Realizing the Petrochemical Vision

Realizing the Petrochemical Vision 4 th IndianOil Petrochemical Conclave Gurgaon, 12 th February 2015

Agenda India A Growth Perspective Petrochemicals A Vehicle for Growth Petroleum Refining An Overview Eastern India Observations Paradip Refinery An Overview IndianOil in Petchems & Future Plans Imperatives for Growth Summary & Conclusion 2

India Perspective of the Complex Business Universe Emerging Competition CUSTOMER Non Customer Growth Functions Industry Expansion Potential Competitor s Customers Competitive Benchmarking Industry Integration Economic Trends Country Risk Growth Team Cultural Political & Regulatory Disruptive Technologies TECHNOLOGY Emerging Technology Industry Shifts Competitive Strategy ECONOMIC GLOBAL India Economic Trends & Issues Emerging Opportunities Economic Threats New Applications External Industry Impact Behavior Growth Process INDUSTRY Industry Convergence COMPETITIVE In-Direct Competition BEST PRACTICES Career Development Demographics 4

India s growth recovery dilemma Currency not yet fully stabilized, risks not over External pressures Investment slump High borrowing costs although business sentiment is improving Structural reforms High inflation Yet to achieve critical mass Limits policy space for monetary stimulus 5

Towards Manufacturing Growth R & D to increase efficiency Regulatory Support Investments across the Value chain Cultural & Mindset Shifts Growth through Innovation Human Capital Management Local Products for Global End-users

Tectonic Shift in Manufacturing Traditional/Current Future

Petrochemical Industry - Value Addition Opportunities

Indian Petrochemical Industry - Critical Success Factors Economies of Scale Costs( Feedstock and fixed costs) Infrastructure Critical Success Factors Affecting the Indian Petrochemical Industry Global Demand Supply Situation 10 Downstream and upstream Integration Domestic Demand Supply Situation

Major Global Refinery Expansions - 2014 000 bpd Yanbu, Saudi Aramco/Sinopec, 400 Pengzhou, Petrochina, 200 Quanzhou, Sinochem, 240 Jiujiang, Sinopec, 100 Tokuyama, Idemitsu Kosan, 120 Muroran, JX Nippon, 180 Paradip, IndianOil, 300 Net planned CDU capacity expansion: 880,000 b/d in 2014 Additions - mainly in East of Suez (Saudi Arabia, China, India) Europe and OECD Asia intentions of further outages Kumell, Caltex, 125 Geelong, Shell, 105 Source: JBC Refining Outlook, Jan 14 Capacity additions to exceed incremental product demand in near term

India: Refining capacity ESSAR 9% Capacity Share IOC/CPCL 31% BPC/NRL/ BORL 14% RIL 28% ONGC/ MRPL 7% HPC/HMEL 11% 13 Capacity (IOC): 54.2 MMTPA Capacity (CPCL): 11.5 MMTPA Group Capacity: 65.7 MMTPA India Capacity: 215.1 MMTPA

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 100 104 108 112 113 121 129 134 138 141 148 157 158 India: POL Scenario POL Consumption India - MMT POL Imports/Exports US$ billion 140 144 143 48 39 26 13 16 18 18 40 11 34 2 3 6 9 2 2 4 7 23 12 15 17 100 95 98 68 77 80 95 68 59 59 61 56 63 56 28 27 31 43 15 14 7 11 14 13 12 Imports-Crude oil Imports-Petroleum Products Exports-Petroleum Products Refining Capacity of 215 MMT vs Consumption of 158 MMT Surpluses Exist Net

Domestic Economy vis-à-vis POL Demand GDP Growth (%) POL Cons. Growth (%) 8.6 8.9 6.7 6.0 4.5 4.9 3.2 5.0 2.3 0.7 2009-10 2010-11 2011-12 2012-13 2013-14 Segment-wise Growth (%) Services Industry Agriculture 7.1 6.7 6.2 6.3 5.0 4.6 1.4 0.9 0.2 2011-12 2012-13 2013-14 Source: PPAC/ MoSPI GDP growth dominated by agriculture and services POL growth lowest in five years, in line with the lowest growth in industry, de-growth in vehicle sales and reducing power deficit 15

Naphtha Surplus but will naphtha crackers be cost competitive? NAPHTHA DEMAND SUPPLY SCENARIO IN INDIA (Mn Tons) 30 25 24 20 19 18 15 12 10 5 0 2014 2019 (E) PRODUCTION CONSUMPTION Advantages C3-C6 based streams available Aromatics can be produced from Naphtha cracker Py- gas Py-gas is primarily used for gasoline blending in India. Toluene and higher aromatics can be extracted from py-gas stream from naphtha cracker, India is significantly short in these raw materials Styrene needs (100% imports currently) can be met through naphtha crackers Ability to target specialty products/niche grades for import substitution Concerns Single site feedstock availability -pooling Competing in the C2 stream with ethane based producers Polypropylene already surplus in India need to find new outlets/products. Naphtha Demand Estimates for FY19 as per MOPNG

India -Population Vs Petrochem Demand 31% 21% 26% Popln 22% 47% 21% 11% Low percapita consumption Regional Imbalance Increase Manufacturing Capacity in North & East Demand 21% Source: IOCL Analysis 18

Eastern India Opportunity Knocks Potential for various Petchems Paradip Source: IOCL Analysis

Development of Eastern India Percentage of Indian *Middle Class. West of the Kanpur- Chennai line East of the Kanpur- Chennai line 50% 50% Kanpur- 32% 22% Chennai 8% 1980 2000 2010 2020 2040 IndianOil s Paradip Refinery will be a major driver of growth in Eastern India *Middle Class Income Group above $4000/year

