Iraq Petrochem & Heavy Industry 2013

1. Iraq Petrochem & Heavy Industry 2013 London 28-29 May 2013 Part 1:- Petrochemical Industry – Gateway to Achieving “Developed Status” Dr Husain Al-Chalabi & Mr Hussain Aziz “VOICE”

2. Content - Introduction - The Structure of the Petrochemical - The complexity of planning the “ organic” growth of the Industry . - Integration of the overall with the socio-economic development of a Country . - Iraqi Industries – including Petrochemicals - Proposed Petrochemical plan - Iraq Realities and the way forward.

3. Hydrocarbon Processing Industries Source - HPI

4. Production Stages in the Petrochemical Industry • The Integrated Petrochemical Industry has three main Production Stages in the “supply chain” between the Raw Material & Consumers :- • Stage 1 = Manufacturing of the “Base Raw” material . • Stage 2 =Chemical conversion into, main product Groups. • Stage 3 = Chemical process industries supplying consumers

5. Integration of Production Stages in the Petrochemical Industry Source :- Shell

6. Examples of products from the Production Stages • The Primary Petrochemicals (often called Base Chemicals) are a group of compounds produced from the processing of the raw material and are in the form of: Olefins (e.g. ethylene, propylene, butadiene) Aromatics (e.g. benzene, toluene, xylenes) Syngas (Hydrogen and Carbon Monoxide, with or without Nitrogen) • The Intermediate Petrochemicals are Main Products Groups of chemicals that are produced from further processing of the Primary Petrochemicals; but are not in a ready form (composition and properties stand point) for use as a finished product. Example of such category is the Ethylene Dichloride. • The Finished Products from the Petrochemical Industry represent the output material from the 6 industries of the Petrochemical Sectors. - Synthetic Rubbers : e.g. Styrene Butadiene Rubber (SBR); Acrylonitrile Butadiene Styrene Rubber (ABS) - Synthetic Fibres : e.g. Polyesters; Polyacrylonitrile - Plastics : e.g. Polyethylene; Polyvinylchloride (PVC) - Organic Chemicals : e.g. Amine Glycol (anti freeze);Trichloroethylene - Carbon Black : e.g. for production of printer ink - Surfactants : e.g. Linear Alkyl Benzene (LAB)

7. World chemicals sales: geographic breakdown

8. Business / Market • Business :- The Change of the chemical structure of the raw materials to yield products of value to other industries / users in the following sectors :- • Petrochemicals • Speciality Chemicals • Fine chemicals • Agricultural chemicals • Synthetic textiles • Inorganic chemicals

9. Commercial Structure • - Mega projects for the supply of Raw Material . Implemented by Major Companies or Governmental agencies • - Many companies involved in the production of Base Chemicals & Main product Groups • - Very large number of SMEs [ Small / Medium Enterprises] involved in the Chemical process industries supplying consumers

10. Impact on Skill / Knowledge Base and Development • About 20 million people around the globe have a job connected to the chemical industry (directly and indirectly). • Investments in innovation, including research & development (R&D) are key elements in securing the future of the chemicals industry • They not only promote the adaptation to and the development of new technologies and innovation, but are necessary prerequisites for the continuous adjustment of corporate structures to the needs of the marketplace • In relative terms, the ratio of capital spending to sales, or capital intensity, of the Western European chemicals industry has been declining and reached the value of 4.5 per cent in 2011, down from 5.6 per cent registered in 2001

11. Common issues in Implementing Projects in Developing Countries • Growth , availability of resources and finance in Developing countries promotes the industrialization . The uncertain markets and lack of infrastructure hinders; but there are other barriers. The main barrier is the shortage of the high calibre of management , engineering , supervision , craft skills needed to make the technology productive in the new environment .

12. Challenges for Iraq • - Available resources in Iraq have not demonstrated the skill level & the organisation needed to scope a project and prepare a business plan that can generate market interest for project finance or even to meet a vision aimed at development & prosperity . • - Operating expenses of the Iraqi Institutions has increased multi-fold , while productivity remains in the underdeveloped category. • - Rehabilitation and / or upgrading projects relies on the definition of the existing asset and the screening of the alternatives that can lead to the best way to develop and implement the project. • - Most important Challenge is the lack of an effective program to for “Capability Building”.

13. Bridge to Development :- Together We Will UOP

14. Vision & Strategies • The fully developed Petrochemical industry is like a “jig saw” puzzle of integrated investments to meet the socio-economic development plan & following a clear Vision with well developed “Road Map”. Every investment is based on “SMART”[ Specific, measurable, achievable , realistic and time based ]. • The strategies and policies must consider the country’s unique blend of resources, needs and capabilities as the ingredients of its mission to satisfy the vision for its social and economic development • With a robust and well executed plan, the organic growth of the Petrochemical industry is partially financed from the rewards of the earlier phases.

15. Planning in the Petrochemical Industry • The Petrochemical Industry, with a well balanced growth and integration with the Oil & Gas sectors on one hand and the private sector on the other hand, can potentially generate economic rewards to Iraq in a scale of similar league to that from the oil production revenues, as well as create opportunities for employment , skill development and valuable “Human Capital”. • The “bridging effect” between the oil and gas sector and the industries serving the needs of the consumer is fundamental to the overall economic activities in a developed country.

16. Basis for Effective Plan • Planner should use a disciplined procedure, by which significant Petrochemical candidates can be evaluated and ranked in terms of their relative attractiveness ; but must show robust economics with sustainability throughout the project life. • In addition to exhibiting satisfactory relative merit, before any decision to undertake detailed and expensive feasibility work, a given project should be seen to “fit” into a reasonable concept of long-range systematic industrial growth.

