PETROCHEMICALS AND PLASTICS

PETROCHEMICALS AND PLASTICS The Saudi petrochemicals sector benefits from substantial reserves of inexpensive feedstock, government support, and an ideal location to export to European and Asian markets. Consequently, the sector has attracted a large influx of foreign direct investment and has rapidly grown its capacity, transforming the Kingdom from being a net importer to a leading exporter in the petrochemicals sector, supplying to over 100 countries. Industry analysts estimate that Saudi Arabia s total capacity will reach 100 million tons per year (t/y) by 2016, and the Saudi Government has set the target for a 10 percent global share in petrochemicals. In an effort to further diversify the economy, Saudi Arabia has placed major emphasis on developing its downstream petrochemicals capacity for plastics, fibers, automotive, and other value-added products. In 2010, Saudi Arabia s thermoplastic production capacity stood at 10.23 million tons; however, the Saudi Government has set a goal to reach 15.6 million tons by 2015. While the shift to producing intermediate petrochemicals and manufactured products is more costly, the government has identified it as a positive direction for the country s economy, as those industries are more labor intensive and would create new, high-tech jobs for the Kingdom s rapidly growing population. According to the Gulf Petrochemicals and Chemicals Association, for every direct job created in the petrochemicals industry, there are seven indirect jobs created in the downstream conversion industries and the service sector supporting it. As such, the conversion industry has become a vital part of the Kingdom s development strategy. In order to execute this strategy, the Saudi Government has undertaken substantial investments in the sector and is encouraging foreign companies to enter into joint ventures with Saudi partners. Saudi Arabia has a number of public and private mega-projects in the pipeline, with projected total investments in the sector reaching $150 billion through 2016. In the first six months of 2012, nearly $9 billion worth of contracts were awarded for the Kingdom s petrochemicals sector. The government is also working to develop plastic parks in the country in order to facilitate growth of the conversion industry. Emaar, The Economic City, the Tadawul-listed company developing King Abdullah Economic City (KAEC), has partnered with U.S. companies StrateSphere Enterprises LLC and PolymerOhio, Inc. for the development of KAEC Plastics Valley. The goal is to position KAEC Plastics Valley as a global center of excellence in the plastics sector. Most petrochemical production is based in Jubail Industrial City on the Arabian Gulf with other sites located in Yanbu on the Red Sea and Dammam in the Eastern Province. The industrial zone of Jubail, created by the Saudi Government as the Royal Commission for Jubail & Yanbu, has served to attract the majority of the Kingdom s petrochemicals investment. The Saudi Basic Industries Corporation (SABIC), the Kingdom s largest petrochemicals company, has based its operations in Jubail, and numerous private sector firms have also located their industrial operations and supporting industries in Jubail. This trend is expected to continue with the development of Jubail Industrial City II. Saudi Basic Industries Corporation (SABIC) SABIC is the dominant player in Saudi Arabia s petrochemicals industry and accounts for 95 percent of domestic petrochemicals output. With almost $90 billion in total assets, SABIC is the

largest and most profitable non-oil company in the Middle East in terms of market capitalization. It is also one of the world s top basic petrochemicals manufacturers, accounting for 7 percent of global production. SABIC is the largest producer and exporter of granular urea in the world and one of the world s top producers of olefins. In addition, the company is among global market leaders in the production of polyethylene, polypropylene, and other advanced thermoplastics, glycols, methanol, and fertilizers. It is also one of only a few companies to make all five of the most important thermoplastic resins. SABIC's business activities are organized into seven strategic business units: Chemicals, Intermediates, Polymers, Fertilizers, Specialty Products, Metals, and Innovative Plastics. The company has a total of 22 subsidiaries, which include wholly-owned, domestic joint ventures, and international joint ventures. Percent of Total Production by Business Unit (2011) 