will the shale wave rewrite the future of styrene and

No content below the line No content below the line

WILL THE SHALE WAVE REWRITE THE FUTURE OF STYRENE AND FEEDSTOCKS?

Genevieve Soong, Senior Editor

APIC 2017, Sapporo, Hokkaido

Prepared by:

S&P Global Platts


Petrochemicals

(..AND WHILE WE’RE AT IT) COULD THE ASIA-US ARBITRAGE RIDE THE SHALE WAVE?

Rare Asia to US Styrene arbitrage opens after 10 years

-200

0

200

400

600

800

1000

0

200

400

600

800

1000

1200

1400

1600

1800

2000$/mt

FOB USG-FOB Korea Margin

Styrene FOB Korea Marker

Styrene FOB USG

US SM prices soared to

30-month high amid T/A,

sudden outages

Feb saw the first

opportunity to ship SM to

the US from Asia in

almost a decade

Source: S&P Platts

Private & Confidential


Petrochemicals

Private & Confidential 3

AGENDA

Shale – a harbinger of light feeds

• Will the influx of NGLs erode preference for naphtha?

• Could domestic c2 capacity growth in Asia lead to self-sufficiency?

Global benzene movements

• How will the global benzene trade map change?

• Is NE Asia feeling the heat from new capacities?

Winds of change in the styrene market

• Can China keep up with SM expansions?

• Could the rare reverse arbitrage become the new normal?



Styrene Monomer

Benzene

Ethylene

Shale Shale – a harbinger of light feeds

Will the influx of NGLs erode preference for

naphtha?

Could domestic capacity growth in Asia lead to

self-sufficiency?


Petrochemicals


SHALE GAS LEADS TO AN INFLUX OF NGLs ETHANE AND PROPANE DISPLACE NAPHTHA IN NORTH AMERICA

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

‘000 bbl/d

Naphtha Ethane Propane Butane Gas Oil

Source: S&P Platts Analytics


UPSURGE OF US CAPACITIES ON ETHANE FLOOD


NORTH AMERICA ETHYLENE CAPACITIES INCREASE RAPIDLY

Petrochemical

Private & Confidential 6 Private & Confidential 6


0

5

10

15

20

25

30

35

40

45

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Mill

ion

mt/

year

North America Ethylene Prodction

Gas Oil Butane Propane Ethane Naphtha


Petrochemicals


US ETHYLENE GAINS ON LOW-COST FEEDSTOCK

-100

100

300

500

700

900

1,100

1,300

1,500

Middle EastEthane

Saudi Ethane US Ethane WE Naphtha SE AsiaNaphtha

NE AsiaNaphtha

NE Asia GasOil

CTO MTO

$/mt Ethylene Production Cost

Jun-14 Mar-17


$304.65

$437.97 $465.31


Petrochemicals


GLOBAL ETHYLENE PRODUCTION COST CURVE BASED ON JANUARY 2017

-

200

400

600

800

1,000

1,200

- 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

$/mt

Cumulative Capacity ('000 MT)

NE Asia ethylene- $1,140/mt

NWE ethylene- $935/mt

USG ethylene- $711/mt

Saudi Ethane – $135/mt

US Ethane – $320/mt SE Asia Naphtha – $359/mt

NE Asia Naphtha – $393/mt

WE Naphtha – $574/mt

Global Ethylene Demand: 151 million mt/year



COULD US-ASIA ETHYLENE SPREAD WIDEN FURTHER ON SHALE DELUGE?


Petrochemical

0

400

800

1200

1600

2000

CIF NWE FD USG CFR NE Asia

-600

-400

-200

0

200

400

600

800

USG-Asia arbitrage EU-Asia arbitrageSource: S&P Platts


COULD INCREASING ASIAN CAPACITIES SPELL THE END FOR US-ASIA ARBITRAGE?


