52
Asphalt & Polymer Supply Outlook NCAUPG Annual HMA Technical Conference Madison, WI February 4, 2009 Ron Corun Manager – Asphalt Technical Services NuStar Asphalt Refining, LLC
Asphalt & Polymer Supply
Outlook
NCAUPG Annual HMA Technical ConferenceMadison, WI
February 4, 2009
Ron CorunManager – Asphalt Technical Services
NuStar Asphalt Refining, LLC
Acknowledgements
Asphalt Supply Information
• Bill Haverland
• ConocoPhillips Company
Polymer Supply Information
• Tom Brewer
• De Witt & Company
Crude Oil Supply/Demand
Crude Oil Supply2007 World Crude & Gas
Oil Production
Millions of Barrels Per Day
Non-OPEC
OPEC
FSU
36.7
36.6
12.6
Total: 86 MMB/DSource: US DOE
Non-OPEC
OPEC
FSU
37.3
37.2
13.0
Total: 87.5 MMB/D
2008 Forecasted World
Crude & Gas Oil
Production
Millions of Barrels Per Day
Crude Oil DemandAnnual Increase (MBPD)
Source: Goldman Sachs/IEA
OECD - Organization for Economic Cooperation And DevelopmentUS, Canada, Western Europe, Japan, Australia & New Zealand
Refining
U. S. Refining Capacity
14
14.5
15
15.5
16
16.5
17
17.5
18
18.5
1980 1995 2000 2006
# Of Refineries
Crude Dist Cap
Last New U. S. Refinery Built in 1976
Source: Oil & Gas Journal
319
175158
131
U. S. Asphalt Refining
Capacity
72
98
60
42
1980 1995 2000 2006
400
450
500
550
600
650
700
750
800
# Refineries
Asphalt Capacity
Production Range: 600 B/D to 60,000 B/D
Source: Oil & Gas Journal
U. S. Refining Coking
Capacity
50
60
56
1.68
1.96
2.37
44
46
48
50
52
54
56
58
60
62
1995 2000 2008
0
0.5
1
1.5
2
2.5# Refineries w/Cokers
Coker Capacity MMBPD
Source: Oil & Gas Journal & EIA
Crude Oil Prices
WTI Price by Quarter
0
20
40
60
80
100
120
140
1Q 2
001
1Q 2
002
1Q 2
003
1Q 2
004
1Q 2
005
1Q 2
006
1Q 2
007
1Q 2
008
Light-Heavy Crude Prices
0
20
40
60
80
100
120
140
1Q 0
2
3Q 0
2
1Q 0
3
3Q 0
3
1Q 0
4
3Q 0
4
1Q 0
5
3Q 0
5
1Q 0
6
3Q 0
6
1Q 0
7
3Q 0
7
1Q 0
8
WTI
MAYA
BOW
WTI-BOW
Light / Heavy Differential
As A Percentage of WTI
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1Q 05 1Q 06 1Q 07 1Q 08
Products Pricing
Crude/Product Prices
0
20
40
60
80
100
120
140
160
1Q '0
2
1Q '0
3
1Q '0
4
1Q '0
5
1Q '0
6
1Q '0
7
1Q '0
8
WTI
Crude/Product Prices
0
20
40
60
80
100
120
140
160
1Q '0
2
1Q '0
3
1Q '0
4
1Q '0
5
1Q '0
6
1Q '0
7
1Q '0
8
WTI
Gasoline
Crude/Product Prices
0
20
40
60
80
100
120
140
160
1Q '0
2
1Q '0
3
1Q '0
4
1Q '0
5
1Q '0
6
1Q '0
7
1Q '0
8
WTI
Gasoline
Diesel
Crude/Product Prices
0
20
40
60
80
100
120
140
160
1Q '0
2
1Q '0
3
1Q '0
4
1Q '0
5
1Q '0
6
1Q '0
7
1Q '0
8
WTI
Gasoline
Diesel
GC 3%
Crude/Product Prices
0
20
40
60
80
100
120
140
160
1Q '0
2
1Q '0
3
1Q '0
4
1Q '0
5
1Q '0
6
1Q '0
7
1Q '0
8
WTI
Gasoline
Diesel
GC 3%
Asphalt
Asphalt Supply
Historical Asphalt
Supply/DemandMillions Tons - Liquid
0
10
20
30
40
50
60
1980 1995 2000 2003 2005 2006
Supply
Demand
Source: Oil & Gas Journal/Asphalt Institute
Asphalt Supply Reductions
Refinery closures
Temporary shut-downs (economics)
Reduced imports
Coker start-ups
Refinery Upsets
Crude run cuts
Fall turnarounds
Supply Outlook (2008)
East Coast – Tight
Gulf Coast – Snug
Midwest – Adequate
Rockies – Snug
West Coast - Tight
Supply Outlook (2009)
Asphalt will have to carry its weight in crude cost.
Increased refining margins will encourage higher crude runs.
Will vary by region based on crude and product economics.
Larger light/heavy crude differential will produce more asphalt (??).
Currently - asphalt economics are very favorable compared to GC 3% (High Sulfur Crude Oil) and gasoline –SHOULD FAVOR AMPLE ASPHALT SUPPLY
Polymer Asphalt Supply
Outlook
Presented by:
The Association of Modified Asphalt Producers
DeWitt & Company
Predominate Modifier Styrene-Butadiene-
Styrene (SBS) is most widely used in US and around the world• Excellent
performance – case studies
• Long history of success – since 1970‟s in Europe
• SBS produce a stable, compatible system easily used in today‟s construction practices
Styrenic Polymers
(Elastomers)
Polystyrene is hard and brittle
Commonly co-polymerized with butadiene
SS SSS
POLY-STYRENEDisposable
fork
B
BB
POLY-BUTADIENERubber
band
SB and SBS
Butadiene
Styrene
Block
Copolymer
(SB & SBS)
Why is SBS Currently in Short
Supply?
