INDIA'S NAPHTHA TRADE OUTLOOK - CMT Conferences

6th Petchem Feedstock Asia/China Conference14-15 May 2007Mission Hills Resort, Shenzhen, ChinaINDIA’S NAPHTHA TRADE OUTLOOKHas domestic demand increasedWill there be more exportsWhere are the export marketsAshanendu MandalONGC, Mumbai, India

INDEX India’s Economic Scenario India’s Petrochemical Industry India’s Naphtha Trade Outlook Introduction Production Consumption Exports / Imports Domestic Demand of Naphtha Growth Analysis Export Market of Naphtha Future Trends Potential buyers Conclusion

India’s Economic Scenario

India Economy According to IMF, global GDP growth is higherthan past 3 decades. China and India are among the starperformers. The growth is mainly due to buoyancy inservices sector, resurgence in agriculturalgrowth and stable manufacturing sector.

Structure of India Economy5040Services30201004629169AgricultureIndustry (Mfg)Industry (Non-Mfg)Source : Government of India PublicationsThe growth in services sector is even better than Chinadue to its relatively well-educated labour forceand largest English-speaking population

Global GDP (PPP) - 2005$ Trillion14121086420India likely to exceed Japan in a couple of yearsThe threat is the rise and sharp fluctuation in oil pricesUS China Japan India Ger many UK France Italy Brazil Russia Canada Mexico$ Trillion 12.41 8.18 3.91 3.7 2.45 1.87 1.82 1.65 1.57 1.54 1.08 1.07

India GDP (PPP)4.03.53.02.52.01.51.00.50.0steady growth….. a phenomenal success1998 1999 2000 2001 2002 2003 2004 2005$ Trillion 1.69 1.81 2.2 2.5 2.66 3.02 3.32 3.7

India GDP (PPP)10987GDP (%)65432102000-012001-022 nd in growth rate, next to China2002-032003-042004-052005-062006-07Indian Refiners like China receive protectionvia the structure of import duties on crude and productsand therefore expect positive margin even in times ofnegative margin for operating in the free marketSource : CSO, GOI

Key Social and Economic Indicators20022003200420052006Population (million)10511069108711051110*GDP Growth (%)4.47.58.18.59.0Inflation Rate (%)4.33.83.84.05.2Imports (US$ (bn)61.478.1111.5142.4181.4Exports (US$ (bn)52.763.883.5102.7124.6Inflation Rate is brought under control

Key Petroleum Sector Indicators1998-991999-002000-012001-022002-032003-042004-052005-06Crude Prodn (kb/d)665658645648666654683645Refinery Th’put (kb/d)13361589199621522190238025662678Crude Imports (kb/d)597931135115041524172618832033Crude Exports (kb/d)00000000Product Imports (kb/d)516438271196154107123179Product Exports (kb/d)2424102159182301362453Refinery thru’put doubled in 8 years

Refinery Capacity (mmt)1998-991999-002001-022003-042005-06IOCL ,Barauni3.303.304.206.006.00IOCL, Digboi0.650.650.650.650.65IOCL, Gujarat9.5013.0013.7013.7013.70IOCL, Guwahati1.001.001.001.001.00IOCL, Haldia3.754.604.604.604.60IOCL, Mathura7.507.508.008.008.00IOCL, Panipat6.006.006.006.00BRPL, Bongaigaon (IOCL)2.352.352.352.352.35CPCL,Chennai/Narimanam7.007.007.0010.5010.50BPCL, Mumbai6.006.906.906.909.00NRL, Numaligarh (BPCL)3.003.003.003.00KRL, Kochi (BPCL)7.507.507.507.507.50HPCL, Mumbai5.505.505.505.505.50HPCL, V isakhapatnam4.507.507.507.507.50ONGC, Tatipaka0.080.080.08MRPL, Mangalore (ONGC)9.699.699.699.699.69RIL, Jamnagar27.0027.0033.0033.00TOTAL68.24112.49114.67125.97128.07

