ietc chemical marketing assoc inc 20040501
TRANSCRIPT
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Vikki MedleyChemical Market Associates, Inc.
Director, Olefins Economics and Feedstocks(281) [email protected]
Shifting Influences on North
America Olefins Production:Is Energy the Entire Answer?
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Strategic Issues Facing
North America Olefins Producers
Strategic Issues FacingNorth America Olefins Producers
Economic Recovery
Energy Market Impact Natural gas to crude oil ratio
Net Trade Position On Major Derivatives
Increasing Non-Durable Goods Imports\Exports
Middle East & Asia Ethylene Capacity Build-Up* While an issue for ethylene markets..it could be an opportunity for
propylene markets
Economic Recovery
Energy Market Impact Natural gas to crude oil ratio
Net Trade Position On Major Derivatives
Increasing Non-Durable Goods Imports\Exports
Middle East & Asia Ethylene Capacity Build-Up* While an issue for ethylene markets..it could be an opportunity for
propylene markets
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7.7%
6.3%
6.8% 7.1%
-9.0%-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Annual Change
GDP Growth Ethylene Demand Growth
Forecast
U.S. Ethylene & Economic Growth ComparisonU.S. Ethylene & Economic Growth Comparison
Annual average growth rate from 1990through 1999 is equal to 4.3%. Aboveaverage growth seen in 90', 94', 96' and99' may be hard to repeat under currentmarket conditions.
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U.S. Ethylene & Economic Growth ComparisonU.S. Ethylene & Economic Growth Comparison
7.7%
6.3%
6.8% 7.1%
-9.0%-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Annual Change
GDP Growth Ethylene Demand Growth
Forecast
U.S. ethylene demand hascontracted or was flat during
three of the last four yearsindicating a fundamental shift
in market dynamics
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U.S. Ethylene Demand Has New Trendline.Likely A Permanent Change
U.S. Ethylene Demand Has New Trendline.Likely A Permanent Change
Total Demand Nameplate Operating Rate, %
8
9
10
11
12
13
14
15
16
17
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Billion Pounds
55
60
65
70
75
80
85
90
95
100
% Operating Rate
Forecast
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From the Wellhead to WalmartThe Supply Chain is Changing
From the Wellhead to WalmartThe Supply Chain is Changing
Base EnergyBase Energy
ConsumersConsumers
Ethylene CrackerEthylene Cracker
PE
Pellets
PE
Pellets
Non-Durables
Non-Durables
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What About Global Competition?What About Global Competition?
It is not all about who has the
biggest plant It is not all about who has the
best technology
It is not all about who tradedthere first
It is all about costand
competitive cost positions havedeveloped into a battle betweennatural gas versus crude oil
It is not all about who has the
biggest plant It is not all about who has the
best technology
It is not all about who tradedthere first
It is all about costand
competitive cost positions havedeveloped into a battle betweennatural gas versus crude oil
To play the game successfully in commodity
petrochemicals and plastics
To play the game successfully in commodity
petrochemicals and plastics
as 60% of integrated PE production costs is hydrocarbon related!as 60% of integrated PE production costs is hydrocarbon related!
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North America Energy Price TrendsNorth America Energy Price Trends
The playing field has been leveled between North America and otherglobal producers.
