Analysis Glossary

The capital cost is the summation of the ISBL and OSBL capital costs and represents our best estimate of the current capital outlay required to build the plant.

Co-product streams from crackers can be routed back through the cracker with the cracker feedstock (e.g. naphtha) and co-cracked with the cracker feedstock. This is usually done if there is no alternative use for the co-product or if the cracker feedstock cost is high. Co-products treated in this way are given a "co-crack" value; that is, its value to the cracker as a feedstock as opposed to a market value.

Nexant uses the term "Current Monetary Basis" to describe prices and costs in money of the day, i.e. as published at the time being considered. This is also referred to as a "nominal basis". Current money ignores the value eroding effect of inflation which makes US$1 in 2010 being worth less on a purchasing basis than US$1 in 1990. Nexant also presents results on a "Constant Monetary Basis"; this uses the US GDP Deflator to convert published nominal values in "real" values thereby allowing more direct comparisons of costs and prices across decades.

Direct fixed costs are the fixed costs that are directly related to the process operation. These include the wages and salary burden for all staff directly involved in plant operation, along with an average annualised maintenance charge.

Dubai crude oil is a medium sour crude produced from the Fateh Field in Dubai. Although declining in production it is still used as a benchmark crude in for price setting. Due to its physical location Dubai Crude is shipped to Asia rather than being consumed in Western Europe or the United States. Its heavier composition and high sulphur content mean it is less favourable for the production of gasoline than Brent or WTI crudes.

Nexant models consumption in two distinct ways; Firstly by consumption as feedstock for making petrochemicals, and secondly as an "end-use". This second form of demand models the consumption of a product in the wider economy as distinct from use as a petrochemical intermediate. End-Use consumption is modelled using a combination of multipliers on key economic indices along with a penetration effect. Nexant aggregates these End-Uses into one "End-Use" when displaying a regional total as the End-Use sectors modelled in each country within a given region can vary.

We refer to Financing in our capacity analysis to ensure that any planned new capacity has a source of funds to finance the construction of the new unit. This financing can be from the owners, from banks or from Government sources.

The fixed costs presented here are those directly involved in running the plant and supporting the business that sells product from the plant. It is calculated as a summation of the Direct (plant costs) and Allocated Costs (business costs) as is presented per unit of main product. Fixed Costs do not include any allowance for corporate costs.

The freight charge covers the cost for marketing and moving the product from the plant to the point of sale. This point of sale is dependent on the price quotation; common basis include FOB (Free On Board), CFR (Carriage and Freight) and FD (Free Delivered) reflecting increasing cost to the producer as he incurs cost moving product to the delivery point. This cost includes any fixed costs associated with warehousing.

The growth index is a data series defined to best represent the economic drivers for the consumption growth of a product in a particular sector. The growth index is based on varying proportions of different indices such as GDP, population and industrial production etc as appropriate for each product sector.

During the economic life cycle, there are likely to be periods where producers are found building stocks and those where stock reduction is occurring. Our end-use Consumption analysis seeks to quantify the degree of inventory build through a correlation with the rate of change of economic growth in a given region. The analysis then uses a multiplier to calculate the inventory effects as economic activity changes in the region

A leader plant is a hypothetical unit chosen to be representative of plant that are in the most competitive 10-15 percent of installed capacity ranked by cost in a given region (excluding plants known to have unusual economic advantage). The definition includes all parameters relating to the techno-economics of a plant. The leader plant is not intended to represent any specific unit in that region.

Maintenance is an annualised average charge to cover both day to day maintenance costs as well as a charge for 3-5 year plant turnaround maintenance.

The netback is the sales realisation achieved by the producer after allowance is made for freight costs from the chosen point(s) of sale.

Operating rate is calculated by dividing production by capacity for a given product in a given region. This is a key feature in determining profitability for a given product.

Penetration effect is a mathematical methodology used to model the market effects of how demand growth in a given sector matures over time. As one of the three elements of our End-Use Consumption analysis, the penetration effect uses a time dependant function which recognises product life cycle effect and the impact on the growth in demand for a product. A typical sector will experience a demand enhancement once it has established a new end-use. This enhancement is lost as the product approaches its equilibrium market share in the sector and can subsequently become a negative contributor to growth if new products are introduced into the sector. The penetration factor therefore determines the relation to the chosen growth index over time.

A process type is a term given to a grouping of similar processes.

The return on replacement capital is calculated by comparing the annualised revenue (cash margin less depreciation) with the total capital cost of the plant (ISBL + OSBL). This calculation is termed on replacement capital as it uses the current estimated capital cost as the divisor. Actual plants in a region will have been built at an earlier date, at potentially a lower capital cost.

Speculative capacity is our estimate of any additional annualised net capacity additions that are likely in each region. This speculative capacity includes both new plant construction and expansions on existing units, and can also include the predicted closure of existing capacity.

A steam cracker is a fundamental process in the petrochemical industry providing a key linkage between refined products and petrochemical intermediates. The Steam Cracker uses a pyrolysis process to partially decompose hydro-carbon feeds, with steam acting as a diluent. The main product from a stream cracker is ethylene, however propylene and to a lesser extent benzene and butadiene are also produced in commercial quantities. Hydro-carbon feed varies by region, with ethane being the feed of choice where available, and naphtha popular in regions with developed refining facilities.

Technical support costs are service costs associated with promoting and supporting technical grades. These costs are particularly applicable to polymer production to allow the producer to fine tune his production to the needs of his customers.

We refer to metric tons when we use the term "tons" in our reports. This mass is equivalent to 2204.6 pounds.

A plant is considered as being under construction once ground has been broken for civil works on a site. This classification can be reviewed if activity is reported to have been halted at the site.

Utilities lists the separate utility services that are needed to balance the energy requirements of the process. Some petrochemical reactions produce significant amounts of energy. Such processes will commonly show a negative steam mass flow per ton of main product, indicating that steam is produced by the reaction.

The Variable Cost of production is calculated here as the net cost of all materials (feedstocks less co-products) plus utility costs associated with the plant operation, and are presented per ton of main product. Sales realisation of the main product are not included in the variable cost calculation.