OiORLD BANK TECHNICAL PAPER NUMBER 113 W TP- 113
INDUSTRY AND ENERGY SERIES
The Petrochemical Industry in Developing Asia
A Review of the Current Situation
and Prospects for Development in the 1990s
Walter Vergara and Dominique Babelon
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The Petrochemical Industry
in Developing Asia
A Review of the Current Situation and
Prospects for Development in the 1990s
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No. 113. The Petrochemical Industry in Developing Asia: A Review of the Current
Situation and Prospects for Development in the 1990s
WORLD BANK TECHNICAL PAPER NUMBER 113
INDUSTRY AND ENERGY SERIES
The Petrochemical Industry
in Developing Asia
A Review of the Current Situation and
Prospects for Development in the 1990s
Walter Vergara and Dominique Babelon
The World Bank
Washington, D.C.
Copyright � 1990
The International Bank for Reconstruction
and Development/THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.
AU rights reserved
Manufactured in the United States of America
First printing January 1990
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Walter Vergara is a chemical engineer in the Industry, Trade, and Finance Division of the World Bank's
Asia Technical Department. Dominique Babelon is a senior economist in the same division.
Library of Congress Cataloging-in-Publication Data
Vergara, Walter, 1950-
The petrochemical industry in developing Asia: a review of the
current situation and prospects for development in the 1990s /
Walter Vergara and Dominique Babelon.
p. cm. - World Bank technical paper, ]SSN 0253-7494 ; no.
113. Industry and energy series)
Includes bibliographical references.
ISBN 0-8213-1418-1
1. Petroleum chemicals industry-Asia. I. Babelon, Dominique,
1948- . II. International Bank for Reconstruction and Development.
m. Title. IV. Series: World Bank technical paper; no. 113.
V. Series: World Bank technical paper. Industry and energy series.
HD9579.C33A878 1990
338.4'7661804'095-dc2O 89-21546
CIP
- v -
Abstract
This report is a follow up of the global review of the
petrochemical industry (The New Face of the World Petrochemical Sector:
Implications for Developing Countries) published as Industry and Energy Series
Technical Paper no. 84. The report's intent is to address the need for
information on the petrochemical industry in Asia in view of the fast-evolving
situation of the industry in the region and the growing involvement of the
World Bank with operations and studies in a number of Asian countries. The
document reviews the current trends of the industry with relevance for Asian-
based producers and documents the substantial increases in activity and rates
of growth of the sector in Asia. The current market situation in seven
countries (Republic of Korea, India, China, Thailand, Malaysia and Indonesia)
is also reviewed in some detail, including data on consumption, production and
installed capacity for key petrochemical products and derivatives. The main
issues in each country are summarized.
A substantial part of the analysis is dedicated to the assessment
of competitive advantages in the production of petrochemicals by individual
producers. The factors that help bring about comparative advantages are
analyzed in some detail, using a simulation model of the economics of
manufacture; by simulating specific operations, the report analyzes the
different elements of competitiveness and asesses their impact in economic
terms.
The study also reviews the policy framework in all countries selected
and compares the different economic instruments and other policy tools that
have been used to develop their industries. The last chapter includes a
forecast of market development over the next 5 to 10 years; which estimates
the demand/supply balances in the 1990s for major petrochemical products. A
brief evaluation of the industrial strategies relevant to Asian-based
producers is also developed. The report includes substantial data
(statistical information) on markets, production capacities, production and
demand and pricing for petrochemical feedstocks and products.
The report concludes that prospects for future development of the
industry in developing Asia are generally favorable because of: a) the
expanding domestic markets; b) the gradual evolution of the industrial policy
framework toward a less restrictive environment, free trade and lesser
protection; c) the opportunities for market integration and complementarity;
and, d) the abundant gas resources in the region. As a caveat, the optimistic
outlook hinges on the prospects for continuous economic growth and the oil
supply and pricing situation. To secure their competitive position and
materialize the growth prospects, countries with a lower competitive posture
must move to improve their economics of manufacture through feedstock
diversification, vertical integration, restructuring increased exposure to
competition and improved long-term planning.
- vi -
Acknowledgements
The authors wish to acknowledge the valuable assistance provided
by Robert Gould in the preparation of the simulation model, forecast
estimates, and for the many useful discussions on the nature of the
petrochemical industry; by Tim Booker in the development of the capacity data
base; by Iris Anderson on the external data bases and data compilation and by
intern Ashok Bajpai on data collection.
The authors have also profited from valuable insight and comments
provided by many colleagues at the World Bank and the International Finance
Corporation.
- vii -
Abbreviations and Acronyms
ABS - Acrylonitrile-butadiene styrene
ASTIF - Industry, Trade and Finance Division; Asia
Technical Department; World Bank
BR - Butadiene rubbers
BTX - Benzene, toluene and xylene
DMT - Di-methyl terephthalate
EDC - Ethylene di-chloride
EG - Ethylene glycol
EPDM - Ethylene propylene diene monomer
EPR - Effective protection rate
FOB - Free on board
GATT - General Agreement on Tariffs and Trade
GDP - Gross domestic product
GOC - Government of China
GOI - Government of India
GOIN - Government of Indonesia
GOK - Government of Korea
GOM - Government of Malaysia
GOT - Government of Thailand
GNP - Gross national product
GSP - Generalized System of Preference
HDPE - High density polyethylene
IPCL - Indian Petrochemical Corporation Limited
IRR - Internal rate of return
KIET - Korean Institute for Engineering and Economic Studies
KPIA - Korean Petrochemical Industry Association
LDPE - Low-density polyethylene
LLDPE - Linear low-density polyethylene
LPG - Liquified petroleum gas
LNG - Liquified natural gas
MFA - Multifiber Agreement
MIDA - Malaysia Industrial Development Corporation
MtBE - Methyl t-butyl ether
MTY - Metric tons per year
NGL - Natural gas liquids
NIC - Newly industrialized country
NPC - National Petrochemical Corporation
NPV - Net present value
NR - Nitrile rubber
ONGC - Oil and Natural Gas Commission of India
PBR - Poly-butadiene rubber
PF - Polyester filament
PEF - Polyester fiber
PE - Polyethylene
PFY - Polyester filament yarn
PP - Polypropylene
PS - Polystyrene
PSF - Polyester staple fiber
PTT - Terephthalic acid
PTA - The Petroleum Authority of Thailand
PVC - Polyvinyl chloride
- ix -
Table of Contents
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . xi
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 1
II. GLOBAL TRENDS IN THE INDUSTRY . . . . . . . . . . . . . . . 4
Investment in Ethylene and Derivatives
Impact on the Merchant Ethylene Market
Update on the Global Aromatics Situation
Environmental Concerns
Feedstock Choice
Increase in International Competition
Market Share of Asian Producers
III. REVIEW OF THE PETROCHEMICAL MARKETS IN ASIA . . . . . . . . 18
Korea
India
China
Thailand
Malaysia
Indonesia
The Current Market Situation in Japan
IV. ESTIMATE OF COMPETITIVENESS .37
Factors Considered
Estimate of Production Costs of Petrochemicals
Competitiveness in the Export Markets
Investment Timing
Summary
V. THE POLICY FRAMEWORK . . . . . . . . . . . . . . . . . . . 72
Price Controls
Trade Policies
Capacity Licensing
Investment Incentives
VI. FUTURE DEVELOPMENT OF THE INDUSTRY . . . . . . . . . . . . 91
Issues Affecting Future Development
Future Market Development
Summary
REFERENCES ........................... 114
-x -
Annex 1. Historical Series of Petrochemical Prices and Margins 117
Annex 2. Historical Evolution and Feedstock Situation in the
Countries ... . . . . . . . . . . . . . . . . . . . . 119
Annex 3. Feedstock Valuation and Prices . . . . . . . . . . . . 131
Annex 4. Simulation Model for Estimating Economics of Petro-
chemical Manufacture ... . . . . . . . . . . . . . . 144
Annex 5. Statistical Results of the Simulation Model . . . . . . 152
Annex 6. Comprehensive List of Plant Capacities . . . . . . . . 156
Annex 7. Demand Projections for Petrochemicals . . . . . . . . . 174
- xi -
Executive Summary
Introduction
The petrochemical sector plays an important part in the industrial
strategies of developed countries. Its pivotal role in industrial
modernization has been documented elsewhere (Jones, 1989; Fayad, 1986) and has
been linked to progress in the manufacturing sector and the ability to promote
exports (Stobaugh and Gagne, 1988). World sales of petrochemicals continue to
increase and in 1988 reached US$385 billion equivalent, surpassing all other
sectors of the chemical industry. With relatively low raw material prices,
adequate feedstock supplies and high product prices, the general short-term
outlook is for the industry to continue its strong performance and further
penetrate diverse markets in the economy.
Although the industry in Asia is expected to continue growing at
higher rates than in developed countries, the large number of parties
involved, the investments considered, the cyclical nature of the industry and
the globalization of the sector require that careful analysis be exercised in
the development of options and strategies. This study reviews the current
situation of the industry in Asia and, based on its historical performance and
trends, analyzes its competitiveness against producers in the region and low
cost producers outside of Asia and prepares likely future scenarios and
strategies. The study is intended as background information and analysis on
the status of the industry for decision makers and planners and as a guide for
prospective Bank Group dialogue with countries in the region.
The specific purposes of the study are (a) to identify recent trends
affecting the industry and assess their effect in the future development of
the sector in Asia, (b) to describe the current situation in a sample of
selected countries, including the policy framework and to forecast the demand
and supply situation for key basic petrochemicals and derivatives, and (c) to
assess the individual country and industry advantages for the production of
petrochemicals.
Given the diversified nature of the industry and the many countries
involved in petrochemical development in Asia, the study focuses on an
indicative sample of 13 products and 6 countries. The products selected are
representative of the industry. These include basic olefins, aromatics, major
synthetic resins, rubbers and fibers. Together these products represent an
estimated 60% of world sales of petrochemicals, and all major sectors of the
industry. Some of the countries targeted in this study are an example of
early and successful development (Korea) that could be used by newcomers,
others were large producers or large markets undergoing an ambitious expansion
program (China, India, Indonesia), while the remaining consist of successful
industrializing economies entering or considering entry into the petrochemical
market (Thailand, Malaysia).
- xii -
Update of Global Petrochemical Trends
A review of long term trends for the industry was discussed in a
recent report (Vergara and Brown, 1988).i/ For purposes of this study, an
update of trends has been prepared focusing on the significant changes
expected in the short term (1990s) that have the largest potential
implications for Asia-based producers. These include the recent investment
activities in olefins and aromatics, trends, in environmental considerations
and policy, changes in feedstock supply and international competition and an
update on the regional consumption of petrochemicals.
Investment in the Sector. During 1988, the price difference between
products and feedstocks to the industry increased considerably (see Annex 1).
Although market prices have not yet reached levels comparable to those preva-
lent during the late 1970s and early 1980s, these increases have produced a
significant rise in profitability all across the board for the industry. The
increases in profits have resulted in record number of announcements for
expansions and new units. In the US for example, since early 1988, 16 new
ethylene crackers were announced with a total capacity of nearly 6.6 million
tons (13% of worldwide installed capacity). The prospect of this volume of
capacity entering into operation in the US in the next three to four years
will undoubtedly shape the medium-term market conditions for olefins. A simi-
lar surge of new projects has been announced worldwide. In Asia alone, a total
of 13 new crackers and expansions are now at various stages of construction
and many others are under planning while several projects have been announced
in the Middle East and Western Europe. A comparison of the expected 1995
demand with the projected capacity reveals that North America and the Middle
East are likely to have surplus capacity while Asia and Latin America will
remain net importers. North Amer:ica is also likely to continue to be a price
setter, given its large share of world production capacity and surplus
situation.
The latest statistics available onl key aromnatics such as benzene and
p-xylene, show that on a worldwide basis, operating capacities have remained
at constant levels during the last: years and still can comfortably meet global
demands. Even though the long-term trend for demand of benzene and p-xylene
shows high rates of growth, the situation continues to favor a slight surplus
in the medium term.
Environmental Concerns. Worldwide!, environmental concerns have
moved to the front stage regarding future development of the industry.
Although the industry has always been associated with environmentally
sensitive issues, recent progress in emission performance is now well
recognized. But, the steady improvements in point source emissions have been
balanced by the issue of solid waste generation associated to the end products
and the rising concern that manufacturers should share in the responsibility
J/ The New Face of the World Petrochemical Sector. World Bank Industry and
Energy Series Paper No. 84. July 1988.
- xiii -
for managing the life cycle for all products, and accept liability for the
generation of hazardous waste. For developing countries entering the market,
the application of emission performance standards is eased by the accumulated
experience of earlier entrants as well as the technology innovations
introduced in the field. Still, the will and institutional capability to apply
and enforce standards remains the most important element in environmental
protection.
Feedstock Choice. The long term trends toward the use of lighter
feedstocks in the synthesis of ethylene, typically ethane/propane, have been
slowed down for at least the immediate future. There are two reasons for the
change. First, naphtha prices following the large crude oil price reductions
in 1986, were significantly reduced and have remained low. Second, the demand
for polypropylene, which increased by 10% in 1987, increased again by 9% in
1988. Investors have seen the ample margins available to polypropylene and
propylene and the flexibility in operation and higher propylene yield as added
benefits to naphtha based production capacity, and this has resulted in a
number of new projects planned to be based on naphtha and an increase in the
ability of new producers to process a variety of feedstocks.
Increase International Competition. The large increases in
production capacity in Asia coupled with the extensive potential domestic and
regional markets in the region have put in evidence the role of countries
located in that area in the global market for petrochemicals. A number of
factors have contributed to this situation. These include widespread
availability of technology at accessible costs, growth in the domestic markets
of new and potential producers, and government support through the use of
incentives and controls.
Market Share of Asian Producers. The recent developments in market
evolution, investments and increased demand have contributed to increase the
market share of Asian producers. Asia now accounts for 17% of all plastics
produced, 15% of all rubbers and 34% of all fibers. The projections prepared
in this study imply that growth will continue and will result in an even
greater share of production by Asian producers in the world markets.
Review of Petrochemical Markets in Asia
The countries under analysis are at different stages of development.
Korea has a mature industry with high per capita consumption, others
like China and India are also large users but are behind in market development
with a low per capita consumption, still others are just starting production
to meet a growing domestic market and pursue export opportunities (Thailand,
Indonesia), and Malaysia is a newcomer to the industry. This study includes
the results of a country-by-country review of the petrochemical industries.
The review includes an analysis of the historical trends, the feedstock
situation, and an analysis of supply and demand for olefins, aromatics,
resins, rubbers and fibers. Table 1 below summarizes the main indicators for
market size, development and current activities for ethylene, the main basic
petrochemical product, in the six countries, and Figure 1 illustrates the
current situation in per capita consumption for some products. The current
- xiv -
situation of the industry in the six countries, can be further summarized as
follows:
- Korea Advanced market, high per capita consumption, high growth rates,
large exporter of end user products, ambitious expansion
program, lacks domestic feedstocks.
- India Lowest per capita user in the sample, large importer of
intermediates and re!sins, moderate to high growth rates, large
expansions under consideration, about to start use of gas,
limited feedstock availability: gas is not in surplus and is
expected to be a naphtha importer in the long term.
- China Largest market in the area, but low per capita consumption.
Largest importer of resins, high growth rate but growth is
dependent on trade and currency restrictions and growth
prospects are uncertain. Growing domestic shortage of refining
feedstocks. Just finished an expansion program, considerable
new capacity under consideration.
- Thailand New producer, small but fast growing market, moderate per capita
consumption. Limited feedstock availability, relatively
expensive gas fractions.
- Malaysia Yet to produce basic petrochemicals other than methanol, very
modest domestic market, but moderate per capita consumption,
large and inexpensive feedstock supplier, net long term exporter
of gas and naphtha.
- Indonesia Yet to be a producer of basic petrochemicals. Moderate size
domestic market, low to moderate per capita consumption, long
term exporter of naphtha and gas fractions.
Assessment of the Countries' Competitive Positions in the Manufacture of
Petrochemicals
A comparative analysis of competitiveness in the manufacture of some
petrochemicals was completed for all six countries. The factors that were
reviewed to assess competitiveness included economic, commercial and technical
advantages, all of which have an impact on the estimate of the economics of
production of petrochemicals. However, competitiveness is mostly dependent on
three major factors: (a) feedstock availability and price, (b) scale and
capital costs, and (c) location in relation to markets. The results of the
analysis show that the countries in the region are at various degrees of
competitiveness in the production of petrochemicals (Table 2). Korea is most
competitive in the production of downstream products where its advantages in
capital costs, shorter implementation periods and higher productivities
- xv -
Table 1: INDICATORS FOR MARKET SIZE, DEVELOPMENT AND CURRENT ACTIVITIES, 1988
Ethylene
Ethylene trade
domestic consumption Ethylene capacity exports
Per 1988/ Oper- Under (imports)
Total capita 1980 /b ation constr. Planned ('000
(mtpy) (kg) () -------- (mtpy) ------- mtpy) /a
Korea 1,332 31.3 16.3 505 1,050 1,950 (732)
India 608 0.7 14.1 213 600 2,498 (416)
China 1,612 1.7 9.8 1,670 690 635 (862)
Thailand 195 4.0 14.0 0 315 250 (195)
Malaysia 124 7.5 11.5 0 0 500 (124)
Indonesia 271/c 1.5 10.5 0 0 375 (271)
/a Implied trade through trade in derivatives plus direct imports.
fb Annual growth rate.
/c 1987.
Source: Staff estimates.
Table 2: COMPETITIVENESS ANALYSIS CONCLUSIONS
Country Remarks
Korea Competitive production of downstream chemicals in the domestic
market. Expected to be self sufficient in the short term.
India Gas based production of olefins and production of aromatics is
competitive in its own market. High cost producer. Will
continue to be net importer.
China Naphtha based production competitive only for domestic
production. High cost producer. Major net importer.
Thailand Gas based production competitive in its own market. Potential
competitive exporter of downstream products to the Asia region.
Malaysia Good potential position as exporter to the Asia region both for
olefins and aromatic derivatives but will face crowded export
markets.
Indonesia Potentially, competitive against US imports to its domestic
market. Export competitiveness conditional on improvements in
capital costs and integration.
- xvi -
compensate for relatively higher feedstock costs. This is one of the reasons
why the industry quickly integrated and why the Korean producers have the most
to gain from a strategy that maxim:izes value added.
Malaysia and Indonesia although not yet producers are estimated to be
potentially among the lowest cost manufacturers for olefins and aromatic
feedstocks in the region. Because of comparatively lower capital costs,
resulting from lower installation costs and 'Lower opportunity costs of capital
Malaysia could be able to pass these savings to downstream products. Malaysia
is a good potential location for the industry and is in a good potential
position as exporter to the region., Timing, though, may have an important
role in defining the country outlook. Thailand is estimated to be able to
compete with low-cost producers within Asia 'in downstream products. Even
though the industry is still at a very early stage, it has the makings for a
competitive position in the region.. Its competitive position is the result of
efficient implementation, careful location, timing, and low capital costs.
China and India are at the high cost range in the industry. In China the
limited availability of feedstocks and the relatively long implementation
periods make it a high cost producer of basic petrochemicals, but it can
produce competitively for its domestic market. In India, the advantages
provided by the use of gas allow for the production of basic olefins at
moderate prices, but high capital costs and long gestation periods combine to
increase the production costs of downstream products. Although local
manufacturers can compete for the I]ndian domestic market, with the current
cost structure it will be very difficult for Indian producers to compete in
the export market.
The Pclicy Framework
In the past, governments had intervened in the establishment of their
country's petrochemical industry arnd have initially sought to shield it from
import competition. Today, however, the policy framework in the various
countries varies significantly, alt:hough there is a general tendency towards
liberalization. In some countries like India, the policy environment remains
restrictive and protective, in others such as; Korea, it is becoming very open
to both domestic and import competition. Invariably, the policy framework
reflects (a) the stage of development of the petrochemical industry, and (b)
the export orientation of the economy. Government interventions have been
prevalent in a number of areas: controls over the pricing and availability of
feedstocks, tariff and licensing against competing imports, capacity
licensing, structure and ownership of the indLustry, special investment
incentives, and concessional financing.
Pricing and availability of feedstocks are generally determined by the
authorities in charge of the energy and refining sectors. With respect to
naphtha, price levels are set sometimes in line with international prices
(Korea, Thailand, Malaysia), sometimes at levels which seek to guarantee
minimum returns on domestic refineries (India, Korea prior to 1985) and tax
revenues to the state (India). Availability of naphtha is sometimes
constrained by priority allocations to competing uses (gasoline) when there is
a lack of domestic refining capacity and/or import restrictions. With respect
- xvii -
to gas feedstocks, only Thailand and India have been faced so far with the
issue of pricing gas fractions used in industry. Both countries are working
at formulas linking their prices to their opportunity value or cost.
In the countries under study, governments have had a major role in
shaping the ownership structure and integration of the industry through
capacity licensing associated with a range of special investment incentives
and concessionary financing. Licensing capacity, in particular, has been used
to match supply to projected demand. Governments have often viewed public
ownership, in particular of basic petrochemical plants, as necessary to
complement private interest in downstream plants; to avoid concentration of
ownership in the industry; or to avoid control by foreign investors. Capacity
licensing policies have had some adverse effects (lack of integration, lack of
domestic competition for market shares) which in only some countries are now
being corrected through more liberal entry policies.
Trade protection policies (import licensing and tariff levels) and the
subsequent degree of restriction to import competition they have introduced
have had a major impact on the structure and efficiency of the industry. In
this industry where economies of scale, choice of feedstock, location relative
to feedstock sources and markets and capital costs are so important, there is
evidence that high rates of nominal and effective protection (e.g., in India)
have had adverse effects on industrial efficiency. Countries where a
significant share of the industry's output is indirectly exported have been
more careful to maintain o. decrease protection levels to moderate or low
levels (in particular Korea and Malaysia) in order not to penalize export-
oriented downstream users. Several countries have also attempted to reduce
the dispersion of tariffs between competing materials and along the vertical
chain to avoid distortions in choice of materials and artificial biases in
favor or against horizontal or vertical integration.
The Outlook for Future Development
The prospects for future development of the industry in the six
countries are generally favorable. First of all, the domestic markets are
expected to continue to grow and expand, soon converting Asia into a market of
comparable size to other more developed regions. For example, the ethylene
demand in the 6 countries is now more than 1.5 times the Japanese demand while
just 10 years ago it accounted for only a small equivalent fraction. By 1995,
demand for ethylene is expected to reach 10 mtpy as a result of a yearly
growth of over 10% (Table 3). Plastics, fibers and rubbers are also poised to
grow at similar rates. A second reason for optimism is the expected gradual
evolution of the policy framework toward a less restrictive environment, freer
trade and lesser protection. Although the countries in the sample are all
across a wide spectrum of po'icies, the trends clearly point, with some
exceptions, toward a less regulated industry better linked to market signals.
A third reason is the differentiation of the markets in Asia that provide
opportunities for mutual complementation. From the most sophisticated, highly
integrated markets like Korea to those with clear advantages as
suppliers of polyolefins (Malaysia), the region is a showcase of the stages of
- xviii -
Figure 1
PERCAPITA CONSUMPTION OF PETROCHEMICALS
(In Asia In 1988)
100
10
0.1 1THYLENE
ETHYLENE DENZENE PE PP ann POLYESTER
Kg per capita
KOREA IDoIA CHINA
THAILAND MALiVIA INDOHNEIA
Source: Staff estimates
Table 3: PROJECTED DEMAND FOR PETROCHEMICALS IN ASIA, 1995
(million tpy)
Developing Asia
Six
countries Others / Total Japan
Ethylene 8.2 2.0 10.2 5.1
Propylene 4.7 1.3 6.0 3.8
Benzene 1.8 0.7 2.5 2.7
PE 5.6 1.3 6.9 2.9
PP 2.9 1.1 4.0 2.0
ABS 0.3 0.3 0.6 0.5
SBR 0.8 0.7 1.5 0.5
Polyester fiber 4.8 n.a. n.a. n.a.
n.a.: Not available.
,a Includes Singapore, the Philippines, Hong Kong and Taiwan.
market development in petrochemicals. The Asian producers have a lot to gain
from this situation through complementary trade and markets.
- xix -
Finally, the abundant gas resources in some countries in the region,
in particular in. Malaysia and Indonesia and the availability of other
feedstocks, provide Asian producers with the possibility to become long term
low cost producers of basic petrochemicals and a competitive manufacturer of
downstream products. As a caveat, these generally favorable prospects hinge
on the continuation of moderate growth on energy prices. Also, the outlook
would be affected if additional large volumes of export oriented capacity were
to be introduced by countries known to own vast resources of associated gas
(such as Iran, Qatar, Algeria and others). To secure their competitive
position and materialize the growth prospects other countries in the region
with a lower competitive posture will benefit -he most if actions to improve
their economics of manufacture are taken now when prospects for progress of
the industry in the region are favorable. Priority actions for Korea and
Thailand relate to diversifying the feedstock base and continue vertical
integration; for China and India restructuring in fibers and rubbers (India)
is needed to improve competitiveness in those sectors; also in India the
industry will benefit from (a) improving the efficiency of contractors and
engineering companies to shorten implementation periods, and (b) increased
exposure to competition through reduction in protection rates; for Malaysia
and Indonesia, long term planning and access to export markets is required to
develop its potential as low cost producers. Collectively, the industry must
also address the issue of potential overcapacity through better communication,
planning and discipline and the governments should intervene to apply and
enforce emission performance standards to allow the industry to meet the
challenges of increased environmental awareness.
-1-
I. INTRODUCTION
The petrochemical sector plays an important part in the industrial
strategies of developed countries. Its pivotal role in industrial
modernization has been documented elsewhere (Jones, 1989; Fayad, 1986) and
linked to progress in the manufacturing sector and the ability to promote
exports (Stobaugh and Gagne, 1988).
World annual sales of petrochemicals continue to increase at a fast
rate and now total US$385 billion equivalent (Table 1.1) surpassing in sales
and production all other sectors of the chemical industry. For example, world
sales of olefins, plastics and synthetic rubbers increased 5%, 9% and 3%,
respectively, in 1988 over the previous year. With relatively low raw
material costs, adequate feedstock supplies and high product prices, the
general short-term outlook is for the industry to continue its strong
performance and further penetrate diverse markets in the economy. In Asia,
the industry is the focus of large investments in infrastructure, production
capacity and vertical integration and expansion (manufacture of end-user
products) all of these in anticipation of further increases in demand for
petrochemical products. Compared to other regions, Asia continues to lead in
growth for all sectors of the industry (Figure 1.1).
Table 1.1: WORLD SALES OF THE CHEMICAL INDUSTRY BY REGION, 1988
(US$ billion)
Total Petro-
chemical chemi-
sector cals
Western Europe 285 125
US and Canada 240 100
Japan 165 70
Asia 40 27
Middle East
and Africa 30 13
Latin America 15 7
Other 120 43
Total 895 385
Source: Jones, C., 1989, and staff estimates.
Although the industry in Asia is expected to continue growing at
higher rates than in developed regions, the large number of parties involved,
the investments considered, the cyclical nature of the industry and the
- 2 -
globalization of the sector require that careful analysis be exercised in the
development of options and strategies. This study is a follow-up of a
previous report on the world situation of the industry which identified the
Asia region as a high growth and fast evolving market for petrochemicals. The
new study reviews the current situation of the industry in Asia and based on
its historical performance and trends analyzes its competitiveness against
producers in the region and low cost producers outside of Asia. The study is
intended as background for decision makers and planners and as a guide for
prospective Bank Group dialogue with the countries in the region.
The specific purposes of the study are:
(a) to identify recent trends affecting the global petrochemical
industry and their effect in the future development of the sector in
Asia (Chapter 2);
(b) to describe the current: situation of the industry and its markets in
a sample of selected countries, including the current policy
framework, and to forecast the demand and supply situation for key
basic chemicals and derivatives (Chapters 3 and 6 and Annex 2);
(c) to assess the individual country and industry advantages for the
production of petrochemicals (Chapter 4); and
(d) to identify issues affecting future development of the industry
(Chapter 6).
Given the diversified nature of the industry and the many countries
involved in petrochemical development in Asia, the study focuses on an
indicative sample. Therefore, 13 products and 6 countries were selected as
targets of the study. The representative products are the three basic
olefins: ethylene, propylene and butadiene, an aromatic (benzene), the five
major commodity plastics (LDPE, HDPE, PP, PS and PVC) an engineering polymer
(ABS), a synthetic rubber (SBR) and a synthetic fiber (polyester). Together
these products represent an estimated 60% of world sales of petrochemicals,
and all major sectors of the industry.
The countries targeted in this study were selected for a number of
reasons. Korea is an example of iearly and fast development that could be used
by newcomers, China, India and Indonesia are large producers or large markets
undergoing ambitious expansion programs while Thailand and Malaysia consist of
successful industrializing economies entering or considering entry into the
petrochemical market. The sample provides the opportunity to look at the
petrochemical industries at various stages of development, from highly
developed (Korea) to virtually nonexistent (Malaysia) and its relation with
markets also at different stages of maturity, from mature in South Korea to
vastly underdeveloped (India, China). Fina:Lly, the countries selected follow
a wide spectrum of industrial policies and therefore provide an opportunity to
compare their effects on the petrochemical industry and the markets.
-3-
One element common to all these countries is the strong historical
growth of the industrial sector. Additionally, South Korea, Thailand and
Malaysia have been able to maintain export oriented economies and to
successfully weather global economic cycles. The main economic indicators are
summarized in Table 1.2 for all countries selected. The estimates and
projections included in this report are always in economic terms, but only
intended as a tool to enable a relative rating of the industry prospects in
the countries under analysis. This caveat is particularly relevant for the
price projections used to estimate future revenues for petrochemical
industries, therefore the prices used and the results ought not to be seen in
absolute but rather comparative terms.
Table 1.2: ECONOMIC PERFORMANCE INDICATORS OF THE SELECTED COUNTRIES
Annual Gross Real
growth domestic growth
Annual rate of investment, of mer-
GNP inflation industrial annual chandise
per capita rate output growth rate exports
(US$, 1987) 1980-87 1980-87 1980-87 1980-86
-------------------- (% p.a.) ---------------------
Korea 2,690 5.0 10.8 10.0 14.3
India 300 7.7 7.2 3.7 3.6
China 290 4.2 13.2 19.0 11.7
Thailand 250 2.8 5.9 3.9 10.2
Malaysia 1,810 1.1 5.8 -1.0 9.7
Indonesia 450 8.5 2.1 4.1 2.7
Source: World Development Report, 1989.
Figure 1.1
RECENT GROWTH PERFORMANCE OF THE
PETROCHEMICAL INDUSTRY (BY SECTORS)
Eatlmated 1988 Growth Rate In per oent
ASIA JAPAN N. AMERICA W. EUROPE
REGION
L S. RE8INS x 8. RUBBERS S 9. FIBRES
Souroe: staft Estimates
-4-
II. GLOBAI, TRENDS IN THE INDUSTRY
A review of long-term trends for the industry was discussed in a
recent report (Vergara and Brown, 1988).j,/ In that study, the recurring
changes in the feedstock situation, the gradual saturation of the markets, the
trend toward vertical integration of production and trends in trade,
technology and new products were discussed. However, the petrochemical
industry is cyclical in nature and strongly influenced by other sectors of
economic activity, and therefore the driving forces shaping the market in a
more immediate time frame must also be reviewed. For purposes of this study,
an update of trends has been prepared focusing on the significant changes
expected in the short term (1990s) that have the largest potential
implications for Asia-based producers. The update covers the following
aspects of the industry: (a) the investments flowing into olefins and
olefins derivatives, its impact on the outlook for margins and prices, and
implications for merchant ethylene producer;s; (b) the associated changes to
the aromatics sector including the impact of new derivatives production
capacity on the industry; (c) the trends in environmental considerations and
environmental policy and its effect on the outlook of the industry; (d) a
review of the feedstock supply and raw material situation in Asia; (e) the
increased international competition in petrochemical manufacture and the
relative position of Asian producers in the World Market (a detailed country
by country analysis of competitiveness is included in Chapter 4); and (f) a
review of the regional demand situation for the major sectors of the industry.
Investment in Ethylene and Derivatives
During 1988 and the first half of 1989, the difference between
prices for products and the cost of raw materials to the industry increased
considerably (see Annex 1). For ethylene, jEor example, the difference between
the market price for ethylene and the cost of the required ethane for its
manufacture was over US$500 per ton of ethy:Lene for ethane based producers on
the US Gulf Coast. This compares with the average US$240 per ton for the
period 1985-87. A similar situation was experienced by naphtha based
producers, with naphtha prices at low levels and ethylene and by-product
olefins at relatively high prices. Commodity polymers, affected by limited
supplies, experienced in various degrees large increases in prices, outpacing
the increases in costs for olefins. Other basic chemicals and derivatives
also experienced net increases in prices during the period 1986-88. Only
synthetic fibers and basic aromatics failed to post similar increases in
price. The recent price fluctuations for major petrochemical products are
summarized in Figures 2.1 and 2.2. Although market prices have not yet
reached levels comparable to those prevalent: during the late 1970s and early
1980s, these increases coupled with relatively low and stagnant feedstock
1/ World Bank, 1988. The New Face of the World Petrochemical Sector.
Washington, D.C.
-5-
Figure 2.1
PRICE VARIATION OF BASIC PETROCHEMICALS
AND FEEDSTOCKS
(US $/M.T., In 1988 oonstant terms)
1200
900
600a
300
1978 1979 1980 1981 19e2 1983 1984 1985 1986 1987 1988
ETHYLENE i PROPYLENE * BUTADIENE
BENZENE --- ETHANE - NAPHTHA
Figure 2.2
PRICE VARIATION OF KEY DERIVATIVES
(US $/M.T., In 1988 oonstant terms)
800
900
1979 1979 1980 1981 1982 1983 1984 1988 1986 1987 1988
- LDPE --HOPE ofPP -PVC >-E 98R O ABS
-6-
prices have resulted in a significant rise in profitability across the board
for the industry.
The increase in margins and consequently the higher level of
revenues have attracted a number of potential investors and announcements for
expansions and new units by established producers. In the US for example,
from 1985 to the beginning of 1988, not one announcement for new cracking
capacity was made, while during the period March 1988-mid 1989, 16 new
crackers were announced with a total annual capacity of nearly 6.6 million
tons (Table 2.1). This is equivalent to 13% of worldwide installed capacity
(excluding Eastern Europe). Although it is doubtful that all the announced
capacity will be built in the proposed timetable (some of the announcements
may have been done to prevent new entries into the market), the prospect of a
large new chunk of capacity entering into operation in the US in the next
three to four years will undoubtecdly shape the medium-term market conditions
for olefins.
Table 2.1: ETHYLENE EXPANSION ANNOUNCEMENTS IN THE US
(as of mid-1989)
Target
start-up Capacity No. of
year ('000 tpy) units
1989 765 4
1990 810 3
1991 1,750 3
1992 1,300 2
1993 650 1
1994 450 1
Other 900 2
Total 6.625 16
Source: Crouch, J., 1989 and staff estimates.
A similar surge of new projects has been announced worldwide. In
Asia alone, a total of 13 new crackers and expansions adding up to 3 million
tons of annual capacity of ethylene by 1995 are now at various stages of
construction and many others are under planning (Table 2.2). Announcements
for new ethylene capacity in the Middle East total 1.3 million tpy, in Latin
America 2.0 million tpy and in Western Europe 1.5 million tpy. However, these
announcements do not match in investment volumes or production capacities the
large increases expected from the US and Asia. Overall, this flurry of
activity raises the concern that the ratio of production to installed capacity
is likely to fall in the next years as can bde seen from a plot of announced
- 7 -
Figure 2.3
NORTH AMERICA. PROJECTED ETHYLENE
DEMAND AND DEMAND TO CAPACITY RATIO
Million Metrio Tons RATIO
2S - 1
24 -
23 - -0 85
22-
21-
20 0. 9
18 0.8
86 87 88 89 90 91 92 93 94 95
YEAR
- ETHYLENE DEMAND ' DEMAND /CAPACITY
Demand prolootlon based on 3.0-2.2%
gradually dooreasing growth rate
Figure 2.4
SWITCHING FEEDSTOCK VALUES
FOR ETHYLENE MANUFACTURE, 450000 TPY
Naphtha Prioe (US $/MT)
:300
10 0, - .................................................................- .... ................ ......................................................
1.5 2.6 3.6 4.6 6.5 6.5
Ethane Prioe (UaS /MMBTUI
Cash Costs ' Produotlon oosts
(For US GULkF COAST location
with Propylene at US $ 430/MT)
Prod. Costs include a 20% ROI
- 8 -
Table 2.2: DEVELOPING ASIA--NEW ETHYLENE CRACKERS
UNDER CONSTRUCTION OR PLANNING
Country Company Size Status Feedstock Schedule
(''000 t) (year)
Korea Daelim 300 C naphtha 1989
Yukong 400 C naphtha 1989
Lucky 350 C naphtha 1992
Samsung 350 P naphtha 1995
Hiunday 350 P naphtha 1994
Other (5) 1,300 P naphtha 1996
India IPCL 300 C ethane/ 1989
propane
IPCL 100 P ethane/ 1992
propane
Oswal 100 C 1990
MRL 300 P naphtha 1990
Reliance 325 P NGL 1994
China Sinopec 300 C naphtha 1990
120 C naphtha 1991
130 C naphtha 1990
140 C naphtha 1991
Other (3) 900 P 1992-1995
Thailand NPC 315 C ethane/ 1994
propane
325 P NGL/naphtha 1995
Indonesia Shell/partners 315 P pending 1994
Malaysia ? 300-400 P ethane/ ?
propane
Taiwan China Petr. 400 C naphtha 1992
Formosa Pl. 400 P naphtha ?
Total by 1995 under construction 2,855
Total including planned units
by 1995 5.820
C: Under construction. P: Proposed.
Source: Staff estimates.
capacity additions against projected market growth for ethylene in North
America (Figure 2.3).
-9-
Worldwide, ethylene demand has been projected to grow at an annual
rate of 2.9% up to 1995, with developing regions growing at faster rates and
Europe, Japan and North America at a much slower rate (World Bank, 1988). A
comparison of the expected 1995 demand with the updated numbers for capacity
under construction and planned confirms that N. America and the Middle East
are likely to have surplus capacity by 1995. North America is also likely to
continue being the price setter in the industry given its surplus situation
and the large share of world production capacity. The data also show that the
Asia region as a whole will easily absorb all new capacity under construction
and still remain a net importer. If on the other hand all projects under
planning materialize, Asia may significantly reduce its import dependence from
other regions (Table 2.3). Nevertheless, many of the projects under planning
in Asia are at a very preliminary stage and some are likely to be cancelled or
postponed because of technical and market and environmental reasons. It is
therefore likely that Asia will continue to be a net importing region through
the 1990s.
Table 2.3: PROJECTED WORLD DEMAND AND SUPPLY SITUATION FOR ETHYLENE BY 1995
Projected capacity
Projected 1995 in 1995 Ration of pro-
demand Current, jected demand
Annual growth Current & in con- to projected
rate under con- struction suRplv /b
MMTY 1995/1987 struction & planned (operation factor)
(A) (%) (B) (C) (A/B) (A/C)
--- (MMTY) --- ---- (%)
North America 19.2 1.9 24.4 La 24.4 78 78
W. Europe 14.7 1.4 15.5 /a 15.5 95 95
Japan 5.1 1.3 5.4 6.9 94 74
Asia 10.2 8.9 7.6 10.6 134 95
Latin America 5.6 6.8 4.0 5.1 140 109
Africa 1.5 12.4 0.6 1.1 250 136
Middle East 2.7 3.9 4.0 /a 4.0 67 67
Total 58.3 61.5 67.6 97 89
/a Includes all announcements.
ab A 95% ratio is the industry standard for full capacity in operation.
Source: World Bank, 1988, Vergara, W, 1989 and staff estimates. Eastern
Europe not included in the estimates. Projected growth rates are
considerably lower than historical rates. For details on the
assumptions underlying the assumptions and scenarios considered see
references above. Asia demand estimated based on country projections
included in Chapter 6.
- 10 -
There are also other elements that may slow down the entry of new
crackers into production. For one, the engineering and construction
capability required to build a large number of plants is still limited after
the effects of the last recession and now faces a large increase in orders
worldwide. This workload is likely to result: in long delays and extension of
schedules. Second, contrary to the previous construction boom, where the oil
companies had large cash excesses and were seeking positions in petrochemi-
cals, this time the primary investors are chemical companies or consortia of
downstream producers seeking to integrate. In other words, the driving force
is not exogenous to the industry buit rather t:he result of the reinvestment
strategies of chemical companies necessarily concerned about the long-term
viability of the industry and more cautious about the effects of
overcapacity.Z1
Impact on the 14erchant Ethylene Market
The merchant ethylene market is estimated at less than 5.0 million
tons worldwide (close to 10% of total production). But, with the trends in
vertical integration and the expansion of basic chemical companies into
downstream products, the base of the merchant: ethylene market is expected to
shrink in relation to total instalLed capacity. If ethylene capacity increases
as expected, the first one to feel the effects in prices will be the merchant
supplier. In addition, the expected increases in regional self reliance, and
the costs of transportation should also work against merchant ethylene
prospects. Although some specific areas will. continue to offer merchant
ethylene markets, the outlook for this type of operation is not likely to be
attractive in the near future.
Update on the GLobal AromELtics Situation
The latest available sta;tistics on key aromatics such as benzene and
p-xylene, show that on a worldwide basis, operating capacities have remained
at constant levels during the last years and still can comfortably meet global
demands. In addition, growth in the demand for aromatics has been very
affected by market saturation in industrialized countries where the key
aromatic derivatives are used in mature applications such as housing, textiles
and infrastructure development. Worldwide demand for synthetic fibers, the
largest end user of p-xylene continiues to lag behind the growth of olefins,
plastics and rubbers. There are nievertheless; a few points that need to be
borne in mind when reviewing the aromatics market. First, the installed
capacity of benzene derivatives is following the trend of expansions observed
in the olefins/polyolefins markets. That is, a substantial number of
expansions primarily in polystyrene/ethyl benzene are in the process of being
implemented. Second, there is a gradual relative decrease in the availability
of aromatic naphtha and this should decrease the effective production capacity
of benzene. Both trends should contribute to tighten the worldwide supply of
21 If the global supply/demand projections and the resulting capacity
utilization rates are correct, the situation in the mid 1990's won't be
as critical as to what was experienced in 1984-1986.
- 11 -
benzene. In terms of p-xylene, the US continues to be the largest producer
and consumer, accounting for over 5.7 million MT of capacity (32% of world
total) and 4.6 million MT consumed. But, Asia remains the fastest growing
producer of p-xylene and now has over 20% of the world production capacity
with China alone accounting for 11% of the total. The continuation of the
sluggish growth of the fiber sector in the developed countries combined with
the active growth of the domestic markets in Asia is expected to result in a
further concentration of production in the region and the continuing need for
imports to the region (estimated at 0.4 million tons in 1988). In Asia, there
is already a good number of aromatic projects already in construction or
planning that will increase regional benzene capacity by one million tons and
p-xylene capacity by 0.3 million tons. Even though the long-term trend for
benzene and p-xylene derivatives shows continuing growth in Asia, the
situation remains in favor of a worldwide surplus in the short term.