0
1
2
3
4
5
6
7
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
$ / MM Btu
0
1
2
3
4
5
6
7Crude/Gas Ratio
Natural Gas Crude (WTI) Crude / Gas Ratio
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2003 Ethylene Production By Feedstock2003 Ethylene Production By Feedstock
Gas Oil
28.7 Million Metric Tons
North America
Propane13%
Ethane55%
Others
1%
4%
Naphtha23%
Butane4%
96.8 Million Metric Tons
World
Propane8%Ethane
28%
Others1%
Gas Oil
6%
Naphtha54%
Butane
3%
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A decade of olefins andderivative investmentswere driven by an
assumption ofreadilyavailable low cost naturalgas
Ethylene capacity grewat a rate of 1.0 MM tonsper year
North America was aprimary supplier ofethylene derivatives tothe global market
Natural Gas Is KeyNatural Gas Is Key
United StatesUnited States CanadaCanada MexicoMexico
1010
1515
2020
2525
3030
3535
4040
4545
9090 9191 9292 9393 9494 9595 9696 9797 9898 9999 0000 0101 0202
Ethylene Capacity by Country (Million Tons)Ethylene Capacity by Country (Million Tons)
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World Ethylene Cash Costs - Regional AveragesWorld Ethylene Cash Costs - Regional Averages2003 Energy Prices2003 Energy Prices
Dollars per Ton
50
150
250
350
450
550
650
0 20 40 60 80 100 120
Cumulative Capacity (Million Tons)
USGC Natural Gas = $5.00/MM BtuUSGC Natural Gas = $5.00/MM BtuBrent Crude = $28/BBLBrent Crude = $28/BBL
2003 total demandforecast to reach about
98.5 MM tons
North AmericaNorth America
Wt'd Avg = $420/tonWt'd Avg = $420/ton
West EuropeWest EuropeWt'd Avg = $315/tonWt'd Avg = $315/ton
Northeast AsiaNortheast AsiaWt'd Avg = $310/tonWt'd Avg = $310/ton
Southeast AsiaSoutheast AsiaWt'd Avg = $270/tonWt'd Avg = $270/ton
Middle EastMiddle EastWt'd Avg = $140/tonWt'd Avg = $140/ton
South AmericaSouth AmericaWt'd Avg = $380/tonWt'd Avg = $380/ton
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U.S. Daily Ethylene Cash CostsU.S. Daily Ethylene Cash Costs20032003
0
5
10
15
20
25
30
35
Jan 2 Feb 7 Mar 17 Apr 22 May 28 Jul 2 Aug 7 Sep 12 Oct 17 Nov 21
Cents Per Pound
0
110
220
330
440
550
Purity Ethane
Light Naphtha
Dollars Per Metric Ton
New era in Natural Gas
But ethane was still favored
for 2.5 quarters of the year!
Ethane Favored Ethane FavoredNaphtha Favored Parity
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High natural gas pricesrelative to crude impacts
regional competitiveposition
International trade is no
longer a major source ofdemand growth for NorthAmerica
Growing imports of non-durable goods threatenfuture demand growth
Natural Gas Is KeyNatural Gas Is Key
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Million Tons
-1.0
0
1.0
2.0
3.0
4.0
5.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Net Exports
Net Imports
Ethylene Vinyls Styrenics Polyethylene
Glycol Others Net Trade
North America Share of Global EthyleneDerivative Trade all but Disappears
North America Share of Global EthyleneDerivative Trade all but Disappears
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Million Tons
-1.0
0
1.0
2.0
3.0
4.0
5.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Net Exports
Net Imports
Ethylene Vinyls Styrenics Polyethylene
Glycol Others Net Trade
North America Share of Global EthyleneDerivative Trade all but Disappears
North America Share of Global EthyleneDerivative Trade all but Disappears
Historically 50% of world
net equivalent ethylene
trade and 15% of NorthAmerica capacity
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Surely the U.S. isnt vulnerable wont
logistics protect the market?
How much Polyethylene did the
United States Import in 2003?
How much Polyethylene did the
United States Import in 2003?
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0
20
40
60
80
100
120
140
96 97 98 99 00 01 02
Billions of Bags
Disguised asPolyethylene
Bags
160
(Using 10# per 1000)03
1.67 Billion pounds of PE Resin
Imported Polyethylene
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0
20
40
60
80
100
120
140
96 97 98 99 00 01 02
Billions of Bags
Disguised asPolyethylene
Bags
160
(Using 10# per 1000)03
1.67 Billion pounds of PE Resin
Continued Growth in Non-durable GoodsImports Will Have a Negative Impact on
U.S. Ethylene Demand Growth
Imported Polyethylene
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Its More than Just A Natural Gas IssueIts More than Just A Natural Gas Issue
Significant build-upof ethylene capacityin the Middle East
Increased ethyleneintegration in Asia
A Thi d W f Middl E t Eth l C it
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A Third Wave of Middle East Ethylene CapacityWill Impact Market Starting in 2006/07
A Third Wave of Middle East Ethylene CapacityWill Impact Market Starting in 2006/07
Middle East ethylene capacity is hitting the globalmarket in waves. By the end of the 3rd wave,Middle East regional capacity will likely rankamong the top four regions globally.