Refinery Throughput (mmt)2006-072007-082008-092009-102010-11IOCL ,Barauni5.165.205.225.255.25IOCL, Digboi0.660.660.660.660.66IOCL, Gujarat12.6012.7412.8813.0113.01IOCL, Guwahati0.910.940.950.960.96IOCL, Haldia5.465.405.526.186.70IOCL, Mathura8.328.328.408.408.50IOCL, Panipat9.9610.9013.1513.7514.20IOCL, Paradip----11.25BRPL, Bongaigaon (IOCL)2.442.442.472.472.49CPCL, Chennai/Narimanam9.379.579.779.9710.17BPCL, Mumbai11.6911.8411.9911.9911.99NRL, Numaligarh (BPCL)2.042.252.402.552.55KRL, Kochi (BPCL)7.927.957.957.959.20BPCL, Bina----2.10HPCL, Mumbai5.787.308.028.158.27HPCL, V isakhapatnam7.919.679.8310.0010.17HPCL, Bhatinda----3.15ONGC, Tatipaka0.150.200.200.200.20MRPL, Mangalore (ONGC)11.8212.1112.1115.3615.86RIL, Jamnagar33.8334.6551.1855.2057.90Essar Oil, Vadinar2.707.438.489.539.98TOTAL138.71149.56171.18181.56204.55

INDIA’S PETROCHEMICALINDUSTRY

Petrochemical Industry Begins… Started in 1978 through IPCL (Indian PetrochemicalCorporation Limited), a Government of Indiaenterprise, at Baroda, Gujarato Initial capacity : 0.13 MMTPA (Ethylene)o Feedstock used : Naphthao Source of Naphtha : Adjacent Gujarat refinery of IOCo Additional demand of naphtha to be met through imports

Petrochemical Industry Expansion !MMTPA3.532.521.510.5090-91 97-98 99-00 00-01 01-02 04-05 06-07Huge expansions …..

Ethylene Capacity today….MMTPA1978IPCLBaroda0.13 *0.17 **1990IPCLNagothane0.300.411997RILHazira0.800.881999GAILAuriya0.300.402000IPCLGandhar0.300.402000HPLHaldia0.420.63TOTAL2.252.89* Capacity while installed ** Capacity at presentCapacity is further expanded….

Ethylene Capacity today….HPL, Haldia22%IPCL, Baroda6%IPCL, Nagothane14%IPCL, Gandhar13%GAIL, Auriya14%RIL, Hazira31%Total Capacity 2.89 MMTPA

Petrochemical plants in IndiaIOC, PanipatIOC (Proposed)•Ethylene – 0.80GAIL, AuraiyaHaldiaPetrochemicalsReliance, HaziraIPCL, BarodaIPCL, GandharIPCL, Nagothane

Net trade position in petrochemicals(MMTPA)CapacityDemandStatusEthylene2.6322.822DeficitPropyleneButadiene2.0370.2701.9090.097SurplusSurplus2005-06Benzene1.1530.538SurplusToluene0.2970.170DeficitNet3.0805.537Surplus•Import of ethylene is difficult and expensive as it is gaseous atnormal temperature.•India imports ethylene from Saudi Arabia and Iran.•India encourages to increase the capacity of ethyleneproduction to avoid the imports.

Net trade position inPolymers2005-06(MMTPA)SupplyDemandSurplus /DeficitStatusPE1.8991.588+0.311Surplus(16.4%)PP1.6581.3650.293Surplus(17.6%)PS0.3190.1880.131Surplus(41.0%)PVC0.9091.045-0.136Deficit(-15.1%)Net4.7844.1870.597Surplus(12.5%)India needs to increase the PVC production to avoid the imports

Import – Export Scenario2005-06IMPORTS(Ethylene, Toluene, PVC)Saudi Arabia23%EXPORTS(Propylene, Butadiene, Benzene,PE, PP, PS)China40%Singapore11%Vietnam7%USA9%UAE6%UAE9%Pakistan4%South Korea7%Turkey4%

Player-wise capacity additions(MMTPA)2007-08F2008-09F2009-10FIPCL³0.9951.0101.010RIL0.9751.0501.081GAIL0.4400.4400.440HPL0.6700.6700.670TOTAL3.0803.1703.201IPCL³ : All three IPCL plants combinedCapacity : For Ethylene onlyIOC, ONGC & GAIL are also planning to set up newpetrochemical plants. Capacity is likely to increase to3.952 MMTPA in the year 2009-10

Production forecast(MMTPA)2006-07E2007-08F2008-09F2009-10FCAGREthylene2.8102.9613.5673.7498.1Propylene2.1342.2492.6692.7447.8hdPE1.2501.3001.5501.7488.0ldPE0.2050.2050.2050.2051.0lldPE0.5900.6100.7700.8388.0PP1.8001.9502.4002.5708.0

