Studies to Evaluate Value-Added Market Opportunities for North Dakota
Studies to Evaluate Value-Added Market Opportunities for North Dakota Natural Gas Liquids (NGLs) Ethanol and Other Biochemical Derivatives
Don Bari, Vice President, Consulting Edward Glatzer, Managing Director, Consulting Energy Development & Transmission Commission August 14, 2014 Bismarck, North Dakota 1
Studies to Evaluate Value-Added Market Opportunities for North Dakota
Disclaimer
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This report presentation has been prepared for the sole benefit of Petroleo Brasileiro SA (“Petrobras”), i.e. Client. Neither the report, this presentation, nor any part of the report shall be provided to third parties without the written consent of IHS. Any third party in possession of the report may not rely upon its conclusions. Possession of any IHS model does not carry with it the right of publication. IHS conducted this analysis and prepared this report utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY. Some of the information on which this report/presentation is based has been provided by others. IHS has utilized such information without verification unless specifically noted otherwise. IHS assumes no responsibility and accepts no liability as to the accuracy or completeness of and, to the extent permitted by law, shall not be liable for any errors, omissions, or inaccuracies, or any loss, damage or expense incurred by reliance on information or any statement contained in this publication.
Studies to Evaluate Value-Added Market Opportunities for North Dakota
Who is IHS?
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• We are a public company (founded in the 1950s) and have a current revenue of over US $ 2 billion
• We help companies make informed decisions by providing independent: – industry insight – knowledge – data & analysis
Studies to Evaluate Value-Added Market Opportunities for North Dakota
Transportation
Aerospace & Defense
Agriculture
Construction
Shipping
Electronics & Telecom Government
Metals & Mining
Healthcare
Power & Utilities
Financial
Military & Security
Energy Oil & Gas
Consumer & Retail
IHS Chemical
Automotive
IHS Chemical
IHS Has Substantial Industry Integration
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We have 9000 staff in 30 countries
Studies to Evaluate Value-Added Market Opportunities for North Dakota
Oil, Gas Production
Hydrocarbon Feed
Oil Refining and Gas Processing
Monomer/Base Chemicals
Separation, Conversion
Plastics & Rubber
Polymerization
Derivatives & Intermediates
Conversion
Converters: Tires and Other Fabricated OEM Parts
Manufactured Goods
Retail Customers
We Think Value Chains: Vertically & Horizontally
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Chemical industry development starts here
Studies to Evaluate Value-Added Market Opportunities for North Dakota
The Fabricated Products are Diverse and Familiar
Ethylene
LLDPE
PVCPolystyrene/ABS
PET/Ethylene Glycol
Polyethylene
HDPELDPE
POLYPROPYLENE
POLYURETHANEABS
ACRYLICSSYNTHETIC MATERIALS
NYLONS
POLYCARBONATEPropylene
Butylenes & Butadiene
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Petrochemical Building Block Chemicals • Ethylene, propylene, butylenes, represent three of the
seven basic “building blocks” in the global petrochemical industry
• NGLs (ethane, propane and butanes) are the raw material precursors to these building block chemicals
Most petrochemical derivatives can be traced back to one or more of these building blocks
Crude Oil and Natural Gas
Petrochemicals & Derivatives
Ben
zene
Tolu
ene
Xyl
enes
Met
hane
C4
Hyd
roca
rbon
s
Eth
ylen
e
Pro
pyle
ne
Eth
ylen
e
Pro
pyle
ne
But
ylen
es
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
The Feedstock-Product Value Chain To be Advantaged here, You Need to be Advantaged here Ethane,
Propane, Butanes
Intermediate Chemicals
Commodities Specialties
End-Use & Fabricated Products
NGLs
Gas Processor for (Y-cut) Pipeline
Merchant
Gas Processor for (Y-cut) Contracted
Flared Unlikely Recovered by
Gas Processors
Biomass
Ethanol
Butanol Basic Bio Chemicals
Bio-based Chemistry is More Complex
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Fundamentally, the Industry Cost Curve Dictates Success
CUMULATIVE INDUSTRY CAPACITY
CO
ST O
F PR
OD
UC
TIO
N
DEMAND
PRODUCTION PLANTS
PRIC
E P
OIN
T Need to be Here, to get Here
Have Advantages along the Value Chain: • Low Cost Feedstock • Competitive Production Costs • Good Logistical Proximity to the Market
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Adding Value to the Bakken NGLs
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Why is there an Opportunity to Add Value to the Bakken’s Hydrocarbons
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Methane Ethane
(Fuel Gas)
Ethane, Propane, Butane, Light
Naphtha (NGL)
Global Gas Demand (2013)
120 TCF
Petrochemical Industry 25% Oil, coal and
methane- based feedstocks make
up the rest
Studies to Evaluate Value-Added Market Opportunities for North Dakota
PP Resin
HDPE Resin
PB Rubber
PIB Rubber
For the Consumer,
Automotive, Construction
Industries
The Likely Value-Add Opportunities for the Bakken
Ethane, Propane, Butanes
Intermediate Chemicals
Commodities Specialties
End-Use & Fabricated Products
Currently to Pipeline and Fuels
n-butane C4
Isobutane C4
Propane C3
Ethane C2
Propylene
Ethylene
Butadiene
Isobutylene
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Bakken NGL is Expected to Provide an Advantaged Feedstock Position
NGL supply demand price outlook cases are forecast to give a Bakken-based NGLs a strong feedstock to derivative chemical plants
Even with IHS’ conservative estimates, the availability situation for competitive-scale petrochemical plant is promising
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Product and Feedstock Prices Setting Mechanisms for North Dakota
