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Global Petrochemical Market Outlook: Impact of Energy at the Extremes
Presented to: Valve Manufacturers Association of America MARKET OUTLOOK WORKSHOP August 6-7, 2015 • Renaissance Blackstone • Chicago, IL
Mark Eramo
Vice President - Global Chemical Insights
IHS Chemical, Houston, TX
Agenda
• Energy, Economy & the
role of Chemicals
• Impact of Energy At The
Extremes
• Investment Trends
• Chemical Demand &
Trade
• Impact On Profit Cycle
• Closing Thoughts
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The Chemical Industry Enables Modern Living
…Connecting Energy Products With Consumer Markets
Energy markets provide essential BTU’s to power operations and
feedstock sources including natural gas liquids, naphtha and
coal that are consumed in the
production of basic chemicals
Chemical industry converts energy and feedstock's into basic
chemicals, intermediates, plastics
and fibers that are used to produce durable and non-durable consumer
goods
Economic growth in developed and
developing economies around the world
drive consumer buying trends for durable and
non-durable goods; hence creating demand for the
chemical industry
ENERGY CHEMICALS ECONOMY
•Automotive / Transportation
•Consumer products
•Packaging
•Construction
•Recreation /Sport
• Industrial
•Medical
•Pharmaceuticals
•Personal care
•Textiles
•Electronics
•Aerospace
•Business equipment
Customers of the Chemical Industry
•Oil
•Gas
•Coal
•Minerals
•Renewables
Mining, Drilling,
Refining & Gas
Processing
Chemical
Intermediates
Differentiated Commodities
Technical Specialties
Commodities
Olefins (ethylene, propylene, butylene)
Aromatics (benzene, toluene, xylenes)
Chlor-Alkali (chlorine, caustic
soda)
Others (e.g., ammonia, phosphorous)
Methanol
Basic Chemicals
• Plastics & Engineering Resins − Extruded films, pipe,
profiles, coatings, sheet, foams, sheet
− Blow-molded parts − Injection molded parts − Composites
•Synthetic Fibers •Rubber Products •Paints & Coatings •Adhesives & Sealants •Lubricants •Water Treatment products •Cleaning Products •Industrial Chemicals •Flame Retardants •Many others…
Formulated Products / Performance
Materials
Chemical Industry Value Chain
End-use
Consumer
Products
Natural Resources
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Extreme Energy Differentials Create
Opportunities and Risks – July 2015
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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10
15
20
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Brent Crude USGC Light Naphtha Henry Hub Gas Ethane
Constant 2012 Dollars Per MMBtu Brent Crude & US Energy Prices
Forecast by : IHS Energy
Extreme Energy Differentials Create
Opportunities and Risks – July 2015
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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5
10
15
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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Brent Crude USGC Light Naphtha Henry Hub Gas Ethane
Constant 2012 Dollars Per MMBtu Brent Crude & US Energy Prices
Forecast by : IHS Energy
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 than ever before
7
Increased volatility in conventional feedstock's from traditional sources : naphtha, NGL’s, coal. Feedstock shifts creates volatility in co-product markets
Gas or Coal to methanol
Methanol to Olefins (MTO)
Coal to Olefins (CTO)
Catalytic / Oxidative Coupling of Methane to Ethylene (OCM)
Co-product impact: On purpose propylene via PDH, metathesis, coal, methanol
Demand Shocks (GDP related) or Demand Shifts (product substitution related)
Ethylene Coal to MEG (skipping EO)
Coal to VCM (skipping EDC)
Polyolefins Recycle, PE/PVC/PET
Agenda
• Energy, Economy & the
role of Chemicals
• Impact of Energy At The
Extremes
• Investment Trends
• Chemical Demand &
Trade
• Impact On Profit Cycle
• Closing Thoughts
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Investment Drivers Vary By Region By Value Chain
• North America (USA)
Leverage low cost natural gas based chemicals
into investments in ethylene, propylene and
methanol based derivatives.