Environmental Concerns
Environmental concerns have moved to front stage regarding future
development of the industry. Although the petrochemical industry has always
been associated with environmentally sensitive issues, some progress in this
area is now recognized. The widespread adoption of emission standards, the
availability of new technologies that minimize effluents and maximize resource
recovery and the realization by technology and engineering companies that
environmental liability does not cease at plant start up even if local
legislation is lacking or lax, has contributed to improve the record of the
industry. But, the steady improvements in point source emissions have been
offset by (a) the issue of solid waste generation associated with the end
products, (b) the rising concern that manufacturers should share in the
responsibility for managing the life cycle for all petrochemical products, and
accept liability for the generation of hazardous waste, and (c) the
realization that the long-term environmental effects of what were until very
recently accepted industrial practices are associated with much higher social
costs than was previously considered.
The issue of solid waste is evident in the concerns related to the
degradability of plastics and its contribution to total solid waste, which
have been apparent in recently proposed legislation banning the use of plastic
products in some localities in the US and Western Europe and in the
introduction of plastic and starch blends in the manufacture of films.
Although the share of plastic products in total solid waste production in the
US is below 7% of the total by weight, plastic residue is highly visible and
the total volumes involved are considerable. Plastics are in particular
vulnerable to criticism. According to a recent estimate, about 40% of total
plastics production in the US, ends up in disposables. This would equal about
10 million tons per year, equivalent to the aggregated yearly production of
plastics in the whole of Asia.
Recycling is one alternative to waste disposal, which has been used
by other industries for a number of years, but presents practical
complications when applied to plastics, since these products are subject to
stringent specifications which make recycling unfeasible in many instances.
- 12 -
Another alternative is the use of recycled materials in new applications.
Currently, very little plastic material is recycled in the US, (less than a
fraction of 1% against 40% of all aluminum and 30% of all paper) but as
pressure mounts to reduce the volumes of sol:id waste associated to plastics,
recycling and reuse of plastic materials should increase. The introduction of
recycled material even at modest levels will have an impact on the future of
the industry by slowing down the rates of growth in consumption of commodity
plastics and rubbers.
Incineration is another alternative to plastic disposal.
Incineration not only reduces the large tonnage of solid waste (typically
1,000 tons yield 250 tons of ash) but can also generate electricity. There
are nevertheless questions yet to be answered that cast doubts about the
applicability of incineration to plastics. These have to do with the
potential generation of dioxins and furans, the presence of heavy metals from
plastic additives and the generation of acid gases from the incineration of
PVC. There are also some concerns about the economic viability of
incineration with energy prices at the current levels. Incineration is not
likely to become a major disposal method for plastics in the short term.
Although a lot of attention is being given to solid waste
generation from plastic disposal, the industry is also associated with liquid
waste effluents and the emission of airborne pollutants. Comprehensive
legislation to deal with these effluents has recently been enacted in the US
and Japan. Application of emission and performance standards is nevertheless
complicated by the large number of products :Lnvolved and also by the
continuous modification in processes design. Consider, for example, the
recently completed source performance standards for the polymer industry in
the US, which were released at the time when major innovations in reactor
technology (slurry and tubular reactors) were entering commercial application.
As a result, the standards are in some cases already not applicable or
obsolete.
The main difference between air emissions from the petrochemical
industry and other manufacturing processes is the heterogeneous nature of the
emissions, mostly of hydrocarbon nature. Many of these compounds are toxic or
hazardous and require special handling and dlsposal. Over the years, a number
of techniques have been introduced to reduce hydrocarbon emissions at the
source including floating roof tanks, vapor recovery lines, shipment of
products by pipeline and others (Borup and Middlebrooks, 1987). These
techniques have proven useful in the reduction of product loss and resource
recovery while addressing pollution concerns. The cost of air pollution
control systems varies widely with the process and control required. Because
of the complexity of the air emissions it is not possible to summarize the
efficacy and economics of control devices used by the industry. Recently
built petrochemical plants have incorporated in most cases modern air
pollution control systems. The problems are linked to the operation of old
but economically viable units, designed before strict regulations were
adopted. But, even today in developed countries the problem of fugitive
emissions from petrochemical plants awaits comprehensive solutions. The
installation of modern equipment for air polLution abatement in old or small
- 13 -
scale plants may not be cost effective. In those cases where social and
environmental benefits will result from efficient pollution control measures,
economic incentives could be considered to assist in achieving compliance.
As in the case of air pollution, liquid effluents from the
petrochemical industry are varied in nature. These include process and
cooling waters, contaminated runoffs, product spills, ballast water, and
start-ups and shut-downs liquid effluents.
The appropriate treatment for these effluents can only be optimized
after a detailed review of the many operations that frequently are part of a
petrochemical complex. Treatability studies are also being used to establish
the operational parameters and removal efficiencies. All these require of
resources and time for which allowance should be made at the feasibility
stage. Biological treatment coupled with postfiltration has been defined by
the US Environmental Protection Agency as the best practicable technology
available for treating liquid effluents from petrochemical plants.
Attention has been given to the removal of toxic and hazardous
materials from liquid effluents. These substances are not normally treatable
through the biological and standard chemical treatments and often require the
use of additional treatment operations such as carbon adsorption, wet air
oxidation, steam stripping and others.
For developing-countries. entering the market, the application of
emission performance standards is eased by the accumulated experience of
earlier entrants as well as the technology innovations introduced in the
field. Still, the will to apply and enforce today's strongest standards
remains the most important element in environmental protection. Without
enforcement, and or economic incentives, the improvements in legislation and
enactment of standards will not result in pollution abatement and prevention.
Feedstock Choice
The long term trend toward the use of lighter feedstocks in the
synthesis of ethylene, typically ethane/propane, has slowed down for at least
the immediate future. The large increases in ethane based capacity have not
materialized as quickly as was expected in the early 1980's. There are two
reasons for this: First, naphtha prices following the large crude oil price
reductions in 1986, were significantly reduced and have remained low.
Therefore, today in many locations naphtha is competitive with gas feedstocks.
In 1988, the average international market price for full range naphtha
remained at US$155/MT, about half the price level of 1985 in constant terms.
This reduction in prices increased the margins available to naphtha based
ethylene manufacturers and has apparently been enough to gain some new
production capacity. Second, the demand for polypropylene, which increased by
10% in 1987, increased again by 9% in 1988. This has caused a record number
of additions to polypropylene capacity and therefore resulted in large
requirements for propylene. Investors have seen the ample margins available
in the manufacture of polypropylene and propylene and the flexibility in
operation and higher propylene yield as added benefits to naphtha based
- 14 -
production capacity. For example, in Asia, of all projects under
construction, 65% of the total on a tonnage basis is expected to be naphtha
based. The rapid changes in feedstock prices and availability has also
resulted in an increase in the ability to process different feedstocks by new
and established producers as a hedge against unforeseen feedstock variations.
For example, some of the heavy feedstock crackers being proposed in the US are
in fact wide range crackers capable to processs many different feedstocks.
As shown in Chapter 4, ethane baseBd producers with access to low-
cost gas remain the most competitive and lowest priced among similarly sized
plants. For naphtha to replace ethane/propane, in the synthesis of ethylene,
in those countries naphtha prices would need to be further reduced. For a
US Gulf location, current naphtha prices neesd to be lowered to $130 per MT and
future prices accordingly for a potential iLavestor to switch from ethane to
naphtha purely on grounds of equivalent ethylene manufacturing costs,
including return on investments (Figure 2.4). Yet, as illustrated by the
large number of projects based on naphtha, other criteria such as by-product
yields, flexibility of operation, and actual feedstock availability prevail.i/
The large volume of planned capacity being considered in Asia
including many new proposals based on naphtha, raises questions about the
availability of these feedstocks in the area. A recent Bank survey found that
all the countries under study are likely to require additional refining
capacity to meet the future demand for midd:Le distillates and that given the
expected domestic requirements for petrochemicals naphtha is likely to be in
short supply in the area (Table 2.4). Also, naphtha is expected to keep
increasing in price in proportion to projected increases in crude oil prices.
Compared to other regions, Asia is therefore expected to face a tighter supply
of heavy feedstocks and gradually step up the use of natural gas fractions
depending on relative prices of gas and naphtha in each country.
Increase in 'International Competition
The additions to production capacity for petrochemicals in Asia
coupled with the extensive potential domestic and regional markets in that
region highlight the large share of Asian producers in the global market for
petrochemicals. A number of factors have contributed to this situation.
These are summarized below.
Technology Availability and Cost. Technology for many but the most
specialized and advanced resins, rubbers and fibers is readily available in
the world market. As an example, consider that over 50% of all synthetic
fibers are now produced in countries other than Japan, the US and Western
.i./ The relative price of naphtha and ethane in the Middle East is not a
significant determinant of new capacity in that region as the
availability of ethane for petrochemicals is restricted as long as OPEC
output remains at the current levels. All new announced capacity in
Saudi Arabia will be based on naphtha.
- 15 -
Table 2.4: ASIA--EXPECTED DEFICITS OF MIDDLE DISTILLATES
REFINING CAPACITY AND NAPHTHA SUPPLY BY 1995
(million bbl/year)
Middle
distillates Naphtha
Korea 30 11
India 111 2
China 100 n.a.
Thailand (65)/a 3
Malaysia 6 (2) /a
Indonesia 24 (2) /a
/a Figures in parentheses indicate surplus.
n.a.: Not available.
Source: Staff estimates.
Europe where the technologies were first developed. Developing Asia alone now
accounts for 37% of all polyester produced. A significant fraction are
exported as textiles to the countries where the processes were first
developed. Because raw materials costs are roughly equivalent worldwide, and
despite differences in capital costs, one key factor to compete with end
products is the cost of labor involved in its manufacture. This is similar to
the situation of rubber products, plastic parts and other end products where
labor is an intensive input. The cost of technology and know-how for most of
the basic and key derivatives is no longer an obstacle to new entrants. A new
comer to the olefins business in some Asian locations can get a contractor to
build a cracker and obtain costs that are comparable and some times lower than
an established producer in Western Europe with millions of tons of installed
capacity. (Shinnar and Buidan, 1988)
Domestic Markets. A large domestic market provides a major
advantage by supporting the installation of full scale units without the need
to rely on export of key intermediates and raw materials. The large potential
markets in Asia (China, India, Indonesia) offer an opportunity for large scale
producers that can competitively set up full scale units. If the market is
actively growing as is the case of the relatively new markets in Asia,
additional advantages in the form of continuous growth opportunities are
available to local producers.
Government Support. Developing countries, and in particular those
in Asia have moved forcefully to create and maintain their essential chemical
industries. The governments's role has traditionally been to protect the
industry during its early stages (Korea, Taiwan), to control production output
(Korea, Japan, India) and to provide stimuli for establishment and growth
- 16 -
(Thailand, Malaysia). As market share and competitiveness increases, the role
of the Government has generally decreased.
Market Share of Asian Producers
The data in Table 2.5 shows the imipressive position already gained
by the Asian markets as measured by current consumption. Asia now accounts
for 17% of all plastics used, 15% of all rubbers and 34% of all fibers. The
projections prepared in this study imply thaLt the Asian markets will continue
to grow although at lower rates and will result in an even greater share of
production in the world markets during the 1990s (see Chapter 6).
Some of the large Asian based prodlucers are expected to emerge in an
even stronger position invigorated by a strong marketing position and possibly
challenging the traditional megacompanies. Large producers in Korea like
Kumho and Honam and public-sector companies like Sinopec (China) are already
in a sales position comparable to large chemical companies in the
industrialized countries. Others are expected to follow. The appearance for
the first time of large chemical producers in the region introduces a new
challenge to traditional producers. These large companies are expected to
gain share in every segment of the industry, and slowly evolve into regional
concerns through the establishment of production facilities in low cost
countries in the region and of a network of producers and consumers throughout
Asia. By gaining production volumes their links to the regional market will
place them in a strategic place w:ithin the Asian market.
Another implication of the increase in market share and the
reduction of tariff and nontariff barriers within Asia is an increased
regional self-sufficiency for all subsectors; of the industry. The emergence
of new producers and evolution of the markets is expected to result in the
Asian needs being increasingly mel: by Asian producers. There are simply
enough raw materials, markets and investors to match.
The data in Table 2.5 a:Lso illustrate the level of world production
of major groups of petrochemicals. The growth rates by sector are expected to
continue a gradual reduction due to market penetration. For Asia, this study
confirms the findings of the previous report: and estimates annual growth per
sector at comparatively higher raltes than irn any other regional market
(Chapter 3 and Table 2.6).
- 17 -
Table 2.5: REGIONAL CONSUMPTION OF SYNTHETIC RESINS,
RUBBERS AND FIBERS, 1988
(million MT)
Synthetic resins /a Synthetic rubbers /b Synthetic fibers /c
Total % of total Total % of total Total % of total
North America 17.8 31 2.5 23 3.0 23
Western Europe 16.6 29 1.9 17 2.6 19
Japan 6.3 12 0.9 8 1.3 10
Asia 9.7 17 1.5 15 4.8 34
Latin America 3.8 7 0.6 5 0.9 7
Other 1.5 3 3.5 32 0.9 7
Total 55.7 10.9 13.5
/a Eastern Europe not included.
/b Includes SBR, BR, EPDM and NR.
/c Includes polyesters, polyamides and acrylic fibers.
Source: Staff estimates.
Table 2.6: OUTLOOK FOR GROWTH IN THE PETROCHEMICAL INDUSTRY
BY SECTORS
Consumption
Growth rate World Asia's
1980-87 outlook outlook
(% p.a.) (% p.a., 1988-95)
Olefins 4 3 8-9
Resins 6 5-6 6-9
Fibers 3 2-3 5-6
Rubbers 3 2-3 3-4
Source: World Bank, 1988, and staff estimates.
- 18 -
III. REVIEW OF THE3 PETROCHEMICAL MARKETS IN ASIA
The countries covered by this study are at different stages of
development. Korea has a mature industry with high per capita consumption,
others, like China and India are relatively large producers but are well
behind in market development (low per capita consumption), still others such
as Thailand and Indonesia are just starting production to meet a growing
domestic market and pursue export opportunities, while Malaysia is a relative
newcomer in the industry. This section briefly summarizes the results of a
country-by-country review of the petrochemical markets both for basic and
downstream products.!/ The review of the historical growth of the domestic
industries, including an analysis of the feedstock situation, and expansion
plans is included as a country annex.
KOREA
The current market for petrochemicals in Korea is characterized by
the following factors: (a) very rapid growth in the consumption of
derivatives, stimulated by the dynamic performance of the domestic economy and
the successful tapping of export markets for end-user products, (b) the
inability of the local producers to keep up with the growth in demand and the
dependence on imported feedstocks, (c) the gradual phase-down of protection to
domestic producers as markets and production developed, and (d) an increased
competition from new and cheaper manufacturers in the Asia region. Domestic
production capacity is summarized in Table 3.1
Basic Petrochemicals
The domestic requirements for basi.c petrochemicals have grown at
high rates during the last 8 years. For example, the demand for ethylene
during this period grew 16% annually and is now estimated at 1.3 million tons.
The resulting per capita ethylene consumption (as well as for other olefins)
places Korea on a class of its own together with Japan and Taiwan in the Asia
region (Chapter 6) and at a much higher level than all other countries
included in this study (Figure 3.L). The Korean market is also a major user
of aromatics as raw materials for synthetic detergents, synthetic rubbers and
fibers. Demand for benzene and toluene is growing at high rates (30% for
benzene during the period 1986/1987) while the requirements for p-xylene have
remained relatively constant as a result of the slow growth of the fiber
sector. The domestic supply of benzene and toluene satisfies the demand but
imports of p-xylene mostly from producers in Japan are required to meet the
requirements for the production of synthetic fibers.
/ The basic petrochemicals covered are olefins, benzene and methanol.
Derivatives included are synthetic resins (plastics), synthetic fibers
and synthetic rubbers.
- 19 -
Figure 3.1
PERCAPITA CONSUMPTION OF PETROCHEMICALS
(In Asia in 1988)
Kg per capita per year
100=
1 0
0.1.
ETHYLENE BENZENE PE PP 8BR POLYESTER
Ir__ KOREA INDIA E CHINA
THAILAND �z MALAY81A INDONESIA
8ource: Staff estimates
Table 3.1: KOREA--PRODUCTION CAPACITY
('000 mt)
Under
Product Installed construction Total
Ethylene 505 1,050 1,555
Propylene 268 521 789
Butadiene 94 247 341
Benzene 409 445 854
Methanol 0 0 0
LDPE 292 380 672
HDPE 280 200 480
PP 660 310 970
PS 424 260 684
PVC 540 10 550
ABS 190 52 242
SBR 150 32 182
TPA 500 460 960
Source: Korean Petrochemical Industry Association
(KPIA) (1989) and staff estimates
- 20 -
Downstream Products
During the period 1980-1988, the domestic demand for synthetic
resins grew from 644,000 tons to over 2 million tons (Table 3.2) and now
accounts for about half of the Korean petrochemical sales (estimated at
US$2.8 billion in 1988). The domestic producers have not been able to keep up
with this growth, in part because! of shortages in raw materials but also
because of limitations in production capacity. The large increases in
domestic demand for resins are pa'rtly explained by the success of the domestic
automobile industry, electronic/electrical sectors and other consumer durables
in Korea and the performance of the export sector.
Table 3.2: KOREA--DEMAND FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 mt)
Annual
1980 1988 growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (88/80) demand
/a /b /a (%) (kg)
Basic
Ethylene 372 26 398 600 732 1,332 16.3 31.3
Propylene 205 130 335 347 503 850 12.3 20.0
Butadiene 57 61 118 94 47 141 2.3 3.3
Methanol 209 -114 950 A_ 164 164 7.0 3.8
Benzene 103 20 123 337 -1 336 13.4 7.9
Resins
LDPE 112 23 135 283 70 353 12.7 8.3
HDPE 98 -28 70 263 42 305 20.1 7.2
PP 146 1 147 499 -44 455 15.1 10.7
PVC 237 -59 178 446 -25 421 11.3 9.9
PS 47 -4 43 328 -29 299 27.7 7.0
Engineering
ABS 13 4 17 156 -32 124 28.0 2.9
Rubbers
SBR 70 10 80 101 11 112 4.2 2.6
Fibers
PF 137 0 137 328 42 370 12.8 7.5
PSF 140 0 140 306 -72 234 7.6 5.5
/a Direct and indirect through the import of derivatives.
/b Based on production records for first nine months of 1988.
/c Methanol manufacturing capacity was closed in 1985.
Source: KPIA, 1988, Korean Institute for Engineering and Economic Studies
(KIET) 1988, and staff estimates.
- 21 -
Korea is one of the highest per capita users of synthetic fibers in
the region. The efficient and competitive supply of synthetic fibers is
critical to the growth of the domestic textile industry. But, Korea is not
self sufficient in the production of raw materials for synthetic fibers: in
1987 for example, close to 70% of the 1.3 million tons of raw materials
required by synthetic fiber producers were imported. The main reason for the
shortfalls is the vigorous growth of textile and garment exports during the
1980's that quickly outpaced the domestic production capacity for raw
materials. The future growth of synthetic fibers in Korea is threatened by a
combination of factors: (a) the rising protectionism in traditional importer
markets of Korean textiles, as illustrated by the phasing down of preferential
status in the US; (b) the increases in the cost of the Korean labor force and
the appreciation of the won; and (c) the increase in production capacity in
other developing countries in the area (such as India and Malaysia) where
manufacturing costs are considerably lower. Also, the Korean textile
producers have significantly increased production capacity overseas and some
of the traditional exports are now likely to be routed through the offshore
plants while the local suppliers will probably concentrate on higher quality
goods.
Compared to resins and fibers, production of synthetic rubbers has
grown at a slower rate during the last 8 years (Table 3.2). Demand rose from
140,000 tons to over 200,000 tons during this period. The major stimuli for
the market is the exceptional performance of the automobile and footwear
sectors. Down the road, the sector is bound to face increased competition
from cheaper producers in the area, more so if natural rubber producers
diversify into synthetic materials and combine the advantages and flexibility
of both sources.
Exports
It is difficult to estimate the fraction of petrochemical
derivatives that ends up in exports. According to an estimate made by KPIA,
about 25% of all plastics, 85% of fibers and 70% of synthetic rubbers end up
in exported products. This trend is susceptible to change as a result of
changes in the pattern of trade between Korea and industrialized economies.
For example, the recent loss of status under the Generalized System of
Preference (GSP), with the US, means that in the short term, Korean
manufactured products will lose some of its competitive edge to other
exporters from the region. This and the continuous revaluation of the won
will exert downward pressure on Korea's ability to export.
Ownership and Integration
Ownership of the existing petrochemical complexes is in the hands of
the private sector. Because of the integration of the industry the bulk of
production is in the hands of just a few groups. This has also promoted early
adoption of economies of scale. The industry is in the process of achieving a
remarkable standard of vertical integration. By 1990, no olefin producer will
be in the merchant market but serving captive demands. The existing
conglomerates and the newcomers are all exploring expansion possibilities ir
- 22 -
terms of integration. This will further enhance the ability of the industry
to compete in the international market.
INDIA
The market in India is characterized by the following factors:
(a) chronic shortages in building blocks (ethylene, propylene) and downstream
products which have slowed down market development; (b) a relatively high
import resistance resulting from high protecition rates and import
restrictions; (c) very low per capita demand and high recycling rates
resulting from the high costs of petrochemicals relative to the per capita
income of the country; (d) high production costs, in turn a result of high
capital costs and small scale of production.
Basic Petrochemicals
The domestic sector requirements for olefins have grown at a rate of
over 14% over the period 1980-88, largely driven by the large increases in the
market for synthetic resins (Table 3.3). Even at the current rates of growth,
per capita consumption of olefins is among the lowest in the world (0.7 kg for
ethylene in 1988), and lowest among the countries included in the analysis.
Although adjustments have to be made to account for the very low per capita
income in the country, the fact remains that India is one of the potentially
largest domestic markets for petrochemicals :Ln Asia (Table 3.4). The current
demand for benzene is largely met through the installed capacity, but some
imports are required to complement production of p-xylene.
Downstream Products
During the last eight years, Indian consumption of commodity
polymers (LLDPE, LDPE, HDPE, PP, PVC and PS) has more than doubled. It grew
from 267,000 tons in 1980/81 to 615,000 tons in 1988/89, an 11% p.a. growth
rate. During this period, annual imports increased at a 16% annual rate to
287,000 tons, pushing India's import dependence from 37% to 52%. This
impressive growth was achieved in spite of the very high domestic prices of
plastics and reflects the early growth phase for consumption of these
materials in India. Despite the rapid increases in consumption, per capita
use of polyolefins remains among the lowest in the world (about 0.8 kg).
The textile industry is one of the largest manufacturing sectors
providing employment to close to 20% of the labor force. The industry is
largely based on natural fibers (cotton and cellulosics) and has only recently
turned attention toward the potential for synthetic fibers. Despite the large
share of manufacturing output by t'he textile sector (it accounted for 9% of
manufacturing GDP in 1988), the per capita use of all fibers remains
relatively low even by other Asian countries' standards.
- 23 -
Table 3.3: INDIA--PETROCHEMICAL PRODUCTION CAPACITY, 1989
('000 tons)
Installed Under
capacity construction Total
Ethylene 213 600 813
Propylene 96 133 229
Butadiene 24 14 38
LDPE /a 128 210 338
HDPE 50 115 165
pp 30 91 121
PVC 157 100 257
PS 22 - 22
ABS 7 5 12
Nylon-6 6 - 6
Polystyrene staple fiber 87 62
SBR 33 - .3
PBR 20 20 4
O-Xylene 27 61 88
Benzene 235 187 422
/a Includes LLDPE
Source: Government of India, Ministry of Industry, Department of Chemicals
and-Petrochemicals, and staff estimates.
The synthetic fiber sector still faces the issues of very high prices
due to high tariffs and excise taxes, protection rates, excess capacity, in
particular for polyesters, high costs of raw materials, small sizes for
production units and low capacity utilization. As a result, the industry
appears to be generally noncompetitive. Only recently have some steps been
taken to upgrade the production capacity of fiber intermediates (xylene, PTA)
through the commissioning of large-scale plants but the downstream sector
still relies on a large number of small-scale units. Future market prospects
will depend to a large extent on the ability of the industry to restructure
and become competitive.
Most of the rubber consumed in India is natural rubber. As with
synthetic fibers, the synthetic rubber sector faces high rates of protection,
small sizes of production, and stiff competition from natural rubber. The
future demand of synthetic rubber in India is expected to grow at a relatively
high rate as a result of the increased demand by the transportation sector.
- 24 -
Table 3.4: INDIA--DEMAND FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 mt)
Annual
1980 1988 growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (88/80) demand
a/a (%) (kg)
Ethylene 155 56 211 192 416 608 14.1 0.7
Propylene 61 2 63 110 69 179 14.0 0.2
Methanol 44 12 56 45 A! n.a. n.a. n.a. n.a.
Benzene 64 1 65 126 A! 62 188 14.2 0.2
Commodity resins
LDPE 71 3 74 81 64 145 8.8 0.2
HDPE 25 38 63 40 100 140 10.5 0.2
PP 13 2 15 38 27 65 20.0 0.1
PVC 50 32 82 130 110 240 13.1 0.3
PS 12 0 12 22 23 45 17.5 <0.1
Engineering
ABS 1 0 1 4 A 0 4 16.2 <0.1
Rubbers
SBR 20 5 25 16 10 26 /a n.a. <0.2
Fibers
PF 9 0 9 140 5 145 41.5 0.2
PSF 23 0 23 90 4 94 19.2 0.1
n.a.: Not available.
/a Includes the implied demand through the import of derivatives.
/b For 1986.
/c Estimate.
Source: Indian Petrochemical Corporation Limited (IPCL) and staff estimates.
Export Market
India is a net importer of petrochemicals and has no tradition in
the export market. Some plastic products arLd synthetic fibers are exported
but the volumes involved are very small. The high costs of local production
and dependence on expensive feedstocks have prevented Indian manufacturers
from entering into the internationial markets, despite the advantages in labor
costs.
- 25 -
Ownership and Integration
At present, the Government encourages both private- and public-
sector ownership in all phases of petrochemical manufacture. So far, however,
the public sector is the leader in the production of olefins and synthetic
resins and is expected to continue to play a prominent role. In other
subsectors such as synthetic fibers, rubbers and detergents, private-sector
participation is much higher than in the synthetic resins sector. As much as
70% of the aggregated production of fibers, rubbers and detergents is already
in the hands of the private sector. The industry has integrated from the
start, initially through the monopoly of the public sector (IPCL owned basic
and downstream product plants), and small scale private producers but lately
through an integrated approach to ownership and licensing approvals.
CHINA
The Chinese petrochemical industry was started in 1958 with the set
up of the Gaoquiao Chemical factory in Shanghai and the subsequent construc-
tion of small scale ethylene crackers. The China National Petrochemical
Corporation (Sinopec) was established in 1983 as a ministerial level
corporation to consolidate petroleum refining and petrochemical processing.
At the time of its formation, 39 of China's largest petrochemical enterprises
and plants, previously handled by several different ministries, were placed
under its jurisdiction. Sinopec now has about 600,000 employees, controls
about 95% of China's petroleum refining capacity, 85% of ethylene production,
80% of synthetic fiber production, 75% of synthetic rubber and over 40% of
plastics. Sinopec's plants are more advanced than those in the rest of
China's chemical industry. The installed, in construction and planned
capacities in the sector are summarized in Table 3.5.
The market situation in China is characterized by the following
factors: (a) Growing imports of petrochemicals for the domestic markets
notwithstanding the major efforts in expansion of local capacity. (China has
become the largest importer of polymers in the region, with 1987 impoi.cs
estimated at 1.3 million tons); (b) The emergence of a two tier pricing system
under which output not covered under national or provincial plan allocations
may be sold at "market" prices;2. (c) Difficulties in securing foreign
exchange to provide for the imports of equipment required for expansion of
capacity and most recently for the imports of raw materials for the domestic
sector; (d) Difficulties in logistics and distribution systems which makes
internal trade expensive and unreliable, and (e) Outside of Sinopec, many
small and widely scattered plants which hamper integration and increase
production costs, relative to larger integrated units.
2.1 In most cases there is control on upper prices levels, but prices do
reflect much more accurately market conditions than the fixed prices that
apply to allocated production. Whereas the fixed prices for allocated
production are generally significantly below world prices, market prices
are generally higher.
- 26 -
Table 3.5: CHINA--PRODUCTION CAPACITY, 1989
('000 MT)
Under
con-
Product Installed struction Total
Ethylene 1,670 690 2,360
Propylene 606 n.a. n.a.
Butadiene 507 n.a. n.a.
Benzene 428 180 608
Methanol 629 0 629
LDPE & HDPE 855 315 1,170
PP 165 110 275
PS 31 73 104
PVC 606 0 606
ABS 23 30 53
SBR 201 80 281
PEF 615 107 722
Source: Sinopec, 1988; China Business Review,
1987; anLd staff estimates.
Basic Petrochemicals
The demand for olefins has increased at an annual rate of 11.1%
during the period 1982-1987 to the current 2.8 million tons (see Table 3.6).
This places China as the largest consumer of olefins in the region after
Japan. Ethylene domestic demand is estimated at 1.6 million tpy out of which
less than half was supplied through local production in 1987. Even to keep
imports at their current volume, it is estimaLted that the Chinese industry
would have to commission a world-size complex every three years. Likewise,
benzene requirements have been increasing at an annual rate of 12% to a
current (1987) requirement of 756,000 mty. The installed capacity is
610,000 mty. The balance is also supplied through imports.
Downstream Products
Following the pattern of other AsiaLn countries, the Chinese plastic
industry has been growing at a fasit rate. For the period 1980-1987, the
sector grew at an annual average rate of 15%. In 1987, last year for which
statistics were available, total domestic cornsumption of commodity polymers is
estimated at 2.4 million tons out of which 53 % or 1.3 million tons were
imported. The imports of commodity polymers have grown by a factor of three
during 1982-1988, converting China into the largest importer of plastics in
Asia. The total cost of these imports in 1988 is estimated at US$2 billion.
- 27 -
Table 3.6: CHINA--DEMAND FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 MT)
1982 1987 Growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (87/82) demand
(/) (kg)
Basic
Ethylene 565 443 1,008 750 862 1,612 9.8 1.7
Propylene 314 212 526 620 316 936 12.2 0.9
Butadiene 110 25 135 n.a. n.a. 284 15.9 0.3
Benzene /b 383 50 433 493 263 756 11.7 0.7
Methanol 385 -46 339 454/c 156 610/c 17.0 0.6
Resins
Polyethylene 313 421 734 515 699 1,214 10.6 1.2
Polypropylene 116 202 318 180 291 471 13.9 0.4
Polystyrene 2 63 65 36/c 164 200 25.2 0.2
PVC 424 16 440 579 84 663 8.5 0.6
Rubbers
SBR 44 34 78 74/c 152 226 23.7 0.2
Fibers
PF 14 78 92 80/c 531 611 46.0 0.6
PSF 207 116 323 680 296 976 18.7 0.9
/a Includes implied imports through imports of derivatives.
/b As a chemical feedstock only.
/c For 1986.
China is one of the largest producers and consumers (by tonnage) of
synthetic fibers, ranking fourth in the world after the US, Japan and the
Soviet Union. In 1987, China produced about 0.91 million tons of synthetic
fibers, while total fiber production capacity by the end fo 1987 was estimated
at 1.25 million tons which implies a 72% capacity utilization (Textile
Organon, 1988). Even so, China continues to be a major importer of synthetic
fibers. The reasons behind the low capacity utilization are varied but up to
1987 might have been related to the controlled low prices for some types of
fibers which discouraged producers from increasing output (Ministry of
Chemical Industry, China, 1988), and to the the small size of production
unitsand relatively old facilities prone to suffer from maintenance and
operation problems. The industry is not expected to be self-reliant in the
near future and imports will continue even though at a lower level because of
planned expansions of domestic capacity.
- 28 -
Total Chinese consumption of synthetic rubbers reached 300,000 tons
in 1987. There are 9 synthetic rubber units in China, with a production
capacity of 254,000 tpy. The rubber industry' also relies on a large volume of
natural rubber. The rubber industry is expected to grow rapidly in the short
term because of the expected large increases in demand by the transportation
sector and the phase-down of some natural rubber in tire applications.
Ownership and Integration
With the establishment of Sinopec in 1983, the GOC took an important
decision regarding the pattern of ownership. Sinopec is now the largest
producer in China and with the commissioning of the new crackers will surpass
in sales large companies in industrial countries. The public sector through
Sinopec and the provincial governments is expected to remain the dominant
force in the industry with a small but increasing foreign private partnership.
As a consequence of the patterns of ownership and the dominant role of Sinopec
in planning, the new Chinese compliexes are well integrated. For example, the
new Beijing complex groups at one site under the management of Sinopec a total
of 15 units sharing infrastructure and utilities. The same is true for the
new plants at Quilu and Daquing.
THAILAND
The petrochemical sector is a newcomer in Thailand. In 1984, the
Government resolved to set up a complex sized to meet the domestic demands for
commodity polymers using natural gas fractions as feedstock. Commissioning
is expected by the end of 1989. Upon completion the plant will consist of .two
main units: an ethane/propane cracker, and a propane dehydrogenator. With
the operation of the first complex, Thailand will become an important producer
of commodity polymers in the region with repercussions for local processors
and manufacturers; still, the country will remain a net importer of styrenics
and aromatic derived products. The GOT is in the process of examining, with
IFC assistance, the viability of an aromatics and an olefins complex to be
located next to a refinery and in the area of Ma tha Put, on the eastern
seashore, respectively. The expected nominaL capacities of the first and
second cracker and aromatics plant are summarized in Table 3.7.
The market for petrochemicals in Thailand can be described as
follows: (a) It consists of a medium-sized market experiencing a relatively
high rate of growth; (b) It has received a great deal of foreign investment
for the manufacture of end-user products, particularly through petrochemical
companies located in Japan and Korea in search of a cheaper base for
manufacture of raw materials for end use products; and (c) The private and
public sectors have collectively organized to support the establishment of
full-scale capacities.
Basic Petrochemicals
The demand for olefins in Thailand is summarized in Table 3.8. Out
of the total ethylene demand, 150,000 tons or 76% of the total is represented
- 29 -
Table 3.7: THAILAND--NOMINAL CAPACITIES OF PETROCHEMICAL COMPLEXES
('000 mt)
Second
NPC-1 complex
(actual) (proposed)
Ethylene 315 250
Propylene 105 165
Butadiene -- 17
Benzene -- 121
LDPE 65 100
HDPE/LLDPE 197 --
PP 70 160
PVC 140 --
ABS 30
PTA 105
Source: Staff estimates.
by direct imports of ethylene. The annual growth rate is estimated at 14%
during the period 1980-87.
Downstream Products
The domestic market for synthetic resins is still very new (i.e.,
comparatively low per capita consumption) and growing at high rates. The
current demand is estimated at 370,000 mty which represents an annual growth
rate of 13% during the period 1980-1987. At present, over 35% of total
consumption is met through imports. There is an increased interest by Asian
companies in Thailand as a base of operations for export oriented products.
In 1987, investors from 20 countries put forward proposals for 1,161 mostly
export-oriented projects in Thailand with a concentration on electrical
appliances, electronics, auto parts. Export-oriented investments will have an
impact on the domestic demand for synthetic resins, engineering plastics and
other petrochemicals that go into the manufacture of end products.
The fibers industry is mostly based on natural fibers, with no
domestic capacity for chemical intermediates for synthetic fiber production.
The first PTA plant in Thailand is to be included under the downstream
projects of the second petrochemical complex with an anticipated production
capacity of 105,000 tons. The outlook for the textile industry continues to
be bright as other countries in the region are phased out of special import
tariff treatments and experience currency appreciation. An increase in the
local availability of intermediates and fibers should contribute to an
improvement in the competitive position of the industry.
- 30 -
Table 3,8: THAILAND--DEMAND FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 MT)
1980 1987 Growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (87/80) demand
/a /a (%) (kg)
Ethylene 0 89.5 89.5 0 195.4 195.4 13.9 3.6
Propylene 0 46.3 46.3 0 105.9 105.9 13.0 2.0
Butadiene 0 0.2 0.2 0 1.7 1.7 40.0 <0.1
Methanol 0 9.0 9.0 0 12.9 12.9 12.6 0.4
Benzene 0 0.6 0.6 0 4.5 4.5 30.7 0.1
Commodity Resins
LDPE 0 35.4 35.4 65.0 -10.2 54.8 6.4 1.0
HDPE 0 31.4 31.4 60.0 29.5 89.5 16.1 1.6
PP 0 43.9 43.9 0 101.1 101.1 12.6 1.3
PVC 0 30.6 30.6 132.4 -38.4 94.0 17.3 0.7
PS 0 15.9 15.9 39.7 -8.3 31.4 10.2 0.6
Engineering
ABS 0 0.8 0.8 2.0 1.1 3.1 22.0 <0.1
Rubbers
SBR n.a. n.a. 3.7 n.a. n.a. 5.9 6.8 0.1
Fibers
PF n.a. n.a. 15.0 24.2 -2.3 21.9 4.6 0.4
PSF 69/b n.a. 54.0 67.3 1.1 66.2 2.5 1.2
/a Includes implied imports through the imports of derivatives.
/b Total polyester.
Source: Ministry of Commerce and staff estiLmates.
MALAYSIA
Proposals for the establishment of a basic petrochemical complex in
Malaysia can be traced back to th-e mid 1970s. But the uncertainties in the
market of the time and the ensuing world economic recession dissuaded the GOM
from endorsing the proposals. A new master plan for the petrochemical
industry was prepared in 1985 and later adjusted to reflect the stage of
progress in the availability and supply of natural gas and natural gas
liquids. The industry is therefore facing a new developing stage, when a
decision on an olefins complex will definitely shape the outlook for the
domestic industry.
- 31 -
Basic Petrochemicals
Malaysia has no manufacturing facilities for basic petrochemicals,
and a relatively limited domestic market, too small to justify world scale
olefins or aromatics plants. The requirements for ethylene, for example, are
estimated at 124,000 tons per year and have been growing at an annual rate of
11.5%. The only large basic chemical plant in operation is the export based
methanol plant (domestic market for methanol is sized at 51,000 tons while
annual production is 545,000 tons).
Downstream Products
There are four local producers of synthetic resins supplying about
25% of the total demand of the domestic market. The local production capacity
is summarized in Table 3.22 below. the domestic market for commodity polymers
has been growing at a composite rate of nearly 14% per year and imports have
grown at even a faster rate despite the recent additions in capacity.
Malaysia is the world largest exporter of natural rubber and accounts
for close to 7% of world production (Malaysian Business, 1988). The share of
synthetic rubber in the domestic demand for rubber in Malaysia is relatively
small (8% in 1986), but the Industrial Master Plan objectives for the rubber
sector foresee an increase of domestic consumption of rubber to about 300,000
tpy by 1995 including 100,000 tpy of synthetic rubber while converting the
country into a major tire and tube exporter.
INDONESIA
Despite the several attempts of the last 15 years, the abundant
volume of gas and oil resources, the installed refining infrastructure and the
strategic geographical location, the petrochemical industry has yet to
establish its first olefins complex in Indonesia and has only very recently
crystallized plans for the construction of an aromatics plant. The reasons
for the continuous delays in the implementation of the industry are many: some
of the failures can be attributed to the variations in the oil markets and its
linkage with the financial health of Pertamina, part to the difficult balance
of payments situation experienced during the 1980's and part to a lack of a
clear long range development program for the industry.
Because of its privileged feedstock situation (Annex 3), the
improvements in the economics of the sector has spurred anew the interest on
Indonesia as a potential competitive producer and supplier for the merchant
markets in the region. Additionally, the growth in domestic markets has
already created a large enough base to justify world size plants to be located
in the country. Therefore, a number of new and old proposals have again been
brought to the table and some have gone beyond the planning stage. These
include ambitious projects for the production of olefins, aromatics, synthetic
resins, rubbers and specialty chemicals (Table 3.11).
- 32 -
Table 3.9: MALAYSIA--PRODUCTION CAPACITY, 1989
('000 mt)
Under
Installed construction Total
Ethylene 0 0 0
Propylene 8 80 88
Butadiene 0 40 40
Methanol 660 0 660
Pp 0 80 80
PS 30 0 30
PVC 39 0 39
A-BS 0 0 0
SBR 0 0 0
PF 41 0 41
Source: Malaysia Industrial Development Corporation
(MIDA) and staff estimaltes.
Table 3.10: MALAYSIA--DEMAND FOR BASIC PETROCHEMICALS
('000 MT)
1980 1987 Growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (87/80) demand
/a() (kg)
Ethylene 0 58 58 0 124 124 11.5 7.5
Propylene 0 25 25 0 50 50 10.5 3.0
Butadiene 0 3 3 0 2 2 -4.2 0.1
Methanol 0 14 14 545 -494 51 20.2 3.0
Commodity Resins
Polyethylene 0 48 48 0 104 104 11.7 6.3
PP 0 24 24 0 47 47 10.3 2.8
PVC 0 10 10 39 2 41 21.9 2.5
PS 6 4 10 16 19 35 20.2 2.1
Rubbers
SBR 0 4 4 0 5.4 5.4Lb negl. 0.3
Fibers
PF 40/c -12/c 28Z'c 43 -20 23 negl. 1.4
/a Implied imports through the imlports of derivatives.
/b 1986.
/c 1984.
Source: Staff estimates.
- 33 -
Table 3.11: INDONESIA--PRODUCTION CAPACITY, 1989
Under
Installed construction Total
Methanol 330 -- 330
Benzene -- 120 120
Pp 10 -- 10
PS 41 P P
PVC 94 14 108
ABS 0 4 4
SBR 0 25 25
PTA 150 75 225
PFY 89 29 108
PSF 83 37 120
Source: Ministry of Industry, 1989, and staff estimates.
Basic Petrochemicals
Indonesia has no domestic production of olefins. The domestic
producers of ethylene derivatives are supplied through imports of the key
intermediates (styrene monomer and VCM) and the domestic market of polyolefins
is mostly met through imports of the polymer or the end user products. There
is no terminal for the import and handling of ethylene. The implied ethylene
demand has grown at an annual rate of 10.5% and is now estimated at
271,000 tpy. The volume of domestic requirements already justifies, in terms
of size, the set up of an ethylene cracker. The market for aromatics is tied
to the requirements of the synthetic fiber industry. Polyester staple fiber
and polyester filament yarn are the most widely used aromatic derivatives.
The aromatics sector will greatly benefit from the planned capacity for
benzene and paraxylene. Indonesia is also a large methanol producer.