Petrochemical

-

10

20

30

40

50

60

70

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Mill

ion

mt/

year

Asian Ethylene production

Methanol Coal Gas Oil Butane Propane Ethane Naphtha



ASIA TAKES MATTERS INTO ITS OWN HANDS


Petrochemical


ASIA CONTINUES TO BUILD NAPHTHA CRACKERS

Location Company Capacity (kta) Start up

China (Zhangzhou) Sinopec Gulei JV 800 2018

China (Quanzhou) Sinochem Quanzhou PC 1000 2019

China (Huizhou) CNOOC Shell PC 950 2019

China (Zhanjiang) Sinopec -KPC 1000 2020

India (Dibrugarh) Brahmaputra Cracker and Polymers 221 2016

India (Dahej) Oil and Natural Gas Corp 1050 2016

India (Jamnagar) Reliance Industries 1460 2017

Indonesia (Merak) PT Lotte Chemical Titan 700 2018-2019

Indonesia (Balongan) PTTGC Pertamina 1100 2023

Malaysia (Pengerang) Petronas Chemical (RAPID) 1200 2020-2021

Total capacities 9481


CAN CHINA MAINTAIN HIGH DEMAND FOR ETHYLENE?


Petrochemical

0

200

400

600

800

1000

1200

1400

1600

1800

2012 2013 2014 2015 2016 2017

kt

Middle East Europe South America Southeast Asia North America

Singapore Taiwan Korea Japan

INCREASE DOMESTIC SUPPLY COULD CURB IMPORTS

Source: China customs data

2017 YTD


TAIWAN TAKES A BIGGER SLICE OF THE US PIE


Petrochemical

0 50 100 150 200 250 300 350 400

2012

2013

2014

2015

2016

kt

Yearly imports into Taiwan

Korea

Japan

United States

Southeast Asia

Middle East

Europe

Others

United States

SE Asia Europe

Saudi Arabia

Japan Korea

2017YTD

Source: Taiwan customs data

REMAINS NET IMPORTER WITHOUT NEW CRACKER PLANS



Shale impact on ethylene

2017-2019: US C2 price falls

on increase in capacity

US exports limited due to restriction in

logistics

More ethylene for US SM

Asia SM could lose C2 as price support factor

post-2020

2017-2018: Asia C2 retains high prices on net shortage

2019-2020: Asian C2 price down on new

capacities

ETHYLENE OUTLOOK



Styrene Monomer

Benzene

Ethylene

Shale Global benzene movements

How will the global benzene trade map changed?

Is NE Asia feeling the heat from new capacities?


Petrochemicals


THE WEST INCREASES BENZENE DEMAND ON SHALE WAVE

(2,000)

(1,500)

(1,000)

(500)

-

2015 2016 2017 2020

kta

WESTERN EUROPE

(2,000)

(1,500)

(1,000)

(500)

-

2015 2016 2017 2020

kta

AMERICAS

-

500

1,000

1,500

2,000

2015 2016 2017 2020kta

MIDDLE EAST

-

500

1,000

1,500

2,000

2015 2016 2017 2020

kta

ASIA


GLOBAL BENZENE TRADE BALANCE


Petrochemicals


WILL CRUDE PRICES REMAIN LOW ENOUGH TO BOOST US BENZENE OUTPUT?

Source: S&P Platts Analytics, S&P Platts Analytics Bentek, PIRA

-$0.20

-$0.10

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$/l

b e

thyle

ne

US Cracker Margin

Ethane Propane Butane Lt Naphtha

0

2

4

6

8

10

12

mtp

a

US Refinery Production of Naphtha for Petchem


Petrochemicals


Source: Industry sources, AFPM

LACK OF NEW CAPACITES ADDS TO FALLING US BZ PRODUCTION

1,000

3,000

5,000

7,000

9,000

11,000

10,000

10,200

10,400

10,600

10,800

11,000

11,200

11,400

2014 2015 2016 2017 2018 2019 2020 2021

kta/year

North America South America

(000,000 gal) 2012 2013 2014 2015 2016

US total production 1607 1636 1587 1508 1461

US total inventory 363 382 377 412 443


Petrochemicals


US PYGAS OUTPUT STABLE AMID INCREASE OF LIGHTER FEED

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

lbs/d

Benzene Toluene Xylene Pygas



Petrochemicals


IS THE US PARTY OVER FOR NE ASIA BENZENE?

Source: S&P Platts, Industry sources

2015 1,984,560

Korea

Japan

Brazil

Netherlands

Belgium

Others

Korea

Japan

Brazil

Netherlands

Canada

Others

2016 1,621,296

2017YTD 275,603

Korea

Japan

Brazil

Netherlands

Canada

Others

0

500

1,000

1,500

2,000

2010 2011 2012 2013 2014 2015 2016 2017

kt

US imports breakdown by origin Others

South Asia

Middle East

Europe

South America

North America

Asia


Petrochemicals


CAN ASIA RETAIN KEY SUPPLIER STATUS TO US?