Invest to establish export channels to market that
exceed historical norms
• Middle East (Saudi Arabia)
Moderated investment pace, diversified feedslate
to support downstream market development and
continued industrial expansion well beyond
ethylene chemistry
• North East Asia (China)
Strong domestic investment focused on reducing
import dependencies.
Leverage coal to chemicals technology near term
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Raw Material & Energy
Costs
Demand Growth & Access to Markets
Technology &
Economies of Scale
Chemical Industry Investments Seek A Sustainable Advantage
Top 5 Countries Adding Base Chemical Capacity 231 Million Tons from 2010 to 2020
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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China United States
Saudi Arabia
S. Korea India
Chlorine Paraxylene Benzene
Methanol Propylene Ethylene
Million Metric Tons
Top five will add nearly 75%
of base chemical capacity.
China will dominate new
capacity, adding 45% of total
Investment capital has shifted to North America, however, the vast majority of new investment continues to accelerate in Asia/Pacific, dominated by China
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Olefin (CTO/MTO Construction)
Olefin (Operating CTO/MTO)
Olefins
PX
MEG (Operating)
MEG (Construction)
Petrochemical Investment In China Moves West
North America Ethylene Capacity Growth: 2014 – 2020 Completed or Firm Projects (Thousand Metric Tons)
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Company Location Total Growth
BASF/Total Port Arthur. TX 128 ChevronPhillips Cedar Bayou, TX 1,500
Dow Freeport, TX 1,500
Dow Plaquemine, LA 220
Eastman Longview, TX 17
Equistar Various sites 1,112
ExxonMobil Baytown, TX 1,500
Flint Hills Port Arthur, TX 100
Formosa Point Comfort, TX 1,150
Oxy/Mexichem Ingleside, TX 550 Shin-Etsu Plaquemine, LA 500
Sasol Lake Charles, LA 1,550
Westlake KY and LA sites 216 Williams Geismar, LA 258
Braskem Idesa Mexico 1,000 Nova Sarnia 168
Total Additions 11,469
North American ethylene capacity will increase to 45+ million metric tons by 2020, driven by low-cost ethane feedstock
North America Ethylene Projects “In The Press” 2020+ Projects Noted Below Are Not Firm, But Announced And Under Study
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Company Location Total Growth
Aither Chemicals West Virginia 200
Appalachian Resins Salem Township, OH 275
Ascent West Virginia 1,000
Axiall/Lotte Lake Charles, LA 1,000
Badlands NGL 1 North Dakota 1,500
ChevronPhillips 2 Cedar Bayou, TX 1,500
Hanwha TBA 1,000
Indorama LA or TX 1,500
PTTCG/Marubeni Shadyside, OH 1,000
Shell Monaca, PA 1,500
Total Port Arthur, TX 1,000
Williams Geismar, LA 1,500
Total Additions 12,975
IHS Chemical & IHS Energy long term forecast assumes an additional 15 million metric tons ethane based ethylene in NAM from 2020 to 2030
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Ethylene Methanol Propylene Chlorine Paraxylene Benzene
Million Metric Tons
Global Base Chemicals Cumulative Demand Growth 2010 - 2020 = 224 Million Metric Tons
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Total Growth
MM Tons AAGR: 2010/20
MM Tons/Yr AAGR:
2010/20, %
Ethylene 61.6 5.6 3.5
Methanol 52.4 4.8 6.9
Propylene 47.8 4.3 4.2
Chlorine 28.1 2.6 3.6
Paraxylene 19.4 1.8 4.5
Benzene 14.7 1.3 2.3
Regional Trade Is Critical To Success
• Trade is an essential element
of basic chemical supply
chains
• Low cost regions such as
North America and the Middle
East will export increasing
volumes
• On-purpose technology will
change trade patterns
• Significant investment in ships,
ports, and infrastructure is
needed to support increasing
trade volumes
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
5 Countries Adding 75% of Base Chemical Capacity: 2010 to 2020 (231 MM Metric Tons)
China Remains Central To Basic Chemical Trade
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0%
25%
50%
75%
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05 10 15 20
Net Equi. Imports Domestic Demand
Self-Sufficiency
MM Metric Tons %, Self-Sufficiency
0%
25%
50%
75%
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60
05 10 15 20
Net Equiv Exports Domestic Demand
Net Exports, % of Cap.
