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Asia Chemical Conference

© 2016 IHS Markit

Steve Lewandowski, Vice President, +1281 752 3230, [email protected]

Ethylene - Global

November 2016

mailto:[email protected]

© 2016 IHS Markit

Ethylene Market: Key Issues • Ethylene capacity additions globally outpace

demand growth in updated forecast (2016/18); but, a demand surge or supply constraint (project start up delays) could leave markets short.

• “Unconventional” sources (CTO, MTO) will add more capacity; steam crackers fed by: ethane, LPG, and naphtha, will continue to drive competitive economics.

• Naphtha crackers required to balance demand swings; weak propylene markets (increasing cash cost) will support higher ethylene prices to keep these assets in the black.

• North America ethylene integrated margins are lower (still profitable) despite new capacity coming on stream.

Asia Chemical Conference / November 2016

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© 2016 IHS Markit

Capacity, Demand, and Operating Rates


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© 2016 IHS Markit

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 % N

on

Ste

am

Cra

cker

N. America S. America CIS & Baltics

W. Europe C. Europe SE Asia

NE Asia Indian Subc. Middle East

Africa Total Capacity Percent from Non Steam Cracker

16-pt - IHS clustered column - 2016

© 2016 IHS Source: IHS

World: Ethylene Production by Region

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Millio

n M

etr

ic T

on

s


Global Ethylene Supply Four Main production regions. Non-Traditional Sources on the rise

© 2016 IHS Markit

Ethylene Capacity Additions Delayed and Reduced Capacity Does Not Equal Supply, inferring margins via these trends is risky.


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-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

North America West EuropeMiddle East AsiaOthers Annual Demand Increase

Global Ethylene Capacity Additions vs. Demand

© 2016 IHS

Millio

n M

etr

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on

s

Source: IHS

© 2016 IHS Markit

Ethylene Supply by Feed Type Volumes by type Up Across the Board driven by ethane and other (CTO/MTO)


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Ethane 36.3%

LPG 14.8%

Other 6.4%

Naphtha 42.6%

2016

© 2016 IHS

Notes: Production = 146,093 Thousand Metric Tons

Source: IHS

Ethane 40.1%

LPG 13.3%

Other 8.6%

Naphtha 38.0%

2021

© 2016 IHS

Notes: Production = 174,663 Thousand Metric Tons

Source: IHS

KTA, ethylene 2016 2021 %AAGR

Naphtha 62,182 66,289 1.3%

Ethane 52,977 69,959 5.7%

LPG 21,610 23,311 1.5%

Other 9,325 15,104 10.1%

© 2016 IHS Markit

Global Ethylene NAMEPLATE Capacity Operating Rates 2015 Peak Not Seen Since Early 2000’s, Outlook Stronger, effective operating rates are high – are they sustainable at this level? No spare capacity as seen pre 2013 to absorb project delays.


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77

79

81

83

85

87

89

91

93

95

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Global Op Rate Global Op Rate (Steam Cracker)NEA Op Rate WEP Op RateNAM Op Rate

Global Ethylene Operating Rates

© 2016 IHS

Perc

en

t

Source: IHS

© 2016 IHS Markit

Increasing Complexity In The Ethylene Value Chain Emerging changes in ethylene supply drivers and demand drivers make modeling the ethylene supply/demand balance more complex


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Ethylene Coal to MEG (skipping EO)

Coal to VCM (skipping EDC)

Demand Shocks (GDP related) or Demand Shifts (product substitution related)

Polyolefins Recycle, PE/PVC/PET

Co-product impact: On purpose propylene via PDH, metathesis, coal,

methanol

Coal to olefins

Gas to methanol

Supply/Demand from traditional feeds (NGL’s and Naphtha): feed switches and capacity / production impact

Catalytic from Methane: add-on versus new world scale

Methanol to olefins

© 2016 IHS Markit

Yields and Recycles So why can’t I just switch from Heavy Naphtha to lighter feeds?


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0%

50%

100%

150%

200%

250%

300%

Propane

Yields and Recycles(Compared to Full Range Naphtha Feed @ 100%)

Perc

en

t


© 2016 IHS Markit

China Cracker Feed Slate 19 MMTA of total ethylene production from crackers ~90% naphtha plus


10

0%

20%

40%

60%

80%

100%

2016 2017 2018

Ethane Propane Butane Naphtha Gas Oil

China Cracker Feed Slate

© 2016 IHS

Perc

en

t

Source: IHS

• 15% swap to propane like WEP, with a C3 recovery limit

• Could be a loss of up to 1.5 MMTA of ethylene production capability

• Or about 1% of global nameplate capacity reduction.