Downstream Products
The domestic production capacity of synthetic resins is summarized on
Table 3.12. The local market is smaller compared to Korea and China but
constitutes the second largest importer of polyolefins in Asia (after China)
which makes even more striking the fact that very little domestic production
capacity has developed over the years. The domestic demand has grown from
350,000 tpy in 1980 to 556,000 tpy in 1987 for an equivalent 7.8% annual
growth rate.
The rubber industry is dominated by natural rubber. Indonesian
production of natural rubber is estimated at 1.1 million tons and accounts for
26% of world exports. Indonesia also imports about 22,000 tons of synthetic
rubber. The GOIN is mindful of the need to improve quality and increase
- 34 -
exports of rubber products (now only 2% of total rubber exports by value). It
is therefore promoting the expansion of rub'ber processing capacity and
installing synthetic rubber plants.
Table 3.12: INDONESIA--DEMAN'D FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 MT)
Annual
1981 1987 growth Per
Produc- Net Produc- Net rate capita
Commodity tion imports Total tion imports Total (87/81) demand
/a /a (%) (kg)
Basic
Ethylene 0 149 149 0 271 271 10.5 1.5
Propylene 0 131 131 0 203 203 7.5 1.2
Butadiene 0 1 1 0 10 10 41.6 0.1
Methanol 0 30 30 184 94 278 45.2 1.6
Benzene 0 15 15 0 22 22 5.6 0.1
Commodity Resins
Polyethylene 0 136 136 0 246 246 10.4 1.4
PP 0 126 126 2 192 194 7.5 1.1
PVC 51 23 74 83 9 92 3.7 0.5
Engineering
ABS 0 1 1 2 0 2 9.0 <0.1
Rubbers
SBR 0 2 2 0 13 13 41.6 0.1
Fibers
PF 0 1 1 85 0 85 97.9 0.5
PSF 0 1 1 81 0 81 122.8 0.5
/a Includes the implied demand through the import of derivatives.
Source: Staff estimates.
The Current Market Situation in JaRan
A brief summary of the current market situation in Japan has been
prepared to update the information covered :in detail by a previous study
(World Bank, 1988) and provide a 'basis of comparison with the countries under
study. The situation for the sector in Japan can be broadly characterized as
follows: (a) the industry plays a very important role in the national
economy, representing a total output of over US$42 billion, and is a major
producer of basic petrochemicals and derivatives, accounting for over 12.5% of
world production of olefins, 12% of all synthetic resins and 18% of all
- 35 -
synthetic fibers (the historical and current consumption data for key
petrochemicals are summarized in Table 3.13); (b) the market is mature and
slow growing, with an elasticity of demand of basic petrochemicals to GNP
below 1.0; (c) the industry relies almost exclusively on naphtha as feedstock
(over 98% of total feedstock use) and is therefore likely to be affected by
the expected tightening of the demand/supply situation for naphtha in Asia;
(d) since 1987 Japan has become a net importer of petrochemical products,
through the combined effects of the mothballing of domestic capacity and the
increase in competitiveness of other Asian producers; and the establishment of
Japanese-owned subsidiaries in lower production cost countries with its output
earmarked for the Japanese domestic market. (This relationship with Asian
producers is further discussed in Chapter 4 and is thought to have
implications in the future pattern of growth of the industry for low cost
producers in the region.) If, on the other hand, Japanese producers go ahead
with substantial additional cracking capacity, Japan may be able to reduce
future imports of petrochemicals.
Table 3.13: JAPAN--DEMAND FOR BASIC AND DOWNSTREAM PETROCHEMICALS
('000 MT)
Annual
growth rate Per capita
1981 1988 (88/81) demand
(%) (kg)
Ethylene 3,600 4,587 /c 3.5 37.6
Propylene2,550 3,542 /c 4.8 29.0
Methanol 1,200 2,382 /c 10.3 19.5
Benzene 1,750 795 -10.7 6.5
LDPE 580 1,263 11.8 10.4
HDPE 800 795 -0.6 6.5
PP 900 1,507 7.6 12.4
PS 487 857 8.4 7.0
PVC 1,200 1,700 5.1 13.9
ABS 227 /a 416 9.0 3.4
SBR 508 /a 450 -2.0 3.7
PFY 314 /b 323 Ld 0.4 2.6
PSF 320 /b 283 /d -1.7 2.3
/a 1980 data.
/b 1982 data.
/c Source: East Asia Petrochemical Conference, 1988.
/d Source: Textile Organon: June 1988.
Source: Staff estimates
- 36 -
Table 3.14: PROPOSALS FOR NEW ETHYLENE CAPACITY IN JAPAN
'000 HTY Year on stream
Debottlenecking 450 1989
500 1990
New Construction
Mitsubishi Petrocheraicals 500 1994
Maruzen Petrochemicals 300-500 1995?
Source: Fukui K. (Japan Development Bank), 1989.
- 37 -
IV. ESTIMATE OF COMPETITIVENESS
Factors Considered
In this section, the results of a comparative analysis of
competitiveness in the production of petrochemicals are summarized. The
factors reviewed to assess competitiveness included those related to economic,
commercial and technical advantages.
Economic Competitiveness
The factors that were examined are: (a) the regional situation of
feedstocks (naphtha and natural gas); (b) the advantageous geographical
situation of the countries under analysis as it relates to the large domestic
markets of Japan, China and the cluster of domestic markets represented by the
pacific area countries; (c) the generally positive outlook for economic
progress and trade in the region as currently forecasted by most analysts
including the Bank; (d) the complementarity of trade patterns and the trade
environment in the countries involved; and (e) the size of the domestic
markets for petrochemicals.
Feedstock prices are a key factor of competitiveness in
petrochemical production. For example, Naphtha costs were found to represent,
after discounting by product credits, 28% of total production costs of well
sized crackers in Korea. Naphtha is generally available to the region at
competitive prices from Singapore, at quotations about US$20/ton below US Gulf
Coast and only about US$6/ton above Persian Gulf prices.,' Singapore prices
are largely determined by demand in Japan, especially for petrochemicals. The
historical data reveal (Annex 3.2) that Asian producers are presently at a
disadvantage only relative to producers in the Middle East and have a
significant advantage over US producers. The impact of these differentials on
production costs of olefins and aromatics is discussed below.
While aromatic plants use whole range naphtha at prices presented
above, naphtha based crackers for olefin production are usually based on light
naphtha. No data were available on pricing of light naphtha in Asia, but
because the petrochemical industry in the region (including Japan) accounts
for a much larger share of naphtha demand than in the US, it has been
conservatively assumed that there is no significant price differential between
light and whole-range naphtha. This assumption appears consistent with
quotations FOB Saudi Arabia for whole-range and light naphtha (mostly directed
towards Europe where the share of petrochemical demand for naphtha is also
much larger than in the US), which show no difference between the two types.
/ Based on average prices for the period 1980-May 1989. The demand for
high octane gasoline in the US has traditionally driven prices of whole
range naphtha above quotations in other locations.
- 38 -
For purposes of the analysis, future naphtha prices consistent with
the Bank views on future crude oil. prices were utilized. These assume that
oil will increase from US$14 per barrel in 1988 to about US$22 per barrel in
the year 2000 (in constant 1988 terms). Assuming that refinery margins remain
constant at levels which ensure adequate returns to refiners, naphtha prices
in the regional spot market (FOB Singapore) would increase from about US$140
in 1988 to about US$200 by 2000./' Border prices for naphtha in each country
were derived from this estimate by adding or deducting transport costs from
Singapore, depending on the long-term outlook for the supply of Naphtha in
each country. The projected price levels are summarized in Table 4.1.
Table 4.1: ASIA- -PROJECTED ECONOMIC PRICES OF NAPHTHA
(by country, in 1988 US$/MT)
1988 1990 1995 2000
Korea 150 165 178 212
India 152 167 180 214
China 150 163 176 210
Thailand 148 163 176 210
Malaysia 140 155 168 202
Indonesia 140 155 168 202
Note: Indonesia and Malaysia are long-term net exporters of naphtha, all
others are long-term net importers. Naphtha prices refer to whole
range naphtha. See Annex 3.2 for details.
For gas prices, valuation was based on the opportunity cost of gas
and its fractions in each country. In countries or locations with large gas
surpluses, the long run marginal cost has been adopted, while in those
countries where gas has an alternative use, ithe value for the alternative use
has been taken as the opportunity value of gas and its price projected for the
period of analysis. The opportunity value of natural gas in each country
varies significantly. Natural gas is valued at least as fuel oil equivalent
in India, China and Thailand. Malaysia and 'Indonesia, however, have reserves
far in excess of all present and foreseeable uses and the value of gas is thus
tied to the cost of production and transportation to users plus a depletion
premium. The projected ethane costs and the assumptions on which these are
based are summarized in Table 4.2. The principles of ethane valuation and a
description of the country situations is inc:Luded in Annex 3. From the
2/ It is possible, however, that increased regional demand for naphtha from
the petrochemical industry and the impact of lead phase-downs in gasoline
expected in a number of Asian countries may result in higher refiner
margins and may drive up regional naphthLa prices.
- 39 -
industry point of view, both Malaysia and Indonesia have the best position in
terms of naphtha and gas oil prices given the fact that both are long term net
exporters of these materials and have already in place gas gathering,
transportation and distribution systems; Malaysia and Indonesia also have the
best outlooks in terms of the economic value of Natural Gas fractions.
Because gas is difficult to transport and not easily tradeable, the valuation
of ethane is also site-specific within a country. This is in particular
relevant for Malaysia and Indonesia, gas produced in the remote Sarawak
(Malaysia) and Kalimantan (Indonesia) areas has a substantially lower value at
the site than gas transported to Java and peninsular Malaysia. The
implication is that plants located in Sarawak and Kalimantan where gas is in
large surplus would enjoy considerable advantages in feedstock costs over
plants located in other parts of the countries if markets can be found for the
methane fraction of the gas. Neither Malaysia nor Indonesia have large
quantities of flared, economically recoverable, ethane-rich associated gas
with a value close to zero. Consequently, since gas does not come as a by-
product of oil production but has to be extracted at cost, ethane separation
would only be economical if markets exist for the other gas fractions
(methane, LPG) so that enough ethane can be separated to feed a world scale
olefin plant.
Table 4.2: ASIA--PROJECTED ECONOMIC PRICE OF ETHANE
(by country in 1988 US$/MMBTU)
1988 1995 2000
Korea n.a. n.a. n.a.
India 3.3 3.7 4.4
China 3.3 3.9 4.7
Thailand 3.9 4.5 5.3
Malaysia (peninsula) 2.7 2.9 3.2
(Sarawak) 1.8 2.0 2.3
Indonesia (Sumatra) 2.1 2.3 2.5
(West Java) 2.3 2.9 3.1
(East Kalimantan) 2.1 2.3 2.5
n.a.: Not applicable, industry is naphtha-based or gas not available to
industry.
India, Opportunity costs estimated at imported fuel oil equivalent plus
China: separation costs.
Thailand, Opportunity value determined by its long-range marginal cost
Malaysia: (includes gas collection, transportation, and separation costs).
Indonesia: Opportunity cost of ethane linked to production, distributions and
separation costs since availability is not a constraint.
Source: Staff estimates. See Annex 3 for details.
- 40 -
Feedstock Availability. While ethane remains the preferred
feedstock when available, the olefins industry has been increasingly building
cracking capacity with flexibility to use a wide range of raw materials to
take advantage of international market shifts in feedstocks and their relative
prices (Chapter 2). However, the prospects of only the two major feedstocks,
ethane and naphtha, have been ana:Lyzed. Feedstock availability is not
expected to be a limiting factor :in the region, at least as far as gas
fractions are concerned, although there is aL substantial cost variation among
the countries.
Most of the subject countries have substantial reserves of gas and
petroleum (Table 4.3). Malaysia and Indonesia have gas reserves in excess of
50 years. Thailand and India hava also sizaLble reserves, large enough to meet
current industrial and domestic demand for over 20 years but also with
foreseeable demand is expected to exceed potential future supply. China,
where natural gas is expected to be in short: supply and Korea with no gas
resources are expected to be at a disadvantage in the use of gas fractions and
to continue to favor heavier feedstocks as raw materials.12 China and Korea
already produce 100% of their olefins from naphtha and other petroleum
fractions. In the past complete reliance on naphtha has not been a limitation
to expansion of domestic industriias. For example, Korea, Taiwan and
i/ Plans to develop a petrochemical industry in Hainan (China) based on NGL
are still at an early stage and offshore gas development with foreign
companies is still under discussion. Hiainan will need substantial
investments in infrastructure to paral]Lel development in petrochemical
industries.
- 41 -
Table 4.3: ASIA--OIL AND GAS PRODUCTION AND RESERVES, 1988
Production Reserves Number of
Oil Gas Oil Gas refineries
('000 bbl (MCFD) (Mbbl) (BCF)
/day)
China 2,682.0 1,420 23,550.0 31,700 40
India 609.0 1,000 6,354.2 22,861 12
Indonesia 1,186.0 1,740 8,250.0 83,590 6
Malaysia 2,309.0 1,226 2,922.0 51,700 4
South Korea -- -- -- -- 6
Thailand 31.9 490 85.2 3,900 3
Others
Brunei 139.0 n.a. 1,400.0 11,600 1
Japan 122.0 -- 54.5 1,410 41
Taiwan 2.6 -- 5.0 885 2
Mbbl: Millions of barrels.
BCF: Billions of cubic feet.
Source: Oil and Gas Journal, December 26, 1988, and staff estimates.
Japan, all lacking natural gas, keep a large and competitive industry, whose
products are used as key inputs to a successful export oriented manufacturing
sector. In the long term, though, naphtha availability for countries with no
indigenous hydrocarbon resources is expected to play a limiting role in the
expansion of the industry because of tighter supplies and higher prices. This
seems to be particularly true for countries like Korea and Taiwan where the
future demand for naphtha is expected to increase significantly over the next
decade.
Geographical location can only be counted as an advantage if it
translates into competitive access to markets. As discussed in Chapter 6,
Asia as a whole is expected to remain a net importer of a wide spectrum of
petrochemical products. Sizeable import markets are expected to continue in
China, Indonesia and India; while prospects for increased share of imports in
the domestic markets of Japan, and Taiwan are also anticipated. If tariff
barriers and other import restrictions are discounted, freight charges will
emerge as an important element in delivered costs. A spot check of current
freight charges shows that established producers in Asia have a significant
advantage in their own domestic markets due to the freight costs incurred by
exporters (as much as 5-10% of FOB price, Table 4.4) against manufacturers in
the US and Canada. It is also expected that future Japanese and Taiwanese
manufacturers will continue to rely on competitive imports from subsidiaries
or other companies located in the region, effectively creating a trading zone.
Japan, Taiwan and South Korea have already invested in manufacturing
facilities in Thailand, Malaysia and Indonesia (Table 4.5) while China and
- 42 -
India are trying to secure export/import marketing arrangements with producers
and consumers in the region. The reduction in trade barriers within Asia will
further contribute in favor of Asian producers.
Table 4.4: ESTIMATE OF FREIGHT CHARG]ES TO EAST ASIA (SINGAPORE)
(in. 1988 US$/MT)
Western Middl,e US Gulf
US Europe East Canada Japan FOB 1988
(Gulf) (Italy or (Qatar or (Alberta) (Average
W. Ger.) S. Arabia) price)
LLDPE 100 95 55 135 45 992
HDPE 100 95 55 135 45 1,080
Polypropylene 100 95 n.a. n.a. 45 1,080
Styrene
monomer 70 65 55 100 40 970
Ethylene glycol 75 70 50 100 40 965
Note: Exports from the Middle East into India would have lower freight
charges than those shown in the table as would exports from US and Canada into
China.
Source: Staff estimates.
Outlook for the Manufacturinp Sector. The manufacturing sector of
the developing countries in Asia and in particular in the Pacific Basin area
has outpaced the overall growth of their economies over the last 15 years
(compare data on Table 1.2 and Table 4.6) and in combination with the growth
in exports has played a major role in the vigor of their economic performance.
Government and Bank projections for future growth are also optimistic. An
analysis of growth prospects for the economies in the target countries is
beyond the scope of the report, and too complex to summarize here. For
purposes of this study, projections for future growth of the manufacturing
sector based on local development banks or government estimates were utilized
(Table 4.7). These show that the growth in industrial output will easily
surpass the expected growth in other regions. The favorable outlook for the
manufacturing and industrial sectors provides an advantage to Asian producers
that is lacking in other countries in Africa. and Latin America: that is, the
prospects for continuous growth and domestic market expansion.
Trade Patterns and Trade Environment. As a consequence of the
impressive record of economic growth and the sustained growth in commodity and
- 43 -
Table 4.5: SAMPLE OF JAPAN'S OWNERSHIP OF PETROCHEMICAL PLANTS
IN THE ASIA REGION
Japanese Local
company Ownership company Products
Thailand Mitsui 20% Thai Plastics & VCM
Chemical
Dainippon 49% Siam Chemical S. resins
Malaysia Idemitsu Petro- 28% Petrochemicals PS
chemicals (Malaysia)
Indonesia Asahi Glass 70% P.T. Asahi/Sventra VCM, PC
Dainippon 60.6% P.T. Pardic Jaya S. resins
Nissho Iwai 10.5%
Tosoh Corp. 31.6% P.T. Standard PVC
Mitsui 21.1% Toyo
Source: East Asia Petrochemical Conference, 1988.
manufactured exports, the Asian countries today account for over 75% of
manufactured exports by all developing countries (Bhattacharya, 1989).
Petrochemical trade has developed alongside the progress in manufactured
exports, and a track of progressive graduation that links Japan to the newly
industrialized countries (NICs), and the developing countries in Asia. Net
trade in end user goods flows from Japan and the NICs toward other regions.
As the NICs experience high production costs and reduce their comparative
trade advantages, the least industrialized countries in the region vie to
supplant them in exporting to third countries. For example, as Japan has
moved toward the export of high-technology items such as computers, and
electronics, the NICs have expanded the export of consumer appliances, while
at the same time retracting from the textile export and rubber product markets
where they are being replaced by the developing countries. The existence of a
graduation in trade patterns provides stimuli and markets to the developing
countries in the region for the progression of the chemical industry.
Another factor that is crucial in determining the outcome of
proposed investments is the size of the domestic market. The Asian markets as
a whole are growing at a fast rate (faster than any other market of comparable
or larger size). But, within the region there are important differences in
- 44 -
Table 4.6: ASIA--HISTORICAL TREND OF ECONOMIC GROWTH /a
1971-80 1980-87
Hong Kong 10.1 5.8
Taiwan 9.7 6.5
Korea 9.0 8.6
Singapore 9.1 5.4
Thailand 7.0 5.6
Indonesia 8.1 3.6
Philippines 6.5 -0.5
Malaysia 8.2 4.5
China 5.8 10.4
India 7.6 /b 4.6
/a Annual GDP growth rate in %.
/b 1965-80
Source: World Development Report, 1989,
"Perspectives of Development in Pacific
Economic Zone" by Trade Research Center of
Japan Trade Association, 1985; "Annual
Report '86" by Asian Development Bank.
market size and degree of market saturation that have the potential to affect
the competitive position of local producers. The market size for olefins,
aromatics resins, rubbers, and fibers in the six countries is summarized in
Table 4.8. The largest domestic market in all categories is in China where
the market size justifies the establishment of full scale units. Even at the
expected rate of expansion of the local industry, the Chinese market will
continue to outpace domestic production and dominate the merchant markets in
Asia. Therefore its size and future growth will have a great deal of
influence on the regional outlook. At the other end of the spectrum, Malaysia
and Thailand have small size markets which on their own do not justify
expansion or setup of new capacity.
- 45 -
Table 4,7: SELECTED PROJECTIONS OF INDUSTRIAL OUTPUT
(1988-1.00)
Index 1990 1995
Korea Industrial 1.21 1.71
domestic
product
India Manufacturing 1.14 1.61
value added
China Output value 1.28 2.15
of chemical
industry
Thailand Value added 1.18 1.74
for chemical
industry
Malaysia GDP La 1.25 2.05
Indonesia GDP /a 1.14 1.60
/a Used as proxy for industrial output.
Source: Bank economic data base; Bangkok Bank
Monthly Review, 1988; China Ministry of
Industry, 1988; Korea Institute of
Engineering and Economic Studies, 1988.
Table 4.8: ASIA--MARKET SIZE FOR PETROCHEMICALS, 1988 La
('000 MTY)
Olefins Aromatics Resins Rubbers Fibers
Korea 2,300 700 1,300 200 1,300
India 800 400 600 50 200
China 2,800 1,500 2,700 300 1,300
Thailand 300 n.a. 300 10 100
Malaysia 200 n.a. 200 10 50
Indonesia 400 n.a. 350 10 200
n.a. Not available.
/a Based on the approximate 1988 demand for major products in each category.
Source: Staff estimates.
- 46 -
Commercial Competitiveness
Under this category, the following factors have been grouped: plant
size, installation factor, utility and capital costs.
Plant Size. Economies of scale are important in the petrochemical
industry, most countries in the Asia region have recognized this factor and
supported the development of comp:Lexes with minimum scale criteria. In the
case of India and China, despite efforts being taken to revamp and rationalize
the existing units, wide sectors of the induLstry continue to operate small-
scale plants that are generally associated writh higher manufacturing costs.
In both countries the long distances involved and the dispersed nature of the
markets have led to the decentralization of production capacity and adoption
of smaller-scale plants, other factors that affect selection of scale include
marketing constraints, infrastructure available, implementation risks and
environmental limitations. The production costs of ethylene crackers of
different sizes reflecting current: or expected practices were simulated under
the conditions existing in each country. Th.e sizes adopted for the ethylene
crackers are presented in Table 4.9. These compare with crackers in the range
of 450-600 MTY being implemented iin the US, Western Europe and the Middle
East.
Table 4.9: SELECTED ETHYLENE CRACKER CONFIGURATIONS
Feedstock Size Remarks
('000 MTY)
Korea Naphtha 450 Established industry, large
domestic markets, strong
financial position of
companies involved.
India Ethane/propane 300 Regional distribution is
important. Market
dispersed.
China Naphtha 300 Domestic feedstock supply is
a concern, market dispersed.
Regional distribution is
important.
Thailand Ethane/propane 300 Relatively small market, new
industry.
Malaysia Ethane/propane 450 Very small domestic market.
Must compete in the export
market. Large feedstock
supplies.
Indonesia Ethane/propane 300 New Industry. Strong
competition for feedstock
- 47 -
The installation factor is defined as the ratio of the required
investment to set up a plant at a given location to the cost required to
install it on the US Gulf Coast. The installation factor can be very
significant in determining the production costs of petrochemical manufacturers
in a country. The factors were estimated based on Bank data regarding
previous projects in the petrochemical/chemical sector (India and Thailand),
from estimates reported in the literature (Korea) or from estimates prepared
by Bank staff but can only be considered as a gross theoretical approximation
to individual real situations. The adopted installation factors (excluding
the impact of taxation and duties on capital goods) are summarized in Table
4.10. High installation factors are associated with plants in India and
Indonesia. While lower installation costs than those equivalent in the US
Gulf, have been reported for Korea and Thailand. Installation factors may be
high for a variety of reasons including (a) lack or limited domestic
construction and engineering industry, (b) hindrances to adoption of modern
technology and construction methods, (c) long construction times, and (d) lack
of infrastructure.
Table 4.10: ASIA--OTHER FACTORS USED IN ANALYSIS OF COMPETITIVENESS
Opportunity Shadow Exchange
cost of Install price rate
capital factor factor Currency per US$
(%) /a /b (1/89)
Korea 13.00 0.80 1.00 won 680.80
India 12.00 1.25 0.80 rupee 15.29
China 15.00 1.00 0.70 yuan 3.72
Thailand 12.00 0.95 1.00 bhat 25.39
Malaysia 12.00 1.00 1.00 ringgit 2.73
Indonesia 16.00 1.15 1.00 rupiah 1,743.00
/a Korea: Installation factor as reported by Korean Institute of Engineering
and Economic Studies, 1988. It reflects historical ability to implement
petrochemical projects below cost and in short periods of time. India:
Installation factor reflects experience with previous petrochemical
project and relatively long implementation periods. China: Although the
last four ethylene crackers have all run into delays, the project costs
have been generally kept at parity with international norms. Thailand:
Reflects the experience with NPC-1. Malaysia: Is not yet a producer, but
a 1.0 factor has been adopted based on the experience so far with the
PP/MTBE complex and the record for other industries. Indonesia: Rela-
tively high installation factor reflects long implementation periods and
high costs associated with the methanol plants.
Lb The use of shadow price factors for India and China has the effect of
reducing capital costs by 14% and 9%, respectively (assumes that 60% and
30% of capital expenditures are from domestic sources, respectively).
Source: BESD data bank and staff estimates.
- 48 -
Other Factors. Opportun:Lty cost of capital and utility costs
including the marginal cost of electricity, cost of process and cooling water,
cost of fuel oil and labor costs for each country were estimated by Bank staff
(values adopted are reported in Annex 4) and used in the estimates of
production costs.
Technical Competitiveness
Technical competitiveness is more cLifficult to quantify and
therefore to introduce as an input: in the estimate of production costs. The
factors that intervene in the technical competitiveness include the technical
and managerial experience in the f-ield; the status of technology transfer of
the manufacturing processes and the associated maintenance infrastructure; the
customer support and extension services, in particular in the production of
downstream products; the local engineering capabilities, the information
services and planning systems. These factors reflect in the ability of local
producers to operate at higher rates of production and in the lag times
involved in the assimilation or introduction of process innovations that may
further improve productivity. Technical competitiveness is also a factor in
the reduction of installation factors, in the safety and quality standards,
and in the success in early introduction of new processes and products.
Countries like South Korea have a technical advantage over other producers in
the region as shown by their ability to implement new capacity in relatively
short periods of time; the successful introduction of new technologies (for
example the large PP units pioneered in Korea using the newest available
technology elsewhere); and, the track record on operation and maintenance of
their units at Yeochon and Ulsan. This advantage translates into product
differentiation, improved quality and reliable long-term operation and
maintenance of their units.
Estimate of Production Costs of Petrochemicals
To estimate the production costs o:E petrochemicals, a simulation
model has been utilized. The model (described in Annex 4) uses as input
country-specific information, inc:Luding courLtry economic factors, economic and
commercial advantages,and production inputs and then calculates the production
costs, transfer prices (in the case of ethylene and benzene) and other
components of manufacturing costs such as depreciation, interests and return
on equity. Using a price projection,/ it etstimates the net present value and
the internal rates of return. The model is designed to simulate the costs
associated with different technologies, sizes and raw materials for each
product and has been utilized to compare the relative economics in the
manufacture of petrochemicals.
ii Based on the assumption that levels will. continue to cycle and will
gradually decrease by 1995 at levels comparable to those posted in the US
Gulf in 1985/86 (Annex 4) and assuming that this price level wil be valid
for the Asia market as well.
- 49 -
The model estimates production costs for the target petrochemicals.
It also calculates the economics of naphtha reforming required to estimate the
costs of benzene extraction. The estimates for (a) ethylene, (b) benzene, (c)
some olefin derivatives, and (d) some ethylene and benzene derivatives are
reviewed in this section.
Ethylene Production Costs
To estimate ethylene production costs, it was first necessary to
make some assumptions regarding likely configuration of olefin complexes in
each country. To avoid distortions introduced by the projected cycling of
prices of feedstocks and products it has also been assumed that all units
start up in the same year (1991). These assumptions do not necessarily
represent next in line crackers but are rather intended as a gross basis for
comparison of the conditions of the industry in each country. For Korea, a
large naphtha-based cracker (450,000 tpy) was used. This represents recent
investments and is a reflection of the maturity of the industry, market size
and feedstock situation in the country. For India, a 300,000 tpy
ethane/propane cracker was used. Again, the selection represents current
investments which reflect the dispersed nature and moderate size of the
domestic markets and the impact of current industrial policy. For China, a
300,000 tpy naphtha cracker is utilized. This is a controversial choice, as
small-scale naphtha units are expected to be generally associated with higher
production costs and therefore be among the most vulnerable to future
reductions in producer margins. On the other hand, the Chinese have been
using this basic configuration, influenced by the difficulties in logistics,
the size of the local markets, the available volumes of refinery feedstocks
and the capabilities of local equipment suppliers. In Thailand, a 300,000 tpy
ethane plant was adopted. This reflects the size of the first complex still
under construction. Malaysia with no significant domestic market and abundant
feedstock supplies must maximize its export competitiveness. Therefore a
450,000 tpy ethane-based unit has been adopted. Also, for Indonesia a 300,000
tpy ethane-based unit has been used. This reflects the limitations of
feedstock apparent from the current negotiations to set up a cracker and the
early stage of development of the industry (Table 4.9).
Based on the assumed, ethylene cracker configurations, the economics
of ethylene manufacture for these units have been estimated for each country
situation. High production cost and lower rate of return is associated, as
expected, with naphtha-based crackers, notwithstanding the higher co-product
revenues. Low IRR results are also related to comparatively higher
installation factors, smaller scale and use of more expensive feedstocks. On
the other hand, favorable results were generally obtained for ethane/propane-
based crackers, in particular from large-scale operations in a country with
low opportunity costs for ethane (such as Malaysia). The production costs,
net present values, and IRRs for the simulated cracker configurations are
presented in Table 4.11.
- 50 -
Table 4.11: ETHYLENE MANUFACTURE--ESTIMATED PRODUCTION COSTS /a
AND RATES OF IETURN
Production IRR over
Country Feedstock Size NPV cost 10 years
('000 MT) (US$ mln) (US$/MT) (% p.a.)
Korea Naphtha 450 135 468 18
India Ethane/propane 300 85 477 16
China Naphtha 300 78 496 14
Thailand Ethane/propane 300 128 429 22
Malaysia Ethane/propane 450 353 350 33
Indonesia Ethane/propane 300 137 391 28
/a Production costs include return on investment.
Source: Staff estimates based on ASTIF Petrochemical Economics Model results.
The assumptions made on future ethylene market prices and the timing
of the price cycle are critical to the rates of return. To test the response
to depressed ethylene market prices caused by either overcapacity or economic
recession (Table 4.12), an estimate has been made of the profit and cash
margins obtained under lower ethylene prices. Figures 4.1 and 4.2 show how
profit and cash margins are affected by reduaced ethylene prices, Figure 4.1
for example shows the market price at which the different crackers break even
in terms of profits. The results highlight the fact that all producers,
independent of size and raw material would experience a serious erosion of
profits if some of the recent past low price levels for ethylene are repeated
in the future. The figures also illustrate that naphtha based producers are
more sensitive to a drop in revenues, and would experience losses at ethylene
prices of $350/MT or lower.
The economics of manufacture of et:hylene have also been compared
from the point of view of the cash operating costs and other production costs.
The average costs over the plant life for uniits started in 1991 are plotted in
Figure 4.3. The results show that gas-based crackers have a significant edge
in production costs and are better suited to handle reductions in revenues and
still remain viable than naphtha based plants. Low cost gas based
manufacturers (Malaysia, Indonesia) could produce at between 70% to 80% of the
level of high cost naphtha based manufacturers. The graph indicates the
magnitude of competitiveness of ethylene producers in the region. The
potentially lowest cost producers are Malaysia and Indonesia which could
combine low gas costs with relatively low capital related costs. Next is
Thailand with moderate capital costs and high gas costs. Korea is next,
despite its use of naphtha which is partial]Ly offset by low capital costs. At
the high cost side are India with high capital related costs and high gas
costs and China which uses naphtha and operates at relatively small scales.
- 51 -
Table 4.12: CURRENT AND PROJECTED WORLD MARKET PRICES FOR OLEFINS
(1988 US$ per MT)
1988 1990 1995 2000
(actual avg.)
Base case
Ethylene 639 525 430 510
Propylene 430 430 400 460
Depressed market
Ethylene 639 525 350 510
Propylene 430 430 350 460
Note: There is considerable uncertainty in projecting any prices for
petrochemicals and the price variations described in Annex 4.2 are
used only to illustrate the possible effects of a cycle that is
difficult to predict but known to occur.
Source: SRI Chemical Price Update, 1988, for 1988 data and staff estimates
for projections. See Annex 4.2 for projected petrochemical prices.
The assumptions made on future ethlyene market prices and the timing
of the price cycle are critical to the rates of return. To test the response
to depressed ethylene market prices caused by either overcapacity or economic
recession, (Table 4.12), an estimate has been made of the profit and cash
margins obtained under lower ethlyene prices. Figures 4.1 and 4.2 show how
profit and cash margins are affected by reduced ethylene prices, Figure 4.1
for example shows the market price at which the different crackers break even
in terms of profits. The results highlight the fact that all producers,
independent of size and raw material would experience a serious erosion of
profits if some of the recent past low price levels for ethylene are repeated
in the future. The figures also illustrate that naphtha based producers are
more sensitive to a drop in revenues, and would experience losses at ethylene
prices of $350/MT or lower. These estimates should be used as a relative
ranking of competitiveness rather than for the absolute values because of the
many assumptions used in the projection of prices. The estimates of relative
competitiveness in ethylene manufacture help to determine the competitiveness
in the synthesis of ethylene derivatives. The model feeds this information
into the downstream products in order to calculate their production costs.
Sensitivity Analysis. The naphtha crackers are particularly
vulnerable to the oil market. Naphtha price increases strongly affect naphtha
based crackers. For example, a 5% increase in naphtha prices reduces from 18%
to 13% the estimated IRR for a 450,000 tpy cracker in Korea. Finally, a
sensitivity analysis to size of the cracker has been prepared (Table 4.13).
In Korea, for example, a naphtha cracker with a 650,000 tpy capacity was
- 52 -
Figure 4.1
RESPONSE OF ETHYLENE PROFIT MARGINS
TO DEPRESSED MARKET CCINDITIONS BY 1995
PROFIT MARGINS (US $/MT)
200-
- KOREA
--INDIA
- 1 0 0 . ... . .... ....... ... ... .. ... .. .. .... ... .....................I.....................O,!,A
- CHINA
- THAILAND
-200 .. . . MALAYSIA.' ''
INDONESIA
- 300
150 250 1380 450
MERCHAN'T ETHYLENE MARKET PRICE
Figure 4.2
RESPONSE OF ETHYLENE CASH MARGINS
TO DEPRESSED MARKET CONDITIONS BY 1995
CASH MARGINS (US $/MT)
- =
aa0 . .. ....................................... ....... .* . KO -R EA ...........
- INDIA _
- CHINA
0 -u- THAILAND
MALAYSIA
~~~~~~~~~~~~-1a- -@- *DOI+ESlA
160 250 3150 460
MERCHANT ETHYLENE MARKET PRICE
- 53 -
estimated to have an IRR of 21% compared to 14% for a 300,000 tpy cracker.
Large naphtha crackers (650,000 tpy) efficiently operated are shown to compete
with high-cost (US$3.5-4.0/MMBTU) ethane-based crackers (Table 4.13).
Table 4.13: SENSITIVITY OF THE ECONOMICS OF ETHYLENE PRODUCTION
TO SIZE OF THE CRACKER
Estimated
Country Feedstock Size IRR
('000 tpy)
Korea naphtha 300 14
450 18
650 21
Thailand ethane/ 300 22
propane 450 27
650 30
Source: Staff estimates.
Aromatics
Aromatics (benzene, toluene and xylenes) are extracted after the
reforming of naphtha (generally in refineries) or extracted from pyrolisis
gasoline, a co-product of naphtha cracking in ethylene plants. Because of
high octane values, aromatics are valuable gasoline components. Of the three
aromatics, benzene has the highest value and is the most recovered for
chemical uses. In the US, most aromatic production is derived from the
reforming of naphtha in refineries. About 35% of reforming capacity could be
used for aromatic extraction (BTX production).
Benzene Extraction Costs. To estimate the costs of benzene
extraction, it was first necessary to make assumptions regarding the source of
reformed naphtha (reformate) and to estimate its production costs.../ It was
assumed that for all countries the source of benzene is reformate obtained
from full range naphtha reforming and the size of the operation is 450,000 tpy
of reformate. Contrary to the situation with ethylene feedstock costs, the
border prices for naphtha vary less than 10% among the countries and therefore
feedstock costs have less bearing on comparative advantages while capital
l/ Since not enough information was available on the actual configuration of
reformers and BTX plants, the analysis aims only to an assessment of the
cost of a theoretical new project of the same size and configuration in
all countries and is intended only to illustrate the impact of feedstock
costs and installation factors.
- 54 -
Figure 4.3
COMPETITIVENESS IN ETHYLENE MANUFACTURE
Based on selected cracker configuration
(US $/M.T.)
600 -
600 - .. 4.68 . 4 77 496 391
400 ..............3650 ....................
300 -....... ..
200 ....... ......
1 00
0
KOREA INDIA CHINA THAILAND MALAYSIA INDONESIA
CASH COSTS
Cash Operating Cost Deproolatlon
Gl Interests Return on Equity
(in 185 constant terms)
Figure 4.4
ESTIMATED cosTs OF NAPHTHA REFORMING
(From Full Rlange Naphtha, 100 RON)
(US $/M.T.. In 1988 oonstant terms)
200 -
1 60
1 00
vl~~~~~. ... ... ... ....
60
0
KOREA INDIA CHINA THAIILAND MALAYSIA INDONESIA
CASH COS'S
Cash OperatIng Cost DeproolatIon
Interests Return on Equity
Based on 450,000 MTPY Reformats capacity
- 55 -
Assuming all other factors constant, the economics of naphtha
reformers with a start up in 1991 have been estimated for each country
(Table 4.14). The makeup of production costs are shown in Figure 4.4. The
costs, size of the reformer and integration with refineries, as well as
location relative to markets become relatively more important. results
indicate that Korea, given its low capital costs, has costs comparable to
naphtha surplus countries such as Malaysia. On the other hand, naphtha
deficit countries with high capital costs are estimated to be at a
disadvantage in the production of reformate. Similarly, the cost of benzene
extraction was estimated for all the target countries. The producers of low
cost reformate that can effectively pass the savings to integrated downstream
benzene extraction units have a significant lead in production costs (Korea,
Malaysia). High capital costs, high feedstock cost countries like India and
China are estimated to remain on the high side of the cost range (Figure 4.5).
Table 4.15 gives an indication of the relative importance of
feedstock and capital-related costs in the production of aromatics. The data
point at the importance of scale and capital costs of the reformer and in the
BTX plants. BTX plants are usually integrated with refineries because of
economies of scale provided by the use of large reformers also used for
gasoline production and to take advantage of well developed infrastructure in
the refineries. Another reason for the importance of integration is the fact
that the process uses refinery throughputs and a number of by-products
normally return to refineries as feedstocks in other refinery operations.
Geographical separation implies heavy internal transport cost penalties.
Commodity Polymers
4.29 A similar analysis has been conducted for the manufacture of
commodity polymers. The sizes selected are midpoints in current practices and
therefore do not obey directly to market size considerations. The only
country without enough domestic market for plant of these sizes is Malaysia,
but, again the assumption is made that Malaysia would vie for the regional
export market. The results are summarized in Table 4.16. As it can be seen,
the savings in ethylene manufacturing costs are reflected in competitive
positions in the manufacture of polymers. This has been done by estimating a
transfer price of ethylene for downstream producers, defined as the price
level that allows the upstream producer a return on equity at a level 50%
above the opportunity cost of capital. The most competitive producers are
large-scale ethane/propane ethylene manufacturers that can effectively pass on
savings to downstream producers. Although Korea starts up with a high
transfer price for ethylene, other elements in its cost structure (lower
installation cost, economies of scale) make up for some of the difference and
results at a level comparable with low-cost gas-based producers such as
Malaysia and Indonesia (Figures 4.6-4.8). The production costs are also
affected by scale and technology. Sensitivity of production costs estimates
to size of plant was estimated for LDPE and HDPE. The results shown in
Figure 4.9 indicate that large scale manufacturers of PE can produce at levels
equivalent to 70-80% of small scale producers. Technology selection is
particularly crucial for PP, for which new processes (gas phase) represent
considerable savings over established technology. Figure 4.10 compares the
- 56 -
Figure 4.6
COSTS OF BTX EXTRACTION
Using Sulfolane Extraction
(US $/M.T.. In 1988 oanstant terms)
400 367 328 360
30�0 ....206 .... 281 290
L 4*7 .............. ......................
20 0 ..... ...... .... ..... .....
100
.0
KOREA INDIA CHINA TFIAILAND MALAYSIA INDONEaIA
CASH COSTS
Cash Oporatino Cost 1 Deproolatlon
G1 Interests =IRturn on Equity
(Sased on a 200,000 MTPY capscIty)
Figure 4.6
COMPETITIVENESS IN LDPE MANUFACTURE
Based on a tutiular reactor, 100000 MTY
(Ua */M.T.. In 1988 oontanLt terms)
1000 -
800- t2ts 786 '79 . 714 564
600~~~~~~~~~~~6
400 -.. .. ..... ..
200
0
KOREA INDIA CIHINA THAILAND MALAYSIA INDONESIA
Operstlonal Cost 1 loproolatlon
= 1 Interests Fleturn on Equity
- 57 -
Table 4.14: REFORMATE AND BENZENE--ESTIMATED ECONOMICS OF MANUFACTURE
Production
Size NPV IRR costs /a
('000 tpy) (US$ mln) (%) (US$/MT)
Korea
Reformate 450 148 44 150
Benzene 200 152 41 277
India
Reformate 450 121 28 173
Benzene 200 89 17 371
China
Reformate 450 113 34 165
Benzene 200 95 25 341
Thailand
Reformate 450 159 40 152
Benzene 200 153 35 293
Malaysia
Reformate 450 171 40 146
Benzene 200 147 31 302
Indonesia
Reformate 450 104 36 201
Benzene 200 67 21 334
/a Includes return on investment.
Source: Staff estimates.
estimated cash costs of full scale producers of PP using conventional and gas
phase technologies. These are significant savings associated to the use of
gas phase technology in the productino of polyproylene indicative of the
increased competitiveness of new polypropylene manufacturers in the world
market.
Other Downstream Products
Styrenics. For polystyrene, ABS and SBR which represent a commodity
polymer, an engineering polymer and a synthetic rubber, respectively, the raw
material costs are associated to both ethylene and benzene production costs.
In all these cases, benzene prices and availability have a relative large
- 58 -
Table 4.15:
CHANGES IN PRODUCTION COSTS OF BTX EXTRACTION
CAUSED BY VARIATIONS IN KEY FACTORS
(US Gulf conditlons)
Change in
production
cost La
(US$/MT)
Naphtha freight
$5 9
$10 18
$20 35
Size of reformer (base case: 745,000 t naphtha)
400,000 tpy 17
1,200,000 tpy -10
Size of BTX plant (base case: 425,000 tpy)
180,000 tpy 44
730,000 tpy -19
Installation factor/capital costs
0.7 -38
0.9 -25
1.1 13
1.2 25
1.5 63
Capacity utilization
Reformer 90% 8
80% 17
BTX plant 90% 10
80% 22
Combined 90% 18
80% 40
/a Production costs include return on investment.
impact in raw material costs through the use of styrene. Moreover, the market
for styrene is somewhat independent from the ethylene market and follows
cycles of its own. In the recent past styrene spot market prices have been
very high and are expected to rema:in high in the short term. Vertical
integration is therefore very important for styrenic producers when low cost
feedstocks are available. To estimate production costs for these products it
is necessary to project styrene production ciDsts. As with the projections for
olefin prices, these numbers are intended to be only indicative of future
market cycles. (See Annex 4 for details.)