MM Metric Tons % of Capacity
US Ethylene Demand & Equivalent Trade China Ethylene Demand & Equivalent Trade
Agenda
• Energy, Economy & the
role of Chemicals
• Impact of Energy At The
Extremes
• Investment Trends
• Chemical Demand &
Trade
• Impact On Profit Cycle
• Closing Thoughts
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
When Energy Markets Move
Chemical Will Markets Respond
• The rapid decline in crude oil
pricing causes supply-chains
to “pause” as buyers anticipate
lower prices “tomorrow”.
• Combination of a pause in
demand and the decline in
costs for high-cost producers
results in price decreases.
• As market prices “chase”
falling costs, cash margins for
high-cost producers can
expand while cash margins for
low cost producers will decline.
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
500
1,000
1,500
2,000
Benzene Northeast Asia Spot, Avg.
Benzene Southeast Asia Spot, Avg.
Ethylene Northeast Asia Spot, Avg.
Ethylene Southeast Asia Spot, Avg.
Methanol Northeast Asia Spot
Methanol Northeast Asia Spot
Methanol Southeast Asia Spot
Methanol West Europe Spot T1
Paraxylene Northeast Asia Spot
Paraxylene West Europe Spot
Propylene Polymer Grade Northeast Asia Spot
Propylene Polymer Grade Southeast Asia Spot, Avg.
Chemical Markets Respond To Lower Crude Oil
Dollars Per Metric Ton
“Price Setters” Driven By Crude Oil
“Price Setters” Driven By Coal or Gas
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1600
Saudi Arabia Ethane
U.S. Ethane Western Canada
China CTO Saudi Arabia
Naphtha
Northeast Asia
Naphtha
West Europe
Naphtha
China MTO
2011 2013 2015 US$ / Metric Ton
Ethylene Cash Cost Comparison With Energy At The Extremes
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Brent Crude
USGC Natural Gas
Year ($/Bbl) ($/MM Btu)
2013 109 3.76
2015 59 2.82
CTO = Coal-to-Olefins; MTO = Methanol-to-Olefins
High Densitey Polyethylene Integrated Cash Margins US Ethane Vs. Asia Naphtha
-220
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440
660
880
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1,320
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US Ethane to PE Chain Margin Asia Naphtha to PE Chain Margin
© 2015 IHS
Cents Per Pound, PE
Source: IHS
Dollars Per Metric Ton
Ethane-based margins decline; maintain advantage near term
• Basic chemicals and derivatives
markets adjust to “new energy”
• Price setters have lower
cost…prices decline seeking new
steady state; impact on trade
• Integrated margins for low-cost
producers decline, some high-cost
producer margins improve
• Approved “advantaged” projects
advance; new projects may pause
• Demand declines followed by
demand surge; trade patterns
shift; potential upcycle in
ethylene; propylene oversupply
The Impact of Energy At The Extremes… Conclusions
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Availability of low-cost ethane and
propane in North America to support
continued investments; both domestic
and international
• Developments in on-purpose
technology for olefins versus
traditional routes, including the use of
methanol as a route to olefins.
• Impact of coal-to-chemicals and on-
purpose propylene in China:
private/provincial investment versus
state-owned; self-sufficiency and
surplus capacity impacting trade;
economic slowdown and impact on
need for imports for China.
• Need for ethylene supplied from
naphtha cracking: both higher
operating rates for existing assets and
investments in new naphtha cracking
The Impact of Energy At The Extremes… Beyond 2020…
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Global Petrochemical Market Outlook: Impact of Energy at the Extremes
Presented to: Valve Manufacturers Association of America MARKET OUTLOOK WORKSHOP August 6-7, 2015 • Renaissance Blackstone • Chicago, IL
Mark Eramo
Vice President - Global Chemical Insights
IHS Chemical, Houston, TX
THANK YOU !!