Paradip Refinery From Aspirations to Reality One of the most modern refineries in the world Crude Mix: 100% HS; 40% Heavy Ability to process toughest crudes Distillate Yield: 81% Capacity: 15 MMTPA; Approved Cost: US$ 4970 Million Even with high % of heavy crudes Complexity Factor: 12.2 Superior secondary processing Energy Consumption (MBN): 50 Among the best in the Industry On the verge of completion

Paradip Refinery: Product profile Feedstock Capacity (KTA) Crude Oil 15000 Products Capacity (KTA) LPG 870 Ethylene Potential 200 Propylene Potential 700 MS 3400 ATF/ SKO 1200 Diesel 5750 Pet coke 1250 Sulfur 200 Internal Fuel & Loss 1430 Total Products 15000 Feedstock for Chemicals

IndianOil - Petrochemicals Capacity Growth Figures in KTA 2601 60 155 138 60 155 138 325 325 1250 1250 553 553 120 120 2004 2006 2010 2013 Total LAB PTA Polymers Glycols Butadiene SBR Others 2 nd largest petrochemicals player in the country Capacity share: LAB 24%; PTA - 14%; Polymers 18% and Glycols 25% India s 1 st SBR Plant 25 25

Initiatives Planned for Future Growth A. DEVELOPMENT OF PETROCHEMICAL HUB AT PARADIP 700 kta Polypropylene Unit based on FCC propylene under implementation Planning for C2 Derivatives Integrated px/pta units being examined Accelerated development of downstream petrochemical industry for polymer processing like packaging, fibre & filament, automotive, health care & personal care Creation of employment opportunities Impetus to petrochemical demand growth in Eastern India where petrochemical consumption is the lowest. 26

Initiatives Planned for Future Growth B. UTILISATION OF UNCONVENTIONALS FOR CHEMICALS/PETROCHEMICALS Acetic Acid from Petcoke Gasification Synthetic Ethanol from Petcoke Gasification Targeting Olefin Generation from Petcoke/Lean Gas Recovery of Styrene from PyGas C. UTILISATION OF STRANDED MOLECULES FOR SPECIALTIES Acrylates/Oxoalcohols/SAP from Propylene Cumene/Phenol/IPA from Propylene MMA/PMMA from C4 s DCPD/Piperlene/HCR from C5 s Specialty chemicals currently imported in the country 27

Initiatives Planned for Future Growth D. DEVELOPMENT OF GAS BASED PROJECTS Major transition in global landscape for petrochemical feedstock post development of shale gas and availability of cheap feedstock/fuel in US. IndianOil examining opportunities for collaboration with petrochemical players for setting up shale gas based, cost competitive Petrochemicals Complexes in US. Alternatively possibility of setting up petrochemical plant in India, on a coastal location, being explored by sourcing shale gas from USA transportation remains a concern Objective to enhance availability of low cost polymers in India 28

Imperatives for Promotion of Growth For balanced growth of Indian economy, measures need to be taken to increase the share of manufacturing in GDP to grow from current 15% to 25% by 2022. Key Commercial & Fiscal Issues VAT/GST: India has one of the highest indirect tax incidences. Indirect Tax reforms required to bring in uniformity in rates across India and also to put a check on cascading effects of existing Central and State VAT system would be imperative to support investment. Key petrochemical inputs such as Naphtha should also fall under a national level VAT/GST regime at uniform rate across states, with complete input tax credit. Duty rationalization going up the petrochemical value chain Tariff level differntials for each link of the chain should be positive. Duality in fiscal structure has resulted in a high cost economy that discourages local investment Compelling reasons to remove duty anomalies prevailing in this sector so that domestic investment becomes financially viable. FTA s De novo re-assessment to facilitate a level playing field for domestic producers 30

Imperatives for Promotion of Growth Infrastructure Critical enabler in enhancing competitiveness of industry to be able to produce and distribute goods both for the domestic market and for exports. As a result of under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13%of GDP, compared to less than 10%of GDP in almost the entire Western Europe and North America. Regulatory initiatives Mandatory standardization of products Promoting energy efficient building codes Aseptic packaging Mandatory unitized packaging of oil and other food products susceptible to adulteration Overall interest of the economy and the society. 31

Imperatives for Promotion of Growth R&D Key factor for growth of the chemical industry Typically petrochemicals being a basic chemical industry the main focus will be on Process optimization to reduce cost and Application Development to boost demand. Huge amount of effort is also needed towards energy management since energy is a significant element of conversion cost. Alternative Feedstock Production from alternate sources like coal, bio-mass etc. These alternative routes need to be explored with due incentivization from the Government. Human Resource Development Sustainable growth is not possible without trained human resource. Training measures and facilities like Centers of Excellence need to be conceptualised and implemented 32

Summary & Conclusion Significant opportunity in domestic and neighboring market Petrochemical Projects would aim to achieve competitiveness by: Leveraging existing strengths in refining, marketing & supply chain Employing state of art technologies Building world scale capacities close to low cost feedstock/ demand centres Low cost revamps/creation of grassroots integrated complexes Exploiting synergies available by integration with refineries Emphasis on C3/C4/C5 feed streams available from cracker Enter into Niche segments in specialty chemical/elastomers Development of Alternate sources of petrochemical feedstock like Coal/Petcoke gasification, MTO/MTP, Deep Catalytic Cracking etc. Explore opportunities for participation in international projects with competitive feedstock pricing IndianOil is looking for opportunities..

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