Could coal be the answer to global plastics shortages

transcript

Could coal be the answer to global plastics shortages? Ben Gonzalez May 7, 2015

• The CTO/MTO process

• CTO/MTO Economics

• Current Status – Projects

• Impact on the global ethylene feedstock slate

• Impact on PE and PP fundamentals

• Conclusions

Outline

Petrochemical Value Chain

Refining

Gas Processing

Olefins

Aromatics

Cracker Feedstock

Crude Oil

Associated Gases

Ethane

Propane

Butane

Methane

Naphtha Steam Cracking

Ethylene

Propylene

Butadiene

Raffinate-1

Benzene

Toluene

Xylene

NaphthaCatalytic

ReformingReformate

Gas Oil

Natural Gas NGLs

Ethane

Propane

Butane

Natural Gasoline

Methane

StyreneEthylbenzene

Polypropylene

Cumene

Polystyrene

Polyethylenes

Methanol

Vinyl Chloride Monomer

EthyleneDichloride

Phenol

Acetone

P-Xylene

Ethylene Oxide

PETPTA

Ethylene Glycol

-33%-13%

-13%-5%

Petrochemical Value Chain - Price DeltasAvg Asia Monthly Prices Current vs. June 2014

Coal Syngas

C4 Stream

Polymers

CTO/MTO

Source: Platts, Platts Analytics

China’s Position – CTO/MTO

• China’s shortage of ethylene and propylene • Difficulty of importing olefins • Demand growth for PE and PP • Naphtha crackers too dependent on imports • Coal price advantage • CTO process proven successful in 2011

Why CTO/MTO?

Asia PE Outlook

CTO/MTO Process

• Coal gasification, syngas cleaning, methanol synthesis, olefins polymerization. • Coal is synthesized in a gasifier to produce the synthetic gas • Syngas is then converted into methanol • Transformation into olefins

CTO/MTO Process

History • In the 1990’s UOP and Norsk Hydro developed the MTO

technology and was integrated with the Total/UOP olefin cracking process for the basis for advanced MTO.

• In 2009, TOTAL constructed the first fully integrated MTO demo plant in Belgium.

• In 2011, Wison (Nanjing) Clean Energy Corp announced that they would use the UOP MTO process to produce ethylene and propylene, started up in 2013

Process • Methanol feed is preheated and introduced into the

reactor. The catalyst (proprietary) is circulated to the fluidized bed regenerator.

• Reactor effluent is quenched to separate water from the gas stream.

• Gas is compressed • Effluent is processed in fractionator and purifier removing

contaminants and separating olefins (ethylene and propylene) from byproducts (C4 and C6).

UOP/Hydro MTO Process

History • The DMTO technology was developed by the Dalian

Institute of Chemical Physics (DICP), Chinese Academy of Science (CAS) in 1991.

• In 2006, DICP, Lyoyang Petrochemical Engineering Company of Sinopec, and Shaanxi Xinxing Coal Chemical Industry constructed a 16.7 k mt demo plant.

• In 2009, an agreement was signed between CAS and LUMMUS to allow LUMMUS to act as the exclusive agency of DMTO marketing and licensing.

• DMTO-II, based on DMTO technology, was developed by Shaanxi Coal (SCCTEC) joinlty with Sinopec Lyoyang. Testing was completed in 2009.

• In 2010, the Shenhua Baotou plant successfully started up its DMTO plant.

• In 2014, the first DMTO II plant was started by Pucheng Clean Energy.

Process • Involves two reactions of methanol conversion and the

reconversion of by products, both using the same catalysts.

