Case Study and Sample Slides Pricing Intelligence Study for Liquid CO2 Gas in Select GCC Countries
Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.
©©2013 GlobalServices Services Inc., rights reserved. Privileged and confidential information of Sutherland Global 2010Sutherland Sutherland Global Inc., All All rights reserved. Privileged and confidential information of Sutherland Global Services Inc. Services Inc.
www.sutherlandglobal.com
Disclaimer
The sample contains excerpts from a study conducted by Sutherland Global Services for a client. the sample may not contain all the pages of the original document. THIS sample has been prepared by Sutherland Global Services, Inc. or its associates or affiliates (“Sutherland Global Services�) exclusively as an illustrative sample only and is sent to authorized recipients solely for the purpose of evaluating Sutherland Global Services' support service capabilities. THIS sample should not be considered as an offer to sell, a solicitation to buy, or an endorsement or recommendation of any company. Sutherland Global Services does not guarantee the accuracy, completeness or other characteristics of the data / information of the report. This Sample may not be reproduced or distributed (in whole or in part) to any third party without the express prior permission of Sutherland Global Services.
Sutherland Global Services may also have (or have had) arrangements with entities whereby Sutherland Global Services receives or is in receipt of information relating to the subject matter of this Sample that is confidential or proprietary to a third party, and hence may not be utilized. Accordingly, Sutherland Global Services may be in receipt of relevant information that is not reflected in this Sample.
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
2
Pricing Intelligence Study for Liquid LCO2 (LCO2) Gas in Select GCC Countries Client • The client is a leading industrial gas manufacturer planning to expand in select GCC countries by setting up a LCO2 manufacturing unit with recovery technology, an alternative to the conventional technology of burning hydrocarbons
Project Scope • SGS was appointed as a consultant to gain pricing intelligence for Liquid CO2 in Saudi Arabia, UAE, Oman, Kuwait and Qatar • Key objectives of the study were to size the market opportunity, identify key suppliers and their competitive landscape, key customer segments, prevailing prices as well as pricing trends, procurement and distribution practices, trends in demand and supply, upcoming capacities and trends in production technologies
Sutherland’s Solution • SGS conducted an extensive primary research across select GCC countries and interviewed more than 55 companies to unearth noteworthy insights on the pricing intelligence within the LCO2 market • Using a bottoms-up approach based on suppliers’ sales volumes and value, SGS made an estimate of the market size, which was validated from competitive intelligence data gathered on-ground. SGS researched the sector in-depth to identify key recovery plants planned and their commissioning status in the region • SGS identified key sectors with strong potential to consume LCO2 in the near future. It also validated feasibility to set up the plant in the region through the recovery production technology
• Benefits to the Client • Provided an independent third-party assessment of the expected demand for LCO2 in different GCC countries, which helped the client customize effective business development strategies • Helped validate assumptions w.r.t pricing of LCO2 including its transportation cost and provided necessary justification to adjust the considered cost in the financial model in order to precisely estimate the cost and forecast revenue of the proposed plant • Articulate competitive landscape helped the client efficiently formulate its distribution and operational strategies
© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
3
Liquid CO2 Price Built-up – Cylinder Supply (Merchants) Prices of cylinder supply are typically 100% to 150% higher than bulk supply, primarily due to high cost of transportation
Particulars
Selling Price
Cylinder
Production Cost
Saudi Arabia
UAE
Kuwait
Qatar
$610 per ton
$749 per ton
$1,065 per ton
$ 824 per ton
(Range: $480-$850 per ton)
(Range: $626-$885 per ton)
(Range: $888 -$1,598 per ton
(Range: $690-$1,100 per ton)
$110-120 per ton
Oman: $82-95 per ton
$178-213 per ton
$110-140 per ton
Cost of Transport: $100 to $250 for 50 to 100 km, for 1 ton
Cost of Transport: $100 to $250 for 50 to 100 km, for 1 ton
Cost of Transport Oman UAE: $950 to $1100 for 450 km, for 20 tons
Transportation Cost
Cost of Transport: $160 to $213 for 800 km, for 1.25 tons
Margin (%)
42-65%
20-30%
52-73%
54-72%
Diesel and Kerosene
CNG ( LCO2 produced in Oman)
