fuel demand

transportation and

industrial sector

Domestic Fuel demand Feedstock availability Domestic Refining

Gas

processing (4th and 5th) Trains : 3,880

MM SCFD

Refining Clean Fuels Project

and New domestic

refinery 1.4 million

BPD

High

Low

K BPD

Gasoline

Energy

Balance

LNG

imports

MEW Fuel Oil

and Gas Oil

requirements

Many Supply - Demand scenario considered

KNPC, KOC, PIC

requirements of

LP and HP Gas

Gas for

MEW

Kuwait: Growing domestic Fuel demand from Energy, Transport & Industries

Source : In-house

Taking advantage of factors supporting refinery capacity addition in ME, KPC has undertaken Clean Fuels Projects and 615 KBD New Refinery project apart various petrochemicals integration projects in Kuwait

Surplus to international marketing

https://www.google.com.kw/url?url=https://danwuebben.wordpress.com/2012/07/13/designing-new-towers/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjO06rvpfTLAhWBvhQKHXbHAY4QwW4IJTAI&usg=AFQjCNGaczELHVA_G2I5ukHJutVbSeUlcw

Outline



capacity?



5. Closing remarks

1980 1990 2000

Q8 Evolution

Belgium

Netherlands

Denmark

Sweden

Denmark Italy Italy Luxembourg Italy

(J.V.) Belgium Netherlands

UK

Acq

uisitio

ns

En

tries

Exit

Germany Thailand & Spain

Thailand - UK Germany

JV

Sweden

Denmark

2010-2016

Belgium Denmark Italy

Since 1983, Q8 has grown marvelously to a fully integrated international oil company. - moving ahead dynamically with a strong appetite for persistent growth

Italy

Vietnam

NSRP

Refining

Vietnam

IQP

Marketing

Re

va

mp

3 Lube Blending Plants

Belgium

(Major revamp 2015)

Sweden

Italy

Research & Development

Q8 Research, Netherlands

Q8 Today

Refineries

Existing :

Milazzo, Italy (50% JV, 268 KBPD)

Under construction (EPC stage):

NSRP, Vietnam (200 KBPD)

Supply Marketing Refining

IDS - International Diesel Service

Over 537 sites across Europe

Q8 Aviation

Supplying 200 Airlines spread over

70 airports

Q8 Retail – Around 5000 Service Stations

Belgium, Netherlands, Luxembourg,

Sweden, Italy, Denmark

Terminals :

Naples - largest in Italy ( 3.0 MMTPA)

Q8Oils

Three Lubricant Plants

Operation in over 50 countries

Sales 445,000 barrels per day

Turnover FY 2015/16 US $ 11.5 billion

Full Time Employees 3,600+

Portfolio Optimization : Refining and Marketing

Competitive positioning and strong customer base

Grow in Marketing (including Aviation and Lubricants)

Rationalize and divestment of low value assets

Enhance efficiency and ensure highest Safety & Quality standards

Europe

• Meet Kuwait's Energy demand

• Integrate across downstream to maximize value of hydrocarbons

• Local and Exports : Clean fuels

• High Efficiency & Environment protection

Kuwait

Capture Refining and Marketing opportunities : providing a backbone to industrialization

Integration to Petrochemicals (NSRP-Vietnam grass-root Project)

Marketing expansion : Retail Stations, Aviation Fuel supplies and Lube operations

Evaluate business options in other countries

Asia

Taking Advantage of D/S expansion opportunities in Asia & Europe

Downstream Strategic Perspective

Q8 initiatives/projects in Europe : Provide a strong disposal engine for Kuwaiti hydrocarbons in downstream

Strengthen sales growth (in spite of marginal growth in Europe, Q8 sales has grown @15% in recent years)

Major strategic initiatives in Marketing :

o Portfolio Optimization

o Development of Automats segment

o Network development & strengthening

o Enhance network efficiency and products offerings

o Strengthening Non-oil segment

o Major investment in Lube blending plant at Antwerp : high quality & diverse Lubes

How Q8 is taking advantage of downstream expansion opportunities in Asia & Europe

Q8 is highly geared for future opportunities and challenges

Q8 initiatives/projects in Europe (contd….) :

Enhancing Milazzo refinery yield and efficiency: conversion unit revamps, investment in power plant, Energy efficiency improvement

Business restructuring: Efficiency improvement through refinery divestment

Aviation: expanding through entry into new regional airports and 3rd party contracts

Leading Digitalization, Customer focus portfolio

Leading in renewable energy developments, as part of our business orientation

Expansion of lubricants business in Europe and outside in Middle East and Africa

Keeping high focus in research through our research and development facility at Rotterdam


Q8 initiatives/projects in Asia :

NSRP-Vietnam refinery: mechanical completion by Dec. 2016, commissioning by mid-2017

JV Marketing company expected to start it’s first Retail Station in Vietnam during FY 2016-17.

Looking for similar viable projects in other Asian countries / new markets :

o Refining : long term expensive investment, but a backbone to industrialization plans

o Marketing expansion : Retail Stations, Aviation Fuel supplies and Lube operations

o Country choice : developing economies and with investment-friendly policies


Outline



capacity?



5. Closing remarks

Closing remarks

Refining capacity additions by Middle East crude exporters are based upon:

o High demand growth

o Access to cheaper crude

KPC, too, has undertaken new refinery project and large clean fuels projects

Q8, international arm of KPC, has adopted expansion and business growth strategies in Europe and Asia

European refiners would face competitive threat due to:

o High complexity capacity additions in Middle East and Asia and increased exports to Europe

o Reduced exports to USA

o Compliance with European Environmental regulations

o Continued weak demand for domestic oil products

European refiners enjoying a competitive advantage based on scale, location & level of complexity would be significantly better placed

o Low production cost

o Targeted profitable export markets

Thank You

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