DMTO Process

History • Sinopec S-MTO was developed by Sinopec and Beijing Yanshan Petrochemical • In October 2011, a plant using the S-MTO process was set up in the 600k mt/year

Sinopec Zhongyan plant Process • Methanol feed is preheated and introduced into the reactor. The catalyst (proprietary),

based on SAPO-34, is circulated to the fluidized bed regenerator. • Reactor effluent is quenched to separate water from the gas stream. • Gas is compressed • Effluent is processed in fractionator and purifier removing contaminants and separating

olefins (ethylene and propylene) from byproducts (C4 and C6). • Converts methanol to ethylene and propylene at above 80% carbon selectivity

Sinopec SMTO Process

• CTO – High return on investment – Larger projects result in more jobs – CO2 and water resource challenges

• MTO – Provides private entry into olefins market – Viable at smaller capacities – C02 implications relatively small – Exposure to merchant methanol pricing

CTO v MTO

• Movement away from oil feedstock – Oil imports account for about 60% of China’s demand

• Coal mining diversification as traditional downstream coal demand levels off – More than 70 per cent of China's miners are losing money

(China Coal Industry Association)

• Power generators looking for non-regulated investments with higher margins

• Job creation in poor regions

Reasons For China MTO/CTO Investment

CTO/MTO Challenges

Water Issues

Source: MEDIUM-TERM COAL MARKET REPORT 2013, IEA

- Theoretical consumption: 15-20t water/ton of ethylene (4x that of traditional refinery routes)

- Actual consumption in Shenhua Baotou CTO: 31t water/ton of ethylene

- Most coal rich regions are water scarce

- Must consider the availability and cost of water

Source: MEDIUM-TERM COAL MARKET REPORT 2013, IEA

Far from Markets

10%15%20%25%30%35%40%45%50% Production

Consumption

China Methanol Production and Consumption by Region

Source: World Energy Council- Survey of Energy Resources

CO2 Price Could Hit CTO Margins (Ethylene Output Only)

Source: Platts

Challenges

•High Capital Costs •Consumes ~40 mt of fresh water to produce 1 mt of olefins •Water depleted in production regions •Near coal mines away from coast •MTO projects relies on imports

Benefits

• Lower Feedstock (Coal) Prices • Lower cash cost for producing

1 mt of ethylene • Higher return on investment • Abundant feedstock for CTO

projects

Challenges to CTO/MTO

CTO/MTO Economics

CTO/MTO Cost Structure

Inner Mongolia Self-owned mine Apr-15 Jun-14 Eastern China naphtha cracker Apr-15 Jun-14

Feedstock Cost Naphtha Feedstock CostCoal Price ( ex-plant) $ 40.71 $ 45.60 Naphtha price (ex-plant) $ 574.88 $ 991.63

Coal Consumption per/ton MeOH 1.4 1.4 Naphtha consumption per ton olefins 2 2Methanol Consumption per/ton olefins 3 3

Total Feedstock Cost per ton olefins $ 170.97 $191.50 Feedstock cost per ton olefins $1,149.76 $1,983.26 Co-Products Co-Products

Total co-product credits $ 111.55 $162.95 Total co-product credits $ 644.28 $ 872.67 Electricity Electricity

Total electricity cost per ton olefins 109.2 109.2 Total electricity cost per ton olefins $ 22.15 $ 22.15 Depreciation and Labor Depreciation and Labor

Total depreciation and Labor $ 96.00 $ 96.00 Total depreciation and Labor $ 54.40 $ 54.40 Water cost Water Cost

Total water cost $ 33.60 $ 33.60 Total water cost $ 4.99 $ 4.99 Effluent treatment cost Effluent treatment cost

per ton olefins $ 18.24 $ 18.24 per ton olefins $ 2.50 $ 2.50 Others Others

others $ 132.80 $132.80 others $ 159.36 $ 159.36 Transportation cost for olefins product Transportation cost for olefins product

Transportation cost per ton olefins $ 91.20 $ 91.20 Transportation cost per ton olefins 0 0Total production cost per ton olefins $ 540.45 $509.59 Total production cost per ton olefins $ 748.88 $1,353.99

Coal vs. naphtha: A comparison

Cost Curve

Based on Average April Price

Thousand MT/Year Olefin Ethylene Capacity

Olefin Production Margins

Global Ethylene Prices

Source: Platts

Current Status

What Currently Exists in China?