9.7 16.41 1.65 0.64 7.86 63.74 Chemicals Performance Chemicals Innovative Plastics Polymers Fertilizers Metals Source: SABIC Chemicals Chemicals account for over 60 percent of SABIC s total production by value. The chemicals that SABIC produces are organized into four categories: Olefins and gases: ethylene, propylene, butadiene, butane-1, and industrial gases like nitrogen, oxygen, and argon. Aromatics and chlor-alkali: benzene, styrene monomer, paraxylene, purified terephthalic acid, cyclohexane, ethylene dichloride, vinyl chloride monomer, and caustic soda Glycols: monoethylene glycol, diethylene glycol, and triethylene glycol Oxygenates: methanol and methyl tert-butyl ether (MTBE) The olefins and aromatics used to make polyolefins and other polymers are used in a wide range of industrial applications including paper and textile production. Glycols are used in the production of polyester fabrics and packaging materials, and oxygenates are used as solvents and to improve fuel efficiency. SABIC continues to upgrade its chemicals unit through expansion projects and developing new products. In the area of olefins and gases, SABIC increased its overall capacity when Saudi

Kayan Petrochemical Company (SAUDI KAYAN) reached commercial start-up in October 2011, bringing on an additional 77,000 tons of capacity. In the area of glycols, SABIC continues to maintain its position as the world s largest producer of ethylene glycol, producing 6.7 million metric tons in 2011. Diversifying its portfolio of oxygenates, SABIC became the world s first supplier of bio-mtbe, which is widely regarded as a second generation bio-fuel. Polymers SABIC is one of the world s leading producers of both polyethylene (PE) and polypropylene (PP), which are the two materials that account for the bulk of the company s polymer production. SABIC works closely with partners in academic institutions and converters to strengthen the company s portfolio in low density polyethylene (LDPE), high density polyethylene (HDPE), PE, polyvinyl chloride (PVC), polyethylene terephthalate (PET), and polystyrene. In 2011, the company established its SABIC-Customers Joint Development Projects, which resulted in 38 ideas being transferred to projects. Performance Chemicals SABIC has placed a heavy emphasis on developing, manufacturing, and selling products higher up the value chain. Over the next few years, the company plans to introduce over 30 new value added performance chemicals and polymers. By 2020, specialty chemical products are expected to account for around 10 percent of all SABIC s revenues. The products will span a range of business sectors from personal care to automotive, electronics to building and construction, and aviation to sustainable energy. In 2012, for the first time, most products will be manufactured in the Middle East. SABIC s strategic priority on the development of performance chemicals supports the grand-scale effort of the Saudi Government to bolster the Kingdom s downstream development activities for high performance chemical products. Below is a listing of the major projects in SABIC s portfolio: Saudi Kayan Petrochemical Company (SAUDI KAYAN) The Saudi Kayan Petrochemical Company (SAUDI KAYAN), a joint venture among SABIC, Al Kayan Petrochemical Company, and private investors, is developing a $12.5 billion petrochemicals complex in Jubail Industrial City that will have a production capacity of 1.35 million t/y of ethylene and 2.6 million t/y of finished products including PE, PP, ethylene glycol, polycarbonates, and amines. The overall project, expected to be completed in 2013, includes construction of an ethylene cracker, a polycarbonate plant, a phenolix complex, offsite facilities and utilities, a PP plant, a LDPE plant, an HDPE plant, an amines complex, and a natural alcohol detergent plant. Fluor Corporation won the project management contractor (PMC) and front-end engineering and design (FEED) contracts for the entire complex. The complex will produce a total of 5.6 million t/y of petrochemicals products, many of which will be produced in the Gulf region for the first time. Some of these chemicals include: aminoethanols, aminomethyls, dimethylformamide, choline chloride, dimethylethanol, dimethylethanolamine, ethoxylates, phenol, cumene, and polycarbonate. In February 2012, SAUDI KAYAN shipped its first consignment of ethanolamines and ethoxylates from its manufacturing plant, making Saudi Arabia the first ever country in the Middle East to produce and market these advanced products.

