maintaining our leadership in a changing market Refining: Markets

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1 Refining: maintaining our leadership in a changing market Technip is a long-standing leader in refining. Our position on this market is based on vast and successful experience in the design and construction of refining units, with an unequalled list of references. Our capacity to manage large complex projects is also a key factor in our success. The Group has made a name for itself through the use of the most up-to-date technologies and continues to invest in Research & Development in order to maintain this competitive advantage in a challenging environment. The delivery of Dung Quat refinery in Vietnam and the on-going Jubail project in Saudi Arabia are recent examples that illustrate our leadership in this sector. Sincor refinery, Venezuela, built by Technip and started up in

2 What is refining? Refining is a complex activity through which crude oil is transformed into a large variety of products such as high added-value intermediates for the petrochemical industry, transportation fuels, heating fuels and bitumen for road construction. In our everyday lives we use so many products coming from refineries that we could not live without them! Technip s credentials in refining include: more than 50 years of experience contribution to building 4% of the world installed capacity design and construction of 30 grassroot* refineries 170 major expansion or revamp projects in 75 countries references totaling over 840 individual process units *refinery built from scratch on a new, non industrial location A refinery is an industrial plant comprised of several processing units. It costs billions of euros to engineer and build, and millions more to run and upgrade. A refinery operates 365 days a year, 24 hours a day, employs hundreds of people and occupies as much land as several hundred football fields. Large investments tied to the need for clean transportation fuels Today, there are 661 refineries operating worldwide which represent an overall processing capacity of over 87 million barrels per day. Every year the industry invests around USD 25 billion on a total of USD 58 billion for downstream Oil and Gas to build new refineries, increase the capacity of existing ones or modernize others. Technip s objective is, year after year, to get a large share of this investment in order to reinforce its leadership. Originally, refinery activity was split almost equally between requirements from heavy industry and the production of transportation fuels. Today, with the competition from nuclear, natural gas, coal and renewable energies in the power sector, the activity tends to concentrate on products for the transportation sector and the petrochemical industry. Simultaneously, environmental concerns have pushed to upgrade transportation fuel quality, a requirement that adds 15

3 complexity to the refining scheme. From very simple refining schemes a few decades ago, we have now moved to extremely sophisticated plants. A modern refinery like Jubail, the huge grassroots refinery project currently being executed by Technip in Saudi Arabia, comprises close to 30 units while a refinery in the 1970s typically had less than 10. Consumption and production patterns are dramatically changing Beyond this structural change, the sector has also seen a geographical shift in its activity over the last years. Most refinery products are liquids and relatively easy to transport, therefore, over time refineries have appeared either close to the crude oil production sites (for both local consumption or product export) or close to the end consumers. capacity and the region where most new investment has taken place. For example, Technip built the Dung Quat refinery in Vietnam, a grassroots refinery started in The situation is also changing in the Middle East, where the largest oil reserves remain. Previously companies in this region exported crude oil, but they are now building new refineries both to answer to growing domestic demand and also to export finished products. The Jubail grassroots plant is a perfect illustration of this trend. Finally, a different kind of refinery, the upgrader, has As the economic picture is changing, so is the demand for oil products and the related production pattern. Consumption in North America and Western Europe is declining slightly, while the biggest potential for growth lies in Asia Pacific and, to a lesser extent, in South America and Africa. Refining capacity is thus progressively shifting from its traditional regions to emerging economies. Driven by astonishing economic growth rates, since the late 1990s Asia Pacific has become the region with the largest installed processing 16 Technip Group s internal magazine