© 2016 IHS Markit

0

100

200

300

400

500

600

700

800

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Int CTO Margins CTO Margins

Integrated & Non-Integrated Margins

© 2016 IHS

Do

llars

Per

Metr

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on

Source: IHS

Coal to Olefins / Poly-olefins Outlook on Margins Positive margins for all of the coal to olefins units


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© 2016 IHS Markit

Merchant Methanol to olefins and derivatives outlook on Margins Will these assets run with negative margins? Product slate for ethylene less PE driven more MEG/vinyls driven. Propylene slate better aligned with global average


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-200

-100

0

100

200

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Int MTO Margins MTO Margins

Integrated & Non-Integrated Margins

© 2016 IHS

Do

llars

Per

Metr

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on

Source: IHS

© 2016 IHS Markit

MTO/CTO Ethylene Derivatives CTO is PE based, MTO more non-PE builds (merchant linked to EO/EB/PE)


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Merchant 20%

EDC 10%

Ethylene

Oxide 27%

HDPE 43%

MTO-Ethylene Derivative


EDC 4%

HDPE 96%

CTO- Ethylene Derivatives


© 2016 IHS Markit

Back to Ethylene


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© 2016 IHS Markit

Propylene Market View Propylene to Ethylene Price Ratios, big impact on cash costs – Asia and West Europe below recent history, North America may have bottomed out? But NAM an ethylene story.


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0.5

0.7

0.9

1.1

1.3

1.5

0.5

0.7

0.9

1.1

1.3

1.5

00 03 06 09 12 15 18 21

Ratio

Southeast Asia North America West Europe

Propylene to Ethylene Price Ratio

Source: IHS © 2016 IHS

Rati

o

Rati

o

© 2016 IHS Markit

China PE Recycled Demand Continual growth over last 15 years with higher virgin PE prices


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-200

200

600

1,000

1,400

1,800

0.0

1.0

2.0

3.0

4.0

5.0

2000 2002 2004 2006 2008 2010 2012 2014

PE Recycled NEA HDPE Spot, BM

Recycled Polyethylene


Millio

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s

US

Do

llar

Per

Metr

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© 2016 IHS Markit

VCM swing for EDC/Ethylene versus Acetylene/Coal China, can swing ethylene demand and pressure ethylene operating rates


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0

10,000

20,000

30,000

40,000

2010 2015 2020

EDC Production EDC Surplus Capacity


VCM From EDC (Global)

Th

ou

sa

nd

Me

tric

To

ns

0

10,000

20,000

30,000

40,000

2010 2015 2020

Coal-based Surplus Capacity Coal-based Production

VCM From Coal (China)

© 2016 IHS

Th

ou

sa

nd

Me

tric

To

ns

Source: IHS

MMTA 2010 2015 2020 2010 2015 2020

CAPS Cont. C2= 16.8 17.1 17.5 11.4 10.3 10.7

Ethylene demand swing

+3.2 + 2.9 + 1.9 (7.3) (4.0) (2.6)

© 2016 IHS Markit

Feedstocks Pricing Ethylene: Costs, Pricing, Margins


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© 2016 IHS Markit

World Cash Costs US loses some cost advantage but maintains about $400/ton


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0

200

400

600

800

1000

1200

1400

U.S. Ethane US GTO WesternCanada

China CTO China MTO WestEuropeNaptha

NortheastAsia Naptha

2011 2016 2021 SAR @1.75/Mmbtu

World Ethylene Cast Cost Comparison


US

Do

llar

Per

Metr

ic

© 2016 IHS Markit

Regional Ethylene Cash Costs Energy drives the longer term cost structure as does ethane demand growth


20

0

220

441

661

882

1,102

1,323

0

10

20

30

40

50

60

2000 2003 2006 2009 2012 2015 2018 2021

Global Monthly Feedstock Cash Margins

U.S. Ethane WEP Naphtha SEA Naphtha

Annual Cash Costs


Cen

ts P

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Po

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Do

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Per

Metr

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To

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© 2016 IHS Markit

Regional Ethylene Prices Average Acquisition in US moves up with higher cash cost on ethane feed


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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

00 03 06 09 12 15 18 21

US Average Acquisition Price WEP Contract Price SEA CFR Spot Price

Global Annual Ethylene Prices


Do

llars

Per

Metr

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on

© 2016 IHS Markit

Ethylene Market View US Ethylene Spot Affordability (using spot/export derivative pricing) …….Room to be a bit more Bullish for ethylene pricing.