- 59 -
Table 4.16: COMMODITY POLYMERS--ESTIMATED ECONOMICS OF MANUFACTURE
Production
Product NPV IRR costs
(MT/year) (US$ mln) (US$/ton)
Korea
LDPE 89 20 726
HDPE 60 22 676
PP 31 22 665
PS 10 20 863
India
LDPE 78 12 785
HDPE 60 18 696
PP 20 12 700
PS 5 10 912
China
LDPE 56 12 794
HDPE 30 11 733
PP 25 19 671
PS 6 13 895
Thailand
LDPE 108 21 710
HDPE 78 24 649
PP 31 19 667
PS 11 18 868
Malaysia
LDPE 132 25 664
HDPE 110 32 584
PP 25 20 654
PS 11 17
Indonesia
LDPE 66 16 764
HDPE 65 20 665
PP 37 11 700
PS 6 12 903
Source: Staff estimates. LDPE estimates assume
100,000 tpy tubular process, HDPE assumes 100,000 tpy
liquid slurry, PP assumes 75,000 tpy gas phase
technology and PS, 30,000 tpy batch process.
Production costs include return on investment.
- 60 -
The country specific estimated styrene prices were tied to the
transfer prices of benzene from benzene extraction units and to the transfer
prices for ethylene. In summary, this family of products illustrates a link
to the aromatics and olefins sector in each c:ountry. In all these products,
Korea comes out as the lowest cost producer, below low cost gas based
producers and naphtha export countries such as Malaysia and Indonesia. This
result is the combined yield of the degree of- integration of the industry in
both olefins and aromatics and the capital cost advantages (Figures 4.11-
4.12).
Competitiveness in the Export Markets
In the section above, the relative competitiveness of Asian
producers within Asia has been estimated. Whlile the results are highly
relevant for difficult to transport materials such as ethylene and others with
little or no international trade, for many petrochemicals international trade
is expected to play a very active role. As competitors, low-cost gas-based
producers in three different locations have been selected. These are:
Western Canada, US Gulf and Saudi Arabia whic:h are expected to be among the
lowest cost producers outside of Asia. The production costs of these
locations have been estimated for key olefins; and derivatives (ethylene,
benzene LDPE, HDPE and PS) and for benzene using the same assumptions employed
in the previous section (Table 4.17 and Figures 4.13 and 4.14). Although
Saudi Arabia is the lowest cost producer, it is the US Gulf coast that is used
as a benchmark because of the largier share of the market tapped by US
producers (about 31% of all olefins, 34% of all plastics, and 37% of all
synthetic rubbers are produced in the US and Canada) and because Saudi Arabia
is not expected to increase its gas based capacity in the foreseeable future
(additional ethane availability is tied to increased production of oil).
Production costs in Canada are expiected to relmain marginally higher than in
the US because of comparatively higher capital costs and higher internal
freight costs.
Table 4.17: ETHYLENE, ETHYLENE DERIVATIVES, REFORMATE AND BENZENE:
ESTIMATED ECONOMICS OF MANUFACTURE BY LO'W COST PRODUCERS OUTSIDE ASIA
Production cost
Western US Saudi
Size Canada Gulf Arabia
-------- (US$/ton) -----------
Ethylene 450 408 396 346
LDPE 100 701. 668 683
HDPE 100 610 585 567
PP 75 6251 621 646
PS 30 799I 780 803
Reformate 450 127 101
Benzene 200 243 817
Source: Staff estimates. Production costs include return on investment.
- 61 -
Figure 4.7
COMPETITIVENESS IN HDPE MANUFACTURE
Based on Slurry Technology, 100,000 MTY
(US $/M.T.. In 1988 oonstant terms)
1000 -/
800 675 6.7a4
Soo 6 76 9 6 ~~~649 666
600
400
Operational Cost Deprolatl|on
200 F- Interests Roturn on Equity
0 i I , - I -, I - I Z
KOREA INDIA CHINA THAILAND MALAYSIA INDONESIA
Country
Figure 4.8
COMPETITIVENESS IN PP MANUFACTURE
(Gas phase technology, 75,000 MTY)
(Ua 4/M.T.. In 198a oonstant terms)
800 0070
....a - � ... ... 6 .6............. .............. 0.0 7 ..1......... 6.7 - . ..... ....6
700
200
400
300
KOREA INDIA CHINA THAILAND MALAYSIA INDONESIA
Country
CASH COSTS
Cash Operating oout Depreolatlon
Interests Return on Equity
- 62 -
Figure 4.9
EFFECT OF SCALE ON FPRODUCTION COSTS
(Typical E. Asian conditions)
(US S/M.T.)
800
760
700 . ................ .
660 . ......
650.
680
600II
26 76 126 176
PROD U CT
Polypropylene A LDPE HDPE
(In 19B8 constant terms)
Figure 4.10
EFFECT OF TECHNOLOGY ON PRODUCTION COSTS
(Typical E. Asian conditions)
(US S/M.T.)
8001
700
600
600
4aco _ _[ _
300-
PP-GAS PHASE PP-aLURRY HDPE-L.SLURRY HOPE-PHILLIPS
CASH COSTS
Cash Operating Cost 3 Depreolatlon
Interests C] Return on Equity
(In 1988 constant termns)
- 63 -
Figure 4.11
COMPETITIVENESS IN PS MANUFACTURE
(Batch Reactor, 30000 MTY)
(US $/M.T.)
1000 1q 902 896 903
+ 863 iw A ... ... ... ... ... .....9,*---86
800
700
600
KOREA INDIA CHINA THAILAND MALAYSIA INDONESIA
CASH COSTS
Cash Operating Cost Dopreolation
C] Interests Return on Equity
(In 1988 constant torms)
Figure 4.12
COMPETITIVENESS IN ABS MANUFACTURE
(Emulsion Polymerization, 60000 MTY)
(US $/M.T.)
1400
i400 ~~1214 t111226
1200 1071 1 171 j t081i.. 10-2 - 1 2
10 0 0 -... ......
800 - . . .....
400 - .
2000
KOREA INDIA CHINA THAILAND MALAYSIA INDONESIA
CAIH COSTt
_Cash Operating Cost lzlDoproolatlon
Ezinterests I Iteturn an Equity
(In 1988 constant torrns)
- 64 -
Figure 4.113
ETHYLENE: PRODUCTION COSTS
(Low cost producers outside of Asia)
(US $/M.T.. in 1988 constant terms)
400 - .......... 3'46 .............
300 . . .. //.C
1 00 , =_/~~~~~~. .. .. ......... ,.........
0
USA GULF CANADA (Alberta) S. ARABIA
CASH COSTS
Cash Operating Cost Depreolatlon
E3 Interests FReturn on Equity
- 65 -
Figure 4.14
PRODUCTION COSTS OF DOWNSTREAM PRODUCTS
Low cost producers outside Asia
(US $/M.T.. In 1988 constant terms)
1 000
780 799 803
800 68662 701 6 836 64
..o~~~~~~~~~~~~~~~~~~.. ....
400 -'.... ..
200'
US GULF W. CANADA S. ARABIA
PRODUCTS
LDPE E; HDPE PP: PS
- 66 -
Advantages of Asian Producers in Aromatic Production
Aromatics are liquid chemicals that are relatively easy to
transport. The following table shows differences in feedstock prices, capital
costs and capacity utilization that can compensate for freight costs from
various locations. The maximum naphtha price difference between the Middle
East and Asian net importers ($23) is compensated by the cost of transport of
BTX from the Middle East. Even if naphtha prices were to increase more in
Asia than elsewhere, it is unlikely that price differences would reach levels
that would jeopardize the competitive position of Asian producers on their own
market (with the possible exception of Middle East producers). In addition, a
number of Asian countries are expected to derive significant advantages from
their ability to build plants quickly and cheaply and operate them at
capacity.
Trade Scenarios Involving Asia based Producers
Three different trade scenarios have been analyzed to illustrate the
relative advantages of Asian based producers. These are:
(a) Competition for a large domestic market in the East Asia region
(China). In this case, it has been assumed that producers in
Malaysia, Indonesia, Korea and India compete for the Chinese
domestic market against low cost producers outside Asia. Indicative
freight and handling charges were added to the production costs of
all manufacturers. The results slhow that overall Malaysia among
Asian producers would be in the besst competitive position to enter
export markets within East Asia. Its potentially low cost of
production and favorable location would benefit future potential
Malaysian based manufacturers. Middle East producers could
outcompete regional producers if production from new gas based units
is available for exports to Asia (Table 4.20). Countries with high
costs of production such as India do not seem to be in a position to
compete for exports to Asia locations.
(b) Imports to domestic markets in As-ia from spot merchants in the
Middle East and the US Gulf. In this case, imports from inexpensive
producers from outside the region are compared to local production
costs in several Asian countries. Border prices for resins have
been estimated from sources in the Middle East and US Gulf for those
markets that are expected to step up production to meet most
domestic needs (Thailand, Korea, India, Indonesia). The production
costs are compared with border pr:ices to assess the rationale for
domestic production. The results confirm that high-cost producers
.in Asia are marginally competitive in their own markets and that
imports should be considered as a viable complement to domestic
- 67 -
production (Table 4.21).V/ This is particularly true in countries
like India and China. In South Korea, Malaysia and Thailand the US-
based producers competitive edge is compensated by capital costs and
freight charges.
(c) Exports to lower markets outside the region from Asian-based
producers. Under this scenario, the cost of exports from Asian-
based producers with an export oriented outlook have been compared
with estimated costs of domestic producers in the US Gulf. The
results are summarized in Table 4.22. The data conclusively show
that based on the assumptions used in this report, Asian-based
producers are not able to compensate for freight costs when
exporting to market locations outside the region.
Table 4.20: ESTIMATE OF PROJECTED DELIVERED PRICES (PLUS RETURN AND
FREIGHT) TO A CHINA EAST COAST LOCATION
(1990's AVERAGE CONDITIONS)
(US$/MT)
Saudi
Korea India Malaysia Indonesia Arabia US Gulf
LDPE 771 835 709 814 738 768
HDPE 721 746 629 715 622 685
PS 908 962 921 953 858 880
Note: Freight charges were estimated as $45/ton for Korea, $50 for India and
Indonesia, $45 for Malaysia, $55 for S. Arabia and $100 for US Gulf.
Investment Timing
Because of the large outlays required by petrochemical plants and
the cyclical nature of the industry, the timing of the investment and the
actual start up date are important for the economic performance of the units.
Start up at the bottom of the price cycle can result in an impaired financial
situation for the lifetime of the plant. The section on production economics
was developed under the basic premise that all the projects have a similar
start up schedule. In the paragraphs below, the current proposals for
i/ In India and China, the production costs are somewhat higher than the US
costs plus freight for the conditions selected. The results of the
analysis imply that if the US is the price setter China and India will
have to lower their returns in order to compete for their own markets.
- 68 -
Table 4.21: COMPARISON OF PROJECTED US GULF DELIVERED PRICES AND
LOCAL PRODUCTION COSTS IN ASIA DOMESTIC MARKETS
(1990s AVERAGE CONDITIONS)
(US$/MT)
China Korea India Thailand Indonesia US Gulf
LDPE 794 726 785 710 764 768
HDPE 733 676 696 649 665 685
PP 671 655 700 667 720 721
PS 895 863 912 868 903 880
SBR 1,207 1,107 1,231 1,147 1,208 1,150
Benzene 341 277 371 293 334 285
Note: To simplify estimates, it has been assumed that freight from the US
Gulf to all local markets is the same.
Table 4.22: ESTIMATES DELIVERED PRICES TO THE US GULF
(1990'S AVERAGE CONDITIONS)
(US$/MT)
Malaysia :Indonesia Korea US Gulf
LDPE 774 864 826 668
HDPE 694 765 776 585
PS 986 1,033 963 780
Freight charges from Asia to the US Gulf were
estimated at US$100/MT for Indonesia and Korea and
US$110/ton for Malaysia.
Source: Staff estimates.
ethylene crackers are divided into groups according to the timing factor and
their prospects are discussed under this perspective.
As discussed in Chapter 2, the inzherent investment cycles of the
sector in the US were put in evidence with the surge in announced investments
during 1989 after a long period of no activity that lasted over three years.
In Asia, a similar pattern has occurred. A great deal of production capacity
is now on the drawing table. Some projects due to come on stream in 1989 were
- 69 -
actually conceived and started at the bottom of the last cycle. Whether the
results of clear foresight, or the end products of a long gestation period, or
rather because of isolation from the trends in the world market, these units
are bound to benefit the most from the current upswing of the industry. The
plants included in this group are the Yeochan and Ulsan expansions in
Korea, the Nagothane complex in India, the Beijing plant in China and NPC-l in
Thailand. All these plants are projected to enjoy relatively strong market in
1989 and a declining but still profitable situation in the early 1990s. Their
profitability will be strengthened by their timing.
A second group of plants has been an early starter in the current
cycle of events. Even though the investment decisions of these units have
been riding with the cycle, their plans have crystallized or translated into
actual construction schedules much earlier than their competitors. The plants
currently being built in Asia are in this position and will probably start up
with prices at the average levels of the cycle. These units do not have the
advantage of the previous group but are not projected to be worse off than the
industry average under depressed market conditions.
Finally, one has to consider those units that miss the cycle and
start implementation when prices collapse. A classic example is the first
Yeochan unit in Korea. Not only did the investor experience serious
difficulties but it also affected the rest of the industry by delaying market
development and syphoning funds out of alternative investments. Clearly this
is an example not to be followed. These proposals are also likely to be the
first to be scrapped or delayed if the market conditions deteriorate before
actual investments are committed.
Summary
The results of the analysis show that the countries in the region
are at various degrees of competitiveness in the production of petrochemicals.
The following general conclusions are drawn from the calculations and
discussions:
(a) For Asian countries building olefin capacity for their domestic
markets, a US$100 freight advantage shifts the "permissible" cost of
feedstock (that is, the cost of ethane or naphtha at which domestic
production would still compete with landed cost of US imports), up
by about US$2.0 per million BTU for ethane, and increases the
switching value of naphtha (relative to US ethane prices) by about
US$50, but only if everything else is equal, in particular, cracker
sizes, capital costs and capacity utilization similar. Once the
particular conditions are factored in low capital cost countries
with large plant capacities enjoy a higher advantage. Some crackers
built for domestic markets are competitive for ethane costs of up to
about US$4.5 per million BTU and for naphtha costs of up to $200 per
ton.
(b) For Asian producers wishing to produce for export, inside the region
to, say, China, the freight advantage is substantially less. They
- 70 -
have a chance to compete if ethane costs are less than US$3.5 per
million BTU today, incre.asing to no more than US$5 by the end of the
next decade. With respect to naphtha-based operations, product
freight advantages of Asian exporters to other countries n the
region could still permit naphtha costs higher than in the US by
some US$20 (while maintaining competitiveness with US ethane-based
operations of the same size) as long as the cost of naphtha remains
at less than US$200 per ton. This advantage, however, is likely to
be available to most Asian producers, and in fact would justify the
setting up of naphtha-based production for domestic use. Therefore,
unless capital costs are below US costs, or capacity utilization
consistently above, only the cost of ethane truly determines
comparative advantage for exports to other countries in the region.
Capital costs and capacity utilization are as critical as costs of
feedstock. Capital costs one third above US Gulf Coast costs can entirely
wipe out a $2 ethane cost differential. Operating crackers at 80% of capacity
when competitors operate at 100% has a similar impact. From the above
analysis, the following tentative conclusions can be drawn, with respect to
investment plans in the six countries.
Korea is quite competitive in the production of aromatic
derivatives, olefin derivatives and secondary downstream products (such as ABS
and SBR) where its advantages in capital costs, shorter implementation periods
and higher productivities compensate for the relatively high feedstock costs.
This is clearly the reason why the industry has integrated and why the Korean
producers have the most to gain from a strategy that maximizes value added.
Malaysia and Indonesia are potentially the lowest cost producers for
olefins and aromatic feedstocks. Malaysia, with ethane costs projected at
between $2.7 and $3.2 per million BTU (peninsular Malaysia) and installation
factors of about 1.0, is projected to be a good potential location for the
industry. Timing though may have an important role in defining the country
outlook. The delays in implementing the olefins complex may force it to miss
the high revenues part of the cycle and face start up when prices are
projected to be significantly lower. Indonesia, with ethane costs in Java at
around $3, but with high installation costs could compete with US imports, but
only for its domestic market. Export competitiveness for Indonesia is
probably conditional on reducing capital costs substantially, unless export-
oriented plants of large size can be built in North Sumatra, where ethane
costs would be substantially lower ($2 to $2.5). If such plant can be built
and if capital costs can be brought down, Indonesia could be in a strong
position as an exporter to the region.
Thailand is shown to have the potential to compete with the lowest
cost producers in downstream olef:ins and aromatics. Even though the industry
is still at a very early stage, it has the makings for a strong competitive
position in the region through the export of end user products. Its
competitive position is the result of efficient implementation, thorough
integration, careful location and timing and low capital costs.
- 71 -
China and India are at the high cost range in the industry. In
China the feedstock situation and the relatively long implementation periods
make it a relatively high cost producer of basic petrochemicals. Still, China
can be competitive with production from naphtha for domestic use; Chinese
authorities, however, may wish to consider increasing average plant sizes
above the current average of 300,000 tpy. In India, the advantages provided
by the use of gas allow for the production of basic olefins at moderate
prices, but high capital costs and long gestation periods contribute to
increase its cost of production of downstream products. Although local
manufacturers can compete for the Indian domestic market, with the current
cost structure it will be very difficult for Indian producers to compete in
the export market.
- 72 -
V. THIE POLICY FEAMEWORK
All the governments in the countries under analysis have
intervened in the establishment of their petrochemical industries and have
sought initially to shield it from import competition. Today, however, the
policy framework is very different, and there is a general tendency towards
liberalization. In some countries like India except for synthetic resins, the
policy environment remains restrictive and protective, in others like Korea,
it is the opposite. Invariably, the policy framework reflects: (a) the stage
of development of the petrochemical industry; and (b) the export orientation
of the economy. Government interventions have been prevalent in a number of
areas: (a) controls over the pricing and avrailability of feedstocks,
(b) tariff and import licensing, (c) protection against competing imports,
(d) capacity licensing, (e) structure and owmership of the industry,
(f) special investment incentives, and (g) concessional financing. Table 5.1
summarizes the key policy tools used in the six countries. Each element is
discussed in the paragraphs below.
Price Controls
With the exception of China, direct administrative controls over
prices of petrochemical products have not been prevalent in the countries
under analysis. Prices have generally been left to market forces, subject to
indirect intervention in price setting through tariff protection and taxation
and capacity licensing policies. These interventions have in some cases
resulted in distortions in price levels. In India, prices of products are
high, due to prevailing high tariffs and to excise taxes at the federal, state
and local levels. These taxes vary from 15% to 40% for plastics and
rubbers.1/ For fibers, however, excise taxes are product specific and
extremely high, sometimes doubling ex-factory prices. These high prices have
been a constraint to faster demand growth anid a factor in the low capacity
utilization of the synthetic fibers industry. In China, prices of polymers
and fibers are reportedly controlled at levels lower than their opportunity
cost. A two-tier pricing system has been established under which output not
covered under national or provincial plan allocations may be sold at "market"
prices. In most cases there is no control on upper price levels, but prices
do reflect much more accurately market conditions than the fixed prices that
apply to allocated production. Whereas the fixed prices for allocated
production are generally significantly below world prices, market prices are
generally higher. But not enough information is available on levels and
control mechanisms to assess the impact of such policies. In South Korea,
prices must be submitted for Government approval whenever a single company
controls over 50% of the market, or when three companies control over 70% of
the market. These regulations, combined with a desire to soften the impact of
1/ Part of the tax is recovera'ble under the Modified Value Added Tax
system.
Table 5.1: ASIA--SUMMARY OF KEY POLICIES IN THE PETROCHEMICAL SECTOR
I
India China Indonesia Thailand Malaysia Korea
Feedstock
Pricing
Natural Gas Under defi- Not Not applicable Opportunity Cost Not Applicable Not applicable
nltion applicable yet yet
Naphtha Much higher Lower than Slightly lower Opportunity Cost Opportunity Cost Opportunity Cost
than Opportunity than Opportunity
Opportunity Cost Cost
Cost
Product
Pricing Market Controlled Market pricing, Market pricing Market pricing Market pricing,
pricing, prices, possibly subject to subjet to import subject to subject to Govt.
subject to below market import tariffs tariffs import tariffs intervention on
moderate to value case per case
very high basia; subject to
excise taxes import tariffs.
and import tariffs
Capacity
Licencing Yes minimum Yes-minimum Yes Yes Yes Will no longer be
size size required startLng 1990
requirements requirements
Import
Licensing Yes, except Yes Import monopoly No No Mo
major removed at the
polymers end of 1988
(under Open
General
License)
India China Indonesia Thailand Malaysia Korea
Tariff
Protection
Nominal Moderate to Moderate Low to moderate, Moderate Low to Moderate Moderate (1988)
Protection very high, higher for to Low (1993)
wide locally produced
Items
dispersion (infant industry
protection
scheme)
Effective wide range, Moderate to Wide range, high Moderate to Low Low, good consistency
Protection generally High on a few high
very high domestically -4
sometimes negative produced items
Integration
of Olefin
Complexex Yes Yes Under definition No Under definition Not Initially
yes now
Public/Private 0
Ownership of
Olefin
Complexes
Upstream First 2 Public Under Public Under definition Public initially
crackers
private (SINOPEC) definition majority (probably public now private
Third and majority)
4th crackers
Public
India China Indonesia Thailand Malaysia Korea
New Crackers
under
planning:
Private
Downstream Same as Public Under defini- Private Under definition Private
upstream (SINOPEC) tion (probably
and other private)
companies
Investment
Tax
Incentives
-Income tax Yes for joint No Yes Yes Yes initially,
Exemptions ventures and
or reductions investments in
Special Economic
Zones and Coastal
Cities
-Exemptions
from duties on
capital costs
and raw
materials No Yes, as Yes but limited Yes Yes No
above
custom free zones
up to 80X of
equity
Foreign
Equity
Participation Possible for up Yes, in Limited to joint Possible, but Possible but No
to 402 downstream ventures- capacity licensors likely restrictions
joint Majority llcensors to privilege
ventures. domestic privilege majority local
Also possibility ownership majority local ownership
of wholly-owned mandatory after ownership
companies in SEZ 10 years
and coastal
cities.
- 76 -
price fluctuations on indirect exporters have resulted in domestic prices
being kept at levels lower than internationaL equivalents.
Feedstock Pricing
The cost of feedstock is one of the important determinants of
competitive advantage. Therefore, pricing or taxation policies which result
in significant differences between financial prices of feedstocks and their
opportunity costs may distort such advantage and artificially favor the choice
of one feedstock over the other.
Pricing of Naphtha. The current naphtha prices paid by the
petrochemical industry in 1988 are summarized in Table 5.2. The FOB Singapore
price in 1988 was about US$140 per ton. Since Malaysia and Indonesia are net
exporters of naphtha and crude oil, domestic prices of naphtha are likely to
be about the same or slightly lowe-r than the FOB Singapore price. Naphtha
prices tend to be at, or somewhat below, their opportunity cost in Indonesia
and China and generally at opportunity cost in Malaysia, Thailand and
Korea, but it is above opportunity cost in India. The high naphtha price in
India is due to (a) high retention prices paid to refineries, (b) heavy
incidence of taxation, and (c) high contributions to a freight equalization
pool for all refinery products.
Table 5.2: CURRENT NAPHTHA PRICES PAID BY PETROCHEMICAL PRODUCERS
Country Price
India (mid-1988) US$277/ton (price paid by
IPCL including local
taxes)
Indonesia 85% of FOB Singapore
China US$120/ton
Korea CIF plus 2% duty (maximum)
Malaysia CIF (maximum)
Thailand CIF (no sales presently)
The setting-up of naphtha prices at levels which ensure minimum
margins to the refining industry, without reference to the international price
was a policy in Korea until 1986. The combination of high naphtha prices and
low international petrochemical prices resulted in heavy financial losses to
the industry, in spite of the 30% protection still prevailing at that time.
In 1985, the Government deregulated naphtha prices. Today, there are no
controls on prices and imports of naphtha.
Countries where both natural gas and naphtha are available as
feedstocks are faced with the task of fixing prices in a way that does not
- 77 -
artificially provide a competitive edge to production from either gas or
naphtha. Price setting for gas fractions (C2/C3) iss relevant for Thailand
and India. In Thailand the first NPC complex will use gas fractions, but the
second complex, presently under planning, would possibly use a range of other
feedstocks. In India, if gas prices to the petrochemical industry were to be
set at opportunity value while naphtha prices are kept at present levels
(which are way above border prices), naphtha-based complexes would have
feedstock pricing penalties relative to gas-based operations. It would
therefore be important that naphtha prices be lowered to their opportunity
value by the time gas based capacity comes on stream. In Thailand, on the
contrary, there appears to be a desire in principle to let naphtha be imported
at its CIF value and to set the price of gas fractions at their opportunity
cost.
Pricing of Gas Fractions. Natural gas components most commonly
used for petrochemical production are ethane (G2), propane (C3) and butane
(C4). Propane and butane also form part of the normal composition of
liquefied petroleum gas (LPG), a fuel widely used by the household sector.
LPG is easily tradable in pressurized vessels and tankers and has a large
international market. Ethane, on the contrary, is more difficult and
expensive to recover and is not traded internationally, except in the form of
Liquefied Natural Gas (LNG), together with methane and other fractions. When
not used in petrochemical production, ethane is left in natural gas and burnt
as fuel. Thus, when the Petrochemical industry utilizes propane and butane
that can be economically recovered for LPG production, the opportunity value
of these fractions is the border price of LPG. When the industry utilizes C2
fractions (often together with some C3 and C4 not economically advantageous to
recover), then the opportunity value of these fractions is linked to the value
of natural gas. The key factors in the determination of ethane value were
discussed in Chapter 4 and further detailed in Annex 3. Essentially, the
economic value of ethane is equal to the opportunity cost (or value) of
natural gas, plus the cost of ethane separation.
In Thailand, India and China, the opportunity value of natural gas
is estimated as fuel oil equivalent (Chapter 4). The value of ethane is thus
in the range of US$3.0-4.0 per million BTU. In Indonesia and Malaysia, where
gas is generally in surplus, the cost of ethane has been estimated at between
US$1.5 and US$3.0 per million BTU. In Korea, there is no natural gas and the
industry depends entirely on imported feedstocks. None of the six countries
is presently producing olefins from gas feedstocks, consequently, gas pricing
policies for petrochemicals are not established. However, production is soon
to start in India and Thailand and government agencies are now in the process
of selecting the most suitable formulas. In Thailand, the selected formula
calls for ethane prices in line with the price to power plants (which seems to
be in line with the opportunity cost of gas), plus a separation charge. The
financial price is therefore expected to reflect the economic value of ethane.
In India, the price of C2/C3 fractions (over 90% ethane) has just been
established based on the current landfall price plus separation costs.
- 78 -
Trade Policies
Import Licensing
Countries where most of the indulstry's clients are direct or
indirect exporters tend to have liberal pol:icies with respect to imports.
Malaysia, Thailand and Korea no longer have licensing requirements for
petrochemical products (Korea phased out its import licensing system between
1984 and 1987). Indonesia, which used to have a trade monopoly in charge of
all petrochemical imports and internal distribution, has recently liberalized
imports as well (licensing is still required but the import monopoly was
abolished in 1988). India still has a restrictive import regime: only
recently were imports of plastic polymers by trading houses allowed; however,
licensing remains the rule for practically all other materials and is in fact
binding, whether the products are on the "l:imited permissible" or "restricted"
lists. It is up to the importer to prove that the materials are not available
from local sources. In addition, the import of a number of petrochemical
materials are "canalized," i.e., monopolized by a number of public
institutions.
Import licensing of petrochemical feedstocks (naphtha, LPG) is
more widespread, generally requiring clearances from public companies or other
public institutions in the refining sector. In addition, a number of basic
petrochemical products are often produced in refineries (aromatics), and the
pricing and imports of these as well as feedstocks may be controlled by the
refining subsector. For instance, in India, imports of naphtha and aromatics
are canalized through the Indian Oil Corporation and their pricing is
established by the Government's Oil Coordination Committee, using complex
formulas providing guaranteed returns on equity for refineries as well as tax
income for the federal budget. Resulting prices are high, as detailed
earlier. Imports of naphtha and LPG are also controlled in Indonesia, which
is a net exporter of both commodities. In Thailand, imports and pricing of
all potential feedstocks (including naphtha, LPG, natural gasoline and
condensates) are controlled by PTT, the Petroleum Authority of Thailand. In
Malaysia and South Korea, however, imports of naphtha are not subject to
licensing requirements.
Import licensing for feedstock may constitute a disincentive to
olefin and aromatic production, particularly if production is based in part or
totally on feedstocks other than natural gas (LPG, naphtha or heavier), and if
the domestic availability of these is insufficient to cover domestic demand in
other uses. The domestic demand for gasoline is particularly important as it
may constrain the availability of naphtha from domestic refineries for olefin
and aromatic production. As discussed in Chapter 2, there has been a trend in
the world to build olefin crackers with flexibility to use a variety of
feedstocks in order to lessen dependence on a single feedstock (naphtha) and
be able to take advantage of opportunities on world markets offered by
changes in relative prices of a range of possible feedstocks (naphtha, LPG,
gas oil, condensates, etc.). Fletxibility is also sought as a hedge against
fluctuations in availability of materials in the international market. This
is particularly critical for plants which are dependent on external supplies.
- 79 -
The decision to free imports of naphtha in Korea (with very low import duties)
stems from such a need. In countries which cannot supply their industry with
all its feedstock requirements, or at competitive cost with any potential
alternative feedstocks, the petrochemical industry would greatly benefit from
free access to a range of imported feedstocks, even if this runs against
existing monopolies on the import and distribution of refinery products.
Protection
The wide range of nominal and effective protection rates
prevailing in the six countries under study reflects to some extent differing
stages of development of their respective petrochemical and downstream user
industries. Tables 5.3 and 5.4 show the structure of nominal and effective
protection for key products in 1988. The effective protection shown is
theoretical, to the extent that it is based on the prevailing tariffs.
Realized protection may be lower if actual producer prices are lower than
those afforded by the tariffs.2. However, in the medium and long term, the
tariff structure is a key determinant of the industrial structure in the
subsector.
Nominal Protection. With respect to nominal protection, low rates
prevailing in Malaysia and Indonesia essentially reflect the incipient stage
of the industry, where production is limited to a few plants at the processing
end (typically, PVC from imported VCM and polystyrene from imported styrene).
In these countries, imports are not competing with domestic producers and
tariffs are maintained at low levels (0-5%), except for those few products
which are being produced domestically, for which higher tariffs of 10-35%
apply.
The tariff structure in Thailand and China is more indicative of
countries where the petrochemical industry is relatively new but already
fairly diversified, with production already extending upwards into
intermediates and basic petrochemicals. Import substitution has been and
still is the major motivation behind the development of the industry. Duties
on basic materials and intermediates, though relatively high, remain lower
than on resins, fibers and rubbers, which provides higher effective protection
to downstream users.
India has developed its petrochemical industry under high tariffs
throughout the vertical chain. Self sufficiency has been the primary goal,
and high tariff protection has combined with other import restrictions to in
fact prohibit competing imports. However, plastics, the production of which
is relatively new in India, have had a more liberal trade regime and lower
tariffs since 1986. (Tariff duties on plastic polymers have decreased
significantly, from a 90-200% range in 1985 to a 30-65% range in 1988.)
2/ Consistent information on domestic ex-factory prices is not available to
estimate "realized" effective protection coefficients.
- 80 -
At the other end of the spectrum is Korea. Development
started in Korea in the early sevetnties under moderate to relatively high
protective barriers (40% on average). As the industry matured and developed
the Government has progressively lowered the level of protection, in order not
to jeopardize the export competitiveness of the user industries (automobile,
electronics, capital goods, textiles and clothing, and other manufacturing
industries). In 1988, the Government announced its intention to further
reduce duty rates over a 5-year pr-ogram to no more than 2-8% by the end of
1993.
The importance given to indirect exporting industries has varied
with: (a) the size of the domestic: market; (b) the degree of saturation of the
domestic market; and (c) the importance of manufacturing exports in the
economy. Statistical information on the share of exporting industries in the
use of petrochemicals is scarce. However, in Malaysia, it is estimated that
70% of domestic production of PS amd PVC and 20% of all polymers used is being
indirectly re-exported already. T'he share of petrochemical materials in the
cost of exported items greatly varies with the complexity of the products and
value added.
With respect to the dispersion of tariffs, there is reasonable
consistency in China, Thailand and Korea between products as well as
categories of products. This is not the case in the other countries.
Indonesia and Malaysia have started granting differentiated protection to
particular products when domestic producers have initiated production (PVC, PS
and some synthetic fibers and yarns). The products on which tariffs are low
are those which are not produced domestically. The impact on the tariff
structure of an uncoordinated, unplanned, case by case approach is exemplified
by India and Indonesia. In India, these policies have resulted in a wide
dispersion of tariffs between categories of products and between products in
the same category. In Indonesia, the protection afforded to PVC and PS is
already resulting in the construction of intermediate plants (VCM and Styrene
monomers) from imported merchant ethylene, which are unlikely to be economic
in the long run (part of the VCM production is to be exported).
Effective Protection. As shown in Tables 5.3 and 5.4, tariff
differentials between basic petrochemicals, intermediates and finished
products are the major determinants of effective protection rates (EPRs).
Malaysia and Indonesia have generally the lowest EPRs because most inputs and
outputs have little protection. In these two countries, EPRs generally range
from 0% to 5%, except for a limited number of products produced domestically:
VCM, PS, PVC, PSF and SBR in Indonesia, for which EPRs range from 15% (VCM) to
117% (PS); and styrene, PS, PVC and nylon yarns in Malaysia, for which EPRs
range from 11% (styrene) to 131% (PS).
China and Thailand show a more consistent pattern of effective
protection, although it still remains dispersed: in China, EPRs are generally
between 20% and 40% for basic chemicals and intermediates (there are some
instances of negative rates such as DMT and PTA). For plastics, fibers and
rubbers, EPRs generally range between 30% and 90%, although there are also
some instances of negative rates (ABS). In Thailand, EPRs on basic chemicals
- 81 -
Table 5.3: NOMINAL PROTECTION RATES
RATES OF IMPORT DUTIES, 1988
(% CIF)
Indo- Thai- Korea
India nesia China /a Malaysia land 1988 1993
Feedstocks
Naphtha 5 2 2
Basic petro-
chemicals
Ethylene 406 0 20-30 2 20 10 5
Propylene 544 0 20-30 2 20 10 5
Butadiene 670 0 20-30 12 20 10 5
Benzene -- 0 15-20 35 20 10 5
Toluene -- 0 20-30 2 20 10 5
Paraxylene 115 0 15-20 2 20 10 5
Ammonia 110 5 25-35 2 20 10 2
Methanol 120 10 20-30 0 20 10 5
Intermediates
Cyclohexane 512 0 20-30 2 20 10 5
Caprolactam 72 0 25-35 2 20 15 8
Styrene 72 0 25-35 2 20 15 8
EDC n.a. 5 20-30 2 20 20 8
VCM 14 0 20-30 2 20 20 8
Ethylene
glycol 148 0 20-30 2 20 15 2
Acrylonitrile 110 5 20-30 2 7 15 8
DMT 210 0 20-30 2 20 15 8
PTA 208 0 20-30 2 20 15 8
Plastics
HDPE 54 5 35-45 2 40 20 8
LDPE/LLDPE 54 5 35-45 2 40 20 8
PVC 42 30 35-45 25 40 20 8
PP 48 0 35-45 2 40 20 8
PS 48 30 35-45 35 40 20 8
ABS n.a. 5 n.a. 2 40 20 8
Fibers
Polyester
staple fiber 213 15 25-35 5 n.a. 20 8
Nylon 6 fil-
ament yarn 124 30 60-80 2-15 n.a. 20 8
Acrylic staple
fiber 180 0 25-35 2-15 n.a. 20 8
Rubbers
SBR 100 5 25-35 0 25 20 8
PBR 100 5 25-35 0 60 20 8
/a Minimum and general rates.
- 82 -
Table 5.4: THEORETICAL EFFECTIVE PROTECTION RATES /a
Indo- Thai- Korea
India nesia China Malaysia land 1988 1993
Ethylene
(merchant) 440 0 27 2 16 11 5
Styrene (A) -14 0 30 -10 20 29 11
(B)(1) 93 0 34 11 21 24 9
(2) 98 0 -- 11 17 -- --
VCM (A) from
EDC 30 15 -5 11 11 5
(B)(1) 1 0 41 2 24 23 9
(2) 7 0 41 2 24 23 9
DMT 355 -2 -17 2 17 18 10
PTA 318 0 -11 2 17 17 9
Caprolactam 77 -1 30 2 19 16 9
Acrylonitrile -445 11 26 2 -9 23 13
Plastics
Polyethylenes
(A) -540 to 14 to 71 to 2 22 to 39 to 14 to
-860 19 88 94 50 17
(B)(1) 40 5 53 2 42 21 8
(2) 49 5 -- 2 34 -- --
PP -480 0 53 2 56 28 11
PS -28 117 80 131 97 18 7
PVC 75 66 62 53 65 22 9
ABS -140 12 -42 -2 80 28 10
Fibers
PSF 227 29 57 8 59 25 8
NFY 198 0 27 16 68 27 8
Rubbers
SBR -166 9 35 -6 29 25 10
/a Theoretical protection afforded by the tariff structure. Actual
protection may be lower if actual prices are below the maximum levels
permitted by tariff duties.
(A): From merchant ethylene.
(B): Integrated with ethylene production.
(1): Ethylene from naphtha.
(2): Ethylene from ethane.
- 83 -
and intermediates are lower than in China and the range is narrower, 15% to
25%; however, EPRs for finished products are equally dispersed between 30%
and 90%. The dispersion of nominal protection in India has resulted in a
structure of widely different EPRs of extreme values, positive as well as
negative, with no consistent pattern across products and product types.
Keeping in mind the qualifications made below, namely, that these estimates
are based on maximum prices afforded by the tariff structure (not actual ex-
factory prices) in a particular year, the existing structure appeared to be
highly favorable to certain types of intermediates (merchant ethylene,
styrene, DMT and PTA, caprolactam), highly unfavorable to others
(acrylonitrile) or neutral (VCM). With respect to finished products, the
structure was also highly favorable to fibers, highly unfavorable to rubbers
(SBR) and favorable to plastics only as long as their production is integrated
with ethylene production. Korea is the country which exhibits the most
consistent structure of EPRs. In 1988, EPRs on intermediates and basic
chemicals were in a range of 10-30%, mostly around 20%. Finished products had
EPRs ranging between 18% and 50%, mostly between 20% and 30%. When new
tariffs are in effect in 1993, all EPRs will be below 20%, most of them
between 5% and 15%.
The interpretation of the above results requires some caution.
Realized EPRs can be different from theoretical EPRs derived from tariff
levels. Producer prices may be substantially lower than CIF plus duties if
substantial domestic competition exists; if there is excess capacity over
demand internally; if purchasing power limits the growth of demand,
particularly when international prices are increasing very fast, as was the
case in 1987/88; or, when domestic indirect taxation raises prices to levels
which make final products uncompetitive with substitute products. A good
example of such occurrences can be found in India, as shown in Table 5.5.
Table 5.5: ESTIMATED EFFECTIVE PROTECTION RATES IN INDIA, 1988
Theoretical Realized
Major Plastics 40-60% 0-20%
Intermediates for
Fibers 100-350% 30-140%
Fibers above 170% above 90%
Other factors which mitigate the impact of tariffs are the various
schemes of duty exemptions or refunds applicable to indirect exporters
(exporters of products using petrochemical materials as inputs). In Malaysia,
for example, domestic producers of PS and PVC derive substantially less
benefits from the protection on their products than indicated by the duty
rates (30-35%): 70% of their output is sold at international prices to
customers located in Free Trade Zones and Licensed International Warehouses
- 84 -
(these are free to import their raw materials free of duties). The balance of
sales are in smaller lots sold to other indirect exporters located outside
these areas, at prices 8-12% above CIF prices, and to domestic users, at
prices only 12-18% above CIF leviels. Much lower tariff duties levied on
competing plastic materials are thus preventing domestic producers of PVC and
PS from taking much advantage of protection granted, even with clients not
benefitting from import duty exemptions.
Finally, high tariff p:rotection granted to merchant olefins (in
particular ethylene and propylene) may not be very meaningful because:
(a) natural protection derived from the difficulty and the cost of
transporting and storing these materials is so high that imports of merchant
ethylene and (to a lesser extent) propylene are rarely in a position to
compete with even high cost domestic materials; and (b) for that reason, the
incentive to integrate olefin production with the first stage of processing
(such as PE granules or VCM or styrene) is so large that it is the protection
on these products (which are much more easily transported and stored) which
will in fact determine the actua:L (realized) level of protection on olefin
production. The effective protection rates calculated for India separately on
ethylene production and polyethy:Lene or styrene shows extremely high EPRs for
ethylene production and very negative EPRs for polyethylene and styrene
because of the extremely high tariff on merchant ethylene (Table 5.6). If,
however, the production of these downstream products is integrated with
ethylene production, as is normaLly the case, EPRs on integrated production of
polyethylene and styrene become positive. Thus, the relevant tariffs are
those on the products of the first processing stages (polyethylene, styrene,
VCM, ethylene glycol) because, a-Lthough thiere may be temporary reliance on
imports of merchant ethylene by downstream plants built ahead of the
associated crackers, permanent realiance on imported ethylene is generally not
economic even in the absence of tariffs on ethylene.
Impact of Protection. There are indications that high rates of
effective protection are not conducive to efficiency and optimal plant
location and sizes, in particular, high EPRs provide less incentives to take
advantage of economies of scale and to retire old, obsolescent plants. A
comparison of India and Korea, where the desvelopment of the industry started
at about the same time (late sixties, early seventies), but which are at the
two extremes of the EPR range exemplifies this point. As shown in Tables 5.7
and 5.8, the average capacity of plants in operation and under construction in
India is consistently lower than in the other five countries, and very
significantly lower than in Korea. Finally, the dispersion of EPRs across
products horizontally and vertically is also likely to have biased investment
decisions in favor of the most heavily protected materials (for instance, in
India, in favor of PVC against PS).
- 85 -
Table 5.6: EFFECTIVE PROTECTION RATES, 1988
(%)
India Thailand Korea Malaysia Indonesia China
Ethylene (merchant) 440 16 11 2 0 27
VCM, integrated
w/ethylene 1-7 24 23 2 0 41
EDC n.a. 35 22 -2 8 16
VCM, from EDC 30 11 11 -5 15 -13
PVC 75 65 22 53 66 62
Styrene, integrated
w/ethylene 95 19 24 11 0 34
Styrene, from mer-
chant ethylene -14 20 29 -10 0 30
PS -28 65 22 131 117 80
Ethylene Glycol -840 -11 3 -1 0 12
DMT/PTA 318-355 17 17 2 0 -11-17
PSF 227 59 25 8 29 57
Source: Staff estimates.
