Indigenization of Spare Parts and Consumables used in the Petrochemical Industries

1. Indigenization of Spare Parts and Consumables used in the Petrochemical Industries Present by: Rajeev Chowdhry Managing Partner – Alpha International Management Consultants 28th December 2009

2. PETROCHEMICAL INDUSTRY - SAUDI ARABIA • An overview of the Oil and Gas and Petrochemicals Industry • Products – Classified into various Categories • Process Flows for Oil & Gas • Capital Equipment and their types • Spares and Consumables • Observation and Inferences

3. Petrochemical Industry in Saudi Arabia: A Snapshot Hydrocarbons are the backbone of the Saudi economy The single largest sector of Saudi Arabia’s economy is the extraction of crude oil and natural gas (hydrocarbons), which accounted for 27 percent of real GDP in 2008. Petrochemicals provided 9 percent of GDP last year, up from 7 percent a decade ago. The dominance of the hydrocarbons sector extends well beyond its direct contribution to economic output: hydrocarbons account for around 90 percent of export earnings, and thereby provides the main source of revenue for the public sector. The petrochemicals sector offers one of the most promising long term investment opportunities towards economic diversification in Saudi Arabia.

4. Petrochemical Industry in Saudi Arabia: A Snapshot

5. Petrochemical Industry in Saudi Arabia: A Snapshot The Product Chain Raw Material and Feedstock Crude Oil, Natural Gas, Methane, Ethane, Propane, Butane, Naphtha Basic Petrochemicals Ethylene, Propylene, Butadiene, Benzene, Toluene, Xylene, Amonia End Products Plastics, Coolants, Cosmetics, Pharmaceuticals, Fertilizers, Packaging, Fibers, Paper, Textiles, Lubricants… Intermediates & Derivatives MTBE, Methanol, Vinyl Chloride Monomer, Mono Ethylene Glycol, Polyethylene, Polypropylene etc

6. Petrochemical Industry in Saudi Arabia: A Snapshot Basic flow Chart for Oil Production Refineries can range from simple topping plants with only a crude oil distillation tower to the more complex refinery shown in the flow sheet.  CD – Crude Distillation Tower, REF – Reforming, FCC – Catalytic cracking, COK – Coking, HYT – Hydrotreating, HR – Hydrodesulfurization.

7. Petrochemical Industry in Saudi Arabia: A Snapshot Basic flow Chart for Gas Processing

8. Petrochemical Industry in Saudi Arabia: A Snapshot What do the Petrochemical Companies produce

9. Petrochemical Industry in Saudi Arabia: A Snapshot What are the main Capital Equipment – Petrochemical Industry The Oil and Petrochemical Industry have a huge array of equipment that it needs for processing the feedstock into various end products. We give below a list of main equipment that each of the stages need. Oil Exploration and Pre processing Drilling Rigs, Platforms, Well Head Equipment like Christmas Tree, Oil Pumping equipment, Gas Oil Separation Plants. Refining & Petrochemical Processing De-salter units, Distillation Columns, Hydrotreater, Catalytic Reformers. Fluid Catalytic Cracker. Hydrocracker, Visbreaking, Merox unit, Coking units, Alkylation, Dimerization unit, Isomerization unit, Steam reforming unit, Gas treaters, Solvent refining units, Solvent dewaxing units ALL these are high end complex Plant and Equipment designed by the Process Patent Holders and Technology Providers (OEM’s).

10. Petrochemical Industry in Saudi Arabia: A Snapshot What are the main Capital Equipment – Petrochemical Industry • Specialized Equipment and Systems • Apart from the capital equipment, this Industry needs a lot of highly technical equipment and systems which are designed for the specific highly critical application by highly specialized manufacturers. We list the most important ones below: • Heat Exchangers • Electrical systems including Rotary Drives, • Automation systems incl. Process Controllers • Instrumentation Systems including Gauges • Hydraulic and Pneumatic Systems – both prime movers and control systems • Utility systems like Compressed Air • IT based control and monitoring systems • Safety equipment & systems • Packaging, Shipment and Delivery systems incl. Automatic loading for liquids and batch • loading for solids

11. Petrochemical Industry in Saudi Arabia: A Snapshot What are the main Capital Equipment – Petrochemical Industry • Generic Equipment and Systems • Generic equipment that is used in this Industry, usually produced by local manufacturers and some of them are actually built on site. • Utility units such as Cooling towers, boiler plants and Water treatment Plants • Buildings and shelters for the process equipment • Technology Structural Steel Works both in Stainless Steel and Mild Steel • Flare Stacks and Chimneys • Liquid Product Storage units like Tanks, Spheres and Bullets, • Solid Storage areas like silos • Material Handling Equipment like Cranes, Stackers, Reclaimer etc. • A variety of piping works including cross country piping for product transportation • Lighting systems for the plant • Fire Detection and Fire Fighting systems (for the plant) • Security Systems

12. Petrochemical Industry in Saudi Arabia: A Snapshot Accessories and Spares Parts • The Petrochemical Industry needs a number of equipment and spares on a regular basis. The total list is huge and so we have tried to group the most important ones as listed below: • Drives and Rotary equipment like compressors, pumps, motors (both Electrical and • Hydraulic), Gear Boxes, actuators etc. • Heat exchangers • Valves – safety valves, control valves etc. • Instrumentation like gauges, sensors, switches etc. • Electronics and Automation spares • Transformers, Circuit breakers and other Power Electrical Items • Piping and lining material • Cables of all kinds • Paints, Solvents, Rust Inhibitors etc. • Spare Parts for Generic Equipment • Lights and other Illumination items