0

100

200

300

400

500

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

kt Asia yearly imports into USGC

2017 2016 2015

-150

-100

-50

0

50

100

150

200

Asia-USG benzene arbitrage spread


Petrochemicals


MORE LPG IN WESTERN EUROPE REDUCES AROMATICS OUTPUT

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

‘000 mt per year

Other On-purpose Refinery Pygas



Petrochemicals



CLOSER SOURCES OF BENZENE FOR THE WEST

SADARA, Al Jubail Start-up: 2017 Benzene: 150,000 mt/year RLGAP, Ras Laffan

Start-up: 2020 Benzene: 890,000 mt/year

ChemaWEyaat, UAE Start-up: 2020 Benzene: 500,000 mt/year

Saudi Aramco, Ras Tanura Start-up: 2018 Benzene: 285,000 mt/year

Petro Rabigh II Start-up: end 2017-2018 Benzene: 170,000 mt/year

NEW BENZENE PLANTS IN ME, INDIA AS ALTERNATE CHOICES

Reliance, India Start-up: April 2017 Benzene: 500,000 mt/year


Petrochemicals



ASIA REMAINS UNDER EXTENDED SUPPLY PRESSURE

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

2014 2015 2016 2017E 2018E 2019E 2020E

Mil mt

China South Korea Asia

2015 2016 2017 2018 2019 2020 2021

+110kt +2018kt +1131kt +1240kt +1082kt +700kt +700kt

CAPACITIES IN CHINA EXPAND RAPIDLY

2017-2021: 4.15 mil mt

new benzene capacities



Shale impact on benzene

US, WE benzene

demand to grow on shale

domination

Export competition

increases between Asia,

ME

Paradigm shift of benzene

trade flows?

Asia’s extended supply length =

cheaper benzene?

More local consumption of

NE + SE Asia benzene

Enough benzene to

support Asia SM production

BENZENE OUTLOOK



… AND WHITHER SM?


Petrochemicals

CAN THE US-ASIA ARBITRAGE HOLD OUT AGAINST THE SHALE WAVE?

North America

0 400

2013

2014

2015

2016

kta

China

0 200 400

2013

2014

2015

2016

kta

Korea

Source: S&P Platts, China customs data, Korea customs data

South Korea 36%

Saudi Arabia 15%

US 13%

Taiwan 14%

Others 22%

3,498,549

US 47%

Japan 46%

Saudi Arabia

3%

Others 4%

806,175

2016 China's total import breakdown

2016 Korea's total import breakdown

Total SM exports from the US 2014: 1.85 mil mt 2015: 2.09 mil mt 2016: 2.10 mil mt



GLOBAL SM NET TRADE FLOW

-560

-550

-540

-530

-520

-510

-500

-490

-480

-470

-460

-450

2008 2010 2012 2014 2016 2018

Europe

0

200

400

600

800

1000

1200

1400

1600

1800

2008 2010 2012 2014 2016 2018

-1000

-900

-800

-700

-600

-500

-400

-300

-200

-100

0

2008 2010 2012 2014 2016 2018

0

500

1000

1500

2000

2500

3000

2008 2010 2012 2014 2016 2018

N. America

S. America

ME

-4500

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

2008 2010 2012 2014 2016 2018

0

100

200

300

400

500

600

700

800

2008 2010 2012 2014 2016 2018

0

200

400

600

800

1000

1200

1400

1600

2008 2010 2012 2014 2016 2018

China

Korea

Japan

Surplus

Deficit

-6000

-4000

-2000

0

2000

4000

6000

2012 2013 2014 2015 2016 2017 2018

Global SM net balance Malaysia

Europe

India

S. America

China

Korea

Singapore

Japan

N.America

ME

kt

Source: METI


HOW MUCH MORE CAN US BOOST SM PRODUCTION BY? Petrochemical

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016

'00

0 lb

s

EB production SM production SM Inventory

Source: AFPM


OUTPUT MAXIMIZES ON MINIMAL GROWTH IN SM CAPACITY

Petrochemical

0

1000

2000

3000

4000

5000

6000

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

2014 2015 2016 2017 2018 2019 2020 2021

kta

North America South AmericaSource: Industry sources

2015: Amsty increases

capacity by 50kta

2021: Pemex increases capacity by 35kta

US total Styrene production capacity


ARE US MARGINS SUSTAINABLE TO PROMOTE HIGHER OUTPUT? Petrochemical

-200

0

200

400

600

800

0

500

1000

1500

2000Non-integrated Margin

Margin Ethylene FD USG Benzene FOB USG ($/mt) Styrene FOB USG ($/mt)

-200

0

200

400

600

800

1000

0

500

1000

1500

2000 Integrated Margin

Margin Naphtha Cargo FOB US Gulf Coast $/MT Styrene FOB USG $/mt

Source: S&P Platts


COULD CAPACITY GROWTH IN ASIA SHUT THE US-ASIA ARBITRAGE?