4 not the traditional ones for Technip, in geographical zones where the Group faces strong local competition. A highly technological and competitive environment Refining is a technological challenge because it is a complex puzzle of interconnected units that have to be efficiently linked together. These units are extremely different one from the other and use pressures that range from vacuum to over 200 bar, and temperatures from ambient to over 700 C, with a range of different materials used to withstand the corrosion of the processed fluids. A refinery also produces a wide range of products and subsequently the associated storage facilities are complex to optimize and this is another field where an engineering company like Technip brings added value. Horizon Oil Sands upgrader, Canada, built by Technip and started up in Left to right : Andrea Gragnani, Director Refining Product Line and Technologies & Antonio Di Pasquale, Vice President Refining Product Line appeared in connection with the need to process unconventional crude oils that are too viscous to transport. The objective is to transform this kind of bitumen into a synthetic crude oil that can be easily transported and processed by classic refineries. The grassroot Horizon Oil Sands complex in Canada, built by Technip and started up in 2008 is an example of this new type of refinery. In this new context Technip has to meet new expectations, gain new clients and face a different type of competition. Andrea Gragnani, Director of Technip s Refining Product Line and Technologies, emphasizes that the refining market is evolving. What is at stake is to understand how to enter markets which are Technip now has a truly worldwide footprint and network of expertise in refining The very large number of competitors on the market, all having access to technology provided by specialized licensors, makes refining a highly competitive business. It is also difficult to demonstrate our technological advantages and differentiating expertise to all types of clients, ranging from the major oil companies, to national oil companies and small private investors, each of them having their specificities and preferences. The competition in this sector is extremely tough, but Technip, with its world wide engineering network, has the skills and the experience to maintain its leading position remarks Andrea Gragnani. If Paris and Rome have been historically the Technip centers specialized in refining, the refining expertise of other centers is growing with the support from the more mature centers. Technip now has a truly worldwide footprint and network of expertise in refining that constitutes a real advantage over its competitors. Technology and R&D - Technip s assets to maintain its competitive advantage Most refining units are based on third party technologies accessible to any contractor. However, only the major engineering companies, such as Technip, have enough expertise not only to improve the licensor s design but also to assist the customer in the selection of the most appropriate technology to achieve their business objective. Furthermore, the role of an expert company like Technip is to effectively integrate the various processes in order to enable the plant to deliver the best overall performances. 17

5 Dung Quat refinery, Vietnam, built by Technip and started up in One of the winning factors for Technip is the technological skills and expertise integrated with our references as an EPC* contractor. We are able to provide an optimal product to the client, especially in the early phase of the initiative, feasible not only from the technological and economical point of view, but also from project implementation point of view remarks Antonio Di Pasquale, Technip Vice President Refining Product Line. As a consequence, we have to promote and undertake more conceptual and feasibility studies, because this is where we can be creative, it is here that there is an intellectual added value which could differentiate us from the competition. *EPC: Engineering, Procurement and Construction For this reason, Technip is more frequently involved in projects right from the feasibility stage where our experience can be used to define the optimum refinery configuration, to correctly estimate the level of investment required and to optimize utilities (power, steam, ), off-sites (ex: storage areas) and all open-art units (not protected by a license). It is important to bear in mind that at the scale of a refinery, utilities, off-sites and open-art units are typically worth more than 60% of the overall investment and are responsible for roughly 40% of the overall energy requirements. The capability to design these systems effectively (both in terms of capital cost and operating cost) has a real impact on the final product delivered to customers. This capability is one of Technip s main differentiators in the refining business. According to Andrea Gragnani, for Technip, this entails a lot of R&D concentrating on two areas: first, energy savings to reduce the impact on the environment by rendering Technip designs as efficient as possible, recuperating the hydrogen and minimizing CO2 produced by the refinery, and second, developing technologies in areas that are not covered by traditional licensors. Looking forward Refining has always been a key sector in the onshore oil and gas industry and it will remain so. To seize the related opportunities, the Group is capitalizing on its extensive experience to develop innovative approaches in the overall refining architecture and the design of open-art units, while reinforcing its role and presence in the early project phases. By continuously optimizing its strengths and capabilities, Technip will be able to maintain its position in refining and furthermore, to conquer new ground. The Leuna refinery, Germany, built by Technip and started up in Technip Group s internal magazine