17. The planner’s screening criteria Within the “fence of the Industrial Complex”, covers the following components: • 1. Product Marketability Rating • 2. Technical Feasibility Rating • 3. Profitability of Manufacture • 4. Profit Sensitivity to Changes Outside the “Fence”, there are other considerations :- • Labour impact and availability/development of the skills • Infrastructure Constraints • Raw Material Availability • Downstream Industry Potential • Considerations Relative to Project Integration • Strategic requirements (security of supply)

18. Product Marketability Rating The Marketability Rating Factors cover: A. Market Size B. Market Growth C. Merchantability (including trade barriers) D. Transportation

19. Technical Feasibility Rating The Technical Rating Factors cover: I. Resource Availability II. Environmental Hazards III. Plant Reliability IV. Technological Demand (including Expatriate Technical Personnel Demand)

20. PHASE 2 DEVELOPMENT • Dr. Mustafa M F Al-Jarrah

21. Marketing Marketing of Petrochemical products requires supportive activities which extend from: - the development of infrastructure, to ensure an effective transfer of the goods from the factory to the buyer; to - technical and after sales services, particularly for the newly established industries in the developing countries. • It is still the preference of planners of Petrochemical Projects in many countries to forge an alliance with an international producer, Technology provider and/or marketer of Petrochemicals.

22. Ethylene Production Cost Naphtha Gas

23. List of Industries - Iraq Ministry of Industry Source- MoI

24. Proposed Petrochemical industrialization Strategy for an Oil & Gas rich Country like Iraq • The proposed strategy for the development of the Petrochemical Industry, based on value added & initial focus on few products, contains the following elements:- • – Natural gas available, mainly the methane rich fraction, gives the maximum “value added” in Iraq when used in the fertilizer industry in comparison to its export. Even though natural gas is used to produce methanol with a high value added, the expansion of the fertilizer is viewed more suitable. • – Ethane derived from natural gas and condensate processing is the premium raw material for the ethylene based industry and should be the “FIRST” phase to the development of, olefin based Iraqi Petrochemical industry. • – Liquid based Petrochemical phase using LPG could be the “SECOND” phase to the Iraqi Petrochemical industry. This phase has some synergy with the first phase and avoided having numerous Primary Petrochemicals in the formative period of the industry, that are otherwise needed to upgrade the C4 and heavier by-products, which are derived from naphtha and heavier petrochemical feedstocks. • – Liquid based Petrochemical phase using naphtha and residue components can be the “THIRD” phase to the Iraqi Petrochemical industry. This phase not only benefits from synergy with other earlier phases; but will show greater benefit of integration with the Refinery environment.

25. Knowledge & Skill Transfer • Knowledge & Skill Transfer is not an event . It is a process of achievement . For effective transfer, the process & its elements are challenging . • Persistent barriers to progress :- • Shortage of skills [ e.g. management , engineering , supervisory ] for the application to make it productive in the new environment . • Elements in the Knowledge transfer [ interdependent ] • Good knowledge • Recognition of needs • Effective • Positive attitudes • Sense of investment - Real benefits are identifiable

26. Wake up call • Iraq Leadership and the institutions need to wake up from their illusive dream of developing the country. To walk the talk , you need a vision with a “road map”. • The Rebuilding & Development of Iraq is a mission that must be championed by professional Iraqis and supported by the rest of the world. • Recent reporting suggest that having money will not develop Iraq , without focussing on effective measures towards “Capability building” and more specifically “Human Resource”.

27. “VOICE”- Veterans Of  Iraqi Concerned Engineers • From our background in the oil industry, for the success of any project, the implementation must include the knowledge of the local capabilities and the various complementary capabilities from the foreign partner(s) that fill the gaps. One of the critical measures of the foreign partner is the ability to interact effectively [ work with the local partner as one team ], to deliver in the time allocated within the economic plan and without a meaningful increase in the cost of the implementation.

28. Concluding Remarks • Iraq is very conscious of 2 things :- • Want to increase oil production to reap higher economic rent [ net revenue = volume X price - costs] to catalyse the socio- economic development plan ; with the consequence of increased gas production. • Want to minimize the economically wasteful Flaring of gas and comply with the environmental practices • The views of increasing oil [and hence the associated gas ] production while combating the gas Flaring , via absorption capabilities [ that generates the maximum benefit to Iraq] , has been endorsed by energy experts and strategic planners. • Petrochemical industry is like a “jig saw” puzzle of integrated investments to meet the socio-economic development plan & following a clear Vision with well developed “Road Map”. To succeed , the planning and implementation must be championed by professional Iraqis and must include the knowledge of the local capabilities and the various complementary capabilities from the foreign partner(s) that fill the gaps. • With a robust and well executed plan, the organic growth of the Petrochemical industry is partially financed from the rewards of the earlier phases. • The “bridging effect” between the oil and gas sector and the numerous domestic “smaller size” industries serving the needs of the consumer is fundamental to the overall economic activities in a developed country and creates sizable private sector participation in the socio-economic development . Private sector growth and reduced reliance on the Government for employment is a positive step in reversing the current symptoms of “ oil curse”. • Highly skilled Resources & capabilities are fundamental for sustainability and growth , hence it is still the preference of planners of Petrochemical Projects in many countries to forge an alliance with an international producer, Technology provider and/or marketer of Petrochemicals, while transitioning to “development Status”.