october 2016 feedstocks & the impact on global … · © 2016 ihs. all rights reserved. global...

© 2016 IHS. ALL RIGHTS RESERVED.

FEEDSTOCKS & THE IMPACT

ON GLOBAL METHANOL 34th IHS World Methanol Conference

OCTOBER 2016

Dewey Johnson, Vice President Base Chemicals

[email protected]

mailto:[email protected]

mailto:[email protected]

Contents


Global crude oil supply/demand outlook

Global natural gas supply/demand outlook

Global NGL supply/demand outlook

China Coal

WMC / October 2016


Global Crude Oil

Supply/Demand Outlook

WMC / October 2016


Where Will Future Oil Come From and How Much Will it Cost?

$0

$20

$40

$60

$80

$100

$120

0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000

Middle East Russia Algeria China

Brazil Kazakhstan North America—tight oil Canada oil sands—in situ

West Africa Norway and United Kingdom US—Gulf of Mexico Venezuela

Low

High

Typical

New supply is gross additions —with the exception

of tight oil and Canadian oil sands supply, which is

net additions.

● Supply depicted in this figure represents more

than 70% of total global supply from new projects.

Indicative cost curve of global crude oil supply from new projects in select areas to 2030

Source: IHS

Notes: See "assumptions"

note 1.

© 2016 IHS

2016 f

ull

-cycle

co

sts

in

term

s

of

Date

d B

ren

t (U

S$/b

bl)

New crude oil production (thousand barrels per day)

WMC / October 2016


Global Crude Prices Recover as Oil Supply/Demand Balances

Tighten

0

30

60

90

120

0

5

10

15

20

10 11 12 13 14 15 16 17 18 19 20 21

Crude Oil vs. Natural Gas

Natural Gas WTI Brent

Global Crude Oil vs. USGC Natural Gas

Source: IHS © 2016 IHS

$/B

arre

l, Cru

de

$/ M

MB

tu,

Natu

ral G

as

• Demand growth of 1.1-1.5 MMb/d from

2016-20 underpins oil market outlook.

• Oil prices remain low enough to force US

crude production lower.

• OPEC production remains high and surplus

capacity available from OPEC falls to

extremely low levels.

• Driven by power and LNG exports, North

American gas demand reaches 105 Bcf/d by

2020,.…tub

• N. American gas supply is plentiful and low

cost. Rapid demand growth leads to higher

natural gas prices, but remain under $4 per

MMBtu

5

WMC / October 2016


Key takeaways: Global crude oil supply, demand and trade

• After more than two years of over-supply, oil markets are finally reaching a rough

balance. But high inventories will prevent a rapid upward movement in prices

• We anticipate Brent will average $57/b in 2017, rising to $80/bbl by 2020 as demand

growth outpaces supply growth in the 2018-20 period and the impact of deep spending

cuts on production from longer lead-time projects comes into sharper focus

• Our long term forecast for Brent crude oil price now reaches $90/bbl in real terms by the

mid 2020s

• However, long-term Gulf-5 and US tight oil supply alone cannot offset base production

declines and meet future demand growth. New projects will need to be developed

elsewhere, including higher-cost areas

6


Global Gas & LNG

WMC / October 2016


Global gas snapshot – August 2016

WMC / October 2016

Key regional trends shaping the LNG market

© 2016 IHS

China slowdown;

strong coal

competition

‘Residual market’

for LNG

Ongoing cost

reductions

LNG imports

for power

Growing LNG

dependenceSupply surge;

CBM uncertainty

Nuclear policy

uncertainty;

solar uptick

East Africa

remains on

starting blocks

Growing gas surplus

capacity Canadian LNG

remains on starting

blocks

Gas Long

Gas Short


Key Messages

• Natural gas is a growth business

• Gas demand is expected to grow faster than oil or coal

• Gas supply is increasing its role in terms of reserves and production relative to oil

• However gas supply potential exceeds gas demand maintaining downward

pressure on returns through the chain

• ’ShaleylgnisaercnignimocebsiGNLSUdnasagelahsSU:’dedaoleRsaG

competitive in terms of costs and ease of execution

WMC / October 2016


Growth of Gas Depends on Pricing for the Power Market

WMC / October 2016

0

20

40

60

80

100

120

140

160

180

200

2015 2017 2019 2021 2023 2025 2027 2029

Residential Commercial Agricultural Transportation

Gas demand growth by sector: 2015 to 2030; Tcf

© 2015 IHS

Tcf

Notes: * Includes feedstocks.

**Includes energy sector uses, distribution losses and statistical differences. Negative

numbers may indicate use of synthetic fuels.