Diesel and Kerosene
Diesel, LPG and Kerosene
Primary Fuel for LCO2 Production
Cost of Local Transport: $400 to $500 for 450 km, for 1.1 tons
Key Observations • Transportation cost is significantly higher in cylinder mode – a 20-ton trailer can carry to its full capacity in bulk mode while it could carry only 1-1.25 tons of cylinders (around 50 cylinders of 20 or 25 kg) in cylinder mode Source: SGS Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
4
Global Industrial Gases Market and Middle East Share The global industrial gases market is estimated at ~$65 billion in 2010, up 14% from 2009; the Middle East accounted for ~3.0% of the global share, which is expected to increase to 3.2% by 2015
Global Industrial Gases Market By Region (2010)
Middle East Industrial Gases Growth (2010-2015) Share in global industrial gases
23%
3
3 $ Billion
32%
3.2%
4
6% 3% 5%
31%
3%
2
1.68
1 Europe
North America
Asia
South America
Middle East
Other
0
Total = $65 Billion Source: Susquehanna Financial Group (Praxair Inc. Initiating Coverage Report)
2010
2015
Source: Deutsche Bank, Spiritus Consulting
Key Observations • Globally, manufacturing end-use markets make up almost one-third of industrial gases demand, with the largest sub-segment being cylinderintensive metal fabrication markets • The industrial gases market in the Middle East is currently fragmented, with a number of small- to medium-sized family-run businesses • Global majors, such as Linde and now Air Liquide, are increasingly investing in construction of projects, joint ventures and acquisition/ franchising of local firms in the region, lured by strong potential for growth Source: Deutsche Bank © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
5
Major Industrial Gases and Their Share in the Region Of the $850 million industrial gases market in the COI region, Liquid CO2 represents just 6%. The gas is primarily used in the beverage carbonation, metal fabrication, desalination and dry ice manufacturing
Major Industrial Gases Market Share in COI Region* (2010)
Nitrogen (N2)
Carbon Dioxide (CO2)
15% Ar
6% CO2
N2 70%
• • • • • • •
Markets
Source: SGS Research
Argon (Ar)
13% O2
Share in Overall Gases in GCC
Attributes
Oxygen (O2)
• •
• • • • • • • •
Electronics Chemicals Food Processing Metal Fabrication Packaging Food Freezing Oil and Gas
Inert properties Cryogenics properties
• •
• • •
Steel Chemicals Smelting Metal Fabrication Environmental Medical Fish Farming Wastewater Treatment
Reactive properties Sustaining life
• • •
Steel Metal Fabrication Lightning
• • • •
•
High temperature inert properties
• • •
Metal Fabrication Desalination Beverage Carbonation Food Freezing Dry Ice Food Processing Oil and Gas Recovery
Inert properties Solubility properties Cryogenics properties
*COI- Countries of interest, i.e. KSA, UAE, Qatar, Kuwait, & Bahrain
© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
6
Liquid CO2 Price Built-up (1/2) Liquid CO2 reaches customers through four different distribution methods having distinct pricings; weighted average price for a customer translates to $320 per ton in Saudi Arabia
Manufacturing Cost and Overheads Cost of Production
Selling Price
Margin
Cost of Transport and Filling
1
Direct supply from plant in delivery trailer Cost of Transport: $160 to $213 for 800km, for 20 tons
2
$320 per ton (Range: $270-$370 per ton)
50-68%
Direct supply from plant/filling station in bulk tanker $325 per ton (Range:$270-$470 per ton)
50-65%
Cost of Transport: $160 to $213 for 800km, for 10-20 tons
$110–120 per ton
3 Direct supply from plant/filling station in cylinder tanker $610 per ton (Range: $480-$850 per ton)
42-65%
Cost of Transport: $160 to $213 for 800km, for 1.25 tons
4
Trader supply from filling station in cylinder tanker $610 per ton
$213 – $239 per ton Trader cost price
Cost of Transport: $160 to $213 for 800km, for 1.25 tons
(Range: $480-$850 per ton)
23-56%
Source: SGS Research Min and max range numbers are the threshold (lowest and highest) prices offered in the market and their average may not necessarily yield selling price mentioned Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
7
Liquid CO2 Supply Chain in UAE Oman-based manufactures supply Liquid CO2 either directly to large beverage customers (e.g. Pepsi) or to importers of Liquid CO2 (generally large industrial gases manufacturers)
Supply Chain of Liquid CO2 in UAE Oman-based Liquid CO2 Manufacturers
UAE Importers of Liquid CO2
Customers
Large Beverage Customers Direct Supply to Large Customers Via Importers (Merchants) in UAE
Dubai Refreshment (Bottler for Pepsi)
AL Ahila Group (Bottler for Coca Cola)
Sharjah Oxygen Company
Global Gases Oman
Other Beverage Customers Emirates Industrial Gases Co. (EIGC)
Dry Ice Customers Fabrication Customers
Gulf Industrial Gases Co.