Capacity Licensing
All six countries under study require new investments in the sector
to be approved by the government before they can proceed. In all cases,
capacity licensing has been used as a primary tool to shape the ownership
structure of the industry and its integration pattern, with the objectives of
(a) achieving maximum national ownership and control of production capacity,
and (b) avoiding concentration of such capacity in the hands of one or very
few private investors. These policies have invariably led to a significant
share of public ownership and lack of integration. An analysis of issues
associated with the ownership structure of the industry is presented in
Chapter 6. Licensing regulations are used for different purposes and
approvals are granted more or less liberally according to countries. In
India, and to a lesser extent in Indonesia and Thailand, licensing is used to
attempt to match supply to projected demand; as a tool to balance public and
private ownership; and as a means of avoiding excessive concentration of
ownership.
- 86 -
Table 5.7: AVERAGE CAPACITY OF PLANTS IN OPERATION
(tpy)
India China Thailand Korea Indonesia Malaysia
Ethylene 54,000 103,000 -- 250,000 -- --
Butadiene -- n.a. -- 47,000 -- --
Benzene 22,250 n.a. -- 85,000 -- --
Methanol -- 194,000 -- 330,000 330,000 660,000
VCM 29,000 60,000
Styrene 30,000 95,000
LDPE/LLDPE 36,000 80,400 87,000 135,000 -- --
HDPE 50,000 87,500 -- 93,000
PP 30,000 33,000 -- 170,000 10,000 --
PS 7,300 4,500 23,000 70,000 20,600 15,000
PVC 24,300 80,000 54,000 180,000 47,000 19,500
ABS 2,000 10,000 -- 63,000 -- --
Ethylene
glycol (EG) 24,500 80,000
DMT 48,000
TPA 100,000 500,000
Caprolactam 20,000 40,000
Polyester sta. 6,700 73,000 19,200 30,300 17,600 40,800
SBR 33,000 50,200 -- 75,000 -- --
Source: ASTIF Petrochemical Data Base.
Experience in India, however, has shown that capacity licensing
in the sector has generally had adverse effects because: (a) investors have
interpreted the granting of a liciense as a protection against oversupply, and
have thus tended to rely heavily on the Government's ability to project
domestic demand without developing independent market estimates; (b) licensing
has tended to enhance existing protection of established producers who have
also organized themselves to lobby against the granting of licenses to new
entrants; (c) consequently, the granting of new licenses has normally lagged
behind demand, existing producers have tended to operate in a sellers' market
with little incentive to innovate, improve efficiency or stop uneconomic
operations; and (d) there has been little incentive to develop export markets
or meet the needs of export segments among users since the domestic market has
always been able to absorb comfortably all available production. Only in the
case of India, where distortions from high protection and regional incentives
offered are so high, can a capacity licensing system ensuring minimum scales
be justified.
- 87 -
Table 5.8: AVERAGE CAPACITY OF PLANTS UNDER CONSTRUCTION
(tpy)
India China Thailand Korea Indonesia Malaysia
Ethylene 300,000 210,000 315,000 340,000 --
Butadiene -- n.a. -- 54,000 --
Benzene -- n.a. -- 65,000 123,000
Methanol 100,000 -- -- -- --
VCM -- -- -- 150,000 --
Styrene -- -- -- -- --
LDPE/LLDPE 75,000 125,000 70,000 100,500 --
HDPE 62,000 -- 77,000 80,000 210,000
PP 53,000 40,000 85,000 77,000 128,000
PVC 00 25,000 135,000 70,000 70,000
ABS 5,000 -- 10,000 26,000 4,500
Ethylene
glycol (EG) -- -- -- -- --
DMT -- -- -- 100,000 --
TPA -- -- -- 153,000 --
Caprolactam -- -- -- 40,000 --
Polyester sta. 20,000 18,000 -- 200,300 120,000
SBR -- -- -- 16,000 25,000
Source: ASTIF Petrochemical Data Base.
It is in response to these adverse effects and to restrictions on
domestic competition that some countries have started experimenting with more
liberal licensing policies. In Malaysia, requests for new licenses are now
being granted much more liberally. Korea has gone the farthest by having
liberalized its licensing policies in the past few years. Licenses are now
being granted quasi automatically, and licensing requirements will be
altogether eliminated starting 1990. These policies have shifted the
responsibility for proper market assessment to the investor and are leading to
higher efficiency through better assessment of competitive advantage and
competition for market shares.
While the elimination of capacity licensing encourages domestic
competition, it is not sufficient to achieve an optimal industry structure,
particularly when the domestic industry operates under high trade barriers.
The example of the synthetic fiber industry in India is illustrative in this
respect. In the early 1980s, the Government decided to promote domestic
competition in polyester fiber manufacture by liberally granting new licenses,
but without lowering tariffs, removing the import restrictions, or lowering
the very high excise taxes which constrained faster growth in demand. The
- 88 -
result was a multiplication of smiall sized new plants which today operate
below capacity. Since then, the 'Indian Government has established minimum
sizes for new plants when there are important economies of scale, in order to
obtain a license. Minimum scale criteria have also been used in China since
1978 in the planning of new compliexes at the national level. Since the
penalties for not achieving the economies of scale associated with
international sizes of plants are so high in the petrochemical sector, this
may be a justified policy, particularly in a transition period of gradual
lowering of protection.
Investment Incentives
Many countries have used special investment incentives to assist in
the development of their petrochemical industry. These incentives have been
established in order to attract foreign and domestic investors to compensate
for the following penalties: (a) the degree of uncertainty on the direction
of international markets and the rate at which the domestic market can grow;
(b) the lack of supporting infrastructure (ports, transports, utilities,
telecommunications); (c) various policy-related factors and, state
interventions in feedstock allocation and pricing; and (d) high capital costs
due to less efficient implementation, restrictions on the use of foreign
equipment and taxation on capital goods.
Most of the incentives offered attempt to compensate for these
penalties. These include (a) exemiption of corporate tax for several years
after plant commissioning, (b) duty-free imports, (c) investment tax
allowances, (d) accelerated depreciation schedules, (e) the provision of
infrastructure, and, for foreign partners, allowances in the repatriation of
capital and dividends, concessional credit facilities, and even special tariff
protection. The tendency however has been to reduce them progressively as the
industry develops.
In Malaysia, the petrochemical industry is among the sectors that
benefit from the Pioneer status defined under the Promotion of Investment Act
of 1986. Under these regulations, new plants enjoy an exemption of corporate
taxes for five years after the start of commissioning, with a possible further
extension to ten years. Other incentives include accelerated depreciation
schemes and the exemption of tariffs on imported machinery. If the industry
is export oriented and located in either a Free Trade Zone or a Licensed
Manufacturing Warehouse, it will 'benefit also from full duty exemption on
imported raw materials. Finally, under the foreign equity guidelines, foreign
ownership is allowed for up to 100% of equity if the industry is export
oriented, i.e, exports at least 80% of its output.
The Malaysian regulatiorLs are transparent and have a degree of
automaticity which is attractive to potential investors and leave relatively
little to discretionary approvals or denials. Special tariff protection,
although a possibility in the regulations, cannot however be granted by the
agency in charge of formal approval of incentives; this limits the possibility
of using protection as a promotional tool. The Malaysian regulations are
- 89 -
essentially geared to promoting export industries, which, given the small size
of the internal market, would be the case of a petrochemical industry.
Thailand also has designed a set of similar privileges applicable to
the industry under the Investment Promotion Act of 1977 (which was revised in
1987). The set of incentives include corporate tax exemptions or reduction
from three to eight years; as well as accelerated depreciation allowances,
investment tax credits and exemptions from duties on imported equipment. For
export oriented enterprises, the incentives include: duty exemption or
reductions on imported raw materials. Incentives are granted by the Board of
Investment (BOI). Until 1987, the administration of incentives was criticized
for being too discretionary and that the various exemptions were handled too
much on a case by case basis. The 1987 revisions have streamlined these
procedures and made them more automatic and uniform for similar investments.
BOI is also responsible for licensing of capacity and has considerable
flexibility in determining the magnitude of foreign equity shares (in that
respect, Thai regulations are not very restrictive; although regulations
specify that production for the domestic market requires a majority domestic
equity).
Investors who participated in the first petrochemical complex in
Thailand were able to receive generous incentives. The granting of incentives
for the second complex now under planning is presently under review, but it is
likely that, given the stage of development of the infrastructure and the
experience gained during the implementation of the first complex, these will
be less generous. The current controversy about these incentives also stems
from the fact that petrochemical production is essentially geared to the
domestic market and that large incentives are already available to the
industry in the fcrm of high effective protection rates.
The evolution of incentive policies in Korea provides an
insight on links with overall changes in the development strategy for the
subsector. In the 1970s conglomerate participation was encouraged through
financing at concessional terms, protection from imports, provision of
infrastructure and government financing in the production of basic
petrochemicals. A range of other incentives was also available in the form of
tax exemptions for foreign investors, as well as duty exemptions on imported
machinery. Corporate tax exemptions however have not been available since
1979 and duty exemptions on imported machinery (the current duty rate is 15%)
are now exceptional. Also, the level of tariff protection is being reduced.
Finally, it has been recognized that the generous concessional credit
allocated by the Government, at what were negative real interest rates, has
had serious adverse effects on the petrochemical industry.
In India, there are no special incentives applicable to the existing
industry and the corporate tax rate is the highest among the six countries
(52.5% versus 35% to 40%). There are five-year exemptions in the country's
two free trade zones, but these are congested and infrastructure and services
are poor. In the so-called backward areas, there is a series of further
exemptions and concessional loans which would require further analysis to
assess their potential impact on location decisions in the industry. There
- 90 -
are some restrictions on foreign ownership, but capacity licensors in the
industry favor domestic owners in the allocation of licenses.
In China, special incentives are offered for joint ventures with
foreign partners, and for investments (which may be wholly owned by
foreigners) in the country's 4 Special Economic Zones (SEZs) and its 14
Coastal Port Cities. In all above cases, there are reductions in income taxes
(the applicable rate is only 15%) and there aLre additional exemptions on
reinvested profits. Joint ventures benefit f'rom a two-year income tax
exemption. All producers benefit from an exemption of duties on imported
capital goods and imported raw materials. SINOPEC has been making extensive
use of these benefits. Of SINOPEC's enterprises, 9 are located in SEZs or
open coastal cities, and SINOPEC's subsidiaries have set up at least 20 joint
ventures with foreign business partners for the production and sale of plastic
products, detergents and wax products.
Finally, Indonesia presents a somewhat similar situation to India in
that there are no special tax incentives, exc:ept for duty exemptions on
capital goods and raw materials (ulp to two years for raw materials) in the two
existing custom-free and bonded exlport processing zones (also congested and
with inadequate infrastructure). In addition to the practice of using
capacity licensing to privilege domestic owners, there are serious
restrictions on foreign ownership: foreign i'nvestment can only be in the form
of joint ventures and the share of domestic equity must increase from a
minimum of 20% at the start to at least 50% after 10 years.
In summary, experience haLs indicated that incentives have been
required in Thailand and Korea to initiate development and to offset the
impact of distortions in the economy, particularly when the user industry is
directly or indirectly export oriented. However, as soon as the country has
established its ability to implement projects efficiently, supply the required
raw materials at fair prices and provide the necessary infrastructure, such
incentives are generally no longer required and investment decisions could be
governed essentially by competitive advantage, particularly in this industry,
which is global in nature and where mistakes are expensive. If granting of
special privileges cannot be avoided (to counteract similar privileges in
other countries in the region), it is important that (a) the system be
transparent and with a fair degree of automalticity, and (b) special tariff
protection should not be part of the special privileges which can be granted
by the capacity licensing institution.
Finally, one aspect which would deserve closer analysis would be the
extent to which the various domestic regulat:ions hinder equity participation
in joint ventures abroad, including by state-owned companies. This is
relevant because of the large differences in feedstock costs. It might be
advantageous for some countries to invest abroad in countries with cheaper
sources of raw materials or with a well developed infrastructure, in exchange
for a take-off agreement for part of the output (and of course sharing of
dividends). China, Taiwan and Korea are already contemplating this approach
in their search for cheap sources of basic and intermediate petrochemicals.
- 91 -
VI. FUTURE DEVELOPMENT OF THE INDUSTRY
In this chapter the future of the industry is examined from three
different angles: (a) the issues and obstacles facing its development
(summarized in Table 6.1), (b) a projection of markets and diagnosis of the
demand supply situation by 1995, and (c) a review of strategies to face the
challenges of the next decade.
Table 6.1: ISSUES AND CONCERNS AFFECTING THE PETROCHEMICAL INDUSTRY
Korea India China Thailand Malaysia Indonesia
Feedstock X X X X X
Overcapacity X X X
Competitiveness X X X
Market size X X
Rationalization X X
Financing X X X
Environment X X X X X X
Industrial policy X X X X X
Issues Affecting Future Development
Overcapacity
Most countries in the region have ambitious expansion plans
involving substantial increases in capacity. With a few exceptions, the
domestic markets are expected to absorb the plants under construction. On the
other hand, the materialization of all projects under planning in the time
frame being considered may create a problem of overcapacity in some countries
in Asia by the mid-1990s, although the region is expected to remain a net
importer as a whole. The situation is particularly delicate in South Korea,
where 2 million tons of ethylene and 3 million tons of resins are under
planning. The domestic market will not be able to bear all these additions.
A potential problem also exists in India, with a large number of projects
being considered and in Thailand where the new capacity will exceed the size
of the domestic market's needs and exports would be required. In the case of
India, although the GOI has an optimistic market projection that has further
enticed potential investors, the implementation of all proposed projects is
not likely to proceed in the proposed timetable. Thus, the probability of a
surplus in India is not high. In these cases the eagerness of the private
sector to step into growing markets and perceived attractive margins has been
aided by the lifting of restrictions to licensing (Korea), encouragement to
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increased private ownership of new capacity (India, Thailand), as well as high
protection levels (India). The problem is compounded by the fact that
investments take 3-4 years to materialize into producing units while in the
meantime the cycles of the market may drastically change its outlook.
Overcapacity is not an issue for now in China and Indonesia where
the market requirements are well ahead of new investments (China) or expansion
programs are still undefined (Indonesia), but these countries will also be
indirectly affected through the impact, on the regional market, of excess
supply in some Asian countries. To overcome the perils of overcapacity in an
environment of gradually decreasing control, the industry needs to improve
long term planning and learn from the disastrous consequences caused by excess
supply in industrialized countries in the past.
Environmental Concerns
Environmental concerns have become very important in the US and
Western Europe. This is also a major issue regarding existing and future
Asian-based producers, as exemplified by the Indian government reaction to the
Bhopal disaster and the enactment of stringent environmental legislation in
India, Indonesia, Korea, Japan and Taiwan. In India, for example, the
chemical industry has been identified as one of five major industrial
polluters in the country. This means that future plants will have to go
through a careful screening at design and before start-up is allowed. Since
most existing plants are located in densely populated areas, one may also
expect further environmental legislation, and tougher enforcement of
environmental standards.
In Taiwan and Korea, the location of new complexes has become a
public issue because of the perceived aggregated impacts of new capacities on
existing industrial parks. Although the example of Taiwan, where a local
producer sought an overseas location when denied a license to locate on
environmental grounds, may not be repeated in other countries, the fact is
that new plants are faced with a more stringent set of standards and increased
environmental awareness. The industry must quickly adapt and accept the
limitations posed. Quick adoption of new standards and compliance with
emission performance guidelines is essential for the healthy growth of the
industry. This is an area that requires strong governmental attention and
awareness by management and owners. Compliance requires the allocation of
resources for training, and monitoring, a strong regulatory body and the
levying of financial penalties commensurate with the social and economic costs
of pollution.
The issue of solid waste disposal has not surfaced in Asia to the
extent that it has in the US and Western Europe, in part because disposables
are a smaller fraction of plastic end uses and also due to higher rates of
recycling. But it will be in the long term benefit of Asian producers to
incorporate quickly the lesson learned in industrial countries regarding
recycling, reuse and incineration. In Asia, the potential impact of this fast
growing industry on air and water quality arid the long-term effects of
pollution require firm action from investors, planners and regulators. If the
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industry is allowed to operate without the proper monitoring and control, the
accumulated impact will eventually degrade the surroundings to levels
unacceptable to society. Industrial waste treatment must be promptly
implemented to avoid social and economic costs.
Large petrochemical installations are relatively amenable to proper
environmental control since they are such significant investments that they
can be carefully scrutinized at the planning stage and during operation. In
addition they usually attract capable management that can be persuaded of the
long term benefits to the company of being responsive to environmental
concerns. A more intractable problem are the small scale operations that
development of a basic petrochemicals industry promotes,which are much less
visible than the large operations and are more concerned with short term
profit considerations than environmental concerns. Second is the issue of
incentives. Private companies have insufficient incentives to incorporate
these processes on a purely economic basis. Therefore, incentives or
legislation have to be introduced to initiate proper waste disposal. Also,
given the high recycling as well as the low per capita consumption of
plastics, the issue of solid residues is not likely to be treated with the
same urgency being experienced in developed countries. Nevertheless, as
illustrated by the experience in developed countries, early measures to handle
solid waste properly will avoid serious environmental problems in the long
run.
Financing
Considering the highly capital-intensive nature of the sector,
financing the expansion of the industry appears to be an issue in some
countries. In Korea, the large financial clout of the potential investors and
the considerable progress made in financial sector liberalization have led to
an unprecedented availability of resources for the sector. The complexes
under construction and planning for the next five years will demand a total of
US$7 billion equivalent, but financing does not seem to be a limitation. In
China, financial constraints have slowed down the investment programs of
Sinopec and forced innovative (by Chinese standards) approaches that
contemplate the use of joint ventures with foreign companies and increased
provincial government roles in financing. In Indonesia, financing has also
surfaced as an obstacle to quick execution of the proposed olefins and
aromatics centers, this time tied to the question of public sector involvement
in the industry.
The implementation of large petrochemical complexes, which require
large amounts of finance raise issues concerning not only the financial
viability of the projects themselves but also the impact on the local
financial systems. In determining the debt/equity ratios for these types of
investments, competitive advantage and the vulnerability of the industry to
fluctuations in international prices of inputs and outputs should be taken
into account. A debt/equity ratio of 70/30 may be too high for export
oriented industries, or design plants based on naphtha. In Chapter 5, mention
was made of the large amounts of concessional foreign financing made available
to Korean companies during the 1970s, which encouraged high leverage in
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financing their projects. The impact of this indebtedness (mostly in foreign
currency) on the financial structure of the companies was disastrous when, as
a result of the second oil crisis, naphtha prices increased sharply and the
ensuing recession caused international prices of petrochemicals to collapse
and capacity utilization to drop. Low margins and low capacity utilization
caused serious difficulties for the companiets and all sustained heavy losses.
Prudence in deciding on debt/equity ratios is also necessary because
of the possible impact of such large financing needs on the domestic financial
system. In Thailand, for example, it was not possible to obtain nonrecourse
financing from abroad for the first complex. The domestic financial system
eventually agreed to provide guarantees to international banks for the foreign
portion of the borrowings, in addition to financing for the local portion, to
achieve a debt/equity ratio of 75:25. This level of exposure of the domestic
banking system in the sector makes it unlikely (and undesirable) for it to
provide a similar financing package for the second complex. It is thus
unlikely that nonrecourse financing can be raised from international financial
markets unless investors propose a substantially lower debt/equity ratio to
compensate for increased risk to the financial system. This in turn raises
the issue of adequacy of domestic capital markets to raise the required levels
of equity. It is often advantageous to keep open the option to attract
foreign capital to complement the financial requirements for the industry and
therefore diminish the large demands of the sector on the domestic capital
markets.
Rationalization
A review of the scales of production in Asia reveals that over the
last years most producers have progressively moved toward larger product
capacities. Still, countries like India and China which started production
many years ago are burdened by the operation of small and in some cases
obsolete units. In Korea and Thailand, sca:Le is now not an issue and in
Indonesia and Malaysia the industry has yet to be established, but minimum
sizes have already been imposed to potential investors. In the synthetic
fibre and synthetic rubber industries, suboptimal scales are more widely
spread within the region. The need for rationalization both physical and
organizational has been recognized in both cases. The timing and sequence of
the reforms required is much less clear.
Serious difficulties face the task of rationalization in a depressed
economic setting. In such an environment excess capacity and low investment
make structural changes more painful. The opportunity for rationalization is
now supported by the generally bright outlook of the industry. This is in
particular applicable to the textiles and rubber industries where new market
opportunities for regional trade that may be opened by the renegotiation of
the Multifiber Agreement (MFA) and the General Agreement on Tariffs and Trade
(GATT) could only be fully developed if the local industries modernize in
size, technology and productivity.
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Integration and Ownership
With the exception of China where the industry has been centrally
planned and is owned by the Government, the patterns of integration and
ownership have been shaped by several factors: (a) the difficulty in securing
equity financing by a single investor for the financing of integrated
complexes, (b) government intervention in capacity licensing, and (c) in some
cases, the reluctance of private investors to invest in basic petrochemical
plants that rely on feedstocks provided through government agencies at costs
fixed by the Government.
In Korea, Thailand and Taiwan, the governments intervened
heavily in the initial phases of development of the industry, in particular
through the financing and majority ownership of the ethylene plants, and the
allocation of production licenses to as many as possible private investors in
the associated downstream units. The progressive change in orientation with
respect to integration and ownership in South Korea reveals the problems
encountered with lack of integration. After a few years, the Government sold
its shares in the ethylene plants to the private sector, but still insisted on
the separation of ownership between upstream and downstream. Following the
crisis in the industry in the early eighties, this last policy was changed and
the Government is now officially encouraging integration. In China and India
early integration was achieved through reliance on public sector monopolies
that are now being exposed to greater competition from private investors or
through licensing of integrated units to private parties (NOCIL and Reliance
in India).
Government policies with respect to both ownership and integration,
are progressively shifting towards more private (including foreign)
involvement in the upstream plants, and better integration. In particular, it
is being recognized that lack of integration is associated with a number of
penalties:
(a) Fluctuations in international feedstock prices and product prices
create uncertainty for petrochemical producers. Major producers,
particularly those who do not benefit from market protection in
their own countries, have reacted by integrating backward and
forward as much as possible. Most of them have developed captive
markets for their commodity products by incorporating them into
- higher value products. In this way, sales of petrochemicals are
much less sensitive to prices and much more dependent on services
and product differentiation associated with the final product.
(b) The establishment of transfer prices for olefins (which provides for
a fair sharing of costs and benefits between producers and users) is
difficult because of complicated and expensive transport.!/ Cost-
/ Producers in Texas and Louisiana in the US, and others in parts of
Western Europe are linked through an ethylene pipeline that enables the
purchase of merchant ethylene at low transport costs. In Asia, Thailand
- 96 -
plus pricing formulas for ethylene which have prevailed in Korea and
are under consideration in Thailand shift all the risks and benefits
of widely fluctuating international prices for final products on
downstream producers. Such formulas do not provide incentives to
upstream producers (often the Government) to search for optimal
feedstock composition. On the other hand, pricing olefins at their
border price would in normal times artificially render the
downstream industry uncompetitive because of the high cost of
transport and storage of olefins.
Faced with these difficulties, countries have been searching for
transfer pricing formulas simulating integration as much as possible. One
alternative, is to link fluctuations in representative ethylene prices (not
border prices) with fluctuations in downstream product prices, so that the
risks and returns of downstream price fluctuations can be fairly shared. A
basis for ethylene transfer could be the US Gulf contract prices, adjusted for
cost advantages or disadvantages of ethylene production over production on the
US Gulf Coast. Another way of reinforcing the sharing of returns could be a
system of financial cross-participations of the upstream company into the
downstream companies and conversely.
Illustrative of the difficulties encountered in such arrangements is
the experience in Thailand and Korea. In Thailand, in the first olefin
complex, the upstream cracker is owned and operated by the National
Petrochemical Corporation (NPC), while the four downstream plants are owned by
four different private investors. Forty-nine percent of NPC shares are
publicly owned (by PTT, the Petro:Leum Authority of Thailand), 45% by the 4
downstreamers and the balance by the Crown "Property Bureau and IFC. Transfer
prices of olefins are established on the basis of the cracker's cash outflow
(cash costs plus debt service) plus a 15% resturn on equity, which transfers
all risks and benefits to downstreamers. While such a formula might be
appropriate if downstreamers owned the cracker entirely, in the long term it
may not be desirable for the major shareholder (the Government) to view
cracking operations as utilities and just content itself with earning a
relatively modest return on a major investment. While the intervention of PTT
was based on the premises of providing the technical implementation expertise
and the financial backing necessary for such a major investment, it might be
desirable, once operations start, for PTT to transfer its share to
downstreamers over a period of time.
In Korea, where the experience dates back to the early 1970s, the
progressive changes in orientation with respect to integration and ownership
reveal the problems encountered with a similar lack of integration. After a
few years, the Government sold its shares in the upstream industry to
has been an importer of small volumes of merchant ethylene. In India a
private partner is considering an ethylene jetty for imports. Still,
imports of ethylene are viable only under very specific conditions (low
transport costs, large cargo volumes, high derivative prices).
- 97 -
the private sector, but still insisted on the separation of ownership between
upstream and downstream. Following the crisis in the industry in the early
1980s, this last policy was changed and the Government is now officially
encouraging integration of owners of upstream production into downstream
operations and conversely.
Role of the Public Sector
The large public sector involvement, a trademark of the early stages
of development of the petrochemical industry, is diminishing. In South Korea,
the last public sector ownership was transferred to private hands in 1980. In
other countries like Thailand and Indonesia, private partners have taken the
lead from the start and in Malaysia, delays in awarding ownership can be
traced to ambivalence regarding the potential role of Petronas. In Malaysia
and Indonesia, however, the large public owned petroleum companies continue to
argue in the face of increasing opposition for a dominant role at least in the
supply of basic petrochemicals. Even in India a stronghold of public sector
involvement, new investments are being awarded to private enterprises. Only
in China is Sinopec still the undisputed leader in production and investments.
Concomitant with the expanded private role, industrial policy has
generally moved toward an increased reliance on market signals and a reduction
of direct intervention. Controls such as licensing, import restrictions and
effective protection as discussed in Chapter 5 are being relaxed in an overall
move toward a freer market environment, although there is a wide difference in
pace of policy reform within the six countries. With less public sector
involvement and the lessening of control mechanisms, the industry now faces
the issue of disciplined capital spending, and disciplined market development,
disciplined management. Cyclical business almost always overinvest during the
period of high profits and thereafter regret it during the period of lean
profits. The exercise of self restraint and control of expectations are new
concepts for an industry that grew accustomed to license restrictions,
controlled pricing and protection.
Trade Restrictions
Nontariff Barriers. The structure of manufacturing exports in the
Asian countries, in particular Korea, Thailand, Malaysia and to a lesser
extent Indonesia and China, make them vulnerable to changes in the trade
environment and the establishment of nontariff barriers by developed
countries. The concentration of exports on end-user products such as
textiles, rubber manufactures, and others where nontrade barriers are on the
rise, cloud the prospects for continuing strong performance of exports and
trade.
To overcome this issue, the Asian countries have in their favor the
following factors: (a) the trade linkages with Japan and the newly
industrialized countries that can soften the impact of barriers established
elsewhere; (b) the relatively advanced industrial infrastructure and
management capabilities that can be used to diversify exports and increase
competitiveness; (c) the structure of the petrochemical sector that offers the
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possibility of complementing further downstream sectors (such as assembly
products, consumer appliances, electronics,, and transportation equipment
components), less susceptible to the establishment of trade barriers, and for
which demand continues to be very strong.
Future Market Development
Market Forecasts. Projecting demnand for petrochemicals is a
difficult task, primarily because of the links of the sector with a large and
heterogeneous group of economic activities,,-but also because the markets are
very dynamic, with complexities related to product substitution, innovation
and obsolescence. As an example consider the case of polypropylene a product
first developed to make use of (at the time) a low cost by-product of ethylene
cracking. Since first introduced, in the 1950s, polypropylene has found
applications in agriculture (product bags), the textile sector (polypropylene
base fibers), the construction industry (pipes, conduits), the automotive
industry, high performance fiber and resins applications, disposables
(substituting for polyethylene and polystyrene), consumer appliances and
electronics, medical and health applications. The technical properties and
specifications have changed many times and new and improved grades are
introduced every year, every time changing its outlook and those of the
products with which it competes.
Given the extensive use of petrochemicals in the economy of
industrial countries, previous attempts to forecast demand for petrochemicals
(McPike, 1986; UNIDO, 1985 for example) have invariably used GNP forecasts as
a wide indicator of future demandi. With some slight variations, the same
procedure has been selected for purposes of this study. First, an indicator
of industrial activity instead of GNP has been utilized. This in effect ties
the forecast more closely to industrial activity instead of economic
performance, an important difference given the early industrial stage of some
countries in the sample. Second, linear and exponential regressions have been
utilized depending on the country selected and using time series for
individual countries. This allows differentiation between countries at an
early development stage and those already experiencing market saturation.
Third, a coefficient has been added to account for the effect of exogenous
factors such as tariff barriers, limited production capacity, price to per
capita income ratio and others. The equations used as well as the R? and t
statistics are summarized in Annex 5.2/
In addition to a base projection based on the selected industrial
indicators (Table 4.7), scenarios of low growth were also introduced. The low
growth scenario reflects either a situation of recession in industrial
activity timed to occur during the period 1991-93 or the effects of restricted
2/ Prices for petrochemicals fluctuate in the international market, yet for
purposes of this analysis it has been assumed that future demand will
continue as in the past to show a strong relation (linear or exponential)
with GDP growth.
- 99 -
supply of imports. The resulting forecasts for the six countries are
summarized below. Specific product forecasts are included in Annex 7, figures
6.2 to 6.19.
Korea. The Korean market is at an intermediate point in terms of
development. The per capita consumption of most petrochemicals is well above
the average for developing countries in the area (Figure 6.1), yet, as
discussed in Chapter 3, a big share of consumption is driven by exports and is
therefore governed by factors well beyond the control of the Korean economy.
The model selected as a basis to predict demand is linear, based on the high
per capita demand. In addition, the relative difficulties caused by the
increasing import resistance of traditional trade partners, in particular for
synthetic fibers and rubbers subsectors, the competitiveness of new producers
within the region, and the difficulties associated with feedstock availability
were also taken into account for the selection of the linear model. Finally,
a comparison was made between the resulting projections and those recently
prepared by the Korean Institute of Economic and Engineering Studies (1988).
The results of the forecasts are summarized in Table 6.2. The
scenario of low growth is also included. The individual projections for some
chemicals are shown in Annex 7. The projections show an overall continuation
of strong patterns of growth but at noticeably lower rates. If naphtha
markets become tight and oil prices increase beyond what is expected,
a significant reduction in competitiveness should result (see Chapter 4).
This in turn will reduce the potential for Korean exports and further cut the
expected market growth rates. A comparison of the forecasts with announced
and planned capacities raises questions regarding the timing of the ambitious
expansion program now taking effect and the viability of exports from the
surplus capacities. Even if the GOK high-growth scenario is used, there is
only market for two or possibly three additional cracking units by 1995. If
more crackers are built (six are being promoted), the product would need to
be directed toward the export market. But, as discussed in Chapter 4, the
Korean producers are not likely to be cheaper than low cost producers outside
of Asia or even potential low cost regional producers, such as Malaysia, in
the export of polyolefins to the region. This surge of proposals is the
result of the lifting of restrictions regarding the licensing capacity, the
reaction of potential investors to the high margins available to producers in
1988 and the urge felt by existing producers to integrate. The projected
supply/demand situation by 1995 accounting for projects under construction and
projects under implementation is summarized in Table 6.3. Excess capacity is
projected in olefins and synthetic resins if proposed plants are implemented.
India. Despite the size of the country, the established
infrastructure, the recent investments in production capacity and progress in
industrial policies, India remains at the lower scale within the Asia region,
lowest among all countries in the analysis, in terms of per capita demand for
petrochemicals (Chapter 3) and on the high side of production
costs(Chapter 4). Also, and notwithstanding recent improvements, the country
has one of the largest import resistances as measured by protection rates and
trade barriers. These factors combined explain the relatively low stage and
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Table 6.2: KOREA--DEMAND FORECAST FOR PETROCHEMICALS
('000 mt)
Growth rate
1995 1995/1988
1988 1990 Base Low GOK/a Base Low
Olefins
Ethylene 1,332 1,686 2,522 2,228 2,603 9.5 7.6
Propylene 850 1,039 1,487 1,330 8.3 6.6
Butadiene
Methanol 164 199 265 242 7.1 5.7
Benzene 337 382 664 503 10.2 8.2
Resins
L/LLDPE 353 403 661 587 715 9.4 7.5
HDPE 306 374 649 570 723 11.4 9.3
PP 455 509 862 759 888 9.5 7.6
PVC 421 470 724 651 8.0 6.4
PS 299 350 650 564 11.7 9.5
ABS 125 138 250 217 10.4 8.2
Rubbers
SBR 111 120 179 162 7.0 5.4
Fibers
Total polyester 605 665 876 787 5.4 3.8
/a High case projection preparecd by KIET, 1989.
Source: Staff estimates based on an econometric model tied to projected
growth of the industrial. sector.
inertia in the development of the! industry. Future progress will depend
largely on success in improving t:he competitiveness of the industry, through
lower production costs and increaLses in productivity.
The forecasts for future demand are based on a linear model (supply
restrictions, high import resistance, high costs, even though per capita
demand is low) tied to expected industrial growth. No export markets were
- 101 -
Table 6.3: KOREA--PROJECTED 1995 DEMAND/SUPPLY SITUATION
(% of capacity in production)
Demand/Supply
Including
capacity Including
under proposed
construction projects
Ethylene 168 72
Propylene 188 82
Methanol 80 80
Benzene 78 78
LDPE 98 81
HDPE 148 91
PP 105 71
PS 115 115
PVC 118 118
SBR 357 98
ABS 103 103
Polyester 155 155
Numbers over 100 mean insufficient capacity to
meet demand. Current and projected installed
capacities are summarized in Annex 6.
Source: Staff estimates.
considered. The results presented in Table 6.4 and Figures 6.7-6.10 are
significantly lower than the Kapur report projections; but even at the rates
shown in Table 6.4, the capacity under construction (Nagothane, Hazira,
Rishra) will not meet the requirements of the domestic markets. In fact,
additional capacity of 200,000 tpy of ethylene would be required by 1995 to
meet all requirements. On the other hand, the projections do not appear to
justify in the short term the large volume of proposed additions (a total of
1.8 additional million tons of ethylene capacity have been proposed with 0.5
earmarked for exports). Some of the units proposed are naphtha-based with
capacities ranging from 50,000 to 250,000 tons per year which are very likely
to be at a disadvantage vis a vis full scale plants based on natural gas and
consequently prone to difficulties under stressed market conditions or right
out not viable. The expected demand/supply situation by 1995 is summarized in
Table 6.5. Overcapacity in olefins and some resins, will result if the
projects under planning are executed, also given India, high cost structure,
these projects will face tough difficulties in competing for export markets.
- 102 -
Table 6.4: INDIA--DEMAND FORECAST FOR PETROCHEMICALS
('000 MT)
1990 1995/1988
1988 19'30 BaLse Low Base Low
Olefins
Ethylene 608 707 1,022 918 7.7 6.0
Propylene 197 202 2'94 263 7.4 5.7
Benzene 190 2:31 319 7.7
Resins
L/LLDPE 145 1'70 2'50 217 7.5 5.9
HDPE 140 158 250 214 8.1 6.2
PP 65 '79 132 114 10.6 8.4
PVC 220 2:37 3257 317 7.2 5.4
PS 45 '53 91 78 10.6 8.2
ABS 4 45 8 7 9.5 7.4
Rubbers
SBR 30 :34 47 43 7.0 5.0
Fibers
Total polyester 46 222 5,29 459 13.2 10.9
Source: Staff estimates.
China. Because petrochemicals play such a central role in the
Chinese industrial development program, there is very little doubt that the
sector will continue to attract the attention of planners during the current
modernization drive for the econoray. This is also clear from the seventh
five-year plan proposals for investment in the sector. For the entire seventh
plan a total of US$7.5 billion has been projected for investments in the
sector (EAER, 1988). The expansion iz basic petrochemicals and derivatives
requires that simultaneous efforts be taken to use and convert the products
available. Major efforts are thus needed in beefing up the end-products
industries such as plastic processors, synthetic fibers producers and rubber
products manufacturers. This problem is being currently addressed by Sinopec
as part of their planning process.,
No forecast of domestic markets was available from Sinopec. The
seventh economic plan calls for a 6% annual growth in the chemical industry to
meet local requirements, but because imports are constrained through the
- 103 -
Table 6.5: INDIA--PROJECTED 1995 DEMAND/SUPPLY SITUATION
(% of capacity in production)
Demand/Supplv
Including
capacity Including
under proposed
construction projects
Ethylene 125 31
Propylene 136 67
Benzene 358 152
LDPE 120 81
HDPE 192 102
PP 53 80
PVC 138 140
PS 414 78
ABS 65 46
SBR 142 142
Numbers above 100 mean insufficient capacity to
meet demand by 1995.
Source: Staff estimates.
availability of foreign currency, current consumption falls well below what
would otherwise be expected. Therefore, the Chinese market has a very large
unsatisfied potential demand as illustrated by the sizeable increase in
imports of petrochemicals (particularly polymers) whenever restrictions are
eased. Although the current per capita consumption is low, even modest
increases would severely tax the ability of the domestic industry to meet the
requirements. Additionally, as seen in the previous sections, feedstock
supply raises concerns about the projected increases in production capacity.
Because of this combination of factors and based on the historical pattern, a
projection has been made for the petrochemical indicators, using a linear
model. The results of the analysis are summarized in Table 6.6 and Annex 7.
However, reliable statistical data were available for all products only up to
1986, and therefore miss the large market changes occurring during the last
two years.
The results also imply that the total olefins and plastics market
will about double in size by 1995. Even if financial conditions become a
serious obstacle to growth and the domestic markets remain supply-restricted,
the projections indicate that China will continue to dominate in total volume
and level of imports the developing Asia petrochemical markets. If the base
- 104 -
Table 6.6: CHINA--DEMAND FORECAST FOR PETROCHEMICALS
('000 MT)
Giowth rate
1995 1995/1986
1986 1990 Base Low Base Low
- - () -
Olefins
Ethylene 1,417 2,200 3,400 2,825 12 9
Propylene 831 1,370 2,270 1,830 13 10
Butadiene 223 360 1500 480 13 10
Methanol 524 780 1,230 1,010 11 9
Benzene 611 928 1,470 1,200 12 9
Resins
PE 1,057 1,553 2,300 1,050 13 9
PP 487 835 1,390 1,230 13 12
PVC 630 867 1,300 1,170 9 8
PS 190 390 760 650 19 17
ABS 85
Rubbers
SBR 158 279 500 430 15 13
Fibers
Total polyester 1,301 1,625 3,250 2,650 12 9
Source: Staff estimates.
case projections materialize, the additional capacities required for the
olefins market amount to 0.8 million mty of ethylene and 0.6 million mty of
propylene by 1995 over the projects already under construction. The 1995
supply/demand situation for China is summarized in Table 6.8.
Thailand. There is no doubt that the petrochemical industry in
Thailand has entered a new stage, with world size production capacity
benefitting from well planned and. centralized infrastructure and a coordinated
ownership arrangement. While NPC-l is geared to meet the requirements of an
already established and growing domestic market, future complexes are more
likely to rely on a mix of exports and internal consumption. As has been the
case in other countries where initial capacity has recently been set up, a
- 105 -
Table 6.7: CHINA--PROJECTED 1995 DEMAND/SUPPLY SITUATION
(% of capacity in production
Demand/Supply
Including
capacity Including
under con- proposed
struction projects
Ethylene 128 112
Propylene 374 374
Butadiene 118 100
Methanol 195 195
Benzene 241 232
PE 321 --
PP 504 321
PS 726 726
SBR 177 177
Numbers above 100 mean insufficient capacity to
meet demand by 1995.
Source: Staff estimates.
surge in domestic demand is expected in the short term as a response to NPC-1.
Also, the prospect for domestic availability of aromatics and C4 olefins
should result in an increase in the market size for styrenics and synthetic
rubbers. The next stage represented by the second complex is a logical
continuation of this well-planned process including the first aromatics plant
and an expansion of the olefins capacity.
The GOT has prepared a market projection in the Petrochemical Master
Plan. This projection is based on the assumption that domestic markets will
grow at a faster rate than the historical trends due to the establishment of
domestic producers and availability of local products. More recently, the Chem
Systems/Bechtel team has produced a projection that in general terms has
endorsed the earlier estimates by the GOT. For purposes of this study, the
future demand has been projected, assuming an exponential model in the very
short term to account for the impact of the first petrochemical complex (until
1992) and then shifting to a linear response to GNP growth. This conforms to
the ratio of new capacity to market size when NPC-1 becomes operational, but
also to the expected limiting factors related to available infrastructure for
feedstocks and to the considerable regional competition for the export market.
The results of the projections are presented in Table 6.8. Figures 6.13-6.18
show a comparison of the results of this study projections (generally lower)
with those prepared by the GOT.
- 106 -
Table 6.8: THAILAND--DEMAND FORECAST FOR PETROCHEMICALS
('000 mt)
Growth rate
1995 1995/1987
1987 1988 Base Low Base Low
Olefins
Ethylene 205.6 296.3 471.9 408.8 10.9 8.9
Propylene 108.2 157.5 252.9 218.7 11.2 9.2
Butadiene 1.8 3.3 6.1 5.0 16.2 13.6
Methanol 20.7 70.4 33.4 28.6 6.2 4.1
Benzene 4.1 7.1 12.9 10.8 15.6 13.0
L/LLDPE 63.7 85.6 127.9 112.7 9.1 7.4
HDPE 82.3 124.6 204.5 175.7 12.1 9.9
PP 100.3 145.0 213.4 200.4 11.0 9.0
PVC 89.2 133.6 219.5 188.7 11.9 9.8
PS 34.5 49.4 78.3 67.9 10.8 8.8
ABS 2.6 4.3 7.2 6.1 13.7 11.5
SBR 5.9 7.9 11.7 10.3 9.0 7.3
Source:
An estimate has also been prepared of the exports volume required
from the second complex per the different projections. If the base projection
per the current study holds, then, close to 30% of all polyolefins from the
second complex will need to be exported. The surplus production by 1995 has
been estimated in Table 6.9. The actual tapping of import markets for this
production is critical to the performance of the complex.