Demand forecast(MMTPA)2006-07E2007-08F2008-09F2009-10FCAGREthylene2.9263.1063.7533.9068.1Propylene2.0992.1992.6172.7007.8hdPE1.3501.4501.5501.6558.0ldPE0.2050.2050.2050.2051.0lldPE0.6500.7000.7250.7666.0PP1.8002.0002.2002.4008.0

Surplus / Deficit forecast(MMTPA)2006-07E2007-08F2008-09F2009-10FEthylene- 0.116- 0.145- 0.186- 0.157Propylene0.035- 0.0500.0520.044hdPE-0.100-0.15000.093ldPE0000lldPE-0.060-0.0900.0450.072PP0-0.0500.2000.170Deficit of ethylene will continuebut propylene will stop

SECTORAL GROWTH

Ethylene Sectoral: Growth(KTPA)2004-052009-10 FGrowthhdPE1087161849 %ldPE2132151 %lldPE56283849 %PVC24528516 %EO546215 %MEG39959649 %Styrene0182Full PositiveOthers9111021 %Total2651390647 %Surplus/Deficit-62-157Drives : Styrene, MEG & PE sectorsDeficit will continue

Propylene Sectoral: Growth(KTPA)2004-052009-10 FGrowthPP1650244848 %ACN203365 %Phenol48528 %Others13816822 %Total1856270045 %Surplus/Deficit-12+44Drives : PP & ACNDeficit will stop

hdPE Sectoral: Growth(KTPA)2004-052009-10 FGrowthRaffia16421028 %Blow moulding16221432 %Injection moulding12215830 %Wires & Cables344224 %Films22233551 %Pipes7815599 %Others2013(35 %)Total802112741 %Drives : Pipes & films

ld/lldPE Sectoral: Growth(KTPA)2004-052009-10 FGrowthPackaging39261156 %Coating385545 %Wires & cables63665 %Plastics6410158 %Roto moulding435119 %Others7911242 %Total67999647 %ldPE20623313 %lldPE47376361 %Drives : Packaging & Plastics

Feedstock DetailsIn MMTPAIPCLBarodaNaphthaRIL, IOC,Imports0.63IPCLNagothaneC2-C3ONGC,Imports0.510.27RILHaziraNaphtha/NGLRIL2.34GAILAuriyaNGONGC /GAIL0.67IPCLGandharNGONGC,Imports0.320.45HPLHaldiaNaphthaIOC,Imports0.531.03

Feedstock Details33%26%67%74%NaphthaNG/C2-C3Indigenious sourceImports

INDIA’S NAPHTHA TRADEOUTLOOK

Introduction Naphtha is manufactured from crude oil by directatmospheric distillation and by catalytic cracking of heavyresidues. Also produced from condensate by fractionation. In India, Naphtha is produced by PSU like IOCL, HPCL,BPCL and ONGC. It is also produced by Private playerslike RIL and soon added by Essar Oil. Naphtha is used mainly in Petrochemical and Fertilizersectors. It is also conventionally used in Power and Steelsectors.

Introduction Naphtha business is globally integrated. Demand supply fluctuation in one part of world has a farreaching impact on prices. Naphtha prices are closely related to crude oil prices. India has a large domestic market, yet depends onexports. Export competition is expected to increase with MiddleEast exports. Cost of naphtha in ME is almost 30-40% cheaper thanthat in India.

Production14.326.071.101.522.043.5904-0513.805.901.001.502.003.6005-0614.595.991.101.602.203.7006-07E11.329.659.199.928.18TOTAL3.322.972.592.771.71RIL (Pvt)0.620.320.140.380.01ONGC1.541.261.191.131.04HPCL2.151.931.862.111.93BPCL3.693.173.413.533.49IOCL03-0402-0301-0200-0199-00Company

Consumption(MMTPA)04-0505-0606-07EPetrochemicals7.718.118.99Fertilizers3.263.172.34Power & Steel2.642.263.16Others0.320.300.30TOTAL13.9313.8414.79

Sales to Petrochemical SectorNG33%Gas based plantsIPCL, Gandhar; IPCL, NagothaneNaphtha67%Naphtha based plantsIPCL, Baroda; RIL, Hazira; HPL, Haldia

Sales to Fertilizer SectorFeedstock AnalysisFO/LSHS,10Naphtha, 27NG, 63Use of Naphtha is declining after LNG import in 2004Subsidized rate of fertilizer also compels for switch over to NG

