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Asia and US Olefins outlook - 2014

Max Yong6-7th March 2014Tokyo Prince Hotel

Asia Pacific Ethylene S-D Balance

Unit : Thousand mt

2008 2009 2010 2011 2012 2013

China (878) (1,046) (402) (1,060) (1,422) (1,547)

Japan 32 449 333 501 567 596

South Korea 635 612 313 586 902 1,092

Taiwan (315) (264) (228) (254) (193) (150)

Indonesia (397) (694) (590) (582) (442) (452)

Malaysia 244 184 81 115 99 122

Philippines (60) (67) (115) (147) (191) (109)

Singapore 54 178 200 194 132 151

Thailand (290) (135) (111) 2 42 13

India (120) 55 (151) (194) (48) (72)

Australia (12) (2) (5) 0 0 0

Other Asia 0 (12) (40) (57) (57) (76)

Total Asia Pacific (1,107) (742) (715) (896) (611) (432)

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• In general, Asia Pacific region is a net importer of ethylene.• China, Indonesia, Taiwan, and the Philippines are major importing countries.• South Korea, Japan, Malaysia, and Singapore are major exporting countries.

Source: Nexant / Platts

Ethylene nearing 6 year high (CFR China)

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$1,695/mt

$385/mt

$1,345/mt

$850/mt

$1,392/mt

$1,005/mt

$1,403/mt

$885/mt

$1,162/mt

$1,510/mt

Nearing 6 year high

NEA vs SEA ethylene

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Propylene Prices 2010-2013 (CFR China)

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Propylene price for CFR China higher than CFR SEA

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China propylene balance 2002-2012

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PDH Plant expansions in China

Unit : KMT/year

No. Company Location Process C3 CapacityProposed Startup

1 Tianjin Bohai Chemical TianjinCB&I Lummus, Catofin

technology 600 Sep-13

2Ningbo Haiyue New Material Co.

Limited Ningbo, ZhejiangCB&I Lummus, Catofin

technology 600 1H 2014

*3 Zhejiang Satellite Petrochemical Co. Pinghu, Zhejiang UOP process 450 1H 2014

4Shaoxing San Yuan Petrochemical

Company Shaoxing, Zhejiang UOP process 450 1H 2014

*5Zhangjiagang Yangzijiang

Petrochemical Zhangjiagang, Jiangsu UOP process 600 1H 2014

6 Yantai Wanhua Polyurethanes Yantai, Shandong UOP process 750 1H 2015

7 Fujian Meide Fuzhou, Fujian UOP process 660 2H 2015

8 Haiwei Group Hengshui, Hebei 500 2015

9 Jiangsu Haili Chemical Co Dafeng, Jiangsu 600 2016

10Zhangjiagang Yangzijiang

Petrochemical Zhangjiagang, Jiangsu 600 2016

11 Zhejiang Satellite Petrochemical Co. Pinghu, Zhejiang 600 2017

Total 6,410

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NOTE : There are a few new projects (with more than 2.0 million metric tons of C3 capacity) which are still under planning stage, and will be updated once we have further information.Source: Platts

CTO/MTO Plants

S/N Company Location - Province Location - city Type

Methanol

Capacity

Ethylene

Capacity PE capacity PP capacity start-up year

Olefin

Capacity

1 Shenhua Baotou Inner Mongolia Baotou CTO 1,800,000 300,000 300,000 300,000 2011 600,000

2 Shaanxi Yanchang Coal Yulin Energy and Chemical Shaanxi Yulin CTO 1,800,000 300,000 300,000 300,000 2014 600,000

3 Shaanxi Puchang Engergy Shaanxi Pucheng CTO 1,800,000 300,000 300,000 400,000 2015 700,000

4 Qinghai Yanhu Industry Group Qinghai Haixi CTO 1,000,000 150,000 150,000 150000 2016 300,000

5 Ningxia Baofeng Energy Group Ningxia Yinchuan CTO 1,800,000 300,000 300000 300,000 2015 600,000

6 Huahong Huijin Gansu Pingliang CTO 1,800,000 300,000 300,000 300,000 2017 600,000

7 Shenhua Group Xinjiang Urumuqi CTO 1,800,000 300,000 300,000 380,000 2017 680,000

8 Inner Mongolia Mengda New Energy Chemical Industry Inner Mongolia Ordos CTO 1,800,000 300,000 300,000 300,000 2017 600,000

9 China Coal Shaanxi Yulin CTO 1,800,000 300,000 300,000 300,000 2017 600,000

10 Sinopec/Wanbei Coal-electricity Group (zhong an mei hua) Anhui Huainan CTO 1,700,000 300,000 300,000 300,000 2014 600,000

11 Guodian/Sinopec Ningxia Ningxia Ningdong CTO 1,350,000 225,000 225,000 225,000 2017 450,000

12 Zhongtian Huchuang Inner Mongolia Ordos CTO 1,800,000 300,000 300,000 300,000 2018 600,000

13 Sinopec/ Guizhou Zhijin Guizhou Zhijin CTO 1,800,000 300,000 300,000 300,000 2018 600,000

14 Sinopec/Henan Coal Chemical Gruop Henan Hebi CTO 1,800,000 300,000 300,000 300,000 2018 600,000

15 ph1- Shenhua Group/Dow Chemical Shaanxi Yulin CTO 1,650,000 300,000 300000 300000 2017 600,000