Malaysia. The petrochemical industry in Malaysia is in a stage of
early development. Most of its short term future depends on decisions yet to
be taken regarding the implementation of an olefins complex. Because of the
size of the domestic market, a complex of th.is nature will have necessarily to
rely on exports for most of its sales and therefore its prospects hinge on the
ability to produce at competitive prices and on the size of the merchant
markets for petrochemicals of the future. On the first count, and as
discussed in Chapter 4, the prospects for competitive production of olefins
and derivatives are quite favorable. But, oni the regional market, a lot
depends on the timing of the implementation. With investments already
announced and in many cases with plants in construction for a large number of
units in Asia, a future Malaysian complex wi:Ll find a crowded market in the
- 107 -
Table 6.9: THAILAND--1995 DEMAND/SUPPLY SITUATION
(% of capacity in production)
Demand/Supply
Including
capacity Including
under con- proposed
struction projects
Ethylene 149 83
Propylene 241 94
LDPE 32 p
HDPE 89 71
Pp 118 63
PS 237 46
PVC 116 88
ABS 72 18
Numbers above 100 mean insufficient capacity to
meet demand.
Source: Staff estimates.
mid-1990s, particularly for the type of product that would come out of a gas
based olefins cracker where the country has a competitive edge.
The domestic market is growing fast but from a very small base.
Exports of petrochemical derivatives are on the other hand a large fraction of
total manufactured exports and Malaysia could also explore this route already
followed by S. Korea and Taiwan. The Master Plan for the Petrochemical
industry includes a forecast for growth of the market. For purposes of this
study, a projection of future consumption has been prepared based on a linear
model, based on the assumption that no local production capacity of basic
materials will be available in the short term. The results are summarized in
Table 6.10. Annex 7 shows the forecast for basic olefins, the results of the
use of an exponential model, to reflect the impact of local av_ailability of
olefins and a conservative scenario based on a slow down of economic growth
during the period 1991-1993. Still, none of the forecasts foresees the
domestic market absorbing all the production of a large olefins plant.
Indonesia. Indonesia is among the countries that possess the
domestic market and necessary feedstocks to develop a full-scale domestic
petrochemical industry. It has also announced an ambitious program to develop
its industry and provide the links between basic petrochemicals and
derivatives, and therefore reduce the onus of expensive imports of synthetic
resins and fibers that today penalize the local producers of end user
manufacturers. But, despite the announcements and intentions, it is still not
- 108 -
clear how and when the program will be crystallized. A number of issues,
still awaiting solution, will strongly influence the outcome. These include:
(a) feedstock availability, (b) financing arrangements, (c) location, and
(iv) role of the government. While key decisions are pending, it is very
difficult to say anything about the future of the industry. The markets
though continue to develop, and a projection has been prepared based on a
linear model of the future growth of the markets. The results are summarized
in Table 6.11. The 1995 projected demand for olefins and resins by itself
justifies the implementation of an olefins complex. The results also indicate
that the aromatic projects under construction or planning will need to
continue to rely on exports.
Table 6.10: MALAYSIA--DEMAND FORECAST FOR PETROCHEMICALS
('000 MT)
Growth rate
1995 1995/1987
1987 1990 Base Low Base Low
Olefins
Ethylene 124 191 375 311 15 8
Propylene 50 77 151 125 15 12
Butadiene 2 2 3 3 7
Methanol 22 27 36 30 6 4
Benzene 18 39 8:L 63 21 16
Resins
PE 104 162 302 266 14 12
PP 47 72 130 116 13 12
PVC 42 50 75 n.a. 8 n.a.
n.a.: Not available.
Industry Strategies
Feedstock. Countries like Korea and China which rely on heavy
feedstocks or like Thailand and India with limited ethane/propane supplies
have a lot to gain from feedstock dliversification. This can be achieved
either through building into new crackers the! capability to process several
feedstocks or as in the case of China by setting up facilities that would
handle gas derived feedstocks such as ethane/propane or natural gas liquids.
Diversification will soften the impact of higher costs or reduced availability
of gas feedstocks but will increase the capit:al requirements and costs of
production (Table 6.13).
- 109 -
Table 6.11: INDONESIA--DEMAND FORECAST FOR PETROCHEMICALS
('000 MT)
Growth rate
1995 1995/1987
1987 1990 Base Low Base Low
Olefins
Ethylene 272 300 417 378 5.5 4.2
Propylene 203 245 338 307 6.5 5.3
Butadiene 10 13 24 20 12.4 10.1
Methanol 278 369 670 570 11.6 9.4
Benzene 22 25 32 30 5.4 4.4
Resins
PE 246 269 371 337 5.3 4.0
PP 193 233 321 292 6.6 5.3
PS 24 27 33 32 4.3 3.5
Rubbers
SBR 13 18 32 29 12.4 10.1
Source: Staff estimates.
Table 6.12: INDONESIA--PROJECTED 1995 DEMAND/SUPPLY SITUATION
(% of capacity in production)
Demand/Supply
Including
capacity Including
under con- proposed
struction projects
Ethylene -- 111
Methanol 203 203
Benzene 26 6
PP 81 62
PS 54 54
ABS 67 67
SBR 64 64
Numbers above 100 mean insufficient capacity to
meet demand.
Source: Staff estimates.
- 110 -
Overcapacity. Reliance on market signals and a freer trade
environment notably reduce overinvestment and excess capacity. But within a
highly cyclical industry, investors will normally tend to invest in the good
times. The industry needs to improve long-term planning. This is
particularly critical when Goverunent controls (licensing, production limits)
are being lifted.
Competitiveness. The countries under study represent a wide gamut
of competitiveness. Countries lilke Korea (Taiwan also) face in the short term
a decrease in the competitiveness for the ma,nufacture of olefine caused by
expected higher costs of production, currency variations and increased
competition from newer producers such as those being planned in Indonesia,
Malaysia and others. Also nontariff barriers recently imposed on South
Korea's production will mean a reduction in its ability to export textiles,
garments, footwear and other end-user products that make use of petrochemical
products. Other countries in the region may later face similar restrictions.
Japan's response to similar challenges is likely to be followed by
Korea. Their strategy combines a series of measures, including: (a) efforts
directed to improve quality and establish product differentiation to justify
higher prices; (b) pursuing vertical integration to benefit from shared
infrastructure and higher value added; and (c) selling both materials and
services that would include support services tied to product sales, and
specific industrial service needs. This strategy requires continuous
innovation to sustain the competitive edge. But for some products, typically
SBR and some commodity polymers, product difEferentiation opportunities may no
longer be available.
A second group of countries, characterized by their relatively new
entry into the market and/or abundant feedsitock supplies (Malaysia, Indonesia)
will need to opt for a low cost strategy. 'This strategy requires the
realization of their potential as low cost 1producers. In other words, the
ability to translate low cost feedstocks and low labor costs into low
production costs. This will require of high standards in productivity,
management and efficiency. The low cost strategy has an additional inherent
advantage: these producers are less vulnerable to cycles and more likely to
survive in the long run under stressed market conditions. A third group of
countries (India and China, for example) are in an intermediate strategy
position: these can not claim low cost advantages nor are yet in a position
to provide product differentiation and quality advantages. In fact, countries
in this group are not likely to compete in the regional market but rather to
continue to develop an inward strategy while markets develop and experience is
gained and to rely on imports to complement their domestic production.
Size of the Domestic Markets. The size of the domestic markets is
an important issue for Thailand and Malaysia. Indirectly, it also surfaces as
an issue in India and China where! provincial markets are an important
consideration in site selection. To bypass limitations on scale of production
imposed by small domestic markets, low cost Asian based producers may explore
the possibilities of agreements writh net importing countries and/or
maintaining themselves on a net importing status. Another way to deal with
- 111 -
Table 6.13: ASIA--COUNTRY INDUSTRY STRATEGIES
Korea India China Thailand Malaysia Indonesia
Feedstocks
Diversify X X X X
Increase reliance
on natural gas
fractions X X
Overcapacity
Improve planning
and management X X X
Improve long-term
response to mar-
ket cycles X X X
Competitiveness
Downstream inte-
gration X X
Product differen-
tiation X
Sell both materials
and services X
Increase value
added X X
Realize market
share through
low-cost produc-
tion X X
Market size
Bilateral agree-
ments with long-
term import mkts X X X
Reliance on im-
ports until scales
are achieved X X
Rationalization
Revamping of old
and small plants X X
Closure of noncom-
petitive units X X
Financing
Joint venture
agreements X X
Trade-investment
options X X
Environment
Quick adoption and
enforcement of
emission standards X X X X X X
Industrial policy
Effective protection X
- 112 -
market size limitations is to promote the creation of a more homogeneous
market. For example, producers in Pacific Asia (Korea, Taiwan, Thailand,
Indonesia, Malaysia) could adopt standard building, safety and environmental
codes with the effect that producers of end user product components can more
freely access larger markets based on competitiveness.
Environment
There is but only one valid strategy regarding environmental issues.
The industry must comply with emission and pierformance standards and other
limitations either through the adoption of modern waste treatment or
minimization process, improvements in resource recovery or better plant
housekeeping. The provision of incentives will accelerate compliance and can
be part of efforts to maximize resource recovery, add value to by-products,
improve energy efficiency and min:imize waste.
Although the degree of treatment aLnd protection is a function of
local standards, the economics of resource recovery and the commonly
industrial practices, no country can afford to ignore the long term effects of
industrial pollution on the environment.
Summary
The prospects for future development of the industry in the six
countries are generally positive. First of all, because the markets are
expected to continue to grow and expand, soon converting the Asia region into
a market of comparable size to other more developed regions. For example, the
ethylene demand in the six countries is now more than 1.5 times the large
Japanese demand. By 1995, demand for ethylene is expected to reach 10 mtpy
for a yearly growth of over 10%. Plastics, fibers and rubbers are also poised
to grow at similar rates. A second reason for optimism is the expected
gradual evolution of the policy framework (pioneered by South Korea) toward a
less restrictive environment, freer trade and lesser protection. Although the
countries in the sample are all across a wicle spectrum of policy, the trends
clearly point, with some exceptions, toward a less regulated industry better
linked to market signals.
A third reason is the differentiation of the markets in Asia that
provide opportunities for mutual complementation. From the most sophisti-
cated, highly integrated markets like South Korea to those with clear advan-
tages as suppliers of polyolefins (Malaysia), the region is a showcase of the
stages of market development in petrochemicals. The Asia producers have a lot
to gain from this situation through complementary trade and markets. Finally,
the abundant gas resources in the region in particular in Malaysia and
Indonesia and the availability of other feedstocks, provide Asian producers
with the possibility to become a long term low cost producer of basic
petrochemicals and a competitive manufacturer of downstream products.
To secure their competitive position and materialize the growth
prospects those countries in the region with the lowest competitive posture
will benefit the most if corrective actions are taken now when prospects for
- 113 -
progress are favorable. Priority actions for Korea and Thailand relate to
diversifying and securing the feedstock base and continue vertical
integration; for China and India restructuring of fibers and rubbers (India)
is needed to improve competitiveness in those sectors; for Malaysia and
Indonesia long term planning and long term export markets are required to
develop its potential as low cost producers. In Indonesia improvements in
production costs and vertical integration are needed to realize its
advantageous feedstock position.
Table 6.15: ASIA--PROJECTED DEMAND FOR PETROCHEMICALS, 1995
(million tpy)
DeveloRing Asia
Six
countries Others /a Total Japan
Ethylene 8.2 2.0 10.2 5.1
Propylene 4.7 1.3 6.0 3.8
Benzene 1.8 0.7 2.5 2.7
PE 5.6 1.3 6.9 2.9
PP 2.9 1.1 4.0 2.0
ABS 0.3 0.3 0.6 0.5
SBR 0.8 0.7 1.5 0.5
Polyester
fiber - 4.8 n.a. n.a. n.a.
/a Includes Singapore, Philippines, Hong
Kong and Taiwan.
Source: Staff estimates.
Figure S.1
PERCAPITA CONSUMPTION OF ETHYLENE
Kg per capita per year
100.
30 -
40 - . . . . .
20 ...........
o. z _ \\\\y x,,,,,,,, .. - v
Countries
_ USA BRASIL JAPAN
KOREA [f TAIVAN CHINA
Source! Staff estimates
- 114 -
References
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Developing Countries of East Asia. World Bank Discussion Paper 27, World
Bank, Washington, D.C. 1989.
Borup, M. B. and E. J. Middlebrooks, 1987. Pollution Control for the
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China, Ministry of Industry, 19813. China Chemical Industry, 1988. Beijing
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East Asia Petrochemical Conference, 1988. The Petrochemical Industry in East
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Fayad, M., 1986. The Economics of tte Petrochemical Industry. St. Martin
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- 115 -
Materials 1988, 1989. MPI, January 1989, pp. 28-29.
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- 117 -
ANNEX 1
HISTORICAL SERIES OF PETROCHEMICAL PRICES AND MARGINS
Table Al-i: HISTORICAL SERIES OF PETROCHEMICAL PRICES IN THE US
(Constant 1988 US#/kg)
Year Index Ethane Ethylene Propylene Butane Benzene Methanol LDPE
1988=100
1978 59.6 17.6 48.2 36.2 75.8 0.0 24.5 114.6
1979 67.6 17.3 55.5 39.2 79.9 0.0 25.6 119.1
1980 74.1 25.2 71.4 50.6 95.1 0.0 32.3 139.0
1981 74.5 28.1 84.3 57.7 118.4 67.8 35.7 125.8
1982 73.5 21.4 51.0 60.0 108.0 62.6 36.2 89.9
1983 71.6 19.6 61.6 57.0 100.0 61.5 21.5 98.5
1984 70.3 28.3 61.2 62.2 94.0 56.9 16.4 128.6
1985 71.0 23.0 46.5 51.5 91.5 63.7 24.4 96.2
1986 84.0 13.9 38.1 36.8 36.8 28.5 13.5 73.5
1987 92.3 12.0 36.3 33.5 45.4 51.9 10.4 74.0
1988 100.0 11.7 63.9 43.0 39.7 32.3 10.3 88.2
Year HDPE PP PS PVC SBR Propane Styrene ABS
1978 108.4 110.9 107.2 99.8 151.7 19.5 66.6 186.2
1979 118.0 114.2 133.7 107.7 149.4 20.7 114.2 218.9
1980 133.3 140.4 136.3 102.7 170.0 28.9 106.2 229.4
1981 125.2 147.7 147.7 88.7 191.9 32.6 111.0 181.2
1982 114.0 120.0 120.0 69.0 159.2 32.1 89.9 224.5
1983 124.7 123.2 110.9 89.2 132.4 35.9 92.3 230.4
1984 109.8 125.5 128.6 109.8 162.2 33.3 103.6 200.6
1985 127.3 102.5 99.3 77.6 133.5 26.5 93.1 201.4
1986 91.9 81.3 88.0 76.1 110.2 13.7 52.5 163.1
1987 76.4 90.8 124.2 81.3 108.7 12.9 114.6 162.4
1988 108.0 108.0 127.9 92.6 116.8 10.1 97.0 165.3
- 118 -
Table A1-2: HISTORICAL SERIES OF PRICE MARGINS IN THE US
(US#/kg in constant 1988 terms)
Year Ethylene- LDPE- HDPE- PP- Propylene- PS- PVC- PVC- Ethylene-
Ethane Ethylene Ethylene Propylene Propane Styrene Ethylene Benzene Naphtha
1978 30.5 66.4 60.2 74.7 16.8 40.6 51.7 99.8 48.2
1979 38.2 63.6 62.6 75.0 18.5 19.5 52.2 107.7 55.5
1980 46.2 67.6 61.9 89.7 21.7 30.1 31.3 102.7 27.3
1981 56.2 41.5 40.9 89.9 25.:L 36.6 4.4 20.9 40.1
1982 29.7 38.9 63.0 6C0.0 27.9 30.1 18.0 6.4 10.6
1983 32.0 36.9 63.1 66.2 21.1 18.6 27.7 27.8 22.9
1984 32.9 67.4 48.6 63.3 28.9 25.0 48.6 52.9 25.7
1985 23.7 49.6 80.7 51.0 25.:L 6.2 31.0 13.9 11.8
1986 24.2 35.4 53.8 44.5 23.1 35.5 38.0 47.6 22.7
1987 24.3 37.7 40.0 57.3 20.6 9.5 44.9 29.4 36.3
1988 52.2 35.3 44.1 65.0 32.9 30.9 28.7 60.3 28.7
Source: SRI 1989 Chemical Price Update. Price margin defined as the difference in prices between the
products and its major raw materials.
- 119 -
ANNEX 2
HISTORICAL EVOLUTION AND FEEDSTOCK SITUATION IN THE COUNTRI ES
A. Republic of Korea
Historical Evolution of the Industry
The Korean Petrochemical Industry was initiated in the early 1970s
as part of the Government of Korea's efforts to launch an industrial
modernization program and as a result ot the enactment of the Petrochemical
Development Act (1970). The initial intention was to link existing small
plants into complexes that would benefit from economies of scale and shared
infrastucture. The Industry was initiated with the set up of the Ulsan
Petrochemical complex in 1972 (155,000 tpy of ethylene) which was followed by
the Youchun complex in 1979 (355,000 tpy of ethylene). Both units are still
the core of the current installed capacity for petrochemicals and both were
originally developed through forward integration from oil refineries at the
selected sites.
The timing of the development of the industry (early and late 1970s)
coincided with great turmoil in the petroleum markets. This had important
consequences for the industry because (a) Korea does not possess adequate
supplies of the required feedstocks and (b) at that time, the markets were
just developing and production scales and doniestic demand were small. The
decrease in domestic demand caused by the second oil shock and the associated
industrial recession, resulted in: (a) a lengthly delay in full utilization
of the newly installed capacity at Yeochun, (b) prolonged losses for all
domestic producers, and (c) postponment of expansion programs. The local
producers survived in part because of tariff protection and price regulation
(see Chapter 5).
By the end of 1983, the industry began experiencing a second period
of growth and plans were made for expansion of local capacity. These plans
resulted in the approval of expansion programs for the two existing complexes.
By the third quarter of 1989, a new Naphtha based cracker with a 400,000 tpy
capacity is expected to start operation at Ulsan, and a 250,000 tpy new unit
is expected to be in op6ration around the same time at Yeochon. A third
naphtha cracker is to be commisioned at Yeochon by 1991 bringing total
installed capacity at the site up to 950,000 tpy and total capacity in
Korea to 1.5 million tons per year.
Growth accelerated in 1986 with the fall in oil prices (and
consequent improvement in the economics of naphtha based crackers) and the
increase in producer margins. Also, in 1986 the Petrochemical Industry
Development Act was repealed, and therefore investors no longer required
approval for new investments and gained full autonomy on their decisions.
When the law was revoked, naphtha suppliers attracted by the large margins
available to the industry, began making plans to produce downstream
petrochemicals, and downstream manufacturers already suffering from a shortage
- 120 -
of raw materials, proposed to expand their activities to the synthesis of
olefins. The result is an ambitious set of expansion proposals that, if
implemented, could again double ethylene capacity by 1995 from the levels of
1991. The program of expansions as proposed by individual investors includes
at least six additional petrochemiLcal complexes (Table A2-1), represents a
major financial commitment from the private industrial sector in Korea, and if
implemented will have major repercussions in the requirements for feedstocks
and on the trade patterns for petrochemicals in the region. The total
investments required by these proposals is about US$4.5 billion.
Table A2-1: KOREA--PROPOSED NEW PETROCHEMICAL COMPLEXES
Total Proposed
Olefins capacity investment start-up
Proponent Ethylene Propylene Butadiene proposed date
--------- ('000 mt) ---------- (US$ bln eq.)
Samsung 350 175 45 1.3 1992
Komho
Petrochemicals 350 1930 56 0.7 1993
Korea
Petrochemicals 250 148 98 /a 0.4 1991
Hanyang
Petrochemicals 350 150 45 0.5 1992
Hiundai
Industries 350 175 51 1.1 1992
Honam
Petrochemicals 350 1'90 n.a. 0.5 1993
Total 2.000 45
n.a.: Not available.
/a C4 fraction.
Source: KPIA, staff estimates.
The Feedstock Situation
5. The country possesses no significant reserves of oil or natural gas.
The local production of petroleum derivatives comes from six refineries and is
complemented with direct imports. Olefins and aromatics synthesis are based
on naphtha cracking with a total estimated requirements for naphtha of 20
million barrels in 1988. The two expansions already in construction will
increase total requirements to over 55 million barrels by 1991. The industry
faces an increasing dependency on foreign supply of feedstocks for
- 121 -
petrochemicals. The new proposals for petrochemical complexes now being
considered would severely stretch the availability of naphtha, with the
implied requirements for the proposed 6 naphtha crackers estimated at an
additional 40 million barrels. The competition for and availability of
naphtha remains one of the major issues facing the industry.
B. India
Historical Evolution of the Industry
The petrochemical industry in India is relatively new. Production
of basic petrochemicals began in 1966 with the commissioning of a small
20,000-tpy naphtha-based ethylene cracker, followed in 1968 by a 60,000-tpy
naphtha cracker in the Bombay area. Both plants were established by the
private sector with foreign equity holding (Union Carbide and National Organic
Chemicals). Later, recognizing the role of petrochemicals as a key element in
industrial development, the GOI moved toward direct promotion of the sector
through the establishment of a public-sector enterprise, the Indian
Petrochemical Corporation, and the setting up of integrated production
facilities. In the late 1960s, an aromatic plant in Baroda owned and
operated by IPCL was commissioned. This was followed by an integrated
naphtha-based olefins complex with an ethylene capacity of 130,000 tpy
including a number of downstream units. Since its commissioning in 1972, this
unit became the focus of petrochemical development in the country.
In 1985, after a clear feedstock picture emerged from the Bombay
High gas fields, a 300,000-tpy gas-based cracker was planned at Nagothane and
was built with World Bank support. The decision to go ahead with the gas
cracker and the start-up of construction took place against the background of
a worldwide recession in the sector, although it was a response to the
increase in the domestic market needs. The cracker and the associated complex
are now nearing completion. The growth of the domestic sector and the
currently high prices of petrochemicals in the international market will
provide strong incentives for full operation from the start.
India's current production of petrochemicals is primarily based on
naphtha in relatively small plants and old units and therefore does not
benefit from recent advances in technology, capital costs and energy-saving
schemes. Further, given the small scale of existing plants and the high cost
structure of the Indian capital goods industry, investment cost per unit of
capacity installed is high by international norms. Because of these
conditions, India's current production of petrochemicals is characterized by
high unit costs. To compensate the high unit costs, the Government imposes
tariff and nontariff barriers on imports, as well as restrictions on domestic
capacity.
In 1986, a study on the prospects of the industry was completed by
the GOI, which generally endorsed shifting priority toward the sector and
called for: (a) substantial increase in production capacity, (b) raising the
standard for minimum scales of production, (c) reduction of tariff barriers
and liberalization of the sector, and (d) increased use of natural gas as a
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preferred feedstock for the industry. Although the high growth projections
used in the report will not materialize, many of the conclusions remain valid
and some of its recommendations have been adopted.
The Government of India (GOI) is considering a US$6-8 billion
investment program for the petrochemical sector within the next decade. This
ambitious program is intended to reduce India's growing dependence on
petrochemical imports and to optimize the use of gas and exploit its potential
for economic production of key petrochemicals and derivatives. The planned
indicative investment program assumes that private investors will expand their
role in the sector substantially. When new facilities become fully
operational, the level of Indian production of petrochemicals based on world
scale and new technology will increase domestic competition substantially,
improving overall efficiency and unit cost of production in the sector. The
most probable priority ranking and phasing of the proposed projects are as
follows:
Olefin Plants. (a) an expansion of the Nagothane cracker from
300,000 tpy to 400,000 tpy and associated downstream investments with
completion expected by 1993, (b) a. new natural gas liquids (NGL) cracker and
associated downstream units to be located at: Hazira, state of Gujarat; this
project will have capacity to prodLuce about 320,000 tpy of ethylene and about
700,000 tpy of final products, andL it is expected to be built in two phases
over a period of five years with aLn estimated completion date in 1995; (c) a
new 300,000 tpy naphtha cracker and associated downstream units to be located
in Vizag, with a completion date after 1995; and (d) a new 300,000 tpy gas-
based ethylene cracker with associated secondary units somewhere along the
Hazira-Bijaipur-Jagdishpur (HBJ) pipeline to be completed after 1995.
Aromatic Plants. (a) a 200,000 tpy aromatics unit to be located at
Manali, near Madras in Tamil Nadu. The expected completion date is 1993;
(b) The second project under consi.deration 'Ls a 250,000 tpy aromatics plant to
be set up at Salimpur, U.P., with an expectesd completion schedule in 1995.
Feedstock Situation. India has had relative success, through its
effort in exploration, in improving its reserves of hydrocarbons. Petroleum
reserves have steadily increased to the current 6.4 billion barrels, while
production reached 0.6 million barrels per day in 1988. But, it is in natural
gas where the efforts have resulted in substantial improvements in reserves,
and where further improvements are expected. Current gas reserves are sized
at 22.9 trillion cubic feet (TCF), but are probably underestimated since gas-
rich areas have been traditionally underdeveloped for lack of market.
Approximately 80% of these reserves are located off the west coast of India.
It is at this site where most of the petrochemical development is taking
place. Nevertheless, the recent commissioning of the HBJ pipeline should
allow developments inland, if the gas transportation costs do not become
prohibitive to the industry. Substantial increases in gas utilization can be
expected as a result of the existing plans in the power, fertilizer, household
and industrial sectors, with gas lproduction planned to increase from 1.0
billion cubic feet per day (BCFD) in 1987/88, to twice as much by 1995. The
installed refineries have an estimated capacity cf 50 million tpy and are
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currently running at capacity. The total naphtha available is in surplus
today but is expected gradually to be in deficit, with a shortage estimated at
470,000 tons by 1994.
C. China
Historical Development of the Industry
The Chinese petrochemical industry was started in 1958 with the set
up of the Gaoquiao Chemical factory in Shanghai and the subsequent
construction of small scale ethylene crackers. With the rapid development of
the oil industry during the 1970s, more feedstock was made available to the
chemical industry and the first large scale petrochemical complexes were
built. Through the period 1970-1978, six petrochemical units with a total
combined ethylene capacity of 600,000 tpy were comissioned. Technology was
obtained trough suppliers in Japan, Western Europe and the US and the
contracts were paid in cash. Location and sizes were selected based on
feedstock availability, local market sizes, and the restrictions associated
with transportation and logistics.
After 1978 the Chinese government decided to apply minimum scale
criteria to future complexes and started a program of expansions and
revampings for all small and old units. In 1983, the China Petrochemical
Company, Sinopec, was formed with the mandate to manage and coordinate at the
national level the development and orderly progress of the petrochemical
sector. With Sinopec, the Chinese government planned to end defects in
management caused by lack of planning, streamline organization, save in raw
materials and promote the production of high value added products. Work on
four world size crackers started under the aegis of Sinopec. These units were
supposed to be installed by the mid-1980s but several delays, in part caused
by financing difficulties, postponed their start up and only three of the four
had been commisioned by 1989. Today Sinopec directly controls 13
petrochemical plants, 17 refineries and 4 synthetic fiber units. The GOC and
Sinopec are now envisaging an additional increase in capacity combined with
further revamping of existing units. Four additional petrochemical complexes
are expected to be built at Guangzhou, Tianjin, Du Shanzi and Beijing with
contract awards expected during the period 1989-91.
The industry still faces severe shortages of many key intermediates
and products, serious financial limitations that restrict the ability to
expand capacities and secure raw materials and, outside of Sinopec, the
effects of a small-scale chemical production system based mostly on outdated
technology. All these factors contribute to increase production costs.
Feedstock Situation
China's oil reserves are the largest in the Asia region, totalling
about 23.5 billion barrels. The country is also endowed with substantial gas
reserves, sized at 32 trillion cubic feet. The Chinese production of crude is
about 2.7 million barrels per day, (135,000 tons in 1988) for equivalent
reserves of 23 years. However, under the current trends, oil demand is
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expected to increase at a faster rate than production. If the trend holds,
China will eventually have to curtail the level of exports. In 1987 China
exported about 0.54 million barrels per day, which represented 20% of total
crude production. If oil continues to be diverted to exports without
significant production increases, manufacturing industries, including those in
the petrochemical sector may exper:ience shortages of raw materials and be
forced to operate below capacity.
Table A2-2: CHINA--PATTERN OF CURRENT FEEDSTOCK USE
BY THE PEI'ROCHEMICAIL INDUSTRY
Feedstock Ethylene Other olefins
Complex Source type capacity produced
('000 tpy)
Beijing Dongfanghong Gas oil 300 Propylene (130),
Yanshan Refinery butadiene (215)
Lanzhou Heavy crude oil 72 Propylene (20),
and gas oil butadiene
Nanjing Nanjing Oil Naphtha 60 Propylene
Refinery
Yangzi Refinery Naphtha 300 Propylene (140),
butadiene
Shanghai Refinery LPG, gas oil 30 Propylene, buta-
Caogiao diene
Liaoyang Fiber Naphtha 73 Propylene (35)
Shanghai Kerosene, gas oil 120 Propylene (50)
(Jinshan)
Pilu Residual oil 300 Propylene (60),
butadiene (70)
Daqing Refinery Refinery gases 300 Propylene (80)
Jilin Refinery Refinery fractions 115 Propylene (50),
butadiene (40)
Total 1.670
Source: CFECT, 1989, and staff estimates.
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The management of the refinery sector at the state level is now
conducted by Sinopec. The refining infrastructure consists of about 40
refineries, with a distillation capacity of 2.1 million barrels per day; under
current expansion plans refining capacity should increase to 2.5 million
barrels per day by 1990. If demand grows at 4% per year, even the current
expansion program will prove insufficient to meet consumption.
Table A2-3: CHINA--ETHYLENE PLANTS UNDER CONSTRUCTION
Ethylene Expected
Plant (Location) capacity start-up
('000 MT) date
Shanghai (Jianshan 300 1991
Fushun (Liaoning province) 120 1991
Panjin (Liaoning province) 130 1990
Punajg (Henan province) 140 1992
D. Thailand
Historical Evolution of the Industry
The petrochemical sector is a newcomer in Thailand. Petroleum and
gas resources were first identified in 1970, and only in 1981 the first
pipeline was completed to connect the offshore gas fields with power plants
outside of Bangkok. As a result of these developments and with the goal of
maximizing the value added of gas fractions, the Government of Thailand (GOT)
formed in mid-1981 a committee on the petrochemical industry with the mandate
to come up with recommendations for its future development in the country.
The Petroleum Authority of Thailand (PTT) which provides the secretariat to
the committee, asked the IFC to review the various reports and studies
prepared on the subject and develop recommendations. In 1984, PTT resolved to
set up a petrochemical complex sized to meet the domestic demand for commodity
polymers using natural gas fractions as feedstock. The National Petrochemical
Company (NPC) was formed in 1984 and construction of a complex was started in
1986 with IFC participation. Start-up is expected by the end of 1989.
With the operation of the first petrochemical complex (known as
NPC-1), Thailand will become an important producer of commodity polymers in
the region with important repercussions for local processors and
manufacturers; still, the country will remain a net importer of styrenics and
aromatic derived products. To satisfy these market requirements, and also
with the intention to tap into perceived export opportunities, the GOT is in
the process of examining, with IFC assistance, the viability of an aromatics
and an olefins complex to be located next to a refinery and in the area of Ma
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tha Put, on the eastern seashore, respectively. The GOT is also considering
the establishment of a reformer to feed the aromatics component of the
complex. A report has been prepared on the subject and a decision is expected
some time in 1989.
Feedstock Situation
The development of ThailaLnd's indigenous hydrocarbon resources has
progressed vigorously during the last decade. In 1979, Thailand had to import
90% of its oil, mostly from the Middle East. Since then, self-reliance has
increased to about 55% of total requirements. Oil production in 1987 equaled
32,000 barrels per day. Total crude reserves are now estimated at 85.2
million barrels. Natural gas development has proceeded at an even faster
pace. Total gas reserves are now estimated at 3,720 bcf and production
reached 172 bcf in 1988. GOT plans call for gas production to reach 700 mcf
per day by 1991. With the development of the gas fields and associated
processing infrastructure, (including the PTT gas separation plants), Thailand
is now able to use gas and gas fractions as fuels and raw materials for the
power, household and industrial sectors. A, second gas PTT gas separation
plant is expected to come on stream in 1989 and will double the capacity of
separation of gas fractions.
There are three commercial refineries in Thailand with a total
capacity equivalent to 194,000 bpd. Refining is done by Thai Oil, Bangehak
and Esso, but the capacity installed is not: sufficient to meet the local
demand of derivatives, in particular for light distillates and LPG. The
country is also in the process of implementing an expansion program for the
refinery sector. Total capacity is expected to reach 292,000 bpd in 1990
after expansions at Thai Oil and Esso come on-stream. Additionally, four new
refineries have been proposed by foreign investors that could eventually again
double the refinery capacity by 1992/93.
Ethane and propane will be available from the gas separation plants.
The tonnage available from both units is summarized in Table A2-4. This is
enough to feed NPC-1, but other sources of ethane are required for the new
complex under consideration. The alternatives under consideration include the
use of light naphtha, the increase in ethane separation capacity and the use
of condensates. Still, the fact remains that unless immediate additional
investments in refinery or gas separation facilities are implemented, the
feedstock issue will constrain the future shape and size of the petrochemical
sector.
E. Malaysia
Historical Development of the Industry
Proposals for the establishment of a basic petrochemical complex in
Malaysia can be traced back to the early 1980s. But the uncertainties in the
market and the ensuing economic recession dissuaded the Government of Malaysia
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Table A2-4: THAILAND--ETHANE SUPPLY/DEMAND BALANCE
('000 tpy unless otherwise indicated)
GSP 1 GSP 2
Gas throughput
(MMSCFD) 350 250
Products
Ethane 310 70
LPG 430 293
Natural gasoline 82 82
Start-up year 1984 1990
Cracker requirements
NPC-1 354
Second olefins
complex /a 370
/a In ethane equivalent, based on an
ethylene capacity of 350,000 tpy.
(GOM) from endorsing the proposals. Nevertheless, plans went ahead by the
private sector and Petronas itself to build and operate a number of downstream
plants for the manufacture of resins and elastomers for the domestic market
and for the construction of a methanol plant at Laboan, dedicated to exports.
A new master plan for the petrochemical industry was prepared by
Petronas in 1985 and later adjusted to reflect the stage of progress in the
availability and supply of natural gas and natural gas liquids. In the plan,
an olefins complex as well as some specialties and derivatives (MtBE and
Polypropylene) have been targeted for development. Petronas is in the process
of implementing a 300,000 tpy MtBE plant and a 80,000 tpy polypropylene unit,
based on dehydrogenation of butane/propane obtained from natural gas
processing on the East Coast of the Malaysia Peninsula. Both units are
expected to start operation in 1992, are being developed with foreign
partners, and are primarily dedicated to exports, with the PP plant also
meeting the local requirements. Parallel to these developments, the plastics
industry has slowly increased its production capacity, effectively promoting
the growth of the plastics in Malaysia and contributing to the exports of
manufactured goods.
Feedstock Situation. Malaysia is a large producer of Oil, fifth
after China, Indonesia, India and Australia in the Asia-Pacific region. The
current reserves are sized at 2.9 billion barrels with a production rate of
2.3 million barrels per day. Gas reserves are conservatively estimated at
52,000 billion cubic feet and are sufficient to last over 100 years at the
current production rate. Malaysia is also an LNG exporter (to Japan) with
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annual volumes estimated at 6 million tons per year. The infrastructure for
gas distribution and processing has been steadily increased during the last
years, and is expected to continue improving to include main gas lines between
the east and west coasts of the peninsula and from the east coast to
Singapore.
F. Indonesia
Historical Development of the Industry
Despite the several attempts in the last 15 years, the abundant
volume of gas and oil resources, the installed refining infrastucture and the
strategic geographical location, the petrochemical industry has yet to
establish its first olefins complex in Indonesia and has only very recently
cristallized plans for the construction of an aromatics plant. At least three
times in the past, an olefins complex has been proposed and cancelled.
Table A2-5: INDONESIA--STATUS OF PROPOSED AROMATICS AND OLEFINS COMPLEXES,
MID-198'3
Issues Proposed
Capacities Proponents pending start-up
Aromatics 405,000 benzene Thyssen Feedstock 1992
supply
(at Aceh, 50,000 toluene Rheinstall
(W. Germany)
Sumatra) 217,000 p-xylene and Hurnposs
(Indon. )
Olefins 375,000 ethylene Shell Financing 1993
Mitsubishi guarantees
The reasons for the continuous delays in the implementation of the
industry are many: some of the failures can be attributed to the variations in
the oil markets and its linkage with the financial health of Pertamina, part
to the difficult balance of payments situation experienced during the 1980's
and part to a lack of clear long range development program for the industry.
Also, there has been some confusion about the actual availability of feedstock
resources for the industry. This is in particular ironic, given the current
status of the country as a large oil, LNG and LPG exporter and has to do with
the nature of the long term export contracts of these fuels which imply use of
NGLs to achieve minimum caloric content of the exported gas.
The growth in domestic markets has already created a large enough
base to justify world size plants to be located in the country. Therefore, a
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number of new and old proposals are again being reviewed and some have gone
beyond the planning stage. These include ambitious projects for the
production of olefins, aromatics, synthetic resins and rubbers and specialty
chemicals. For example, in 1988, construction began on an aromatics unit in
CILACAP under the sponsorship of Pertamina. This unit is expected to feed
from the CILACAP refinery and will produce 120,000 tons of benzene and 270,000
of paraxylene. Plans for a large aromatics plant at Aceh (Sumatra) and an
ethylene cracker possibly located at CILACAP are still under discussion, with
feedstock arrangements and financing among the pending issues. The planned
aromatics plant output is earmarked for exports (405,000 of benzene, 217 tons
of paraxylene) while the olefins unit would meet the domestic market
requirements for ethylene and propylene derivatives (Table A2-5)
Feedstock Situation
Indonesia has abundant oil and gas resources. Estimates of the
reserves are placed at somewhere between 8-10 billion barrels of oil and about
83 trillion cubic feet. Also, natural gas is becoming an increasingly
important energy and feedstock material in the country. Natural gas
production in 1987 reached 1.7 trillion cubic feet, with most of it being used
domestically for industrial purposes, including its use as feedstock in
fertilizer production and as feedstock and fuel in refineries and LNG/LPG
plants.
Table A2-6: INDONESIA--GAS UTILIZATION, 1987
Billion
cubic feet
Production 1,737
Own use 396
Net production 1,423
Sales 1,188
Electricity 5
City gas 1
Industrial users
Fertilizers 140
Cement 3
Cilamaya 78
Refineries 21
LPG plants 24
LNG plants 917
Other 1
Flared 147
Source: The Petroleum Report. Indonesia
US Embassy, Jakarta.
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Indonesia is the world's largest exporter of LNG, supplying about 40%
of the total merchant market, an amount equivalent to 0.85 trillion cubic feet
in 1988. The proximity to Japan and the large gas reserves have allowed the
country to develop the most sophisticated LNG export operation in the world.
At present, there are ten LNG production fELcilities with an installed capacity
of around 900 million cubic feet per day of product. Close to 80% of the LNG
exports go to Japan. Other LNG customers include South Korea and Taiwan. In
1988, the LPG fractionation plants at Arun and Bontang were commissioned with
a combined capacity of 2.2 million tons and exports were initiated with the
first shipments to Japan. The new fractionation capacity and the proximity to
large net importing markets of LPG, provide an opportunity for Indonesia to
also become one of the largest world producers and exporters of LPG.
Additional LPG capacity is now under construction and more is being
considered.
There are six refineries with a total throughput capacity of 900,000
barrels per day. At present, Indonesia is self sufficient in fuel and
derivatives products and still allows for surplus refining capacity. The total
current naphtha production is estimated at 19 million barrels. In addition, a
new refinery is being built in West Java by Pertamina that will increase the
total refinery capacity by 125,000 barrels per day. Despite the abundant
resources and privileged position in petrochemical raw materials (naphtha,
LPG, NGL), the supply of feedstock has surf-aced as an issue in both the
aromatics and olefins projects under consicderation, with Pertamina not
guaranteeing the supply of domestic naphtha to the proposed aromatics plant at
Aceh and questions being raised aLbout the availability of NGL to the olefins
unit.
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ANNEX 3
FEEDSTOCK VALUATION AND PRICES
A. General Principles of Ethane Valuation
Ethane is a component of natural gas. The percentage of ethane in
natural gas varies significantly. While associated gas is generally ethane-
rich (15-20% by volume, 20-25% by weight), nonassociated gas is not (2-3% by
volume, 2-5% by weight). If ethane is not extracted from the gas stream, its
cost and value on a thermal basis 1/ then extraction costs should be added to
the price of ethane and its value should exceed the value of gas.
2. Thus, the cost of ethane depends on the orportunity cost of gas in a
particular country or area. There are two approaches to the determination of
the economic value of natural gas, which in turn, depend on its availability
relative to present and future use, the cost-based approach, and the value-
based approach:
(a) If reserves are so large that a new ethane-based olefin plant will
not divert gas from other current or foreseeable use during the
operating life of the plant, but will simply require the production
of the necessary additional quantities of gas, the opportunity cost
of natural gas from which ethane is extracted is simply the cost of
producing and transporting gas to the plant. A depletion allowance
is added, which reflects the discounted present value of the
replacement fuel, which in turn varies with the expected timing of
full commitment of the reserves and the value of the replacement
fuel at that point to meet subsequent incremental needs.
(b) If reserves are such that use as feedstock in an olefin plant would
divert the gas from other current or planned uses (e.g., power
generation, industrial or residential fuel use, other feedstock
use), the opportunity value of the natural gas will be the value of
the replacement fuel in these other uses (adjusted for transport to
the different locations) or, for feedstock, the net-back value of
the gas in these other uses.
To the opportunity cost (or value) of natural gas, the cost of
separating the ethane from natural gas must be added. This cost is estimated
at about US$1 per million BTU of gas throughput on average, nut varies
depending on the percentage of ethane one wants to recover from the gas (the
higher this percentage, the more expensive the extraction). Also, ethane
separation is normally carried out at plants which also carry out separation
of LPG. Therefore, separation is cheaper where carried out in an existing,
large LPG plant, with an existing market for methane (Cl fractions, which
make the bulk of natural gas). Because ethane represents only a fraction of
natural gas feedstock (typically ranging from 2-5% for nonassociated gas and
/ 0.565 cubic feet of ethane has the same caloric content as 1.000 cubic
feet of pipeline quality gas.
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15-20% for associated gas but with possible significant deviations from these
averages) ethane separation is normally economically justified only under a
set of circumstances described below:
- Gas used is associated gas current.ly flared. The cost of gas
production is zero since it comes as a by-product of oil production.
Even if there is no market for the methane fraction (which would on
average account for 50% to 60% of the gas), ethane separation for
ethylene production is justified since feedgas comes to the
separation plant free of charge.
- Gas is nonassociated and there is no market for methane (as fuel
substitution or feedstock). Unless incremental costs of gas
extraction are very low and-the gas is rich in ethane, it is usually
no economical, for ethylene production, to separate ethane and other
NGL fractions from methane: with 90% by weight of gas being
methane, processing of 10 times the usable portions would be
required. If gas productions costs are, say $0.6 per MMBtu, the
total cost of gas feed alone to the separation plant would amount to
$6 per million BTU, or $7 per MMBtu of NGLs when adding the
separation charge. At this cost, ethane is no longer competitive
with naphtha; there may be however, cases where the required
quantities of nonassociated gas are produced from ethane-rich fields
at a lower cost (as low as US$0.20/MBtu). In this case, the
extraction of ethane and other heavier gas fractions may be
economical even if methane has to be flared.