1st Wave; Mid-to-late 90s
0
5
10
15
20
25
30
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Saudi Arabia Iran Qatar Kuwait United Arab Emirates Turkey Israel Iraq
(Million Metric Tons)
3rd Wave; 2006+ Therefore,timing may not impact theforecast for the next peak inglobal plastics and basechemicals
2nd Wave; 2000 2005
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Million Tons
Southeast Asia Has Become Less Dependent onEthylene Derivative Imports
Southeast Asia Has Become Less Dependent onEthylene Derivative Imports
-2.5
-2.0
-1.5
-1.0
-0.5
0
0.5
1.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Net Exports
Net Imports
Ethylene Vinyls Styrenics PolyethyleneGlycol Others Net Trade
Ethylene Net Equivalent Trade
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World Ethylene & Derivatives TradeWorld Ethylene & Derivatives Trade
-20
-15
-10
-5
0
5
10
15
20
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Million Tons
North America South America West Europe Middle East
Indian Sub. Northeast Asia Southeast Asia Others
Net Exports
Net Imports
It N t All B d N F
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Primary supplier to the largestconsuming region of olefins
derivatives. Restraint on new investments
(or additional closures) will
lead to higher utilization. Feedstock flexibility will secure
regional competitive position.
Dominant position in globaltrade of propylene will bemaintained.
Its Not All Bad News ForNorth America Olefins Producers !
Its Not All Bad News ForNorth America Olefins Producers !
Middl E / A i I D d
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Middle East / Asia Inter-DependenceMiddle East / Asia Inter-Dependence
New Asia C2 Demand New Asia C3 Demand
New M.E. C2 Capacity New M.E. C3 Capacity
3.0
2.0
1.0
0.0
1.0
2.0
3.0
4.0
1990 1995 2000 2005 2010
Million Metric Tons
New Asia C2 Demand (Area)
New Asia C3 Demand (Area)
New M.E. C2 Capacity (Bars)
New M.E. C3 Capacity (Bars)
Middl E t / A i I t D d
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Middle East / Asia Inter-DependenceMiddle East / Asia Inter-Dependence
New Asia C2 Demand New Asia C3 Demand
New M.E. C2 Capacity New M.E. C3 Capacity
3.0
2.0
1.0
0.0
1.0
2.0
3.0
4.0
1990 1995 2000 2005 2010
Million Metric Tons
New Asia C2 Demand (Area)
New Asia C3 Demand (Area)
New M.E. C2 Capacity (Bars)
New M.E. C3 Capacity (Bars)
Middle East is Big Ethylene,Little Propylene
W ld P l & D i ti T dW ld P l & D i ti T d
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World Propylene & Derivatives TradeWorld Propylene & Derivatives Trade
North America West Europe Middle East
Northeast Asia Southeast Asia Others
-6000
-5000
-4000
-3000-2000
-1000
0
1000
2000
3000
4000
5000
6000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Thousand Tons
Net Exports
Net Imports
O f COl fi M k t C l i
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Olefins Market ConclusionsOlefins Market Conclusions
Recovery continues; supported by renewed economic andmanufacturing sector growth
U.S. remains key supplier of propylene to the rest of theworld, Asia remains critically short of propylene
Regional competitive positions will shift with crude andnatural gas price volatility
Restraint on new investments and focus on closures andfeedstock flexibility in high cost regions, investments
continue in low cost regions
Global shift in supply chain has changed regional growthscenarios