16 ph2- Shenhua Group/Dow Chemical Shaanxi Yulin CTO 1,670,000 310,000 310000 310000 2019 620,000

17 China Power Investment Cor / Total Inner Mongolia ordos CTO 1,800,000 300,000 300,000 300,000 2019 600,000

18 Sinopec Zhongyuan Henan Fuyang MTO 100,000 100,000 100,000 2011 200,000

19 Heyuan Chemical Zhejiang Ningbo MTO 200,000 200,000 400,000 2013 600,000

20 Huisheng Energy Jiangsu Nanjing MTO 135,000 135,000 160,000 2013 300,000

21 Sanjiang Chemical (xingxing) Zhejiang Jiaxing MTO 300,000 300,000 300,000 2015 600,000

22 Fude Engergy Jiangsu Changzhou MTO 500,000 500,000 500,000 2015 1,000,000

23 Jiangsu Shenghong Jiangsu Lianyungang MTO 200,000 200,000 200,000 2015 400,000

Total 28,970,000 6,320,000 6,320,000 6,725,000 13,050,000

9Estimated new ethylene capacity would be is 6.3 mil tons, and new propylene capacity is 6.7 mil tons. Source: Platts

Key issues about CTO/MTO

• The new CTO/MTO projects will displace some of the monomers and polymers’ import (especially PP).

• Besides those listed ones, there will not be any dramatic plans or approval for further new CTO/MTO at this moment.

• China will support coal chemical industry as they target to rely less on oil.

• The new technologies for MTO/CTO are likely to reduce water consumption and CO2 emission.

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Ethane prices expected to stay low in US

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Source: BentekSource: Platts

• Shale gas plays in the US have caused ethane prices to fall to lows not seen in more than a decade.

• Those low ethane prices have caused upwards of 10 new cracker projects to be announced or considered in North America.

• Ethane prices, assuming six new world-scale crackers are built in the US, are expected to stay near or below 50 cents through 2023.

• As more new crackers are announced, though, the ethane price forecast should shift higher, capping new cracker builds at or new 10 units.

US ethylene production to climb through 2020

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Source: Platts Source: Platts

• New cracker announcements are expected to add an additional 10 million metric tons of ethylene production each year in the United States.

• As US crackers consume more ethane, co-products such as propylene and butadiene are expected to see production rates fall.

• US propylene produced from the cracker could fall 10% during the next two years as heavier feedstocks are replaced by ethane.

• By 2018 and 2019, though, propylene production will increase again, nearly reaching pre-shale gas levels, as six to 10 new crackers come online.

US propane balance

-250

-200

-150

-100

-50

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mb

/d

Net Propane Exports

Net Propane Exports

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Source: BENTEK

PDH growth to offset any propylene from crackers or refineries

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Source: Platts Source: Platts

• To account for the reduction in propylene production from crackers, nearly 4 million metric tons of PDH capacity has been announced in North America.

• The PDH production will more than replace any capacity lost from lighter feedstocks in the cracker.

• One uncertainty is the amount of propylene expected from refineries. Shale gas plays have found lighter crude oil, which could yield less propylene.

• No drop off in US refinery produced propylene has been seen during the past five years.

• Even assuming an annual 5% drop off in propylene production from refineries, the announced PDH units will more than account for the lost production.

On-purpose butadiene could offset some cuts from cracker production

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Source: Platts Source: Platts

• In the short-term, production of butadiene and crude C4 from crackers in the US is expected to drop off because of lighter feedstock usage.

• Butadiene production is expected to fall to 1.2 million metric tons by 2015, down about 150,000 metric tons from 2011.

• By 2023, though, butadiene production from US crackers will climb to more than 1.4 million metric tons, up nearly 100,000 mt from 2011.

• The gains can be attributed to the addition of six or more crackers in the US by 2017.

• TPC is planning an on-purpose butadiene unit, which would add an additional 270,000 mt of butadiene capacity to the US market.

US Petchem Feedstock Exports to Increase

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Source: Bentek

Company State Capacity In-Service Date

Existing LPG Export Terminals 367

Enterprise TX 130 NA

Enterprise Expansion II TX 120 2013

Galena Park TX 40 NA

Galena Park Expansion Phase I TX 60 2013

Marcus Hook PA 17 NA

Brownfield Expansions 247

Enterprise Expansion II TX 50 2015

Galena Park Expansion Phase II TX 67 2014

Marcus Hook Expansion I PA 65 2014

Marcus Hook Expansion II PA 65 2015

Greenfield -- New Builds 717

Enterprise II TX or LA 200 2015

Moss Lake LA 167 2015

Oxy TX 150 2015

Mariner South TX 200 2015

CrossTex LA NA 2015

• Even with six or more new world-scale crackers, planned PDH additions and on-purpose butadiene production, the US will still see a large increase in the amount of petrochemical feedstocks being exported.

• Propane will see the largest increase, climbing from just over 100 Mb/d in 2011 to more than 600 Mb/d in 2023.

• Natural gasoline also will see a large increase in exports, but primarily to Canada, where it will be used as diluent for tar sands.

Summary

• North America is currently the largest propane producer in the world. Production has started to rise due to the effects of shale gas production.

• Middle East continue to dominate the olefins and polyolefins industry in the short-mid term.

• New PDH and MTO/CTO projects in China will add propylene capacities in Asia, and pressure on propylene price. Such projects will replace old plants’ capacities, as well as imports.

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Thank you!

Max Yong

Senior Analyst,

Asia Petrochemicals

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