- Gas is nonassociated but there is a market for ethane as fuel
substitution or feedstock to other industries (ammonia, methanol.
LNG. steel). NGL separation for esthylene production then becomes
economic again as the methane fraction can be sold at the production
cost of gas feed or higher.
The combination of the opportunity cost (or value) of natural gas
and the economics of separation plants givess a range of economic value of
ethane which are illustrated on the next page. Surplus associated gas
provides the best competitive advantage, followed by surplus nonassociated
gas and, last, gas (associated or nonassociated) with an alternative use as
fuel replacement. In the case of surplus nonassociated gas with a low NGL
content, however, one has to reiterate the critical importance of securing
markets for volumes of methane which may be very large: a 450,000 tpy
ethylene plant requires 560,000 tons of etlhane, or 15.5 billion SCF per year.
With the NGL content of nonassociated gas typically ranging from 4% to 8% and
assuming that all NGL portions can be economically recovered, this means that
a market for 190-390 billion SCF per year of methane has to be found. The
orders of magnitude presented here are only illustrative of typical cases.
Significant differences from these typical cases can occur depending on the
composition of the gas, and the 'Location of the plant, and of other energy or
feedstock users relative to the gas source. For instance, if the olefin
plant is located a long distance away from the gas source, the cost of gas
supply may increase significantly.
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The above principle refers to the economic valuation of ethane. The
financial price actually charged may differ, reflecting the outcome of
negotiations with users and cross-subsidies between the different gas
fractions. For instance, in Saudi Arabia, the cost of gas separation was
allocated equally between methane and other fractions. Although there is no
economic justification for this (all gas fractions can be used as energy
source), the price of methane still remains much below all other possible
energy sources and permitted the low ethane price charged to the
petrochemical industry ($0.5/MMBtu). When the price of natural gas is high
(i.e., equals the price of alternative energy sources) charging part of the
ethane separation costs is not feasible since it would lead users to switch
to these other sources.
Table A3-1: ECONOMIC VALUATION OF ETHANE FEEDSTOCKS, 1988
Associated Nonassociated Associated or
Item gas gas nonassociated
gas
Gas supply in relation
to demand surplus surplus deficit
Market for methane irrelevant yes no yes
(all fractions)
Value of ethane
(US $/MMBtu)
Opportunity value of
natural gas
Incremental cost of
production (per ton
of ethane) 0 0.5-1.0 6.0-10.0
Depletion allowance 0 0.3-0.6 0.3-0.6
Value in alternative
uses: example
Fuel oil 2.3
Coal /a 2.0-2.4
Separation cost 1.0 1.0 1.0 1.0
Total oPPortunitY
cost/value of
ethane 1.0 1.8-2.6 7.3-11.6 3.0-3.4/b
/a In new, purpose-built coal-based plants (this figure takes into account
the higher investment costs in coal-based plants compared to fuel oil or
gas-based plants).
fb Separation costs in Thailand are $1.6 per MMBtu, thus the value of
ethane is close to $4.0.
Notes: This presentation includes estimated depletion allowances to arrive
at the opportunity cost of gas. As full commitment of gas reserves
is approaching, inclusion of the depletion allowance will raise this
value closer and closer to the value of the replacement fuel. Use
for methane is assumed to be nearby the gas source and the location
of the olefin plant. If this is not the case, proper adjustments
have to be made for gas transport costs.
- 134 -
Principles of Ethane Valuation in Indonesia
General. Indonesia is very rich in energy resources, oil, gas and
coal. With LNG exports now reaching 0.9-1.0 TCF per year, gas reserves in
excess of current and prospective LNG requirements can be considered as
nontradeable. Natural gas reserves are also well in excess of present and
forecasted domestic requirements until the end of the century. Natural gas
reserves are essentially on nonassociated gas (92%). About 8% of the gas
produced is still flared, but, due to dispersion and distance to possible
users, recovery is not considered economical.
The opportunity value of gas varies with regions. Gas reserves are
far larger in North Sumatra and East Kalimantan than in South Sumatra in
Java. In North Sumatra and East Kalimantan, where a major LNG industry has
been established, availability of gas is far larger than any present or
planned use, and will remain so even if the Kalimantan gas fields are
eventually linked to Java, the major energy consuming area of the country.
The situation also varies within Java: in East Java, recent discoveries show
that the production potential far exceeds the current level of consumption
and these reserves are not expectesd to be fully committed until the end of
the century. Subsequently, if additional reserves are not found near or in
Java, provision of gas from Kalimiantan will continue to ensure gas
availability to match incremental requirements. In West Java, gas supply
from nearby fields is constrained today, but, with proper development of gas
distribution networks, these fields should be able to supply requirements for
the coming years. Subsequently, if economical, gas might be provided via a
link with East Java and Kalimantan. The opportunity cost of gas in Indonesia
is therefore essentially linked to the production and distribution cost of
gas since gas supply is not a constraint for a long time to come. The table
on the next page provides a range of values showing the estimated opportunity
cost in each region and the expected price range.
Principles of Ethane Valuation in Malaysia
As in Indonesia, Malaysia has vast gas resources, the utilization of
which is limited by the low build-up of the domestic demand. These major
resources are located off the east coast of peninsular Malaysia and in
Sarawak (and Saban to a lesser extent). In both regions, gas will remain in
surplus of foreseeable use for a long time.
Gas resources near the peninsula are of both associated and
nonassociated gas. The ethane content of gas is high, 8% on average (5%
propane, 15-16% of C2/C3/C4 fractions), which is favorable to petrochemical
development (less gas needs to be processed, thus a lesser market needs to be
secured for methane). In Sarawak, gas is 90% nonassociated lean gas. In
Sabah, gas is both associated and nonassociated.
In peninsular Malaysia the existing market for methane is presently
insufficient to support ethane separation for a world-scale ethylene plant,
but is expected to become sufficient in 1992/93 when the pipeline to connect
west coast power plants and Singapore, and the second separation plant are
completed. Gas throughput will then reach about 180 billion SCF per year, of
- 135 -
Table A3-2: INDONESIA--ESTIMATED ECONOMIC VALUE OF ETHANE
(In constant 1988 terms US$/MMBTU ethane)
North E. Kali- East West South
Item Year Sumatra mantan Java Java Sumatra
Supply in rela- 1988 surplus surplus surplus deficit surplus
tion to demand 1995 surplus surplus surplus balance/a n.a.
2000 surplus surplus surplus surplusfb n.a.
Type of gas nonassoc. nonassoc. nonassoc. assoc.& nonassoc.
nonassoc.
Market for methane suffi- suffi- insuffi- insuffi- insuf-
(bln SCF/yr) cient cient cient/c cient/c ficient
LNG, LNG,
fertilizer ferti-
lizer
methanol
1988 (over 400 (over 500 -- 80-100 -- (50-100)
1995 for LNG for LNG --- 200 ---
2000 alone) alone) --- 330 ---
1. Average incremental
cost of gas production 0.6 0.6 0.7 1.0 0.5
2. Transport to user 0.1 0.1 0.3 0.2 0.1
0.8/d 1.4/d
3. Depletion allow- 1988 0.4 0.4 0.3 0.3 0.4
ance (@ 5% DF) 1995 0.5 0.5 0.5 0.5 0.6
2000 0.7 0.7 0.7 0.7 0.8
Opportunity cost of 1988 1.1 1.1 1.3 1.5 1.0
gas 1995 1.3 1.3 1.9 2.6 1.2
2000 1.5 1.5 2.1 2.9 1.4
Value in other uses: 1988 0.8 0.8
LNG net-back /e 1995 2.0 2.0
Coal substitute 1988 2.0 2.0
(power plants) 2000 2.0 2.0
Fuel oil 1988 2.3 2.3
(power plants) 2000 3.2Le 3.2Le
Opportunity cost 1988 1.1 1.1 1.3 2.3 1.0
(or value) of gas 1995 1.3 1.3 1.9 2.0 1.2
in area 2000 1.5 1.5 2.0 2.0 1.4
- 136 -
Table A3-2 (continued)
North E. Kali- East West South
Item Year Sumatra mantan Java Java Sumatra
Cost of ethane
separation 1.0 1.0 1.0 1.0
Economic value of 1988 2.1 2.1 2.3 3.3 2.0
ethane 1995 2.3 2.3 2.9 3.0 2.2
2000 2.5 2.5 3.0 3.0 2.4
/a Assuming new reserves are found to supply requirements of area.
/b With connection to East Kalimantan viaL East Java.
/c Unless a significant portion of this gas is associated.
/d Gas from East Kalimantan.
/e Assuming LNG CIF Japan - $3 per MMBtu at the end of 1988 (increasing in
line with Bank projections of crude oil price (para. 4.5) less transport
to Japan at $0.6 per MMBtu) and with cost of liquefaction ($1.6/MMBtu).
which it should be possible to extract about 14 billion SCF of C2/C3 to feed
a 400,000 tpy cracker, with possibilities for further expansion to up to
550,000 tpy by year 2000 if demand for methane develops as projected.
In Sarawak, the market for methane! outside LNG production is and
will remain limited (only about 22 billion SCF per year in 1987), while at
the same time, the content of ethane and heavier fractions is low. LNG
production provides a large outlet for methane, since gas throughput for LNG
is about 455 billion SCF per year, but gas is lean, with an ethane content of
only about 1% by volume (about 2% by weight). Even if LNG contracts could be
renegotiated enough ethane would not be available to feed even a 300,000 tpy
plant. Later on, if LNG sales are increased to the capacity of the gas
pipeline to the LNG plants, there might be sufficient NGLs for a 300,000 to
400,000 tons plant. However, given the uncertain prospects of new LNG
investments today resulting from competition of cheap fuel oil and coal
priority should be given to petrochemical cLevelopment on the East Coast of
the Peninsula in view of its more favorable resource base to support a larger
plant. In Sabah, both reserves, and present and future markets for methane
are far too limited to support world-scale petrochemical development.
In Peninsular Malaysia aLnd Sarawak, the oRportunity value of gas is
determined by its long-range marginal cost, plus a depletion premium. The
estimated economic value of gas and ethane in the two regions is summarized
on the next page.
- 137 -
Table A3-3: MALAYSIA--ESTIMATED ECONOMIC VALUE OF ETHANE
(US$/MMBTU ethane)
Item Year East Peninsula Sarawak
Supply in
relation to demand 1988 surplus surplus
1995 surplus surplus
2000 surplus surplus
Type of gas nonassoc. nonassoc.
and assoc.
Market for sufficient sufficient /c
methane after 92/93
(Billion SCF/year) 1988 90 bi SCF/y 455 bi. SCF/y
1995 180 bi.SCF/y (LNG)
2000 300 bi.SCF/y up to 650 bi SCF
1. Average incre-
mental cost of
gas production 1.1 /a 0.2
2. Depletion al-
lowance /b 1988 0.6 0.6
1995 0.8 0.8
2000 1.1 1.1
3. Transport to
user
Total 1988 0.8 0.8
(1+2+3) 1995 2.0 2.0
2000 2.2 1.3
Value in Other
Uses
LNG net back Ld 1988 0.8 0.8
2000 2.0 2.0
Coal substitute 1988 2.4 2.4
(power plants) 2000 2.6 /e 2.6 Le
- 138 -
Table A3-3 (continued)
Item Year East Peninsula Sarawak
Value in Other
Uses (cont.)
Fuel oil (power 1988 2.3 /g 2.3 Lg
plants) 2000 3.2 /f 3.2 /f
Opportunity cost 1988 1.7 0.8
of gas in area 1995 1.9 1.0
2000 2.2 1.3
Cost of ethane
separation 1.( 1.0
Economic value
of ethane 1988 2.7 1.8
1995 2.9 2.0
2000 3.2 2.3
/a Cost of production and distribution to mainland terminal.
Lb Based on marginal replacement for gas
/c Provided LNG content can be negotiated.
/e Assuming: LNG CIF Japan - $3.() per MMBTUJ'at the end of 1988, increasing
in line with Bank projections of crude oil price; less transport to
Japan ($0.6) and cost of liquefaction ($1.6).
/f Increasing in line with Bank projections of coal prices
Zg Fuel oil equivalent, increasing as Bank crude oil price projections.
China
Gas reserves in China are mostly of nonassociated gas, and are
mostly located in the Sichuan province (which represents 80% of natural gas
used in China), the balance being in the North East, near the Daquing and
Dagang oil fields, and near Hainan island. Although proved reserves are
sufficient to last 60-70 years at the 1987 production level, gas use today is
much below its potential use as coal replacement in cities. Production in
1987 for China as a whole of coal gas, LPG and natural gas was only the
equivalent of 114 billion SCF of natural gas, of which natural gas
represented only 53 billion SCF. Gas situation is tight in all major cities.
The demand for gas in any form, present and potential, is much greater than
the present and potential supply. The opportunity value of natural gas is
not available at this stage, but is likely to be relatively high, if natural
gas is assumed to substitute for coal gasification in cities. In the absence
of better information, one has assumed that the opportunity value of gas in
China was at least the fuel oil equivalent. In any case, prospects for
petrochemical development from natural gas appear seriously constrained for
the coming decade due to the lack of associated gas reserves, the small
- 139 -
present use of methane from nonassociated gas, and the foreseeable
competition from other uses. For that reason, existing major complexes are
based on cracking of heavy feedstock (crude oil, gas oil, naphtha and
refinery gases), and China is, at this time, contemplating petrochemical
production only from naphtha.
Principles of Ethane Valuation in Thailand
Thailand is a net energy importing country, with production of
domestic natural gas and petroleum meeting about 30% of hydrocarbon demand.
Any additional oil and gas produced will have a ready access to the domestic
market, in particular for power generation where the use of oil during the
90's will still be substantial. The opportunity value of natural gas is thus
linked to the fuel oil parity.
Total gas production (mostly offshore in the Gulf of Thailand) in
1987 amounted to 190 billion SCF, out of which 128 billion was processed
through a gas separation plant. The cost of producing and delivering gas is
rather high, US$2.1/MMBTU on average in 1988. The offshore gas is rich in
NGL, with an average ethane content of 8.3% by volume and propane content of
5.1%. Thus the separation plant will be able to produce sufficient C2/C3
(350,000 tons of ethane and 86,800 tons of propane to feed the NPCL olefin
plant to come on stream in 1989 (256,000-315,000 tons/yr of ethylene).
Production of sufficient quantities however, requires recovery of a high
percentage of the ethane (85%), which probably explains the high cost of
separation in the gas plant ($1.6 per million BTU of ethane).
A second gas separation plant is due to come on stream by 1990 (with
a total troughput capacity of 73 billion SCF. Incremental ethane produced,
however (about 50,000 tons) will be far short of requirements of a second
gas-based cracker, but could complement the ethane feedstock of the first
cracker. Later on, by 1995, new gas supplies will come from the Texas
Pacific fields and will provide an additional 90 billion SCF per year. Based
on recovery efficiencies similar to the first plant, a third separation plant
at that point could provide about 230,000 tons of ethane per year (to produce
185,000 tons of ethylene), which could either justify an expansion of the
first cracker, or possibly the construction of a new cracker designed to use
a variety of feedstocks, including a large proportion of ethane. Studies are
under way to assess the feasibility of a second complex essentially based on
natural gasoline, condensates and domestic and imported naphtha, but the use
of additional quantities of ethane to become available by the early and mid-
90s has not been established.
As stated earlier, the opportunity cost of gas is estimated at the
imported fuel oil equivalent ($2.3/MMBtu), plus separation costs ($1.6 per
million Btu). Thus, the opportunity cost of ethane in 1988 may be estimated
at about US$3.9 per million Btu, subsequently increasing according to
international fuel oil prices.
- 140 -
Principles of Ethane Valuation in India
Natural gas in the western and northern regions of India is supplied
through the HBJ pipeline, by the gas fields offshore of Bombay. Total
potential supply is estimated at between 1,765 and 3,180 million SCF per day
Table A3-4: OPPORTUNITY VALUE OF ETHANE
(US$/MMBtu)
1988 1990 1995 2000
Imported fuel
oil equivalent 2.3 2.5 2.9 3.7
Separation cost 1.6 1.6 1.6 1.6
Total 3.9 4.1 4.5 5.3
by the end of next decade. Consumption of natural gas by the higher net-back
uses such as petrochemicals, fertiLlizer, LPG and peaking turbines for power
generation are unlikely to consume all avaiLable supplies at any time over
the next 10-20 years. On the other hand, potential gas requirements for
base-load (combined cycle) power generation are so large that it could absorb
any amount of gas supplied in the western region. The net-back value of gas
in this case is based on the value of alternative energy sources, coal or
fuel oil. While a good part of India's domestic coal provides the cheapest
base-loan power, the distance of domestic coal mines to the western region
results in close competition of fuel oil, w'hich has been assumed to be the
cheapest alternative fuel in that region. The opportunity cost of natural
gas can therefore be estimated at the fuel oil, which has been assumed to be
the cheapest base-load power, the distance Df domestic coal mines to the
western region results in close competition of fuel oil, which has been
assumed to be the cheapest alternaitive fuel in that region. The opportunity
cost of natural gas can therefore be estimated at the fuel oil equivalent.
The gas separation plant in Uran already has the required capacity
to supply the ethane needed for the gas-based ethylene cracker in
Maharashtra, including for its planned expansion from the current 300,000 tpy
to 400,000 tpy. Future availability of C2/C3 (about 70/30), however, will
depend on the speed at which markests for the methane fractions will
materialize for gas marketed at the Hazira landfall point, in particular on
actual construction schedules for six fertilizer and 3 power plants presently
under implementation or planning, and on Government decision to modify
existing power plants for gas use. When all markets for planned gas
production have been developed, tlhere will probably be room for at least one
more gas-based cracker (total gas output at Hazira is expected to reach 20
million cubic meters per day, or 268 billion cubic feet per year; assuming an
- 141 -
average 5% C2/C3 content, 13.4 billion SCF of C2/C3 could be extracted,
enough to feed a 400,000 tpy cracker). The timing for all these investments
and for a second gas separation plant in Hazira, is very uncertain at
present.
Based on the opportunity value of natural gas discussed above and
ethane separation costs estimated at about US$1.0 per million BTU of natural
gas, the opportunity value of ethane in India can therefore be estimated as
follows:
Table A3-5: OPPORTUNITY VALUE OF ETHANE IN INDIA
(US$/million Btu)
1988 1990 1995 2000
Natural gas 2.3 2.5 2.9 3.7
Separation
cost 1.0 1.0 1.0 1.0
Total 3.3 3.5 3.9 4.7
- 142 -
B. Naphtha Valuation and Prices
Table A3-6: PROJECTED ECONOMIC (WHOLE-RANGE) NAPHTHA PRICES
(Constant 1988 US$/MT)
1988 1990 1995 2000
India (Net importer)
CIF Bombay
FOB Singapore 140 155 168 202
Freight 12 12 12 12
Total. 152 167 180 214
South Korea (Net importer)
CIF Korea
FOB Singapore 140 155 168 202
Freight 10 10 10 10
Total 150 165 178 212
Malaysia (Net importer)
FOB Malaysia
FOB Singapore 140 155- 168 202
Thailand (Net importer)
CIV Thailand
FOB Singapore 140 1.55 168 202
Freight 8 8 8 8
Total 148 163 176 210
Indonesia (Net exporter)
FOB Indonesia
FOB Singapore 140 1.55 168 202
China (Net importer)
CIF China
FOB Singapore 140 1055 168 202
Freight 10 10 10 10
Total 155 165 178 212
- 143 -
Table A3-7: NAPHTHA COST DIFFERENTIAL BETWEEN ASIAN PRODUCERS
AND PRODUCERS IN OTHER REGIONS, 1985-88
(US$/MT in current terms)
Western Middle
US Europe East
Malaysia and Indonesia -26 -5 +13
(net naphtha importers)
China, India, Thailand -16 +5 +23
and Korea (net naphtha
exporters)
Source: Staff estimates.
Table A3-8: INTERNATIONAL PRICES OF NAPHTHA
(US$/MT, FOB)
Rotter- Mediter- Middle Singa- Carib- US Gulf
dam ranean East pore bean Coast
1978 145.2 139.5 129.8 127.7 128.6
1979 309.7 296.6 211.8 197.2 263.2
1980 324.8 313.7 315.0 302.5 318.3 285.7
1981 336.6 317.0 315.7 331.0 332.9 336.8
1982 295.8 284.9 304.3 310.6 323.1 314.4
1983 274.8 267.4 263.4 263.4 290.7 288.9
1984 248.3 238.7 243.6 261.3 268.0
1985 244.5 234.3 241.8 259.9 266.4
1986 126.7 118.0 116.9 126.3 135.5 148.2
1987 160.0 150.3 145.0 158.5 170.8 180.4
1988 143.6 130.5 125.3 139.6 157.3 176.1
1989 170.3 150.5 153.5 173.0 198.5
(Jan-May)
Sources: FOB Rotterdam and Mediterranean, 1978-88, "International Crude Oil
and Produce Prices," January 1989 (Energy Economics Research Ltd.);
1989, Petroleum Market Intelligence. FOB Middle East and FOB
Singapore: 1978-85, Platts; 1985-89, Petroleum Market Intelligence.
FOB Caribbean: 1980-85, FOB Venezuela (minimum government prices);
Oil and Energy Trends--Annual Statistical Review," Energy Economics
Research Ltd., May 1987; 1986-89, Petroleum Market Intelligence.
US Gulf Coast (waterborne): Platt's.
- 144 -
ANNEX 4
SIMULATION MODEL FOR ESTIMATING ECONOMICS OF PETROCHEMICAL MANUFACTURE
A. Brief Descr:iption of Simulation Model
The model was set up using a lotus, spreadsheet and was initially
based on typical cost structures for the petrochemical industry as estimated
by Stanford Research Institute and Chem Systems.
In step one the model selects a geographical location through a
macro command. This allows to place the appropriate data ready for
manipulation. The model then reads installation factors (estimated as
described in Chapter 4) labor and utility costs as per pp2 of this annex,
broader prices for feedstocks (ethane/propaLne, naphtha) as described in Annex
3.
Next, the model allows f'or selection of feedstock and size and reads
the appropriate data for installed plant costs and material balances which
are used to calculate feedstock or raw materials costs. With this
information a production cost is estimated including all material and capital
inputs, depreciation, interest payments and a return on equity based on the
opportunity cost of capital.
In a next step, use is made of price projections to estimate
revenues IRR and NPV of petrochemicals prepared as described below; to
simplify, assumption has been made that the! world price of the intermediates
and products is the same independ.ent of the location for all producers in
Asia and in other regions. This obviously does not reflect the different
situation between exporters and importers for the estimates of NPV's and
IRR's but does not affect the production costs.
B. Pricing of Petrochemicals
Petrochemical prices have shown considerable short-term fluctuations
in the past. The 1973 and 1979 energy pric:e increases along with short-term
speculative demand resulted in substantial polyolefin price increases in 1974
and 1980, while the economic recessions ancd the excess capacity depressed
prices in 1978 and 1985-86. The combination of several factors such as
(a) the substantial increases in worldwide capacity utilization, (b) the
associated increases in producers' margins, (c) improvements in yield and
technology, and (d) the fluctuations in feedstock costs, led to net price
increases for most polyolefins in 1987/88 compared to the price levels of
1986.
Olefin and plastic prices are now expected to remain above the
1986/87 levels and then decrease as demand catches up with available
capacity. By 1995, the product prices are expected gradually to level down
as new production capacity is developed to balance demand.
- 145 -
Table A4-1 ITERATIVE STEPS INCLUDED IN THE SIMULATION MODEL
Step No. Description Remarks
1 Select Country or location In Asia: Korea, India,
China, Thailand,
Malaysia, Indonesia.
Outside Asia: US Gulf;
W. Canada, S. Arabia.
2 Read Country Data Installation factors;
Labor/Utility costs;
border prices for raw
materials; utility and
capital cost factors
3 Select configuration for basic Products covered:
Ethyl-
feedstock plant and product ene, LDPE, HDPE, PP,
PS,
plant technology and size. PVC, ABS, SBR, DMT,
ben-
zene, each choice
allows for a range of
sizes and different
technologies. Provides
installed plant costs
and material balance.
4 Calculate prodution costs Estimates raw material
labor, and utilities
costs based on country
data. Reads capital
costs and estimated
capital related
charges,
and return on ecuity
5 Read price projections Estimates revenues,
and calculates economics calculates IRR and NPV,
of manufacture payment schedule and
cash production costs
6 Provide data to downstream units Estimates transfer
prices for downstream
manufacturing units.
Feeds back information
to step 3.
- 146 -
Table A4-2: ASSUMPTIONS USED IN THE ESTIMATES OF LABOR AND UTILITIES COSTS
FOR THE MANUFACTURE OF PETROCHEMICALS
KOREA INDIA CHINA THAILAND MAIAYSIAINDONESA
0perating Costs
(US $/month)
Labor
Shift operators 600 300 45 300 300 300
Day workers 300 150 20 150 150 150
Technical 1,800 1,000 100 1,000 1,000 1,000
Maintenance 1,200 600 70 600 600 600
Clerical 1,000 500 60 500 500 500
Management 2,000 L,500 200 1,500 1,500 1,500
Average skilled
(per year) 880
Utilities
(US//unit)
Steam ($/ton) 30.12 11.68 4.27 30.12 30.12 10.63
Electricity (kWht 3.80 7.00 :3.80 3.80 3.80 2.70
Cooling water (m') 1.51 1.51 4.00 1.51 1.51 1.51
Processed water (m3) 20.60 27.59 23.09 20.60 20.60 20.60
Inert gas (nm3) 2.05 2.05 27.05 2.05 2.05 2.05
Natural gas (mcf) n.a. n.a. n.a. n.a. n.a. n.a.
It is nevertheless, fairly difficult to forecast exact prices for
petrochemicals. Ethylene prices for example are the result of a variety of
market forces that include not only the demand/supply situation but also the
feedstock prices, the spot price of naphtha or the cost of natural gas and
the market price of cracker by-products such as propylene and butadiene, and
indirectly the market price of other petroleum derivatives. Based on the
past fluctuations of prices, and the low levels reached during 1984/85 a
forecast has been made for future ethylene resins and other chemical prices,
assuming that a new cycle of low prices will occur by 1995 when supply is
expected to be substantially improved over the current levels. Still it is
important to realize that prices for world traded basic commodities are
subject to a multiplicity of factors, and therefore, the enclosed projections
only reflect the likely magnitude of price trends related to future feedstock
price increases as forecasted by the World Bank. Also, the estimates assume
that changes in prices for downstream products will be correlated to changes
in the world capacity factors and trends related to future feedstock price
increases as forecasted by the World Bank. Also, the estimates assume that
changes in prices for downstream products will be correlated to changes in
the world capacity factors.
- 147 -
The prices projected are summarized in the table below. These
assume that the 1995 prices will be similar to those experienced during
1985/86 and then will recover to a mid point between the 1988 and 1995
levels.
Table A4-3: MANUFACTURING GDP
(millions of currency units)
Country KOREA MALAYSIA INDONESIA INDIA CHINA THAILAND
Base Year 1980 1983 1978 1980 1952 1972
If not GDP Manu VA Index VA
Currency US$ Rp '000 M$ mln Rs bln None baht
1978 10,259 7,189.0 5,107.5 4,980.41 2,174
1979 11,340 8,004.0 5,952.0 5,354.11 2,423
1980 11,214 8,742.0 7,3J4.4 216.40 5,643.50 2,717
1981 12,059 9,155.0 7,878.4 233.80 5,611.32 2,906
1982 12,559 9,668.0 7,973.1 249.10 6,186.81 2,921
1983 14,096 10,429.0 8,211.3 273.80 6,926.19 3,121
1984 16,188 11,711.0 9,770.3 292.90 7,509.92 3,606
1985 16,805 11,263.0 10,589.6 318.70 7,916.71 3,808
1986 19,737 12,111.0 11,161.5 347.20 8,521.73 4,160
1987 22,964 13,655.0 11,790.8 369.80 10,030.08 4,503
1988 25,490 15,567.0 12,435.6 391.70 11,634.89 5,043
1989 28,039 17,435.0 13,262.7 419.12 13,147.42 5,497
1990 30,843 19,527.0 14,186.9 . 448.46 14,856.59 5,965
1991 33,927 21,870.2 15,180.0 479.85 16,787.95 6,685
1992 36,098 24,494.7 16,242.6 513.44 18,970.38 7,153
1993 38,409 27,434.0 17,379.6 549.38 21,436.53 7,668
1994 40,867 30,726.1 18,596.1 587.84 24,233.28 8,220
1995 43,482 34,413.2 19,897.9 628.98 27,372.30 8,795
- 148 -
Table A4-4: ESTIMATE OF FUTURE PETROCHEMICAL PRICES Xc
(for use in the comparative analysis of competitiveness)
1985/86 1988 1995 2000
previous (new low
low level in price
(AVE) cycle)
Ethylene 380 /a 639 430 500
Propylene 400 /a 430 400 430
Butadiene 350 400 350 400
Styrene 440 970 450 800
LDPE 650 990 700 1,000
HDPE 710 /b 1,080 750 1,000
PP 680 1,080 700 1,050
PS 710 1,280 850 1,050
SBR 930 1,170 900 1,100
Benzene 240 /c 400 250 400
/a Ave 1984/85.
L/b Ave 1987.
Zc Based on the past fluctuation of prices, a forecast was done, setting
1995 prices at a level comparable to the low prices reached during the
period 1984/1986 in the US Gulf area, assuming therefore that by then
supply is expected to have substantially improved over the current
situation. For 1990, an interpolation has been done between the 1988
and 1995 levels. For the year 2000 the price level in 1990 has been
repeated.
C. Ethvlene Production Costs for Domestic Use in Asia Countries
Assuming equal sizes and capital costs (450,000 tpy and an
installation factor of 1), i.e. purely from the standpoint of feedstock
costs, and taking into account the impact of freight of products from the US,
new crackers built for domestic use in Asia (such as those under construction
or planning in India, Thailand, China and Korea) may remain competitiave with
new US or Canadian ethane-based crackers as long as:
(a) If energv prices remain at their 1988 levels:
domestic ethane costs in Asia remain below US$4.3 per MMBUT
(corresponding to US$2.8 per MMBUT' in the US); and
domestic naphtha costs are less than US$180 per ton (actual prices
in 1988 were US$145-155 per ton).
(b) If energy prices increase as projected by the Bank by 1995 and year
2000:
- 149 -
domestic ethane costs in Asia remain below US$5.5 per MMBTU
(corresponding to US$3.5 per MMBTU in the US); and
domestic naphtha costs are less than US$200 per ton (projected
naphtha prices are US$170-180 per ton by 1995 and $200-210 by year
2000).
Purely from the standpoint of feedstock costs, gas feedstock remain
almost always preferable to naphtha feedstock whenever available (even when
relatively expensive, such as in India). Whenever it is not available in
sufficient quantities (as seems to be the case in China, Thailand and Korea),
there appears to be a "window of opportunity" for naphtha-based crackers
until the late nineties. However, this analysis is based on assumptions
which are fairly reliable only until 1995, in particular regarding announced
capacity expansion plans in the world to this date and projected energy
prices. If substantial new export-oriented capacity were to be announced in
later years in countries known to have still vast availability of associated
gas (such as Iran, Algeria, Nigeria, Qatar, Venezuela or the Soviet Union),
competitiveness of naphtha-based crackers in the world coming on stream in
the mid-nineties would be significantly affected.
In such an unceztain environment, producers deciding to proceed with
their plans to build naphtha-based crackers can reduce downside risks by
taking the following actions:
Crackers for Domestic Consumption in Asia (China, India. Thailand. Korea)
- The ethane cost shown for 1988 and 1995 is the "affordable" cost of
ethane in Asia which corresponds to the cost of ethane in the US.
- The naptha cost shown is the cost of naphtha yielding equivalent
costs to the value of ethane specified above (price of naphtha for
which the selection of an ethane-based on a naphtha-based cracker is
indifferent).
Note: "Affordable" ethane cost based on a US$100 per ton product
freight from the US (See Table 6.18).
(a) limit capacity to the internal market and consistently operate the
plants at high capacity utilization rates;
(b) construct plants that are at least as large as those of their
competitors in the world;
(c) reduce investment costs to the maximum and reduce implementation
periods (Governments can help by exempting capital goods from
taxation and liberalizing the contracting industry) to achieve lower
installation factors; and
(d) reduce financial vulnerability by adopting a strategy of downstream
integration into high-value added products and away from products
where ethylene costs are the most critical (for instance, dedicate
Fig A5.1 Values of Ethane and Naphtha
Yielding Equivalent Costs
naphtha (USS/mton)
250k
240
230 - CND USA
220 - INDO MAL INDL THA - I
210 I
200
t90
"I0
170
160
140 -
1.30 -- aaf napbtba priee
120
900
110
1I :29 .- 3 5 4 45 S 55 6 65
ethante (US$ i'MMBtu)
Cash costs Cost + 20% ROI total costs
Per toii of ethylene- 1988
as large a portion as feasible of the ethylene production to PVC or
PS rather than polyethylenes).
EXPORT-ORIENTED CRACKERS IN ASIA (EXPORTS TO THE ASIA REGION)
The ethane cost shown for 1988 and 1995 is the "affordable" cost of
ethane in Asia which corresponds to the cost of ethane in the US.
The naptha cost shown is the cost of naphtha yielding equivalent
costs to the value of ethane specified above (price of naphtha for
which the selection of an ethane-based on a naphtha-based cracker is
indifferent).
Note: "Affordable ethane cost" based on a freight advantage of
US$50 per ton of products (See I'able 4.18)
Ethylene Production for ExRort
The previous graph shows that, in order to be competitive on the
Asian export markets with product from the US, assuming everything else
equal, ethane costs should not exceed US$3.5-4 per MMBTU in 1988 and US$4.5
per MMBTU by 1995 (only Indonesia and Malaysia will have a clear advantage in
this respect). Naphtha-based crackers are unlikely to be competitive on the
Asian export market since projected naphtha prices in Asia are expected to be
above the limit under which naphtha-based crackers would be competitive with
ethane-based crackers.
- 151 -
Fig A5.2 Naphtha Crackers in the USA
Margins on Ethylene Production
US$ per mton (constant 1985)'
400
400
-200 _ / .
--60 ct + 20% rcttwnx
-eoo - , , ,.
78 79 80 Ell 82 84 85 87 88
year
cash porod.+in eost+ROI
-400
-600 ~~~~~~%cash+20 mrgtirD
200 . .
. Fig A5.3 Ethane Crackers in the USA
Margins on ethylene production
USS per ton of ethylene (constant 19SS)
00
O s / ~ . 9 /
7e 79 80 el 82 83 a4 a5 as 87 ae
year
Cash aProd.in Cots+RDI
- 152 -
ANNEX S
STATISTICAL RESULTS OF THE, SIMULATION MODEL
Table A5-1: RESULTS OF REGRESSION A]NALYSIS BETWEEN REGIONAL GDP
AND DEMAND FOR PETROCHEMICALS
(Demand - A + B (Industrial GDP Index))
Standard
A B error of B R2 /t/
Korea
Ethylene -353,612 66.134 2.267 0.993 29.169
Propylene -51,407 35.382 2.570 0.969 13.770
Methanol 35,225 5.293 0.656 0.903 9.067
Benzene -135,047 18.383 1.710 0.984 10.745
LDPE -65,888 16.724 0.713 0.987 23.468
HDPE -124,482 17.781 1.024 0.977 17.366
PP -145,706 23.169 1.547 0.987 14.979
PVC 716,857 16.493 1.180 0.965 13.982
PS -191,799 19.369 1.060 0.988 18.275
ABS -66,128 7.269 0.312 0.987 23.32
SBR 9,524 3.906 0.723 0.864 5.400
India
Ethylene -188,237 2,072.680 247.578 0.909 8.372
Propylene -49,912 578.028 76.540 0.891 7.552
Benzene -93,386 724.639 218.247 0.739 3.203
LDPE -2,545 385.798 49.397 0.897 7.810
HDPE /a -84,939 566.834 52.366 0.974 10.824
PP -42,164 255.098 21.219 0.954 12.011
PVC -83,340 668.621 79.766 0.909 8.382
PS /a -44,816 216.209 46.404 0.872 4.659
ABS -2,439 16.811 2.631 0.891 6.391
PF /a -2,005 861.735 180.613 0.952 4.771
PSF /a -99,747 490.687 92.906 0.915 5.282
China
Ethylene -254,113 206.758 56.424 0.817 3.664
Propylene -440,235 152.481 39.237 0.834 3.886
Butadiene -128,463 41.171 8.129 0.895 5.065
Methanol -134,489 76.918 7.778 0.980 9.889
Benzene -172,621 92.639 24.221 0.830 3.825
Total PE -943,095 249.201 39.322 0.889 6.338
PP -292,707 94.845 34.850 0.712 2.722
PVC 2,581 72.735 8.146 0.941 8.929
PS -357,827 62.901 20.376 0.761 3.087
SBR -165,884 37.444 7.987 0.880 4.688
Total Poly. -2,388,880 422.175 110.713 0.829 3.813
- 153 -
Table A5-1 (continued)
Standard
A B error of B R2 /t/
Thailand
Ethylene -73,801 62.044 15.181 0.770 4.087
Propylene -43,674 33.731 5.601 0.879 6.023
Butadiene -2,625 0.986 0.172 0.868 5.727
Benzene -5,245 2.066 0.581 0.716 3.555
LDPE -3,580 14.950 3.277 0.806 4.562
HDPE -44,402 28.302 5.980 0.746 4.733
PP -37,206 30.543 4.792 0.890 6.374
PVC -47,537 30.361 6.366 0.820 4.769
PS /b 959 6.243 2.748 0.653 2.272
ABS /b -1,886 1.032 0.172 0.835 5.986
SBR /b -677 1.484 0.169 0.904 8.782
Malavsia
Ethylene -50,751 12.389 2.924 0.782 4.238
Propylene -19,014 4.956 0.902 0.834 5.498
Butadiene 6,124 -0.314 0.118 0.586 -2.660
Methanol -22,788 5.440 2.956 0.404 1.841
Benzene -33,991 3.747 0.448 0.959 8.365
Total PE -47,964 10.773 2.143 0.808 5.027
PP -16,859 4.562 0.869 0.821 5.248
PVC -50,276 6.935 0.764 0.942 9.076
PS -39,527 5.387 0.378 0.971 14.235
SBR 7,884 -0.380 0.105 0.686 -3.623
Indonesia
Ethylene 7,285 20.572 6.895 0.640 2.984
Propylene 14,220 16.263 5.050 0.675 3.221
Butadiene -14,414 1.955 0.423 0.810 4.617
Methanol -378,545 52.661 8.405 0.876 6.265
Benzene 5,839 1.362 0.207 0.896 5.477
Total PE 13,796 17.988 6.492 0.606 2.771
PP 13,543 15.489 4.809 0.675 3.221
PS 11,642 1.106 0.321 0.704 3.445
SBR -19,799 2.686 0.582 0.810 4.618
/a Through the use of Hildreth Lu.
Lb Through the use of Cochrane Orcutt
Rc PR>/t/<0.001
Regressions were done through a PC version of EPS.
- 154 -
Table A5-2: UPPER AND LOWER LIMITS O, DEMAND OF
SELECTED PETROCHEMICALS USING 95% CONFIDENCE INTERVAL
COUNTRY High Low
Year Chemical case case
1990 Ethylene 296,353 296,229
Propylene 244,914 244,846
Benzene 17,571 17,567
1995 Ethylene 471,937 471,813
Propylene 340,271 340,305
Benzene 23,372 23,414
MALYSIA
1990 Ethylene 191,180 191,156
Propylene 115,795 115,785
Benzene 107,163 107,155
1995 Ethylene 375,606 375,581
Propylene 189,571 189,561
Benzene 162,941 162,934
INDONESIA
1990 Ethylene 299,168 299,127
Propylene 244,958 244,925
Benzene 25,163 25,161
1995 Ethylene 416,658 416,617
Propylene 337,836 337,803
Benzene 32,942 32,939
KOREA
1990 Ethylene 1,686,224 1,686,091
Propylene 1,142,730 1,142,659
Benzene 431,961 431,924
1995 Ethylene 2,522,092 2,521,960
Propylene 1,589,923 1,589,852
Benzene 664,305 664,268
INDIA
1990 Ethylene 743,349 739,204
Propylene 209,888 208,732
Benzene 419,056 417,658
- 155 -
Table 5.2 (continued)
COUNTRY High Low
Year Chemical case case
INDIA (continued)
1995 Ethylene 1,117,510 1,113,365
Propylene 314,234 313,078
Benzene 549,869 548,471
CHINA
1990 Ethylene 2,817,792 2,817,378
Propylene 1,825,250 1,824,945
Benzene 1,203,762 1,203,577
1995 Ethylene 5,405,536 5,405,122
Propylene 3,733,673 3,733,368
Benzene 2,363,214 2,363,029
- 156 -
ANNEX 6
COMPREHENSIVE 'LIST OF PLANT CAPACITIES
Table A6-1: ASTIF ASIA CHEMICAL PRODUCTION SUMMARY TABLE
(Capacity through 1989)
Chemical India Korea Indonesia Malaysia Thailand China Taiwan Japan
Ethylene 213,000 505,000 0 0 0 1,960,000 953,000 4,295,000
Propylene 96,000 268,000 0 0 0 606,000 478,000 2,510,000
Butadiene 0 94,000 0 0 0 506,500 128,000 349,000
Benzene 89,000 409,000 0 0 0 428,000 0 0
Methanol 0 330,000 330,000 660,000 0 629,000 192,000 891
LDPE 128,000 292,000 0 0 174,000 402,000 240,000 0
HDPE 50,000 280,000 0 0 0 285,000 200,000 900,000
PP 30,000 660,000 10.000 0 0 165,000 220,000 0
PS 2,200 424,000 21.,300 30,000 23,000 10,000 223,200 1,332
ABS 7,400 190,000 0 0 0 10,000 185,000 562,400
Polyester 86,600 349,626 123,000 40,800 77,000 615,000 0 15,000
PVC 157,000 540,000 94,000 39,000 54,000 80,000 940,000 1,707,000
SBR 33,000 150,000 0 0 0 201,000 108,000 679,000
Table A6-2: ASTIF ASIA CHEMICAL PRODUCTION SUMMARY TABLE
(Capacity through 2000)
Chemical India Korea Indonesia Malaysia Thailand China Taiwan Japan
/a
Ethylene 3,311,000 3,505,000 375,000 500,000 564,500 2,995,000 1,906,000 4,295,000
Propylene 441,000 1,817,000 322,000 200,000 269,480 606,000 478,000 2,510,000
Butadiene 115,000 538,000 0 0 16,810 594,000 128,000 349,000
Benzene 209,000 854,000 528,000 0 121,000 608,000 0 0
Methanol 228,200 330,000 330,000 660,000 0 629,000 192,000 891
LDPE 308,000 812,300 0 0 399,000 647,000 240,000 0
LLDPE 130,000 113,000 0 0 50,000 140,000 120,000 0
HDPE 245,000 710,000 420,000 160,000 290,000 425,000 200,000 900,000
PP 315,000 1,210,000 520,000 240,000 340,000 430,000 280,000 0
PS 117,000 564,000 61,300 30,000 171,000 104,500 223,200 1,332
ABS 17,400 242,000 4,500 0 40,000 10,000 185,000 562,400
Polyester 247,100 564,526 283,000 40,800 213,000 1,074,600 0 15,000
PVC 257,000 610,000 164,000 119,000 249,000 917,500 1,160,000 1,707,000
SBR 33,000 182,000 50,000 0 13,000 281,000 108,000 679,000
La 1989 data included to facilitate comparison.