Domestic SalesRole of Power Industry Naphtha is used as afuel in Power Industry. They also use Natural Gasand Coal. Naphtha is costliest fuel andNG the cheapest. Naphtha based generationmay decline very fast.Capital Cost(Rs. Million per MW)Gestation Period(Months)Fuel Cost(Paise per KWH)Coal4548-52104Gas3524-3076Naphtha3018-30210Naphtha is becoming more expensivedue to rise of crude oil prices

Domestic Prices01-0202-0303-0404-0505-0606-07Rupees / MT120001450015000200002500027000US$ / MT252300326445553620Domestic price increasing in line with international price

Exports / Imports(MMTPA)99-0000-0101-0202-0303-0404-0505-0606-07EExport0.582.882.522.072.182.932.903.00Import1.923.173.312.782.372.212.853.05Export increasing / Import decreasing

DOMESTIC DEMAND

Growth Drivers High population Demand generation Growing economy Increasing consumption Increasing income Better purchasing ability Young population Changing lifestyle Industrial growth Global expansion Reduction of tariff barriers Lowering of inputcosts Economic multipliers Infrastructure,Agriculture, Retailing, Automobiles

Overview of the Indian Economy Vision 2020 targets GDP growth rate of 8.5-9%over next 20 years. Higher rate of economic growth means rise inenergy demand. However, there are certain factors that affect theenergy demand: Price of oil products Environmental considerations Increase in efficiency of use Higher contribution of the service sector Impacts of information technology, telecommunication and e-commerce

India income (USD p.m.)46Rich: > 3775Upper middle: 2830-3775201736296520 86 55Middle: 1887-2830Lower middle: 943-1887Low: < 94354857676271995-96 2004-05 2014-15Higher income increases purchasing ability

Working Age Population747270IndiaChinaG6BrazilRussia6866%6462605856542000200520102015202020252030India will have increasing working age population

Infrastructure Mega high way development projects & portconnectivity Commercial exploitation of huge off shorenatural gas reserves revolution in communication technology Bharat Nirman YojnaIrrigation and Water supply Electrification of villagesAggressive power reformsTwo million houses every yearInfrastructure will boost Polymer Consumption

Retail On the Demand Front Brand consciousness among customers Rising purchasing power amongst middle class Changed consumer lifestyle Large young working population Increasing working women population On the Supply Front Entry of MNC brands into organized retailing Entry of large Indian business groups Rationalized real estate marketsRetail boom will boost Packaging consumption

Agriculture Key Focus AreasDrip Irrigation, Sprinkler irrigation systemIncreased plastics consumptionPVC – main line pipesPE – drip lateralsPP – emitters / micro sprinkler headsExploit potential in associated areas of PlasticulturePackaging for agriculture produce to be encouragedto boost agricultural productivity and reducedamage during transportation and storageModern agriculture will boost higher PolymerConsumption

Automobile India is a sourcing hub for Automobiles and componentsworldwide Many Automobile majors have set-up largemanufacturing base Hyundai, Honda, Suzuki, GM,Daimler-Chrysler, Ford, Toyota, FIAT Production of 1+ million vehicles for last 2 yearsconsistent Plastics consumption – currently ~25 Kgs/ vehiclecompared to world average of 50-60 Kgs / vehicle Estimated yearly growth is about 8%Major development in automobile sector willincrease higher Polymer Consumption

Demand of NaphthaMMTPA2006-07E2007-08F2008-09F2009-10F2010-11FPetrochemicals8.999.22810.51613.08213.673Fertilizers2.341.5271.5271.3041.304Power & Steel3.162.2832.2951.4021.416Others0.300.300.300.300.30Total14.791.33814.63816.08816.693

ProductionMMTPA2006-07E2007-08F2008-09F2009-10F2010-11FIOCL3.704.004.404.555.50BPCL2.202.202.202.252.50HPCL1.601.851.902.002.25ONGC1.101.201.301.501.50RIL (Private)5.996.359.009.609.59TOTAL14.5915.6018.8019.9021.34