Al-Jubail Petrochemical Company (KEMYA) Al-Jubail Petrochemical Company (KEMYA), a 50:50 joint venture between SABIC and Exxon Mobil Corporation, is building a $3.6 billion elastomers plant at the company s site in Jubail Industrial City. When complete in 2015, the plant will produce 400,000 t/y of poly-butadiene rubber, ethylene propylene diene monomer, thermoplastic elastomer, butyl rubber, and carbon black units. The seven packages for the project include: a methyl tertiary butyl ether plant, a halobutyl rubber plant, a vocational training center, a product application development and support center, and offsites and utilities including a tank farm. Saudi Japanese Acrylonitrile Company (SHROUQ) In April 2011, SABIC and Japanese companies Asahi Kasei Chemicals Corporation and Mitsubishi Corporation formed the joint venture Saudi Japanese Acrylonitrile Company (SHROUQ), which will be located in Jubail Industrial City. SHROUQ will build a facility to manufacture acrylonitrile (AN) and sodium cyanide (NaCN), with subsequent sales and distribution to be carried out by the partners. Scheduled to be completed in 2015, the world-scale plants will have capacities of 200,000 metric tons annually of AN and 40,000 metric tons annually of NaCN. National Methanol Company (IBN SINA) The National Methanol Company (IBN SINA) is a joint venture among SABIC and U.S. companies Celanese Corporation and Duke Energy Corporation that currently manufactures 1 million t/y of methanol and 1 million t/y of MTBE. The company plans to build a 50,000 t/y polyacetal (POM) facility in Jubail Industrial City. WorleyParsons completed the FEED study for the project in August 2011. IBN SINA invited bids for the $400 million engineering, procurement, and construction (EPC) contract in August 2012. The final project is expected to be completed in 2015. Arabian Industrial Fibers Company (IBN RUSHD) Arabian Industrial Fibers Company (IBN RUSHD) is a publicly listed company with the majority of shares held by SABIC. The company is in the midst of executing an expansion project at its Yanbu petrochemicals complex. The project includes three plant expansion packages for purified terephthalic acid (PTA), polyethylene terephthalate (PET), and aromatics. When fully complete in 2014, the projects will add an additional capacity of 350,000 t/y of PTA, 370,000 t/y or PET, and 250,000 t/y of aromatics. Carbon Fiber Plant SABIC plans to build a carbon fiber plant next to Mitsubishi's methyl methacrylate monomer plant in Saudi Arabia. The plant is expected to have a production capacity of 2000-2,700 t/y of carbon fiber. SABIC signed a technology agreement with Italian company Montefibre to independently make and sell carbon fiber. The $120 million project is expected to be completed in 2015. Innovative Plastics SABIC is the Kingdom s main source of raw materials for the numerous national and international chemical and plastics processing facilities. The company began producing plastic resins in 1987, but made a massive expansion in the area of thermoplastics and engineering

plastics in 2007, when SABIC purchased for $11.6 billion GE Plastics, now known as SABIC Innovative Plastics. The unit now has an industry-leading portfolio of approximately 30,000 thermoplastic resins, specialty compounds, film and sheet products, additives, and intermediates and coatings that serve the automotive, electronics, transportation, healthcare, lighting, construction sectors, and more. SABIC Innovative Plastics has multiple facilities in the U.S., Saudi Arabia, and around the world. In the U.S., the company recently opened a specialty PP compounding operation in St. Louis, Missouri and a new pilot facility in Mt. Vernon, Indiana. The company continues to expand globally with significant developments in China. In April 2012, the company announced plans for a $100 million investment to build a 191,400 square-yard (60,000 square-meter) technology center in Kangqiao, east of Shanghai, China. The center will house 400 commercial and corporate function employees, as well as over 200 scientists and engineers for the research and development team. The center will focus on advanced engineering plastics materials that can be used in a broad array of industries from automotive, personal electronics, information technology, alternative energy, building and constructions to infrastructures. A key feature of the center includes the China Automotive Innovation Hub to drive next generation materials solutions. The facility will be complete