- 15 7 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTRF.A STATUS EXPECTED COMPLETION
COUNTRY = INDIA CHEMICAL = ETHYLENE
Chems & Plastics India Mettur Dam 19000 0 0 0
Indian Petrochemical Baroda 130000 1971 0 0
NOCIL THANE 60000 1968 0 0
Synthetics & Chemicals Bareilly 4000 0 0 0
MGCC NAGOTHANE 300000 0 C 1990
MGCC NAGOTH�ANE 100000 0 C 1992
IPCL BARODA 73000 0 P 2000
RELIANCE HAZIRA 320000 0 P 2000
VIJAYPUR 300000 0 P 2000
OSWAL AGRO RISHRA & BOMBAY 100000 0 C 1990
HALDIA PETROCHEMICALS HALDIk 150000 0 P 2000
NOCIL 235000 0 P 2000
NATIONAL PETROCHEM CO. KOYALI 100000 0 C 1989
AURIYA GAS CRACRER AURIYA, UP 300000 0 P 2000
VIZAG PETROCHEMICALS VIZAG (AP) 250000 0 p 2000
MANGALORE PETROCHEM. MANGALORE 250000 0 P 2000
IPCL BARODA 170000 9 P 2000
LINDE EOU PROJECT MADRAS 450000 0 P 2000
COUNTRY = INDIA CHEMICAL = PROPYLENE
Hindustan Organic Cochin 29000 1972 0 0
IPCL Baroda 81000 0 P 2000
IPCL Baroda 30000 1972 0 0
NOCIL Bombay 37000 1968 0 0
HGCC NAGOTHANE 30000 0 C 1990
MADRAS RFY LTD MADRAS 17000 0 C 1989
IPCL NAGOTHANE 12000 0 C 1992
NATIONAL PETROCHEM CO. KOYALI 60000 0 C 1989
RELIANCE HAZIRA 145000 0 p 2000
COUNTRY = INDIA CHEMICAL = BUTADIENE
IPCL BARODA 22000 0 p 2000
MGCC N.A. 10000 0 p 2000
MGCC N.A. 1000 0 P 2000
SYNTHETIC & CHEMICALS N.A. 12000 0 p 2000
S & C BAREILLY, UP 14000 0 C 1989
NOCIL THANE 7000 0 P 2000
RELIANCE HAZIRA 49000 0 P 2000
COUNTRY I TNDIA CHEMICAL = BENZENE
Durgapur Projects Durgapur 5300 0 0 0
7. 58 --
* A.STZ? ASIA CHEMICAL PRODUCTION CONPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
Fertilizer Corp Sindri 1700 0 0 0
Hindustan Steel Rourkela 10000 0 0 0
Indian Iron & Steel Burnpur 2000 0 0 0
Indian Oil Baroda 45000 0 0 0
Indian Petrochemical Baroda 23600 0 0 0
NOCIL Bombay 17000 0 0 0
Tata Iron & Steel Jamshedpur 2400 0 0 0
Union Carbide India Trombay 6G00 0 0 0
MADRAS AROMATIC COMPLX MADRAS 120000 0 p 2000
BHARAT PETROLEUM BOMBAY 98300 1985 0 0
COCHIN REFINERIES COCHIN 87200 0 p 2030
BOKARO STEEL BOKARO 30000 0 0 0
BHILAI STEEL BHILAI 13000 0 0 0
COUNTRY = INDIA CHEMICAL = METHANOL
BONGAIGAON RFY&PETROCH BONGAIGAON 2700 0 p 2000
GUJARAT NARMADA VALLEY BHARUCH 109500 0 C 1990
DEEPAK FERT & CHEM. 109500 0 C 1990
ASSAM IND. DEV. CORP. MARON-LAKWA 6500 0 p 2000
COUNTRY INDIA CHEMICAL = LDPE
Indian Explosives Rishra 16000 0 0 0
IPCL NAGOTHANE 80000 0 C 1990
RELIANCE HAZIRA 100000 0 p 2000
IEL CALCUTTA 12000 0 0 0
IPCL BARODA 80000 1972 0 0
UCIL BOMBAY 20000 0 0 1965
COUNTRY = INDIA CHEMICAL = LLDPE
IPCL NAGOTHANE 80000 0 C 1990
Reliance Industries Hazira 50000 0 C 1992
COUNTRY = INDIA CHEMICAL = HDPE
NOCIL THANEY 50000 0 0 0
IPCL NAGOTHANE 55000 0 C 1990
RELIANCE HAZIRA 60000 0 C 1991
HALDIA PETROCHEM HALDIA 80000 0 P 2000
COUNTRY INDIA CHMCAL = PP
- 159 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST*
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
IPCL Baroda 30000 1971 0 0
Haldia Petrocbem HALDIA 70000 0 .C 1991
ttCC Nagotbane 60000 0 C 1989
n.a. Mathura 15000 0 p 2000
IPCL VNDODARA 30000 0 C 1992
PICUP UP 50000 0 p 2000
RELIANCE HAZIRA 60000 0 C 1992
COUNTRY = INDIA CHEMICAL = PS
Hindustan Polymers Visakhapatnam 10000 0 0 0
Polychem Bombay 10000 0 0 0
BASF INDIA N.A. 15000 0 P 2000
MCDOWELL & CO. LTD VISAKHAPATNAM 2000 1989 0 0
RELIANCE HAZIRA 80000 0 p 2000
COUNTRY = INDIA CHEICAL = ABS
ABS Plastics Baroda 2000 0 0 0
Polychem Koyali 2000 0 0 0
ABS Plastics NAN DESARI 5000 0 P 2000
MCDOWELL & CO. LTD VISAKHAPATNAM 5000 0 C 1990
GUJBINIL ANKLESHWAR 2200 0 0 0
S & C BAREILLY 1200 0 0 0
COUNTRY = INDIA CHEMICAL POLYESTER
Ahmedabad Manuf Baroda 8000 0 0 0
Baroda Rayon Surat 1000 0 0 0
Century Enka Pune 0 0 0 0
Chemicals & Fibers Bonbay 10000 0 0 0
Garware Nylons Pune 1000 0 0 0
Indian Organic Cbeu Madras 12000 0 0 0
J.K. Synthetics Kota 7000 0 0 0
Modipon Gbaziabad 1000 0 0 0
Nirlon Syn Fibers Baobay 4000 0 0 0
Petrofils Baroda 7000 0 0 0
Shree Synthetics Ujjain 1000 0 0 0
Swadeshi Polytex Gbaziabad 8000 0 0 0
Orkay Silk Mills Patalganga 6600 0 0 0
Indian Explosives Thana 20000 0 0 0
PRAG BOSIMI SYWHETCS ASSAM 22000 0 C 1989
- 160 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
Orkay Silk Mills Patalganga 10000 0 p 2000
Bongaigaon Refinery Bongaigaon 30000 0 p 2000
Reliance Textiles Patalganga 45000 0 p 2000
J.K. Synthetics Kota 7000 0 p 2000
Ahmedabad Mfg Baroda 6500 0 p 2000
DCL POLYESTER LTD NAGPUR 15000 0 C 1989
PUNJAB POLYFIBERS LTD HOSHIAPUR 25000 0 C 1989
COUNTRY = INDIA CHECAL= PVC
Ahmedabad Manuf Bombay 20000 0 0 0
Chems & Plastics Mettur Dam 20000 0 0 0
NOCIL Bombay 20000 0 0 0
Shriram Chem Ind Kota 20000 0 0 0
IPCL VADODARA 55000 0 0 0
CALICO (ILAC) BOMBAY 6000 0 0 0
PRC TUTICORIN 16000 0 0 0
RELIANCE HAZIRA 100000 0 C 1991
COUNTRY = INDIA CHEMICAL = SBR
Synthetics & Chems Bareilly 33000 0 0 0
COUNTRY = KOREA CHEMICAL = ETHYLENE
Daelim Industrial YEOCHON 350000 1979 0 0
Yukong Ltd Ulsan 155000 1972 0 0
Lucky Chemical Yeochon 350000 0 C 1991
HYUNDAI PETROCHEMICAL DAESAN 350000 0 p 2000
Yukong Ltd Ulsan 400000 0 C 1989
Korea Petrochem Ind Ulsan 250000 0 p 2000
HANYlNG CHEiICAL Yeochon 350000 0 p 2000
Daelim Industrial YEOCHON 250000 0 C 1989
SAMSUNG N.A. 350000 0 p 2000
KUMHO PETROCHEMICAL N.A. 350000 0 p 2000
HONAM PETROCHEMICAL N.A. 350000 0 p 2000
COUNTRY = KOREA CHEMICAL = PROPYLENE
Yukong Ulsan 81000 1972 0 0
Yukong Ulsan 212000 0 C 1989
DAELIM INDUSTRIAL CO. YEOCHON 187000 179 0 0
- 161 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVF LIST *
C0lP2ANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
LUCKY PETROCHEMICAL YEOCHON 164000 0 C 1991
DAELIM INDUSTRIAL C0. YEOCHON 145000 0 C 1989
HYUNDAI DESAN 175000 0 p 2000
SAMSUNG N.A. 175000 0 P 2000
KUMHO N.A. 190000 0 P 2000
HONAM PETROCHEMICAL N.A. 190000 0 P 2000
HANYANG CHEMICAL N.A. 150000 0 P 2000
KOREA PETROCHEMICAL N.A. 148000 0 p 2000
COUNTRY = KOREA CHEMICAL = BUTADIENE
Yukong Ulsan 24000 1972 0 0
Yukong Ulsan 212000 0 C 1989
KOREA KUMHO PETROCHEM Yeocbon 70000 1978 0 0
KOREA KUMHO PETROCHEM. YEOCHON 35000 0 C 1989
HYUNDAI DESAN 51000 0 P 2000
SAMSUNG N.A. 45000 0 p 2000
KUNHO PETROCHEMICAL N.A. 56000 0 P 2000
HANYANG CHEMICAL N.A. 45000 0 p 2000
COUNTRY = KOREA CHEMICAL = BENZENE
Korea Steel Pohang 30000 1976 0 0
Yukong Ulsan 194000 1970 0 0
HONAM OIL REFINERY CO. YEOCHON 80000 0 C 1989
Yukong Ulsan 73000 0 C 1989
SSANGYONG OIL REFINING ONSAN 45000 0 C 1989
KOHAP CHEMICAL CORP. Ulsan 30000 1986 0 0
DAELIM INDUSTRIAL CO. YEOCHON 85000 1979 0 0
DAELIM INDUSTRIAL CO. YEOCHON 66000 0 C 1989
KOHAP CHEMICAL CORP. Ulsan 46000 1989 C 0
HONAM OIL N.A. 100000 0 C 1991
KOREA KUMHO PETROCHEM. YEOCHAN 70000 1979 0 0
KOREA KUMHO PETROCHEN. YEOCHAN 35000 0 C 1989
COUNTRY = KOREA CHEMICAL = METHANOL
Taesung Methanol YEOCHON 330000 1976 0 0
COUNTRY = KOREA CHEMICAL = LDPE
HANYANG CHEMICAL Ulsan 60000 1972 0 0
Hanyang Chemical YEOCHON 210000 1979 0 0
- 162 -
* ASTIF ASIA CHEMICAI. PRODUCTION CCHREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
Hanyang Chemical YEOCHON 22000 0 0 1989
Yukong ULSAN 80000 0 C 1989
HAN KOOK FIBRES CORP. GUMI CITY 200300 0 C 1990
LUCKY CHEMCAL YEOCHON 100000 0 C 1989
SAKSUNG N.A. 140000 0 P 2000
COUNTRY = KOREA CHEKICAL = LLDPE
HANYANG CHEMICAL Yeochon 113000 0 P 2000
COUNTRY = KOREA CHEMICAL = HDPE
Honam Petrochemical YEOCHON 90000 1979 0 0
Korea Petrochemical Ulsan 150000 1976 0 0
HONAM PETROCHEMICAL YEOCHON 40000 1988 0 0
DAELIM INDUSTRIAL YEOCHON 120000 0 C 1989
YUKONG ULSAN 40000 0 C 1989
SAMSUNG N.A. 120000 0 p 2000
KUMHO N.A. 150000 0 p 2000
COUNTRY KOREA CHEMICAI. = PP
Yukong Ulsan 80000 0 C 1989
Honam Petrochemical Yeochon 80000 0 0 1988
SAMSUNG N.A. 170000 0 p 2000
KOREA PETROCHEMICAL ULSAN 280000 1972 0 0
KOREA PETROCHEMICAL ULSAN 70000 0 0 1988
HONAM PETROCHEfICAL YEOCHON 110000 1979 0 0
HONAH OIL REFINING CO. YEOCHON 120000 1987 0 0
DONGYANG YEOCHON 80000 0 C 1990
HANYANG CHEMICAL YEOCHON 120000 0 P 2000
KUMHO N.A. 100000 0 P 2000
COUNTRY = KOREA CHEMICAL = PS
Hannam Chemical Ulsan 146000 1973 0 0
Hyosung BASF Ulsan 60000 1982 0 0
Lucky Chemical Yeo-Chon 50000 1984 0 0
Lucky Chemical Yeochon 45000 1989 0 0
CHEIL WOOL TEXTILE CO. YEOCHON 90000 0 C 1989
HYOSUNG BASF Ulsan 75000 1988 0 0
SHIN-A CHEMICAL ANYANG 48000 1973 0 0
DONGBU PETRO ULSAN 50000 0 C 1988
- 163 -
* ASTIF ASIA CHEKICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
COUNTRY = KOREA CHEMICAL = ABS
Hannam Chemical Ulsan 40000 1973 0 0
Lucky Chemical YEOCHON 135000 1978 0 0
SHIN-A CHEMICAL ANYANG 15000 1984 0 0
HYOSUNG BASF ULSAN 22000 0 C 1989
CHEIL WOOL TEXTILE CO. YEOCHON 30000 0 C 1989
COUNTRY = KOREA CHEMICAL POLYESTER
Cheil Syn Textile Gumi 24820 0 0 0
Dae Ran Synthetic Pusan 46720 0 0 0
Dae Sung Woold n.a. 0 0 0 0
Jeil Chemical Fiber Seoul 2190 0 0 0
Kohap Shihung 34310 0 0 0
Kolon (Polyester) Gumi 71905 0 0 0
Sam Kwang Moolsan Ki Jank 2000 0 0 0
Sam Yang Chonju 41245 0 0 0
Sunkyong Suwon 45990 0 0 0
Tong Yang Polyester Ulsan 71905 O' 0 0
Tong Yank Nylon n.a. 8541 0 0 0
Zion Synthetic Fiber Seoul 0 0 0 0
HAN KOOK FIBERS GUMI CITY 200300 0 C 1990
TONG KOOK N.A. 14600 0 0 0
COUNTRY = KOREA CHEMCAL PVC
HANYANG CHEMICAL ULSAN & ETC. 250000 0 0 0
Lucky Chemical YEOCHON 280000 1976 0 0
HAI(YANG CHEMICAL CORP. Ulsan 10000 0 0 1989
HANYANG CHEMICAL CORP. YEOCHON 70000 0 C 1990
COUNTRY = KOREA CHEMICAL = SBR
KOREA KUNHO PETROCHEI Ulsan 20000 1983 0 0
KOREA KUNHO PETROCHEM Ulsan 130000 1973 0 0
KOREA KUINHO PETROCHEH ULSAN 20000 0 C 1989
ULSAN PACIFIC CHEMICAL ULSAN 12000 0 C 1989
COUNTRY = INDONESIA CHEMICAL = ETHYLENE
- 164
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YE1R ONSTREAM STATUS EXPECTED COMPLETIONJ
SHELL CILACAP 375000 0 P 2000
COUNTRY = INDONESIA CHEMICAL = PROPYLENE
Pertamina Plaju 100000 0 C 1991
MITSUBISHI CILACAP 222000 0 p 2000
COUNTRY = INDONESIA CHEMICAL = BUTADIENE
COUNTRY = INDONESIA CHEMICAL = BENZENE
n.a. Arun, Aceh 405000 0 P 2000
PERTAMINA CILACAP 123000 0 C 1990
COUNTRY = INDONESIA CHEKICAL = METHANOL
PERTAMINA PULAU BlIYU 330000 0 0 0
COUNTRY = INDONESIA CHEMICAL = LDPE
COUNTRY = INDONESIA CHEMICAL = LLDPE
COUNTRY = INDONESIA CHEMICAL HDPE
PT ARSETO/BRIT PETRO N.A. 120000 0 C 0
N.A. CILACAP 300000 0 C 0
COUNTRY = INDONESIA CHEMICAL PP
PN PERTAMINA Plaju 10000 0 0 0
PT MEGA POLYMER Tangerang 125000 0 C 1991
PT ASEAN POLYMER Tangerang 100000 0 C 1991
PT TRI POLYTA INDO Tangerang 160000 0 C 1991
N.A. CILACAP 125000 0 P 2000
COUNTRY = INDONESIA CHEMICAL = PS
PT PACIFIC PLASTIX Serang 20000 0 C 0
PT Polychem Lindo MERAK 21500 0 0 0
PT BENTALA AGUNG PALEMBING 19800 0 0 0
- 165 -
* AS1IF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
COUNTRY = INDONESIA CHEMICAL = ABS
PT Polychem Lindo MERAK 4500 0 C 1989
COUNTRY = INDONESIA CHEMICAL = POLYESTER
Indonesia Toray Pasar-Baru 14000 0 0 0
Kuraray Pasar-Baru 14000 0 0 0
Sulinda Jakarta 5000 0 0 0
Teijin Indonesia Tangerang 42000 0 0 0
Texmaco Malang 12000 0 0 0
Uasinta Tangerang 16000 0 0 0
Tri Rempoa Banaran 20000 0 0 0
Sulinda Jakarta 40000 0 P 2000
PT YASINTA TANGERANG 120000 0 C 1990
COUNTRY = INDONESIA CHEMICAL = PVC
PT EASTERN POLYMER Jakarta 36000 0 0 0
PT STATOMER llerak 58000 0 0 0
PT ASAHIMAS SUBENTRA MERAK, W. JAVA 70000 0 C 1989
COUNTRY = INDONESIA CHEMICAL = SBR
SUKSES BINA SELARAS Bekasi 25000 0 C 1990
PT INDOFIRST CIKAMPEK 25000 0 C 1989
COUNTRY = MALAYSIA CHEMICAL = ETHYLENE
N.A. KERTIH 300000 0 p 2000
ASIA PACIFIC PETROCHEM KERTIH 200000 0 P 2000
COUNTRY = MALAYSIA CHEMICAL = PROPYLENE
N.A. n.a. 100000 0 P 2000
ASIA PACIFIC CHEMICALS KERTIH 100000 0 p 2000
COUNTRY = MALAYSIA CHEMICAL = BUTADIENE
COUNTRY = MALAYSIA CHEMCAL BENZEE
- 166 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTRFM STATUS EXPECTED COMPLETION
COUNTRY = MALAYSIA CHEMCAL = METHANOL
SABAH GAS N.A. 660000 0 0 0
COUNTRY = MALAYSIA CHEMICAL = LDPE
COUNTRY = MALAYSIA CHEMICAL = LLDPE
COU1NTRY = MALAYSIA CHEMICAL = HDPE
ASIA PACIFIC CHEMICALS N.A. 100000 0 P 2000
NPC II N.A 60000 0 P 2000
COUNTRY = MALAYSIA CHEMCAL = PP
Petronas KUANTAN 80000 0 P 2000
ASIA PACIFIC POLYMER N.A. 80000 O' P 2000
THAI PETROCHEMCAL N.A 80000 0 C 1990
COUNTRY = MALAYSIA CHEMICAL = PS
Petrocbems Malaysia Tampoi 24000 0 0 0
POLYSTYRENE SDN BHD N.A. 6000 0 0 0
COUNTRY = MALAYSIA CHEMICAL - ABS
COUNTRY = MALAYSIA CHEMICAL POLYESTER
Penfibre Penang 40800 0 0 0
COUNTRY = MALAYSIA CHENCAL = PVC
MALAYAN ELECTROCEtM Penang 12000 0 0 0
INDUSTRIAL RESINS Jobore Bahru 27000 0 0 0
NORSECHEM LAMINATES TERENGGANU (?) 20000 0 P 2000
THAI PLASTICS RAYONG 60000 0 P 2000
COUNTRY = MALAYSIA CHEMICAL = SBR
- 167 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAN STATUS EXPECTED COMPLETION
COUNTRY = THAILAND CHEMICAL = ETHYLENE
Nat'l Petrochemical Mab Ta Put 315000 0 C 1989
NPC II 249500 0 p 2000
COUNTRY = THAILAND CHEMICAL = PROPYLENE
Nat.'l Petrochemical Mab Ta Put 105000 0 C 1989
NPC II 164480 0 P 2000
COUNTRY = THAILAND CHEMICAL = BUTADIENE
NPC II 16810 0 P 2000
COUNTRY = THAILAND CHEMICAL = BENZENE
NPC II 121000 0 P 2000
COUNTRY = THAILAND CHEMICAL = METHANOL
COUNTRY = THAILAND CHEMICAL = LDPE
Thai Petrochemical Rayong 100000 0 0 0
Thai Petrochemical Rayong 74000 0 0 0
THAI PETROCHEMICAL RAYONG 60000 0 C 1989
THAI PETROCHEMICAL CO. MAP-TA PHUT 65000 0 C 1989
NATIONAL PETROCHEMICAL MAP-TA PHUT 100000 0 C 1989
COUNTRY = THAILAND CHEMICAL = LLDPE
THAI POLYETHYLENE Map Ta Phut 50000 0 C 1989
COUNTRY = THAILAND CHEMICAL = HDPE
Thai Polyethylene Nab Ta Put 60000 0 C 1989
THAI PETROCHEMICAL Nab Ta Put 60000 0 C 1989
NATIONAL PETROCHEMICAL Mab Ta Put 110000 0 C 1989
NPC II N.A. 60000 0 P 2000
- 168 --
* ASTIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
CCEPANY LOCATION CAPACITY YEAR ONSTREAM STlTUS EXPECTED COMPLETION
COUNTRY = THAILA^ND CHEMCAL PP
HMC Polymer Rayong 100000 0 C 1989
NPC II 160000 O p 2000
THAI PETROCHEMICAL N.A. 80000 0 C 1990
COUNTRY = THAILAND CHEMICAL PS
Pacific Plastics Samut Prakan 23000 0 0 0
SRITHEPTHAI BANGKOK 10000 0 C 1989
TPI n.a. 29000 0 p 2000
NPC II 109000 0 P 2000
COUNTRY = THAILAND CHEMICAL ABS
THAI PETROCHEMICAL RAYONG 10000 0 C 1990
NPC II 30000 0 P 2000
COUNTRY = THAILAND CHEMICAL POLYESTER
Oriental Fibre Bangkok 2000 O 0 0
Toray Nylon Thai Bangkok 7000 0 0 0
Thai Melon Pathumthani 24000 0 0 0
Teijin Polyester Pathuerthani 44000 0 0 0
Teijin Polyester n.a. 24000 0 p 2000
Thai Melon n.a. 33000 0 P 2000
Toray Nylon Thai n.a. 5000 0 p 2000
Tumtex n.a. 36000 0 p 2000
Thai Nippon n.a. 28000 0 p 2000
Other n.a. 10000 0 p 2000
COUNTRY = THAILAND CHEMICAL PVC
Taplaco Bangkok 54000 0 0 0
THAI PLASTICS KAB TA PHUT 135000 0 C 1989
THAI PLASTICS RAYONG 60000 0 p 2000
COUNTRY = THAILAND CHEMICAL - SBR
Siam Cement n.a. 13000 0 p 2000
COUNTRY = CHINA CHEMICAL ETHYLENE
- 169 -
* ASTIF ASIA CHEMICAL PRODUCMION COMtPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
State Complex YANGSHAN 300000 1988 0 0
State Complex Jilin 115000 1982 0 0
State Complex Jinshan 120000 0 0 1989
State Complex GAOQUIAO 20000 1987 0 0
State Complex Liaoyang 73000 0 0 0
CNTIC YANGZI-JIANGSU 300000 0 P 2000
CNTIC Panjin 130000 0 C 1990
CNTIC DAQING 300000 0 0 0
CNTIC QILU-SHANDONG 300000 1987 0 0
SHANGHAI PETROCHEM JINSHAN 300000 0 C 1991
STATE COMPLEX BEJING-YANSHAN 300000 1989 0 0
LANZHOU CHEMICAL IND GANZU-LANZHOU 72000 0 0 0
STATE COMPLEX NANJING 60000 0 0 0
CNTIC YANGZI 300000 0 0 0
STATE COMPLEX LIAOYANG 45000 0 P 2000
ZHONG YUAN PETRO CORP. PUJANG 140000 0 C 1992
STATE COMPLEX FUSHUN 120000 0 C 1989
COUNTRY = CHINA CHEMICAL = PROPYLENE
State Complex Daqing 80000 0 0 0
State Complex YANGSHAN 130000 0 0 0
State Complex Jilin 50000 0 0 0
State Complex Jinshan 50000 0 0 0
State Complex Lanzhou 20000 0 0 0
State Complex Liaoyang 35000 0 0 0
CNTIC QUILO 60000 0 0 0
STATE COMPLEX YANGZI 140000 0 0 0
STATE COMPLEX NANJING 28000 0 0 0
STATE COMPLEX GAOQUIAO 13000 0 0 0
COUNTRY = CHINA CHEMICAL = BUTADIENE
STATE COMPLEX YANGSHAN 215000 0 0 0
CNTIC QUILU 70000 0 0 0
STATE COMPLEX YANGSHAN 45000 0 0 0
STATE COMPLEX PANJING 87500 0 P 2000
STATE CCEPLEX LIAOYING 45000 1975 0 0
STATE COMPLEX JILIN 60000 1982 0 0
STATE COMPLEX GAOQUIAO 21500 0 0 0
STATE COMPLEX LANZHOU 50000 0 0 0
- 170 -
* ^aSIF ASIA CHEMICAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CA]?ACITY YEAR ONSTREAN STATUS EXPECTED COMPLETION
COUNTRY = CHINA CHEMICAL = BENZENE
STATE COMPLEX BEIJING-YANSHAN 100000 0 0 0
STATE COMPLEX TIANJIN 20000 0 0 0
STATE COMPLEX LIAOYANG 163000 1.978 0 0
STATE COMPLEX NANJING 180000 0 C 1989
STATE COMPLEX SHANGHAI 60000 0 0 0
STATE COMPLEX SHANGHAI 85000 1986 0 0
COUNTRY = CHINA CHEMICAL : METHANOL
STATE COMPLEX LIAOYANG 109000 0 0 0
SICHUAN VINYLON SICHUAN 300000 0 0 0
STATE COMPLEX TAI-YUAN,SHANXI 25000 0 0 0
STATE COMPLEX SHANGHAI 80000 1986 0 0
STATE COMPLEX QUZHOU,ZHEIJANG 15000 0 0 0
STATE COMPLEX QUILU 100000 0 0 0
COUNTRY = CHINA CHEMICAL LDPE
SINOPEC Daqing 60000 O 0 0
Beijingyan Fangshan 198000 0 0 0
SHANGHAI GENERAL Jinshan 60000 0 0 0
LANZHOU CHEMICAL CORP Lanzhou 24000 0 0 0
Jinlingpch Nanjing 60000 0 0 0
PANJIN NAT GAS CHEM Panjin 125000 0 C 1991
CNTIC Lanzhou 60000 0 P 2000
STATE COMPLEX BEIJIN-YANSHAN 60000 0 P 2000
COUNTRY = CHINA CHEMICAL = LLDPE
CNTIC Fushun 80000 0 P 2000
LANZHOU CHEMICAL CORP. LANZHOU 60000 0 C 1990
COUNTRY = CHINA CHEMICAL = HDPE
State Ccmplex Liaoyang 35000 0 0 0
n.a. SHANDONG (QILU) 140000 0 0 0
YANGZI PETROCHEMICAL YANGZI 140000 0 P 2000
SINOPEC DAQING 110000 0 0 0
COUNTRY = CHINA CHEMICAL = PP
- 171 -
* ASTIF ASIA CHEKrCAL PRODUCTION COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAN STATUS EXPECTED COMPLETION
Yanshan Petro Fangshan 35000 0 0 0
STATE COMPLEX Fangshan 80000 0 0 0
Daqing Petro Guangzhou 5000 0 0 0
Lanzhou Chemical Lanzhou 10000 0 0 0
Liaoyang Petro Liaoyang 35000 0 0 0
Qilu Petrochem Qilu 15000 0 P 2000
Shanghai Petrochem Shanghai 70000 0 C 1991
PANJIN NAT GAS CHEM Panjin 40000 0 C 1991
Yangzi Petrochem Nanking 140000 0 p 2000
COUNTRY = CHINA CHEMICAL PS
State Complex Fangshan 4000 0 0 0
State Complex Lanzhou 6000 0 0 0
State Complex SHANG-GAOQIAO 0 0 0 0
STATE COMPLEX BEIJING-YANSHAN 60000 0 C 1989
STATE CCMPLEX JILIN 9500 1989 C 1989
STATE COMPLEX QUILU 25000 0 C 1989
COUNTRY - CHINA CHEMICAL = ABS
STATE COMPLEX Lanzhou 10000 1980 0 0
COUNTRY = CHINA CHEKICAL POLYESTER
State Complex Fangshan 37000 0 0 0
State Complex Jinshan 22000 0 0 0
State Complex Jinshan 222000 0 0 0
State Complex Liaoyang 87000 0 0 0
State Complex Nanjing 120000 0 0 0
State Complex Tianjin 30000 0 0 0
State Complex Shanghai 25000 0 0 0
State Complex BEIJING-YANSHAN 40000 0 0 0
State Complex Xiaman 30000 0 P 2000
TIANJIN GEN'L FIBRE Tianjin 80000 0 p 2000
State Complex Foshan 60000 0 P 2000
JIANGSU-YIZHENG CHEM JIANSU 183000 0 P 2000
SINOPEC Jinshan 6600 0 C 1989
TEXTILE IND ZHUHAI ZHUHAI 30000 0 C 1990
LIAOYANG PETRO LIAOYANG 32000 0 0 0
STATE COMPLEX QUILU 70000 0 C 1989
COUNTRY = CHINA CHEMICAL = PVC
- 172 -
* ASTIF ASIA CHEMICAL PRODUCTIOff COMPREHENSIVE LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAM STATUS EXPECTED COMPLETION
State Complex Beijing 80000 0 0 0
State Complex NANJING 200000 0 P 2000
State Complex SHANDONG 200000 0 p 2000
State Complex YANGZI 200000 0 P 2000
State Complex QILW 200000 0 p 2000
ZHU ZHOU CHEM IND ZHU ZHOU 25000 0 C 1989
STATE COMPLEX HEFEI 12500 0 p 2000
COUNTRY CHINA CHEMICAL SBR
State Complex Jilin 80000 0 0 0
State Complex Lanzhou 40000 0 0 0
State Complex Shanghai 1000 0 0 0
State Complex Qilu 80000 0 0 0
PANJIN NAT GAS CHEM. PANJIN 80000 0 C 1991
COUNTRY = TAIWAN CHEMICAL = ETHYLENE
TOTAL CAPACIT 953000 0 0 0
953000 0 p 2000
COUNTRY TAIWAN CHEMICAL = PROPYLENE
TOTAL CAPACITY 478000 0 0 0
COUNTRY = TAIWAN CHEMICAL = BUTADIENE
TOTAL CAPACITY 128000 0 0 0
COUNTRY = TAIWAN CHEFICAL = BENZENE
COUNTRY = TAIWAN CHEMICAL = METHANOL
TOTAL CAPACITY 192000 0 0 0
COUNTRY = TAIWAN CHEMCAL = LDPE
TOTAL CAPACITY :240000 0 0 0
COUNTRY = TAIWAN CHEMICAL = LLDPE
- 173 -
* ASTIF ASIA CHEMICAL PRODUCTION COMPREIHINSrIV LIST *
COMPANY LOCATION CAPACITY YEAR ONSTREAN STATUS EXPECTED COMPLETION
120000 0 p 2000
COUNTRY = TAIWAN CHEMICAL = HDPE
200000 0 0 0
COUNTRY = TAIWAN CHEMICAL = PP
TOTAL CAPACITY 220000 0 0 0
60000 0 p 2000
COUNTRY = TAIWAN CHEMICAL = PS
TOTAL CAPACITY 223200 0 0 0
COUNTRY = TAIWAN CHEMICAL = ABS
TOTAL CAPACITY 185000 0 0 0
COUNTRY = TAIWAN CHEMICAL = POLYESTER
COUNTRY = TAIWAN CHEMICAL = PVC
TOTAL CAPACITY 220000 0 p 2000
TOTAL CAPACITY 940000 0 0 0
COUNTRY = TAIWAN CHEMICAL = SBR
TOTAL CAPACITY 108000 0 0 0
COUNTRY = JAPAN CHEMICAL = ETHYLENE
TOTAL CAPACITY 4295000 0 0 0
COUNTRY = JAPAN CHEMICAL = PROPYLENE
TOTAL CAPACITY 2510000 0 0 0
COUNTRY = JAPAN CHEMICAL = BUTADIENE
- 174 -
ANNEX 7
DEMAND PROJECTIONS FOR PETROCHEMCALS
Figure 6.2 KOREA HISTORICAL AND FORECAST DEMAND
CHEMICAL: ETHYLENE
O3 NO (MT) (Thousnnds)
2600 - ------
1600-
1000�--
600--
1970 isso t9a2 1904 19aia a 1900a 1g 1902 1094
YEAR
- ASTIF Foreoast Low Foreoast
--4 90K Low Forecarst Hlg K Nih Foreaost
Souro.e Staff Estimates
Figure 6.3 KOREA HISTORICAL AND FORECAST DEMAND
CHEMICAL: BENZENE
DEMAND (M-,A) (Thousands)
700 - - I -1
400 - -- - - - -
200----
I" I X SL
107r 1900 1902 1904 19s6 is" 1990 1992 1994
YIEAR
- ASTIF Forecast Low Forecaut
-175 -
Figure 6.4 KOREA HISTORICAL AND FORECAST DEMAND
CHEMICAL: LDPE
DESo AND (MTA) (Thounds)
400--
200- - - -- - --
0- -
1976 1980 1982 1084 1966 106s 1990 1992 1994
YEAR
- ASTIF For.oaat Low Foreocas
GCK Low Foreoat 301(K Migh Forsost
Souro: Statf Eatimatem
Figure 6.5 KOREA HISTORICAL AND FORECAST DEMAND
CHEMICAL: HDPE
DEMAND (MTA) (Thousands)
S00
600
200
0-�
1976 1980 1962 1964 1sa6 19aa 1990 1992 1904
YEAR
- AaT1F Forecast - Low Foreoft
O 60K Low Forooat -OI0 High Foreost
- 176 -
Figure 6.6 KOREA HISTOIRICAL AIND FORECAST DEMAND
CHEMICAL: PP
DEMAND (MTA) (Thou"nds)
800 - - - - - - - - -
400
200 - -
0
i9tl 1Wao 1982 1984 1986 198a 1990 1992 1964
YE.AR
- ASTIF Forecaost Low Forecast
GOK Low Foreoa. s GOK Migh Forecat
Souro.: atawi Eatimatee
- 177 -
Figure 6.7 INDIA DEMAND FORECAST
CHEMICAL: ETHYLENE
OEMANO (MT) (Tthouaaide)
1200 -�-
1000-
800 _ _ -
400-
200 _ /
o -
1980 1982 1984 1980 1988 1990 1992 1994
YEAR
- ASTIF Forecast i Low Forecat
Souro-: Staff Estimates
Figure 6.8 INDIA DEMAND FORECAST
CHEMICAL: PROPYLENE
DEMAND (MT) (Thousnds)
360�
300�
250 ii
200�
160�
60� - - -�fI I l
100$ 1 1 1 1 1 1 1 ] | 4 T L
0�
1980 1982 1984 1986 1988 1990 1992 1994
YEAR
- ASTIF Forecast Law Forecast
owo.o Staff Estimate
- 178 -
Figure 6.9 INDIA DEMAND FORECAST
CHEMICAL: ILDPE/LLDPE
Goo
1980 1582 1984 1886 1888 1880 1892 .1894
ASTIIF Forecast (3G01 Forecast
Figure 6-10 INDIA DEMAND FORECAST
-,HEMICAL: HOPE
OEMAND (MT) eThousinds
2600�
200�
100- - -
1980 1982 1984 1988 1988 1990 1992 1994
YEARt
- ASTII: Forecast - Low Forecast
1o0wz JSt E-tfma - s
- 179 -
Figure 6.11 CHINA DEMAND FORECAST
CHEMICAL: ETHYLENE
DEMANO (MT) (Thousands)
34000
3600� -_ - -_ --- - -X -
3000 - - -- -
2600�-
2000� ;7
1600 --
1 000 --
1982 1984 1986 1988 1990 1992 1994
YEAR
- ASTIF Farecast - Low Forecast
Souroe: Staff Eatimats
Figure 6.12 CHINA DEMAND FORECAST
CHEMICAL: PROPYLENE
DEMAND (MT) (Thousands)
2600
2000
1600
1000
0oo - -- - - _ -
1982 1984 1986 1988 1990 1992 1994
YEAR
- ASTIF Forecast -'- Low Forecast
-180 -
Figure 6.13 THAILAND DEMAND FORECAST
CHEMICAL ETHYLENE
400
300
200�-
1 00-/
1976 1980 1982 1984 l186 1986 199a 1902 1994
YEAR
ASTIF Forecast - Low Forecast
Souro- Statt Estimate&
Figure 6.14 THAILAND DEMAND FORECAST
CHEMICAL: BENZENE
DEMAND (MT) (Thousands)
1960 1982 1984 1988 1988 1990 1992 1994
YIEAR
-ASTIF Forecast -Low Forecast
Saowet 8tal I hilmateg
- 181 -
Figure 6.15 THAILAND DEMAND FORECAST
CHEMICAL: POLYPROPYLENE
DEMAND (MT) (Thou."nds)
260�
200
150-----
50
1980 1982 1984 1986 1988 1990 1992 1994
YEAR
- ASTIF Forecast - Low Forecast GOT Forecast
Souroe- Stall Estimates
Figure 6.16 THAILAND DEMAND FORECAST
CHEMICAL: TOTAL POLYETHYLENE
DEMAND (MT) (Thouands)
400 - - - -
300-�
200 ---- -
1980 1982 1984 1986 1988 1990 1992 1994
YEAR
- ASTIF Forecast - Low Forecuat GOT Forecast
Sro0ee Stall Estimates
-182 -
Figure 6.17 THAILAND DEMAND FORECAST
CHEMICAL: SBR
OEMAND (MT) (Thousandt)
14 -
12�2
10�-
2 -- ----�___-_ _
1980 1982 1984 196e 1988 1990 1992 1994
YEAR
ASTIF Forecast - f Low Forecast 3GOT Forecst
Sourco Staff Eatimates
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RECENT WORLD BANK TECHNICAL PAPERS (continued)
No. 85. Ernst & Whinney, Proposals for Monitorinig the Performance of Electric Utilities
No. 86. Munasinghe, Integrated National Energy Planning and Management: Methodology and Application
to Sri Lanka
No. 87. Baxter, Slade, and Howell, Aid and Agricultural Extension: Evidence from the World Bank and
Other Donors
No. 88. Vuylsteke, Techniques of Privatization of State-Owned Enterprises, vol. I: Methods and
Implementation
No. 89. Nankani, Techniques of Privatization of State-Owned Enterprises, vol. II: Selected Country Case
Studies
No. 90. Candoy-Sekse, Techniques of Privatization of State-Owned Enterprises, vol. III: Inventory of Country
Experience and Reference Materials
No. 91. Reij, Mulder, and Begemann, Water Harvesting for Plant Production: A Comprehensive Review of
the Literature
No. 92. The Petroleum Finance Company, Ltd., World Petroleum Markets: A Framework for Reliable
Projections
No. 93. Batstone, Smith, and Wilson, The Safe Disposal of Hazardous Wastes: The Special Needs and
Problems of Developing Countries
No. 94. Le Moigne, Barghouti, and Plusquellec, Technological and Institutional Innovation in Irrigation
No. 95. Swanson and Wolde-Semait, Africa's Public Enterprise Sector and Evidence of Reforms
No. 96. Razavi, The New Era of Petroleum Trading: Spot Oil, Spot-Related Contracts, and Futures Markets
No. 97. Asia Technical Department and Europe, Middle East, and North Africa Technical Department,
Improving the Supply of Fertilizers to Developing Countries: A Summary of the World Bank's
Experience
No. 98. Moreno and Fallen Bailey, Alternative Transport Fuels from Natural Gas
No. 99. Intemational Commission on Irrigation and Drainage, Planning the Management, Operation, and
Maintenance of Irrigation and Drainage Systems: A Guidefor the Preparation of Strategies and
Manuals
No. 100. Veldkamp, Recommended Practices for Testing Water-Pumping Windmills
No. 101. van Meel and Smulders, Wind Pumping: A Handbook
No. 102. Berg and Brems, A Case for Promoting Breastfeeding in Projects to Limit Fertility
No. 103. Banerjee, Shrubs in Tropical Forest Ecosystems: Examples from India
No. 104. Schware, The World Software Industry and Software Engineering: Opportunities and Constraints for
Newly Industrialized Economies
No. 105. Pasha and McGarry, Rural Water Supply and Sanitation in Pakistan: Lessonsfrom Experience
No. 106. Pinto and Besant-Jones, Demand and Netback Values for Gas in Electricity
No. 107. Electric Power Research Institute and EMENA, The Current State of Atmospheric Fluidized-Bed
Combustion Technology
No. 108. Falloux, Land Information and Remote Sensing for Renewalble Resource Management in Sub-Saharan
Africa: A Demand-Driven Approach
No. 109. Carr, Technology for Small-Scale Farmers in Sub-Saharan Africa: Experience with Food Crop
Production in Five Major Ecological Zones
No. 110. Dixon, Talbot, and Le Moigne, Dams and the Environment: Considerations in World Bank Projects
No. 111. Jeffcoate and Pond, Large Water Meters: Guidelines for Selection, Testing, and Maintenance
No. 112. Cook and Grut, Agroforestry in Sub-Saharan Africa: A Farmer's Perspective
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