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58.1

79.4

56.4

48.7 48.4

58.6 59.1

46.2 52.1

79.5

54.5

42.4 43.7 42.7

76.9

62.5

0

10

20

30

40

50

60

70

80

MEG EDC Styrene LLDPE HDPE LDPE PVC VCM

2010 2020U.S. Spot Ethylene January 2010 U.S. Spot Ethylene January 2020US Net Trans Ethylene January 2010 US Trans Ethylene January 2020

US Ethylene Spot Affordability

© 2016 IHS

Cen

ts p

er

Po

un

d

Source: IHS

© 2016 IHS Markit

Regional Ethylene Cash Margins Asia margins driving capacity additions

-220

0

220

441

661

882

1,102

1,323

-10

0

10

20

30

40

50

60

2000 2003 2006 2009 2012 2015 2018 2021

Global Monthly Feedstock Cash Margins

U.S. Ethane WEP Naphtha SEA Naphtha

Annual Margins


Cen

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Po

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Do

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Per

Metr

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Another Wave in the works? Strong Margins

Encouraged Builds

Weak Margins stalled builds


© 2016 IHS Markit

HDPE Integrated Margins -similar story Integrated Margins to PE off peaks. Asia still strong versus recent history.

-400

-200

0

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

US Ethane - HDPE WEP Naphtha - HDPE SEA Naphtha - HDPE

Integrated HDPE Margins

© 2016 IHS

Do

llars

Per

Metr

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Source: IHS

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© 2016 IHS Markit

Ethylene Equivalent Trade Flow

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2011

2016

2021

*Others: Africa, Indian Sub., CIS & Baltic, Central Europe

North America

South America

West Europe

Middle East

Northeast Asia

Southeast Asia

Others*

5,228 6,220

13,281

-2,858 -2,583 -3,803

-384

307

-1,305

13,953

17,952 19,606

-8,321

-10,575

-14,522

-412 -953 -1,931

-7,382

-10,455 -11,446


© 2016 IHS Markit

North America Ethylene Capacity Growth – (-000- Metric Tons)

Firm through 2021/22, Shell Monaca, PA was last to FID

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Company Location Total Growth

ChevronPhillips Cedar Bayou, TX 1,500

Dow Freeport, TX 1,500

Dow Plaquemine, LA 250

Equistar Various sites 401

ExxonMobil Baytown, TX 1,500

Flint Hills Port Arthur, TX 50

Formosa Point Comfort, TX 1,150

Indorama Lake Charles,LA 363

Lotte/Axiall Lake Charles, LA 1,000

Oxy/Mexichem Ingleside, TX 550

Shell Monaca, PA 1,500

Shin-Etsu Plaquemine, LA 500

Sasol Lake Charles, LA 1,550

Westlake KY and LA sites 154

Williams Geismar, LA 129

Braskem Idesa Mexico 1,000

Total Additions 13,097


© 2016 IHS Markit

Ramp up Timing Lower nameplate operating rates are skewed by potential ramp up issues on new assets to come on line. Effective operating rates will be high.

Max Rates

Min Rates

What is the Duration of Ramp up?

At time = 0, Capacity is in our tables at 100%.

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© 2016 IHS Markit

US – Capacity Integration Do we have an imbalance?

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Original US Net Feed Modified US Net FeedUS Derivative Cumulative Capacity Change US Ethylene Cumulative Capacity Change

Change in Ethylene Capacity Vs. Capacity to Consume

© 2016 IHS

Millio

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s

Source: IHS

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Notes: Post 2015 includes 1600kta demand creep for PE and 300kta of export monomer


© 2016 IHS Markit

Ethylene Market Key Take Aways • Ethylene capacity globally we come up

short on additions in 2019-21.

• Ethylene capacity US wave will have its challenge from the production side. Derivatives projects should be available first and ready to consume ethylene once it becomes available.

• Stress on global Ethylene as supply could be challenged via feed switching and MTO negative economics. Demand up with more virgin resin demand and coal chemistry challenges. Nameplate capacity operating rates remain at elevated levels.

• Global Margins remain strong ethylene integrated margins remain high with a question on what does it take to encourage the next Asian capacity wave?


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asia chemical conference - ihs markit · pdf filemethanol supply/demand from ... 2011 2012...

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