Source: IHS Energy

100 150 200

2015 Demand

Residential

Commercial

Agricultural

Transportation

Industrial

Electric power

Other

2030 Demand

Gas demand growth by sector2010 vs 2025

© 2015 IHSTcf

Source: IHS

Gas demand growth by sector2015 vs 2030

© 2015 IHSTcf

Source: IHS Energy


Natural Gas—the Growth Fossil Fuel

WMC / October 2016

0

1

2

3

4

5

6

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Oil Natural gas Coal Hydro Nuclear Renewables Other

Rivalry: Primary energy demand by fuel, 1990–2040

© 2016 IHS

Millio

n m

etr

ic t

on

s o

f o

il e

qu

ivale

nt

(MM

toe)

Share in 2015 Share in 2040

Source: IHS

Note: Oil includes international marine/aviation bunkers. Coal includes steam and coking coal. Renewables include solar, wind, geothermal, and tide/wave/ocean energy. Other

includes biofuels, solid waste, biomass, and net trade of electricity and heat.

1% 2% 5%

10%

22%

27%

32%

2%

5% 6%

10%

23%

25%

28%


On the supply-side, the industry is looking for oil and finding

predominantly gas

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Oil and condensate

Gas

Annual conventional oil and gas volumes discovered

Notes: Data excludes onshore Canada, US lower-48 onshore, and US shallow water.

Source: IHS Energy © 2016 IHS

Bil

lio

n B

arr

els

Oil

Eq

uiv

ale

nt

WMC / October 2016

2015 is the fifth straight year in which conventional gas volumes discovered exceeded oil

volumes

51%

43%

48% 46% 54%

46% gas

73% 59%

51%

53%

77%


Finding Opportunities in a Bear Market for LNG

• Supply capacity increasing by >40% in the next 5 years.

• Demand is weaker than anticipated in core importing markets.

• US LNG will help balance the oversupply in particularly towards the

end of the decade. European gas prices will limit how much US LNG

will be needed on the market.

• With LNG and gas prices lower for a longer, we expect a significant

slow down in new, large-scale liquefaction FIDs. A few smaller-scale

FLNG and brownfield projects will find a way to FID.

• Nevertheless, there will be intense supply competition at a time when

the buyer landscape is changing.

WMC / October 2016


Australia and US set to increase liquefaction capacity by ~50%

284 304

337 374

400 416 428

0

50

100

150

200

250

300

350

400

450

2015 2016 2017 2018 2019 2020 2021US Australia Other PacificOther Atlantic Middle East Southeast AsiaAfrica

Global liqefaction capacity

Note: MMt = Million metric tons of LNG


MM

t

-10

0

10

20

30

40

2015 2016 2017 2018 2019 2020 2021US Australia Other Pacific

Other Atlantic Middle East Southeast Asia

Africa

Incremental liquefaction capacity additions



MM

t

WMC / October 2016


Demand Growth Unable to Keep up with Supply Surge; Pressure

Mounting on Prices

0

100

200

300

400

2010 2012 2014 2016 2018 2020Other Other Asia MENA

South America North America Europe

JKT

Global LNG demnad



MM

t

-10

0

10

20

30

40

2015 2016 2017 2018 2019 2020 2021Other Other Asia MENA

South America North America Europe

JKT

Incremental LNG demand



MM

t

WMC / October 2016


Variable Cost of LNG: Mechanics of the Curve

-6

-4

-2

0

2

4

6

8

10

0 50 100 150 200 250 300 350 400

Variable cost curve US projects Integrated projects Transfer projects CBM projects Other projects

Short-run variable cost curve: Supply in 2020 (excluding non-FID projects)

Notes: FID = Final investment decision; CBM = Coalbed methane; costs represent delivery to the UK; to the regasification terminal point.


$/M

MB

tu

Total supply (MMtpa)

WMC / October 2016

• The variable cost curve for LNG indicates that most non-US producers will not

see a price signal to shut-in large volumes of production.


Europe’s availability will influence US LNG – which could see ~50%

of capacity un-utilized in some years

4 13

21 24 34 35

49 54 64 68

5

28

33 32 17 14

5 3

0%

15%

30%

45%

60%

75%

90%

105%

120%

0

10

20

30

40

50

60

70

80

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Un-utilized capacity Supply forecast % Utilization

US LNG capacity versus forecasted supply expectations

Notes: MMtons = Million metric tons of LNG


MM

ton

s

Pe

rce

nt

WMC / October 2016


How Do We Move From Here to There?

WMC / October 2016

2016-2017

• Low prices of low oil-indexed contract prices

• Floor set by the short-run marginal cost (SRMC) of non-US LNG <$4/MMBtu

2018-2020+

• Prices around ~$4/MMBtu

• coal/gas switching point

• Short-run marginal cost (SRMC) of US LNG

Post-2023

• Prices >$8/MMBtu based on the long-run marginal cost (LRMC) of LNG

Three periods of international gas pricing


Short-Term Price Outlook

WMC / October 2016

0

2

4

6

8

10

12

14

16

Jan-2008 Jan-2010 Jan-2012 Jan-2014 Jan-2016 Jan-2018 Jan-2020

Legacy contract price BAFA TTF Zeebrugge NBP Henry Hub

US and European gas prices (dollars per MMbtu)

Source: IHS Energy

US

do

lla

rs p

er

MM

Btu

(no

min

al)