in 2013. Fertilizers The petrochemical industry has served as a major catalyst for the development of fertilizer products, including ammonia, urea, phosphate, and compound and liquid fertilizers. SABIC is one of the leading global fertilizer producers with over 6.7 million tons per annum of gross production capacity. SABIC produces a wide-ranging portfolio of fertilizers such as urea, ammonia, and phosphate, from its three affiliates: Saudi Arabian Fertilizers Company (SAFCO), the National Chemical Fertilizer Company (IBN Al-BAYTAR), and the Al-Jubail Fertilizer Company (Al-BAYRONI). Al-BAYRONI is currently implementing an energy optimization project, which will be complete in 2013, for its existing plant in Jubail. In June 2012, SAFCO began construction on its fifth urea plant to be located on the company s complex. The stand-alone plant will convert 93,695 t/y of carbon dioxide greenhouse gas into valuable fertilizer, qualifying SAFCO for global Clean Development Mechanism certification and credits. Scheduled to begin full production in 2014, SAFCO s new urea plant will be one of the largest in the world, producing a total of 1.2 million t/y. Saudi Aramco Saudi Aramco, the Kingdom s national oil company, has emerged a major player in the global petrochemicals market through its strategic development of integrated refining and petrochemicals complexes. By 2020, Saudi Aramco aims to be the world s leading integrated energy and chemicals company, focused on maximizing income, facilitating the sustainable and diversified expansion of the Kingdom s economy, and enabling a globally competitive and vibrant Saudi energy sector. Below is an overview of Saudi Aramco s major developments in petrochemicals in the Kingdom: Sadara Chemical Company

Sadara Chemical Company, a joint venture between Saudi Aramco and The Dow Chemical Company, was formally announced in July 2011. The joint venture will build and operate a planned $20 billion petrochemicals complex in Jubail Industrial City that will comprise 26 world-scale projects including an ethane/naphtha steam cracker; aniline-formalin and DNT-nitric facilities; hydrogen, carbon monoxide, and ammonia plants; and toluene diisocyanate (TDI) and polymeric methylene diphenyl diisocyanate (PMD) sites. Once initial production begins in the second quarter of 2015, the facility will manufacture 1.3 million metric t/y of ethylene and 400,000 t/y of propylene. The project will be one of the largest integrated petrochemicals plants in the world, and the largest ever built in a single stage. The joint venture partners expect the complex to create $10 billion in revenue over the first few years of operation. Rabigh Refining and Petrochemical Company (Petro-Rabigh) Rabigh Refining and Petrochemical Company (Petro-Rabigh) was established in 2005 as a joint venture between Saudi Aramco and Sumitomo Chemical to construct an integrated refining and petrochemical complex 102.53 miles (165 kilometers) north of Jeddah. The $10.1 billion complex, completed in 2008, comprises 23 state-of-the-art plants that have the capacity to annually produce 18.4 million tons of petroleum-based products and 2.4 million tons of ethylene and propylene-based derivatives. The second phase of the venture, Petro Rabigh Phase II, will expand the existing ethane cracker and add a new aromatics complex that will use around 3 million tons per year of naphtha to make higher-value petrochemical products, many of which are new to the Kingdom. Petro-Rabigh Phase II is estimated to be worth a total of $7 billion. Developments in the Private Sector In addition to SABIC and Saudi Aramco, the private sector has also played a significant role in the development of Saudi Arabia s petrochemicals and plastics industry. There are more than 20 independent companies operating in the Kingdom with a combination of Saudi and foreignowned entities, many of which are from the U.S. The following is an overview of the top privatesector companies in the sector and their major projects currently underway: The National Petrochemical Industrialization Company (TASNEE) The National Petrochemical Industrialization Company (TASNEE) was created in 1985 by a group of Saudi investors with the goal of participating in numerous large-scale industrial projects in various industrial sectors. Today, the company has grown to be the second largest industrial and petrochemicals company in Saudi Arabia, as well as the world s second largest producer of titanium dioxide. The company has over 10 subsidiaries in the petrochemicals sector including Saudi Polyolefins Company, a joint venture with U.S. company LyondellBasell and Rowad National Plastic Company, one of the largest plastic sheet factories in Saudi Arabia. TASNEE has several major projects coming online through 2014. The Saudi Acrylic Acid Company (SAAC), a publicly-listed company with shareholders that include TASNEE, Sahara Petrochemical Company, The Dow Chemical Company, and Evonik Industries, is building an acrylic acid plant in Jubail Industrial City. The contractor for the $2