Ethylene MT Cracker 19,061,000 CTO/MTO 3,250,000 22,311,000 Propylene Cracker 9,066,453 PDH 1,500,000 CTO/MTO 3,135,000 13,701,453 Total Olefin 36,012,453

Ethylene MT Cracker 20,061,000 CTO/MTO 5,601,000 25,662,000 Propylene Cracker 9,066,453 PDH 3,350,000 CTO/MTO 5,745,000 18,161,453 Total Olefin 43,823,453

Non-Refinery base Olefin Capacity - 2014

Non-Refinery base Olefin Capacity - 2015

Future Projects and Outlook

CTO/MTO Projects

• In our forecast we are tracking around 32 CTO/MTO projects scheduled to come on stream by 2020

• Most starting up in 2014, 2015, and 2016 • The bulk of the CTO/MTO ethylene projects are expected online by 2018 • ~34% of future production of ethylene is at risk

What Could Happen?

Source: Platts

Impact of Ethylene Production and Feedstock

Asia Ethylene Production

China Ethylene Production

China’s Feedstock Landscape Will Change If Projects Come To Fruition

Source: Platts

12.3 million mt of propylene 18 million + mt of ethylene

Ethylene Produced from - 2014 Chinese Ethylene Capacity

Additions by Feedstock

Ethylene produced from - 2024

Future Capacity Additions

Impact on Feedstock Globally

Impact On The PE and PP Market

Global PE Picture

• We expect demand for PE in North America to reach 16.2 million mt in 2015.

• We expect production to reach ~19 million mt, resulting in a surplus of 2.8 million mt.

• The largest surpluses will reside in HDPE and LLDPE

• The major destination will be South America, followed by Asia and then Western Europe

• Largest PE Plants – CP Chemical Pasadena, Texas, US –

990 k MT/Yr HDPE – LyondellBasell La Porte, Texas, US –

555 k MT/Yr LDPE – Dow Fort Saskatchewan, Alberta,

Canada – 880 k MT/Yr LLDPE

North America

• Trade Partners – South America

• Brazil • Colombia • Peru • Chile

– Asia • China • Singapore

New Capacity

Total 7,915 HDPE 3,312 LDPE 1,420 LLDPE 3,183

• We expect demand for PE in Europe to reach 16.7 million mt in 2015.

• We expect production to reach ~15.2 million mt, resulting in a deficit of 1.5 million mt.

• LLDPE to show the strongest growth in Western Europe

• LDPE will switch to a deficit market in the medium term

• Western Europe will be the driver to the PE deficit in Europe

• HDPE and LLDPE will remain in a deficit market

• The major capacity additions will be in Russia • Largest PE Plants

– LyondellBasell Wesseling, Germany 770 MT/Yr HDPE

– SABIC Geleen, Netherlands – 480 k MT/Yr LDPE

– Dow Terneuzen, Netherlands – 655 k MT/Yr LLDPE

Europe

• Trade Partners – Middle East

• Saudi Arabia • Qatar • Iran

– Americas • US • Brazil

New Capacity

Total 5,760 HDPE 3,205 LDPE 800 LLDPE 1,755

• We expect demand for PE in the Middle East to reach 5.7 million mt in 2015.

• We expect production to reach ~15.9 million mt, resulting in a surplus of 10.1 million mt.

• Major capacity additions will be in Iran, Oman and Saudi Arabia

• The region’s surplus to remain above 10 million mt post 2014

• The largest surpluses will reside in LLDPE • The main export markets will be Asia, Europe,

and Africa • Largest PE Plants

– Yanpet Yanbu, Saudi Arabia 535 kMT/Yr HDPE

– Qapco Mesaieed, Qatar – 700 k MT/Yr LDPE

– Sharq Eastern Petrochemical Al Jubail, Saudi Arabia – 1,150 k MT/Yr LLDPE

Middle East

• Trade Partners – Asia

• China • India

– Western Europe • Turkey • Italy • Belgium • Spain

New Capacity

Total 9,830 HDPE 3,820 LDPE 2,520 LLDPE 2,540

• We expect demand for PE in Asia to reach 40.7 million mt in 2015.

• We expect production to reach ~34.6 million mt, resulting in a surplus of 6.1 million mt.