© 2016 IHS


The opportunity gap for new LNG is small relative to massive scale

of proposed projects globally

293 270

202

43 88

145

37

115

150

200

250

300

350

400

450

500

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030Opportunity gap for all un-sanctioned projects

Total un-contracted LNG flows from existing and under construction projects

Contracted supply from existing and under construction projects

Contracted supply and viable un-contracted supply versus global LNG demand

Note: MMtpa = Million metric tons per annum of LNG


MM

tpa

WMC / October 2016


12

9

6

3

-3

-6

-9

-12Ave

rag

e b

reak

-eve

n H

enry

Hub

pri

ce ($

/MM

Btu

)

2,0001,5001,0005000

Tcf

0

Source: IHS Energy © 2016 IHS: 60204-1

Break-even price at Henry Hub for natural gas resources

Figure 3

1,400 Tcf <$4/MMBtu

Break-even price at Henry Hub for natural gas resources

© 2016 IHS

Source: IHS Energy

2016 shale gas reloaded update

1,400 Tcf North American supply at Henry Hub <$4

WMC / October 2016

Demand

to 2040

Demand

to 2025


The US is Increasing its Competitive Advantage LNG is generally cost competitive on a full cost basis with oil-indexed LNG when oil is higher than $50

0

2

4

6

8

10

$2.50 toll $3.00 toll $3.50 toll $2.50 toll $3.00 toll $3.50 toll $2.50 toll $3.00 toll $3.50 toll

US LNG at $2 Henry Hub US LNG at $3 Henry Hub US LNG at $4 Henry Hub

$/M

MB

tu

0.135 x $30/bbl 0.135 x $50/bbl 0.135 x $70/bbl

FOB cost comparison for US LNG versus oil-indexed LNG

Note: All US price scenarios are in $/MMBtu. Upstream costs include a 15% cost for pipeline transmission charges and losses. Lines indicated oil-index FOB costs which are a

products of slopes and oil prices.


WMC / October 2016


China Coal

WMC / October 2016


Key implications

• The underpriced coal prices in 2014 and 2015 have cut supply significantly by depressing imports and

squeezing small and local mines out of market, and led Chinese coal market into a destocking

process.

• Government intervened, through production cut of state-owned mines, which is the main reason for

the strong price recovery in 2016, although improved demand, speculation and oligopoly of state-

owned mines also contributed.

• Government intervention will continue to be the key influencing factor for coal prices and will keep coal

prices at a relatively stable level in the next three years.

• The pressure of overcapacity is expected to remain for the next decade at least.

• As an excessive price recovery will do harm to power sector and macro-economy.

• Government.level”elbanosaer“ataecirplaocehtpeekotyrasseceneblliwenevretni

24


Coal demand improved in 2016 owing to recovery of real estate

sector and seasonal reasons

-24%

-12%

0%

12%

24%

Jan-Feb May Aug Nov Mar Jun Sep Dec Apr Jul Oct Jan-Feb May

2013 2014 2015 2016

Coke Cement Thermal power generation

Monthly growth rate of production of key coal consuming products

Source: IHS Energy, National Bureau of Statistics © 2016 IHS

25


Production started significant drop owing to enhanced government

intervention since April 2016

-20%

-15%

-10%

-5%

0%

5%

Jan andFeb

Mar Apr May Jun Jul Aug Sep Oct Nov

2016 2015

2014 2013

China's monthly raw coal production growth rate

Source: IHS Energy, China Coal Transport and Distribution Association

Gro

wth

rat

e

© 2016 IHS

26


So government is designing more precise and efficient Intervene plan

• 74lortnocotlortnocnoitcudorplaocesicerpaeveihcaotdetcelesneebevahsenimlaoc”decnavda“

coal price fluctuation.

• Tier 1

• 74 mines nationwide will be allowed up to 0.5 mt/d extra when the Bohai-rim Steam-Coal Price (BSPI) Index is above

RMB500/t.

• This additional allowance remains in place until the price falls to RMB490/t and has been dropping for two weeks, at

which point Tier 2 comes into effect.

• Tier 2

• 66 mines in Shanxi, Shaanxi, Inner Mongolia, Shandong, Jiangsu, Anhui and Henan will be allowed up to 0.3 mt/d

extra when the price is above RMB480/t, but goes to Tier 3 immediately upon the price falling below RMB470/t

• Tier 3

• 53 mines in Shanxi, Shaanxi and Inner Mongolia will be allowed up to 0.2 mt/d extra when the price has been above

RMB460/t and rising for two weeks.

27


As a result, government intervene coal prices will stay at the a

relatively stable in the next few years

0

300

600

900

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Qinhuangdao FOB real Western Inner Mongolia real

China steam coal price outlooks

RMB/

met

ric to

n

Note: 5,500 kcal per kg NAR. Real prices are in constant 2015 RMB.

Source: IHS Energy, China Coal Transport and Distribution Association© 2016 IHS

28

october 2016 feedstocks & the impact on global … · © 2016 ihs. all rights reserved. global...

Documents