Others Key Observations • Only four industrial gas suppliers are manufacturing Liquid CO2 in Oman at present. They transport LCO2 in their own cryogenic trailers to customer locations • Manufacturers (like MHD) prioritize deliveries to the direct customers (like Pepsi) than to importers, mainly due to quantity of supply and long-standing relationships Source: Primary Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
8
Liquid CO2 Pricing Terms and Trends Prices of LCO2 have dropped considerably in past 3 to 5 years, future may see further shrink in the prices as plans for ‘recovery-based’ Liquid CO2 plants begin to firm up
Pricing Terms
Key Comments •
Nature of Contracts
Typically, the duration of a contract in the UAE is one to three years. There are two types of contracts: 1) Limited contract: These contracts are renewed in every two or three years; and 2) Unlimited contracts: These are auto renewal contracts (auto renewed in every one or two years) – Both types of contracts have price escalation clause attached for fuel price fluctuations – Also, in case prices are negotiated at extremely low levels, minimum off-take clauses do kick in. In case, such a minimum off-take does not happen, the vendors could charge rentals for the storage facilities that they may have provided to the end-customer • Frequency of the payment is quarterly most of the times. In the absence of a master contract, suppliers normally offer a credit period of 45 to 60 days. In case of a government customer, the credit period can extend till 180 days
Payment Terms
• Buyers typically give a schedule for the entire month to the supplier. The delivery lead time varies from 1 day to one week • UAE is an extremely competitive market. Discounts are given to large customers depending upon relationships and quantity of purchase
Key Comments •
•
•
Pricing Trends
Prices of LCO2 were at peak during construction boom of 2007 and 2008. Demand for industrial gases was high and the prices of LCO2 were at least 50-70% higher than the current level With economic downturn, demand for gases decreased in the construction sector and prices were down by 50-60% by 20092010. Since then prices are stable and realistic
Reduction in prices in past few years
Importers could realize significant price pressure from upcoming recovery plants in countries such as Oman, Qatar and Bahrain as their LCO2 production cost is generally 60% to 70% lower than traditional hydrocarbon plants
Likely price pressure with recovery plants planned in the region
Source: SGS Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
9
Merchant Mode – Market by Players Liquid CO2 market in Qatar is quite concentrated, with only two players holding more than 98% market share. Air Liquide JV with Qatar Petroleum named Gasal QSC is also expected to build a Liquid CO2 plant in Qatar
Installed Capacity Vs. Production Levels Percentage Production
Tons per day
Utilization
Average: 31%
Merchant Market by Players (FY 2011-12) (Tons)
100
1% 24%
40%
80
National Industrial Gas Plant
60
55%
50
Buzwair Industrial Gases
40
44%
40 16
20
13 Qatar Oxygen Company
National Industrial Gas Plant (NIGP)
Buzwair Industrial Gases Total: ~8,350 Tons
Sources: SGS Primary Research
Total: USD3.85 Mn
Sources: SGS Primary Research
Key Observations • • • • • • •
There are only two manufacturers of Liquid CO2 in Qatar, both producing LCO2 at significantly lower utilization levels (average utilization ~30%) NIGP is the market leader in the industrial gases industry (all gases combined) in Qatar. It is also a leader in Liquid CO2 supply in the country, primarily due to its old relationship with customers and its leadership position in other industrial gases (N 2 and O2) NIGP plant is the oldest LCO2 production plant in Qatar (more than 15-year old), and it runs on diesel and Kerosene. NIGP imported a second-hand LCO2 plant from India at an extremely cheap cost Buzwair Industrial Gases LCO2 plant is relatively new (only 4 years old) and manufactures LCO2 using duel fuels, i.e. LPG and NG Qatar Oxygen Company imports small quantity of LCO2 (~10-12 tons per month) either from its UAE (EIGC) or Kuwait (ROC) sister companies It is also rumored that Air Liquide’s joint venture with Qatar Petroleum named Gasal QSC is also planning to set up (40 tons per day) a Liquid CO2 plant in Qatar to supply to customers in Mesaieed and Ras Laffan industrial cities Qatar Fuel Additives Company Limited (QAFAC) is also building a LCO2 recovery plant (appointed Mitsubishi Heavy Industries (MHI) as a contractor), and it plans to recover 500 tons per day of LCO2 from the combustion exhaust gas emitted in QAFAC's methanol production process
Source: SGS Primary Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
10
Thank You
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
11