Refinerywise Production : 2011-12Existing RefineriesRefiner yCapacityNaphthaProductionNew RefineriesRefiner yCapacityNaphthaProductionIOCL ,Barauni10.000.08IOCL ,Paradip12.001.00IOCL, Digboi1.000.01HPCL, Bhatinda9.000.41IOCL, Gujarat25.002.43BPCL, Bina6.000.41IOCL, Guwahati1.500.09BPCL, Allahabad7.000.48IOCL, H aldia11.000.73Essar Oil, Vadi nar24.002.06IOCL, Mathura11.000.71Nagarjuna Oil Corporation12.000.82IOCL, PanipatBRPL, Bongaigaon (IOCL)12.004.200.640.29TOTAL70.005.18CPCL, Chennai/Narimanam (iocl)BPCL, MumbaiNRL, Numaligarh (BPCL)KRL, Kochi (BPCL)10.5012.006.0013.501.162.000.221.32Out of 21.34 MMT, India is optimistic at 18.11 MMTdue to uncertainties on IOCL, Paradip,BPCL, Allahabad, Nagarjuna and Essar’s full capacityHPCL, Mumbai7.900.80HPCL, V isakhapatnam8.330.64ONGC, TatipakaMRPL, Mangal ore (ONGC)0.089.69-0.17Present level 14.6 MMTRIL, Jamnagar50.005.00TOTAL190.8016.39

Demand & Supply : Naphtha• From 2004-05 to 2009-10, Naphtha supply willincrease from 14 to 18 MMTPA at a CAGR of4.6%• During this period, Naphtha demand willincrease marginally• With Naphtha-based Fertilizer & Power plantsshifting to Natural Gas, Naphtha will be surplusall the timeExport of Naphtha is likely to increase frompresent level of 3 MMTPA to 7 MMTPA

EXPORT MARKET

Export The surplus production of Naphtha in India hasresulted in increasing Exports that have risen at aCAGR of 24.80%. The export has further increased because someof the petrochemical units are importing Naphthadue to their requirement of low aromatic naphtha.

ExportExport Preference:Longer Indian coastline.Demand in world market fetching better prices.Avoidance of various onland logistics problems.EXIM benefits such as DFRC (Duty FreeReplenishment Certificate) and EPCG (ExportPromotion Capital Goods).

ExportDFRC:Through DFRC the Exporters can importfeedstock (e.g. crude oil) related to Naphthaproduction without payment of duty.EPCG:Under EPCG the license holder can importcapital goods like plant, machinery, catalysts,spares etc at a concessional rate of customduty and without paying any special duty.

ExportNaphtha is exported to China, South Korea,Singapore, Thailand, Norway, Nigeria, HongKong and some parts of Europe.Major international players in India are VitolAsia Pte Ltd., Itochu, Glencore, Samsung,Totsa Total, Projector SA, Petrodiamond,Petronas and Mitsui.

Naphtha Exports by PSUQty(MMT2002-032003-042004-052005-062006-07IOCL0.0790.0310.2410.240.25BPCL0.4830.4010.4180.420.45HPCL0.5920.7300.7670.800.80ONGC0.4570.7961.1771.241.35TOTAL1.6111.9582.6032.702.85ONGC & IOCL have maximum growth

Export2002-032003-042004-052005-062006-07Qty (inMMT)1.611.962.602.702.85Million $40353197614931767Export qty is in increasing trend

Import Import of Naphtha is continued due to therequirement of specific Low aromatic Naphtha(LAN) by some consumers. LAN is preferred as Higher aromatics need highertemperature to reform and Aromatics burn withsmoke and release fine soot of carbon thatdeposits over catalyst and reduces production. HPL (Haldia Petrochemicals) and IPCL (IndianPetrochemicals, Baroda) are the main importers.

Import2002-032003-042004-052005-062006-07Qty (inMMT)2.782.372.212.853.05Million $78163488613001321Import qty is more or less stable

Conclusion

Conclusion Naphtha production in India exceeds domesticdemand in 2004-05 for the first time. India still depends on Import of Naphtha due toinadequate domestic availability of Low AromaticNaphtha required by some petrochemical units. Growth of domestic demand is slow due to importsof LNG since 2004 (Fertilizer & Power Plants areswitching over to LNG from Naphtha due to lowcost). New finds of domestic NG will also have a negativegrowth.

Conclusion Naphtha consumption is increasing mainly due togrowth in petrochemical sectors. Domestic production is likely to be always abovedomestic demands and therefore export has to becontinued. India is in the field of extensive Export business formore than 6 years. Producers are preferring Exportdue to several EXIM benefits. India has got excellent Export infrastructure. ME exports may be a threat to India’s exports.

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