1 apic 2015_nexant_feedstock

Staying Competitive in a Feedstock Driven Market

Market Challenges and Implications of Evolving Megatrends

APIC ANNUAL MEETING, South Korea

7-8 May 2015

Clive Gibson

Vice President, Nexant

[email protected]

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Nexant Overview

A Global Advisor to the Energy & Chemicals Industry with Proven

Track Record

2

Headquarters Main Offices

Representative Offices

San Francisco Washington, DC

White Plains

London Frankfurt

Sao Paulo

Bahrain

Tokyo Seoul

Shanghai

Singapore

Kuala Lumpur Bangkok

Our People

Over 150 consultants

worldwide in Energy &

Chemicals Advisory

Expertise covering strategic,

commercial, operational and

technical aspects with deep

energy and chemicals sector

knowledge

Nexant’s consultants are

typically Chemical Engineers,

Economists and MBA graduates

who have significant prior

experience working at energy

& chemical producers

Proven Track Record

Advising clients in the energy &

chemicals industry for 50 years

Completed over 2,000 client

assignments including market

assessments, technology

evaluations, valuations /

appraisals and due diligence

Global Footprint

Strong international presence provides valuable insights through our consultants’ local

market knowledge and our vast network of sector specialists

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40

60

80

100

120

140

Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015

US

$ pe

r B

arre

l

What a difference a year makes

Brent Crude Oil Price Decline, mth average

Source: Nexant

5

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6

What a difference a year makes…..

Job Number

0

50

100

150

Bre

nt

Cru

de O

il U

S$/b

bl

0

500

1000

1500

Pro

ducts

US

$ p

er

ton

Q1 2014 Q1 2015

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0

25

50

75

100

125

0

25

50

75

100

1986 1990 1994 1998 2002 2006 2010 2014

Bre

nt c

rude

oil

pric

e U

S$/

bbl

She

ll E

BIT

DA

US

$ bi

llion

EBITDA Brent crude oil

7

Crude oil price continues to the key driver of profitability for

International Integrated Major Energy Players

Job Number

Company Performance with Crude Oil price

Source: Nexant, Company Results

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Advantaged refining and petrochemicals portfolios continue to

deliver reasonable returns across the industry cycle

Company Financial Performance by Sector - ExxonMobil

0

10

20

30

40

50

60

2001 2003 2005 2007 2009 2011 2013

Ret

urn

on A

vera

ge C

apita

l Em

ploy

ed

perc

ent

Upstream Downstream Chemicals

8

Source: Nexant, Company Results

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40

60

80

100

120

140

Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015

US

$ pe

r B

arre

l Lower oil prices to impact investments in several major

oil producing countries

Crude Oil Price Decline and its Impact

Source: Nexant / EIA

Iran

Venezuela

Libya

Russia

Saudi Arabia

Kuwait

UAE

Nigeria Iraq

Government Fiscal

Break Even - 2014

9

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-6

-5

-4

-3

-2

-1

0

1

2

3

Est

imat

ed C

hang

e in

GD

P, p

erce

nt

$40 Crude Oil $10 Decline in Crude Oil

Impact of oil prices on economies results in winners and losers

10

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Crude oil price drivers have shifted focus to marginal production

Indicative Simplified Crude Oil Production Cost Curve

0 10 20 30 40 50 60 70 80

Pro

duct

ion

Cos

t ($

per

barr

el)

Production (milion barrel per day)