13. Petrochemical Industry in Saudi Arabia: A Snapshot Consumables • Apart from the Mechanical and Electrical equipment there are a number of consumables that are used in this industry… once again, we try and identify a few important ones • Drilling Mud, Cement and a host of other non metallic solids • Catalyst – both new and processed • Tubing, Linings and Refractory • Chemical additives like Agitators • Packaging Material • Lubricants for various applications • Column Internals like Sieves and Trays • Tubing for boilers • Most of these items are supplied by trading companies who represent International manufacturers in KSA

14. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunities • The list of possible equipment and spare parts that can be produced locally is very big and we highlight the following 10 equipment, consumables and services. These items actually find use across a broad spectrum of Industry. • Fabricated Steel Products • Valves • Rotary equipment like pumps • Gear Reducers • Catalyst and Chemical additives • Drives like Electric and Hydraulic Motors • Standard Instrumentation parts • Refractory and lining material • Heat Exchangers • Alloy Steel Castings and Forgings • Hydraulic and Pneumatic Systems We shortlisted 3 out of these 10 items for a brief study

15. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunities The rational for selection of these 3 items was based on the highest demand from Saudi Aramco’s estimate on expenditure it would make for various items between 2007 to 2012

16. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 1 : Fabricated Steel Products This is one of most promising industries in the Support Sector in Saudi Arabia and there is absolutely no doubt about the need for a Quality fabrication shop. Local production capacities exist on the lower quality segment and the demand and supply scenario changes drastically from year to year depending on the projects released simultaneously. The number of projects planned for 2010 – 2013, the industry will face a supply squeeze unless new quality fabrication facilities are not set up. Saudi Aramco averages nearly US $ 1.5 billion worth fabricated structures a year and estimating that this value would be approx 40% of the total demand, the market size for Structural Steel Fabricated structures would work out to almost US $ 3.7 billion In terms of tonnage, this would amount to approx 1.5 – 1.7 Million Tons / annum

17. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 2 : Valves Valves are devices that are used to either control, regulate or contain the flow of liquids, gases, slurries, semi-solids or any other flowing material. Valves can be broadly classified as follows:

18. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 2 : Valves Each of these valves have specific applications and OEM companies specialize in different ranges of these valves. Considering the local market, we recommend the setting up of a plant for the manufacture of Pressure Valves as a first step. Pressure Valves The factory should produce Pressure Relief Valves for a variety of liquids and Gases and should be designed and tested as per reputed international standards like ASME Low Pressure Safety Relief Valve High Pressure Safety Relief Valve Pilot Actuated Safety Relief Valve

19. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 2 : Valves Manufacturing Facility A comprehensive manufacturing facility would include a Steel and Alloy Steel foundry, a Spring Manufacturing unit, a medium sized machine shop, a valve assembly plant, necessary testing facilities and a painting area. Machining Centre Assembly Shop Testing Centre Plant Overview Painting Booth

20. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 2 : Valves With only Saudi Aramco planning to buy over US1 billion worth of valves each year, the market for valves is huge and diverse. Recommended way forward for Saudi SME Investors is to form a Joint Venture with any of the worlds leading OEM’s in this field, with an assured off-take by the OEM.

21. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 3 : Pumps • Pumps are devices used to move liquids, slurries and gases from one place to other. • Pumps essentially have the following components: • A Casing or Body, within which the fluid is moved. • A drive or prime mover with or without a gear reducer. • A connecting shaft with coupling that connects the pump and the drive • An impellor or ram which actually moves the fluid from the input port to the discharge port • Seals and Bearing that ensure the whole assembly stays together and operates smoothly without leaks • And finally the instrumentation and control panels

22. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 3 : Pumps Types of Standard Pumps for common industrial uses Impellor type single stage centrifugal pump Reciprocating pump Vane type rotary pump Diaphragm type axial pump Multiple stage – Diffuser type centrifugal pump Reciprocating pump

23. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 3 : Pumps • Typical Production Facility • Electric Arc Furnace / Induction Furnace facility for casting the valve bodies • Mould Shop for making moulds • Fettling and Cleaning facilities for castings • Machine Shops for machining of various parts like impellor shafts • Heat treatment facility for various items • Assembly shop for mechanical assembly • Electrical workshop for assembly of motors and drives • Shot Blasting and painting facilities • Testing facility • Maintenance workshops

24. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 3 : Pumps Typical Production Facility Assembly Shop Machine Shop Valve Testing Shop

25. Petrochemical Industry in Saudi Arabia: A Snapshot Investment Opportunity No. 3 : Pumps We anticipate the market for valves to be over USD 1 billion/year, given the fact that Saudi Aramco by themselves procure an average of US $ 680 million worth of pumps each year. SABIC companies are equally big users of pumps and if you add to that the other big users like SWCC, SEC and other Ministry of Water, the market size exists for a major investment in this field.

26. Petrochemical Industry in Saudi Arabia: A Snapshot Inferences • Oil and Petrochemical Industry spends billions of Saudi riyal each year for procurement of Spares and Consumables and there exists a very big opportunity for local investors to Locally Manufacture some of this demand. • The way forward recommended is to set up manufacturing plants in Technology partnerships and Joint Ventures with reputed OEM’s, with clear understanding on Technology Transfers and Training of local manpower, then develop core engineering competence within a planned time frame • The Major Players in Oil and Gas Industry on its part “must” support any new ventures by not only providing necessary technical assistance but also getting into suitable “Take Off Agreements” with new Start – Up companies, which will provide the necessary comfort to the local investor.

27. Thank You!