ND New Chemical Potential
Production
East North Central Product Demand Center
Price Setting Merchant
Market for NGLs
Less Freight = ND NGL Feedstock
Prices
Less Freight and Handling = ND Petrochemical Product Prices
Conventional Petrochemical
Production Hub
Price Setting: Merchant Market for Petrochemicals
& Polymers
Plus Freight = E.N. Central End-Use Product Prices
Less Freight = ND Product Prices
Off-Shore (Export) Demand Market
Less Freight = ND Product
Prices
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Production Hub
Toronto
Montreal Ottawa New
England
Mid Atlantic
South Atlantic
East South Central
East North Central
West North Central
West South Central
Mountain
Pacific 4%
21%
14%
6%
3% 6%
1% 4%
35%
East Canada 5%
Wet Canada 1% Potential Production Hub
More than half of the PE consumption in US is within reach of a North Dakota Plant
Most of the production is centered in the Gulf Cost
POLYETHYLENE
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
The Proximity Situation is the Same for Other Commodity Polymers
POLYBUTADIENE RUBBER
POLYPROPYLENE
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Ethane, Propane, Butanes
Intermediate Chemicals
Commodities Specialties
End-Use & Fabricated Products
The Value of Basic Feedstock Typically Increases Down the Supply Chain
Ethane Ethylene HDPE
Volume (T) 1 1.29 1.30
Value ($/T) 197 (27c/gal) 938 1507
-------- Combined Ethane Equivalent ----------------
Value in product ($/T) 197 727 1157
Capacity (KT/YR) 27,500 bpd 404 400 (880 mm lb/yr)
Investment (MM USD) 940 310
Return IRR (%) 21% 24%
Capital and operating cost at each step generate the value increase
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Advantages for the North Dakota Translate in Value-Add Opportunities
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Developing Technologies
Mature Technology Multiple Products
Ethylene & HDPE
Mature Technology Single Product
Butadiene % PBR
Butadiene Merchant
Propylene
& PP
Propylene Merchant
Ethylene & MEG
Developing Halogenation Technology for:
BDE PBR PP & Iso Butylene Propylene MTBE
Studies to Evaluate Value-Added Market Opportunities for North Dakota
NGLs to Chemicals: Capacity and Capital Costs – North Dakota - 2020 Basis
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KMT Bbl/dayEthane Feed - HDPE 520.90 27781Ethane Feed - MEG 297.90 15888Propane Feed - PDH 563.30 21166Propane Feed - Halogenation 497.30 18686n-Butane Feed - BDH 512.40 16769n-Butane Feed - Halogenation 348.10 11392i-butane - BDH 152.50 4852i-butane - Halogenation 134.70 4286
NGL - Feed Requirements
Capacity, kMT Capital, USMM$Ethane Cracker - HDPE 404.00 939.00Ethane Cracker - MEG 231.00 635.00HDPE 400.00 309.00EO 304.00 727.00MEG 400.00 197.00Propane Dehydrogenation (PDH) 467.00 1191.00Propane Halogenation 467.00 758.00Polypropylene ICP 500.00 487.00n-Butane Dehydrogenation (BDH) 300.00 1460.00n-Butane Halogenation 336.00 491.00Oxo-D 300.00 708.00Polybutadiene (PBR) 100.00 286.00Isobutane Dehydrogenation 130.00 247.00Isobutane Halogenation 130.00 225.00MTBE via Isobutylene 200.00 28.00
NGL
Studies to Evaluate Value-Added Market Opportunities for North Dakota
Conclusions
Feasible opportunities for the development of NGL-based chemical derivative look promising
There should not be any particular environmental or permitting issues for the process technologies selected if Good Engineering Design and HAZOP principles are followed. Note that the Halogenation technology will need to be designed with specific attention to bromine handling and processing.
Growth in the United States demand and competitive cost exports will drive the need for significant production capacity (supply) additions of commodity chemicals and polymers
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Conclusions (continued)
Ethane in the U.S. will remain in an oversupply situation due to the associated supply from shale-based oil and gas that will drive North Dakota post-2020 net back prices to historic low values
North Dakota is expected to have an ample supply of NGLs (ethane, propane and butane)
North Dakota will have a long-term “Advantaged feedstock” position of NGLs the U.S. Gulf Coast and Asia/Europe
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Conclusions (continued)
∞ Project and business development “success” can yield a variety of sustainable benefits to North Dakota State (residents) and 3rd party sponsors and developers
To be successful, North Dakota must aggressively solicit world-class private (chemical) industry participants/sponsors on a global basis who can bring proven project development expertise, financial strength, chemical process technology and access to customer marketing channels and customers
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Conclusions (continued)
Participants can be along the value chain e.g., from NGL processors considering value-add downstream investment to end-user part fabricators interested back integration to low cost secure feedstock supply
Monitoring competitor actions in the U.S. and Western Canada is necessary as the rapid pace of shale-based project (global) interest and development continues
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Studies to Evaluate Value-Added Market Opportunities for North Dakota
Cautions
Investment (cost and labor resources) are very significant to construct downstream chemical production plants (and build their associated businesses)
Project development and implementation (including market entry) will have challenges
This Project will be forging new ground in North Dakota, thus project development and implementation must be done according to a well-defined and very robust roadmap, with an iterative loop for lessons learned along the way.
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