• Asia is expected to be in growing deficit driven by China and India, the majority by China

• The majority of capacity additions will be via coal in China, capping deficits in the short to medium term

• The Middle East will remain the dominant supplier to Asia, especially China

• Largest PE Plants – Thai Polyethylene SCG, Map Ta Phut,

Thailand 1,280 (980 + 300) k MT/Yr HDPE – BASF-YPC Nanjing, China – Sinopec Beijing Yanshan PC, Beijing,

China – 400 k MT/Yr LDPE – ExxonMobil Jurong Island, Singapore –

1,900 (600+650+650) k MT/Yr LLDPE

• Saudi Arabia • Iran • Qatar • UAE

– North America • US

• Production expected to be 15 million mt • Demand expected to be 22 million mt,

resulting in a deficit of ~7 million mt. • Largest PE Plants

– PetroChina Fushun PC 350k MT/Yr HDPE – SINOPEC Maoming PC 350k MT/Yr HDPE – BASF-YPC – 400 k MT/Yr LDPE – SINOPEC Beijing Yanshan PC– 400 k MT/Yr

LDPE – PetroChina Daqing PC – 625k MT/Yr LLDPE

• Trade Partners

– Middle East • Iran • Saudi Arabia • UAE • Qatar

– Asia • South Korea • Thailand • Malaysia • Japan

New Capacity

Total 15,322 4,945 HDPE 5,330 2,075 LDPE 2,712 180 LLDPE 7,280 2,690

CTO/MTO

Global PP Picture

• Production expected to be 7.9 million mt

• Demand expected to be 7.6 million mt, resulting in a small surplus.

• Rextac Odessa PP plant scheduled to come online in 2017 is expected to be the only new plant in NA

• US largest producer with capacity of 8 million mt/year.

• Largest PP plant – ExxonMobil Baytown, Texas, United

States – 800k mt/year – Braskem Sao Paulo, Brazil – 800k

mt/year

North America PP

• China

• Production is expected to be 10.5 million mt

• Demand is expected to be 10.4 million mt, resulting in a small surplus.

• Eastern Europe will account for all of the new PP capacity.

• Germany is the largest producer with a capacity of 2 million mt/year.

• Largest PP plant – Total Feluy, Belgium – 910k mt/year

Europe PP

• Saudi Arabia – Asia

• India • S. Korea

New Capacity

Total 1,900

• Production is expected to be 8.2 million mt

• Demand is expected to be 3.8 million mt, resulting in a massive surplus of roughly 4.4 million mt

• The majority of PP will go to Asia • Oman, Qatar, Saudi Arabia and Iran

will see PP investments • The laregest producer in the region is

Saudi Arabia with roughly 5.3 million mt/year

• Largest PP plant – Ibn Zahr Al Jubail, Saudi Arabia –

1,220k mt/year

Middle East PP

• China – Western Europe

• Turkey • Italy • Belgium

New Capacity

Total 2,025

• Demand expected to be 34.4 million mt, resulting in a deficit of roughly 2.8 million mt

• China accounts for most of the new PP projects followed by India and Indonesia

• China accounts for more than half of Asia PP demand

• South East Asian countries will experience higher demand increases.

• The largest producer in the region is China with a capacity of 18.6 million mt/year

• Largest PP plant – ExxonMobil Pulau Ayer Chawan, Jurong

Island– 885k MT/Year

Asia PP

• Saudi Arabia • UAE • Oman • Kuwait

• Demand expected to be 20.2 million mt, resulting in a deficit of roughly 4.4 million mt

• Largest PP plant – Shenhua Group Ningdong, Ninxia–

1,000k MT/Year • Trade Partners

– Asia • South Korea • Singapore • India • Thailand • Japan

– Middle East • Saudi Arabia • UAE • Oman • Qatar

China PP

New Capacity

Total 17,940

• The economics show the feasibility of building CTO/MTO projects

• We are currently tracking 32 CTO/MTO plants, 9.9 million mt of ethylene and 9.8 million mt of propylene.

• All of these should be operating by 2018.

• Coal will account for the highest growth of ethylene production on a percentage basis.

• For Polyolefins, the Middle East and the US are the world suppliers. The global demand centers are in Asia, Europe, and South America.

Conclusions

Source: Platts, EIA

Global Polyolefins Report (GPO)

Thanks! Ben.Gonzalez@platts.com

Could coal be the answer to global plastics shortages

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