Sau

di A

rabi

a

Oth

er O

PE

C

Rus

sia

US

exc

l. S

hale

Kaz

akhs

tan

Chi

na

Nor

way

Oth

er n

on-O

PE

C

US

Sha

le

Bra

zil

Mex

ico

Can

ada

Oil

San

ds

11

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0

20

40

60

80

100

120

1980 1990 2000 2010 2020

US

$/bb

l

History May-15 Feb-15 Jan-15 Nov-14 May-14

Futures Curve

Oil price futures – an indication of market sentiment

Brent Oil Price ($/bbl) and Recent Futures Evolution

12

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Uncertain times – but sources of competitive advantage

remain clear and robust in refining and chemicals sectors

PARAMETER KEY OBJECTIVES

Size

Location

Configuration

Integration

Capture economies of scale

Access to low cost feedstocks/

deficit markets

Cost advantage/ product

differentiation

Synergies with adjacent facilities

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-2

0

2

4

6

8

10

12

2000 2004 2008 2012

US

$ pe

r ba

rrel

Asian refining margins improved significantly in late 2014/early 2015

Hydroskimming

Complex

Singapore Gross Refining Margins

Dubai Crude – annual average

14

Sources of Competitive Advantage - 2014

Size Location Configuration Integration

1Q2015

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Refinery investments remain focused in China and Middle East

15

Bubble size – scale of total capacity additions

Global Refinery Capacity Changes 2014-2017

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Ethylene margins have improved in Asia but remain behind cost

advantaged regions

0

20

40

60

80

100

120

140

2007 2008 2009 2010 2011 2012 2013 2014

Naphtha Cash Margin US Cash Margin Brent Crude Oil

Source: Nexant

Olefins Cash Margin Index

Brent C

rude Oil $/barrel

16

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0

500

1000

1500

2000

2500

3000

0 50 100 150 200

Eth

ylen

e C

ash

Cos

t (C

urre

nt U

S d

olla

rs p

er to

n et

hyle

ne)

Ethylene Cumulative Capacity (million tons)

Oil Price

(US$ per bbl)

140

100

70

50

Lighter feedstocks

Liquids cracking

Petrochemicals feedstock cost advantages remain at

lower oil prices but are substantially reduced

Global ethylene production cost curves versus crude oil price

17

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0

5

10

15

50 100

Gas

Pric

e U

S$/

mm

BT

U

Brent Crude Oil Price US$/bbl

0

50

100

150

50 100

Coa

l Pric

e U

S$/

ton

Brent Crude Oil Price US$/bbl

18

Price volatility introduces uncertainty in assessing the benefits of

alternative feedstocks

APIC 2015

Gas Advantage

Liquids Advantage

Indicative Breakeven production costs

Ethane vs Naphtha

Coal vs Naphtha

Coal Advantage

Liquids Advantage

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NAM 27%

ME 25%

China 32%

Other 16%

Significant new ethylene capacity anticipated in the next decade

requiring a diverse mix of feedstocks

Ethylene Capacity Drivers

232

0

50

100

150

200

250

2014 2025

Mill

ion

tons

Source: Nexant

19

Ethylene Capacity Additions by Region

Key Sources of Value Differentiation

Feedstock sourcing

Integration

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20

Regional petrochemicals trends –

Changing dynamics but familiar themes

Job Number

US

Middle East China

Lighter feedstocks

Export markets

Capital costs

Product differentiation

Diversified feedstocks

Economic growth

Environmental issues


Heavier feedstocks

Export markets

Integration


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ME focusing on integration to maintain sources of competitive advantage

and capture through the value chain

Source: Nexant

0

20

40

60

80

100

15

20

25

30

Increasing Project C

AP

EX

Increasing Project Complexity

Ethane

with PO

E/P

with PO

E/P, PO &

C3 derivs

Plus

C4 derivs

Incr

easi

ng R

etur

n on

Inve

stm

ent

0%

25%

50%

75%

100%

2007 2012 2020

Ethane Propane Butane Naphtha

Impact of Derivatives on Complex Economics ME Ethylene Production by Feedstock

21

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Over 50 Coal based projects focused in China

Phase 1: Coke Based Phase 3: New Technology Phase 2: Syngas

Acetylene based

VCM

Benzene

Methanol/Ammonia

MTO/MTP

MEG via oxalate ester

Acetyl to ethanol

Methanol to PX

22

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Many projects in implementation phase but facing increasing

challenges

CTO CTMEG MTO

Major Development Trends

Opportunity to valorise “stranded coal”.