Petrochemical


0

5,000

10,000

15,000

20,000

25,000

30,000

2014 2015 2016 2017 2018E 2019E 2020E 2021E

kta Asian Styrene production

SE Asia NE Asia China

+565kt

+1805kt +990kt

+2880kt

2012 2013 2014 2015 2016 2017YTD

China total imports 3,336,775 3,675,041 3,676,954 3,744,363 3,498,549 541,424

2017-2021: 4.99 mil mt of new demand for benzene

-600kt


WILL CHINA’S MACROECONOMIC FACTORS WEIGH ON DIRECT CONSUMPTION?


Petrochemicals

46

51

56

Jan 12Apr 12Jul 12Oct 12Jan 13Apr 13Jul 13Oct 13Jan 14Apr 14Jul 14Oct 14Jan 15Apr 15Jul 15Oct 15Jan 16Apr 16Jul 16Oct 16Jan 17Apr 17

China PMI

99

100

101

102

103

2014 2015 Jan 16 Feb 16Mar 16 Apr 16May 16Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16Dec 16 Jan 17 Feb 17Mar 17

China CPI

6

7

8

2014 2015 2016 2017E 2018E 2019E

China GDP



GOOD MARGINS IN ASIA COULD FUEL PRODUCTION

Petrochemical

-100

0

100

200

300

400

500

600

700

0

200

400

600

800

1000

1200

1400

1600

1800

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17

Margins (-450) Margins (-500) Styrene FOB Korea Marker LC 90 days Naphtha C+F Japan Cargo

Integrated

2017-Q1 Ave Margin $327.71/mt


-50

0

50

100

150

200

250

0

500

1000

1500

2000

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17

Margin Benzene FOB Korea Marker Ethylene CFR NE Asia Styrene FOB Korea Marker LC 90 days

Non-Integrated



Source: S&P Platts


WHAT SUPPORTS ASIA SM? Petrochemical

0.93 0.87 0.85 0.85 0.85

0.81 0.78

0.69

0.57

0.48

0

0.2

0.4

0.6

0.8

1

1.2

Ethylene CFRNE Asia

EPS F-R FOBNE AsiaWeekly

HIPS CFRChina Weekly

PS G-P CFRChina Weekly

Benzene FOBKorea Marker

ABS Inj CFRChina Weekly

Toluene FOBKorea Marker

ParaxyleneFOB Korea

Marker

Naphtha C+FJapan Cargo

ICE Brent atSingaporeMOC Mo01

Correlation Coefficient

2014 2015 2016


CAN NE ASIA REMAIN KEY EXPORT DESTINATION FOR US SM?

Petrochemical

0 500 1000 1500 2000 2500

2012

2013

2014

2015

2016

2017YTD

kt

US SM export breakdown by origin

Northeast Asia North America Europe

South America Others

Source: US International Trade Commission

-400

-300

-200

-100

0

100

200

300

1/2/2013 1/2/2014 1/2/2015 1/2/2016 1/2/2017

US arbitrage spreads

US-EU arbitrage US-Asia arbitrage



2018-2019: US C2 prices fall as more capacities start-up

2020: Possibly more US c2 to Asia with new export terminals

Benzene prices remain under pressure of

oversupply in Asia, ME

Rapid growth in China SM production could reduce US-Asia

arbitrage

Reverse arbitrage will not become norm as US is still net long in SM

Global SM production costs will fall on lower c2, and benzene prices

KEY TAKEAWAYS

**Reverse arbitrage to possibly occur when: 1) T/A season, 2) Lack of BZ, 3) Asia SM is cheaper


THANK YOU Editorial- Genevieve Soong [email protected] Pamela Sumayao [email protected]

will the shale wave rewrite the future of styrene and

Documents