billion project is a joint venture between Linde Arabian Contracting Company and Samsung Saudi Arabia Company Limited. When completed in 2013, the plant will produce 230,000 t/y of acrylic acid and derivatives. The Advanced Polyol Manufacturing Company, TASNEE s joint venture with the Saudi Advanced Industries Company (SAIC), plans to construct a $123 million polyether polyol plant within the industrial area of Petro Rabigh. When complete in 2014, the plant will produce 125,000 t/y of polyol. The FEED study contract was awarded to Jacobs Engineering in January 2012. Zamil Group Holding Zamil Group Holding, founded in the 1930s, is a global investment company with diverse interests and capabilities. The company is a major shareholder in many of the largest independent petrochemicals companies operating in the Kingdom, including: the Saudi International Petrochemical Company (Sipchem), Sahara Petrochemical Company, and Arabian Amines Company (AAC). An equal joint venture between Zamil Group Holding and U.S. company Huntsman Corporation, AAC was established in 2006 and produces 27,215 t/y of ethyleneamine. Located in Jubail Industrial City, the company is currently working to construct a morpholine and diglycolamine facility that is scheduled to be completed in 2014. Jacobs Engineering Group Inc. was the FEED study consultant. Sipchem is a publicly listed company whose major shareholders include Zamil Group Holding and Olayan Financing Company. Sipchem is currently executing phase three of its $7 billion Jubail Polyolefins Complex with the assistance of WorleyParsons. Upon completion in late 2013, the fully-integrated complex will comprise 16 plants, including an olefins cracker for producing ethylene and propylene, and other downstream operations producing 800,000 t/y of a variety of petrochemicals, including LDPE, HDPE, ammonia, acrylonitrile, methyl methacrylate, ethyl acetate, and ethylene vinyl acetate. In April 2011, Sipchem and South Korea s Hanwha Chemical signed an agreement to create an equally owned joint venture to produce special compounds for the wire and cable industry. The joint venture, Wire and Cable Polymers Compounding Company, will invest $60 million in a compounding plant at Sipchem s Jubail complex with a completion target for 2013. The products will be used to make power cable insulation materials and will be marketed by the company in the Middle East and Europe. Arabian Chevron Phillips Petrochemical Company Limited (ACP) Arabian Chevron Phillips Petrochemical Company Limited (ACP), a wholly-owned subsidiary of Chevron Phillips Chemical Company LLC, has partnered with the Saudi Industrial Investment Group (SIIG) on four petrochemicals joint ventures: Saudi Chevron Phillips (benzene and cyclohexane), Jubail Chevron Phillips (styrene), Saudi Polymers Company (polyolefins), and Petrochemical Conversion Company (nylon 6,6).

Saudi Polymers Company is a joint venture between ACP and the National Petrochemical Company (PETROCHEM), a joint stock company of SIIG. In 2012, the joint venture launched a $5.8 billion petrochemicals complex located in Jubail Industrial City that produces 1.7 million t/y of ethylene, 550,000 t/y each of high and low density polyethylene, 400,000 t/y of PP, 200,000 t/y of polystyrene, and 100,000 t/y of hexane-1. The latest joint venture project between ACP and SIIG is the construction of a $500 million polyamide 6,6 manufacturing plant and a number of polymer conversion projects in Jubail Industrial City. When completed in 2013, the plant will produce 50,000 t/y of nylon, 20,000 t/y of compounded nylon, and 120,000 t/y of converted products. The polymer conversion projects are expected to include high-performance polyethylene pipe, irrigation products, medical disposables, complex caps and closures, pharmaceutical packaging products, polyamide 6,6 compounding, electrical fittings and automotive parts. In December 2010, Jacobs Engineering signed the EPC contract for the plant.