Coastal projects importing methanol

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Sector Challenges

Environmental issues

Capital cost

Production cost competitiveness

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US ethane exports to supplement LPG for some seeking sources of

petrochemicals feedstock cost advantage

Sunoco Logistics & Enterprise:

First movers in establishing US

ethane export terminals.

INEOS, SABIC and Borealis:

Installing ethane receiving terminals

Reliance: long-term shipping

agreements to transport ethane.

Target is 1.5 million tpa.

24

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Increased requirement for on-purpose production shifts propylene

balance away from conventional production routes

Global Propylene Capacity Development by Feedstock/Technology

Source: Nexant

(million tons per year):

0%

25%

50%

75%

100%

2010 2015 2020

Cracker Refinery On-Purpose

Incremental supply from co-product sources continuing to be

insufficient to balance propylene demand growth.

2010 2015 2020

Cracker:

2010 2015 2020

Refinery:

2010 2015 2020

On-Purpose

+7.4

+5.9

+26

25

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26

China’s propylene expansion driving non-conventional

technology routes

0

10000

20000

30000

40000

2010 2015 2020

Tho

usan

d to

ns

Refinery Cracker CTO/MTO On-Purpose

0%

25%

50%

75%

100%

2010 2015 2020

Tech

nolo

gy

Refinery Cracker CTO/MTO On-Purpose

China Propylene Capacity Profile China Propylene Capacity Development

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On purpose investments driving China towards self sufficiency

27

0%

25%

50%

75%

100%

0

10

20

30

40

2008 2010 2012 2014 2016 2018

Util

isat

ion

rate

s

Mill

ion

tons

Net Export Net ImportTotal Capacity ProductionConsumption Utilisation Rates

Polypropylene market dynamics - China

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2008 2010 2012 2014 2016 2018

Per

cent

net

impo

rt o

f tot

al d

eman

d

PP (Actual) PP (Forecast)

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Revisiting sustainable value drivers in turbulent times

2020 VISION

Feedstocks

Integration

Technology

Sourcing a competitive cost advantage

Creating value via optimising molecules

Innovation to capture cost advantages

Lower oil prices may bring longer term benefits for industry

leaders

Stronger global GDP growth and product demand growth

Weaker capacity growth… in the near term

Lower capital costs….in the longer term

Nexant Asia Limited

22nd Floor, Rasa Tower 1

555 Phahonyothin Road

Kwaeng Chatuchak,

Khet Chatuchak

Bangkok 10900,

Thailand

Telephone: + 66 2 793 4600

Facsimile: + 66 2 937 0144

www.thinking.nexant.com

“This presentation was prepared by Nexant Limited (“Nexant”). Except where specifically stated

otherwise in the presentation, the information contained herein was prepared on the basis of

information that is publicly available and has not been independently verified or otherwise examined to

determine its accuracy, completeness or financial feasibility. Neither NEXANT, nor any person acting on

behalf of NEXANT assumes any liabilities with respect to the use of or for damages resulting from the

use of any information contained in this presentation. NEXANT does not represent or warrant that any

assumed conditions will come to pass.

This presentation is integral and must be read in its entirety.

The presentation is given on the understanding that the recipient will maintain the contents confidential

except for internal use. The presentation should not be reproduced, distributed or used without first

obtaining prior written consent by NEXANT. This presentation may not be relied upon by others.

This notice must accompany every copy of this presentation.”

Nexant, Inc.

San Francisco

New York

Houston

Washington

London

Frankfurt

Bahrain

Singapore

Bangkok

Shanghai

Kuala Lumpur

M: +66 89 890 6450

T. +66 2793 4600

E. [email protected]

Energy & Chemicals Advisory

Clive Gibson Vice President

Date post:	09-Aug-2015
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