Iranian Petrochemical Feedstocks in the Global Scenario Iran Petrochemical Forum, 2017 Stefano Zehnder Vice President ICIS Analytics & Consulting

AGENDA Global Developments in Petrochemical Feedstocks Iran Potential Developments Conclusions & Key Implications

Global Developments in Petrochemical Feedstocks

Diverging trends Global Petrochemical demand growth is much faster than oil’s… and a target for Refiners! Conflicting priorities emerge for CTO/MTO projects in China Source: ICIS Supply and Demand Database

(Million Metric Tonnes) US is at center stage for Ethane US Ethane Balances may get tighter, although ethane will not be short… USA Ethane Exports (Million Metric Tonnes) 2015 2018 2020 2025 Brazil - -0.2 -0.3 Canada -1.5 -1.7 -1.8 India -1.2 -1.6 Sweden -0.6 UK 0.0 -0.8 -1.1 Total USA Exports 1.5 4.5 5.3 5.4 Brazil India UK Norway Canada Sweden Source: ICIS Supply and Demand Database

US Shale developments in a lower oil price scenario: not the original plan! Rejection Source: ICIS Consulting & ICIS Prices A large amount of ethane remains “rejected”, waiting for the new demand. But once demand arrives, more production will be required and transport costs featured…Incremental production will come but ethane prices will be above those of natural gas...US ethane based ethylene will be competitive, but return on investments below the original plans… Propane availability suggests ample supply is available, but seasonal factors remain in place. Steam-crackers’ feedstock flexibility will be a substantial competitive advantage

Asian Cost Comparisons: Imported Ethane vs Traditional Naphtha The ‘easy decision’ window on ethane imports from the US has closed Risk appetite, any hedging opportunities & infrastructure will be important considerations

Global Propane: Key Trade Flows (2016, million tonnes) US Propane will remain long: flows to international markets rapidly increasing The US is by now the largest country exporter of Propane in the World. It was a net importer of LPG just a few years ago. US Exports are now flowing to Asia and Europe, where naphtha cracker flexibility is increasing The Middle East remains the largest region in terms of exports Ample avails in international markets have promoted Asian PDH developments China imports are now exceeding those of Japan Global Propane: Key Trade Flows (2016, million tonnes) Former USSR Europe 3.1 3.4 South Korea 1.4 North America Japan 4.8 Middle East 3.4 3.2 7.1 China to Japan 5.4 3.4 3.3 Africa to China 1.2 India Rest of South & SE Asia to rest of S&SE Asia 2.2 South & Central America Balances: Surplus Deficit *Volumes in Million tonne Source: ICIS Supply and Demand Database

Naphtha, 2016 Key Trade Flows (Million Tonnes) Europe (8.7) F. USSR 18.5 8.8 1.3 0.4 0.5 0.8 2.2 N. America 2.7 0.5 8.4 4.0 Middle East 40.7 Africa 8.6 Asia (54.8) 0.8 1.6 3.9 from NAM 40.0 to Asia 1.6 2.8 L. America (7.0) 1.5 Source: ICIS Supply and Demand Database Balance Surplus Deficit

Naphtha is expected to remain comfortably available until 2020 Source: ICIS Supply and Demand Database

With the oil price crash, the ethylene cost curve flattened dramatically, reducing the ingrained competitive advantage of ethane crackers in North America or the Middle East strictly from C2= perspective, and China MTO moved to the top of the cost curve Future $60/bbl Oil? MTO is already setting the ethylene price. But it remains to be seen whether it is a pure coincidence or a trend to stay.

Gasoline, 2016 Key Trade Flows (Million Tonnes) 1.0 1.5 1.5 56.8 6.9 S.KOREA 8.3 F.USSR 7.6 NAM (16.0) 1.0 3.0 21 1.0 EU CHINA 2.5 JAP 7.3 0.5 2.0 INDIA 16.2 8.0 5.5 18 ME 2.4 Rest of NEA 1.6 (13.5) 13 SING 8.8 Rest of SAP & Indonesia (29.8) 2.8 AF 2.0 2.5 1.6 2.0 4.4 (19.2) LAM (14.5) 2.5 1.3 1.5 Australia (4.7) 20.0 Source: ICIS Supply and Demand Database Balance Surplus Deficit

Combining Naphtha and Gasoline creates a surplus Source: ICIS Supply and Demand Database

Iran Potential Developments

Global Developments in Condensate Splitting Capacity increases by 50% Iran will be the major Player Conflicting priorities emerge for CTO/MTO projects in China 2015 = 2938 mbd Post 2020 = 4385 mbd Source: ICIS Supply and Demand Database

Naphthas from Iranian Condensate Splitters Could target Different Markets, including Petrochemicals Steam Cracking NGLs/Condensates Naphtha Light Naphtha Heavy Naphtha Aromatics Gasoline Condensate Splitters

Condensate Splitters have negligible fuel oil contribution New IMO regulations will soon hit the Fuel Oil market… Condensate Splitters have negligible fuel oil contribution Implementation of IMO regulations for lower sulfur bunker fuels could be anticipated to 2020 This implies that the global refining industry could suddenly move from a surplus of conversion capacity, to a surplus of Fuel Oil Conversion of Fuel Oil in conventional refineries could generate additional petrochemicals Source: ICIS Supply and Demand Database

Fuel Oil, Key Trade Flows (Million Tons) 5.0 to LAM 9.5 1.2 to SAP 48.0 5.0 S.KOREA (4.1) 1.1 2.9 68.0 F.USSR NAM 5.1 EU (3.8) 6.5 5.0 13.7 3.4 to Singapore CHINA (5.0) to LAM JAP (2.2)) 4.7 0.8 ME 1.4 1.0 INDIA 3.1 5.2 8.7 Rest of NEA (7.4) 18.6 3.2 3.8 Rest of SAP & Indonesia (0.2) AF 1.3 1.6 7.6 LAM 2.1 18.2 8.8 to China SING (42.2) 4.8 19.7 Australia (1.1) 9.6 Source: ICIS Supply and Demand Database Balance Surplus Deficit

Iranian “Liquid Feedstocks” opportunities Via Naphthas Via FCC/RCC Others (C4s, etc.) TOTAL FCC Propylene Condensate Splitters Propylene Ethylene Crude Oil Refineries Source: ICIS Supply and Demand Database

Conclusions & Key Implications

Conclusions The global petrochemical industry is growing about 4 to 5 times faster than oil demand. Refiners will increasingly target petrochemicals. In addition to Ethane, LPG and Methanol, Iran benefits from large heavy condensate potential. Integrated condensate access will be a competitive advantage for Iranian refining operations. Iran is also introducing conversion capacity at its refineries. This translate in additional opportunities to invest in integrated refining and petrochemical capacity. Condensate splitters enable investment in base petrochemicals based on liquid feedstocks (derived from natural gas…) Iranian development strategy should include the right mix of petrochemical feedstocks, but also consider following with investment in appropriated derivatives, to capture incremental value along the chain.

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