Styrene-Butadiene-Styrene (SBS) polymer capacity is not short
Shortage of raw materials -Butadiene
Ethylene production is the problem
Why is Ethylene Production
the Problem? By-products of
Ethylene Production• Styrene• Propylene• Butadiene• Isoprene• Pentadiene• Cyclopentadienes• Aromatic Resin Formers• Isobutylene• Amylenes• Hydrogen• Benzene
Ethylene
Ethylene & Butadiene Market
Comparison
Ethylene Market
• 120 million tons per year
• Primary use – packaging
materials
Plastic wrap
Trash bags
Milk jugs
Butadiene Market
• 14 million tons per year
• Primary use – tires (70%)
• Multiple other automotive and
durable good uses
• SBS polymer for asphalt (6%)
How Is Ethylene Made?
Basic ethylene production technology is called a steam cracking process
• Process heats feed up to 1700 degrees, then injects steam that cracks the molecules
• Cracker unit cost $2 billion
Choice between gas feeds like ethane, propane and butane and liquid
feeds like naphtha and gas oils.
Output is a mixture of ethylene and other products
Requires a downstream purification processes to separate products
Gas Feeds
Liquid Feeds
Furnace
Steam
Purification/
Separation
Processes
What’s Important to Know About
Ethylene Production
Steam
Cracking
Process
Ethylene
Propylene
Cyclopentadiene
Aromatics
Benzene
Isoprene
Pentadiene
Butadiene
Produced by both
Gas and Liquid
Feed
Only a by-
product of
cracking Liquid
Feeds
Gas
Feed
Liquid
Feed
Choosing Feeds to Produce
Ethylene Each producer runs an economic model
Feed availability and costs for the producer at their location
• Yield of each feed – varies considerably
• Demand for each product
• Alternatives to buy versus make that product
Ethylene and propylene are the prime products• Evaluate netback of all products
• Liquid feeds generally produce 15:1 ethylene to butadiene
• Economic impact of butadiene is not large
• Based on the conditions producers set a feed slate for the
“Cracker”
• Butadiene shortage is not a primary consideration for feed
slate
Model Output
Liquids are always in
the slate due to the
facilities being built
to be liquid crackers
Crackers modified in
the 80‟s to be flexible
Flexibility depends on
producer, but varies
from ~10% to ~50%
Producing 3-5 million
pounds a day a few
pennies makes a big
difference
Ethylene Cash Cost Comparison
June 2008
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
US
cts
/lb
. C
2
Ethane E/P Mix Propane Butane Lt. Naphtha A tm Gas Oil
E t h y l e n e C a s h C o s t s
2 0 . 0
3 0 . 0
4 0 . 0
5 0 . 0
6 0 . 0
7 0 . 0
Ja
n-
06
Ap
r-
06
Ju
l-0
6
Oc
t-0
6
Ja
n-
07
Ap
r-0
7
Ju
l-0
7
Oc
t-0
7
Ja
n-
08
Ap
r-0
8
U.S
. C
en
ts
pe
r P
ou
nd
C 2 = fr o m E t h a n e C 2 = fr o m L t. N a p h t h a
What’s Changed Structural change -
natural gas
producers installed
facilities to separate
ethane
• Ethane higher value
than natural gas
Ethane prices didn‟t
increase with the
crude oil run-up
Economic incentive
to run more ethane
feed
Ethylene Cash Cost Comparison
June 2008
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
US
cts
/lb
. C
2
Ethane E/P Mix Propane Butane Lt. Naphtha A tm Gas Oil
E t h y l e n e C a s h C o s t s
2 0 . 0
3 0 . 0
4 0 . 0
5 0 . 0
6 0 . 0
7 0 . 0
Ja
n-
06
Ap
r-
06
Ju
l-0
6
Oc
t-0
6
Ja
n-
07
Ap
r-0
7
Ju
l-0
7
Oc
t-0
7
Ja
n-
08
Ap
r-0
8
U.S
. C
en
ts
pe
r P
ou
nd
C 2 = fr o m E t h a n e C 2 = fr o m L t. N a p h t h a
What’s Changed
DeWitt estimates that the 1Q cracking slate went 10% lighter
vs 2007 starting in February
2Q2008 slate has moved even lighter; possibly another 10-
20%
Incentives so great that teams of engineers are working on
putting more gas into the cracking slate on a crash basis
Ethylene C a s h Cos t Com pa ris on
June 2 0 08
30 .0
40 .0
50 .0
60 .0
70 .0
80 .0
90 .0
100 .0
US
cts
/lb
. C
2
Ethane E/P Mix Propane B u tane L t. Naph tha A tm G as O il
E t h y l e n e C a s h C o s t s
2 0 . 0
3 0 . 0
4 0 . 0
5 0 . 0
6 0 . 0
7 0 . 0
Ja
n-
06
Ap
r-
06
Ju
l-0
6
Oc
t-0
6
Ja
n-
07
Ap
r-0
7
Ju
l-0
7
Oc
t-0
7
Ja
n-
08
Ap
r-0
8
U.S
. C
en
ts
pe
r P
ou
nd
C 2 = f r o m E t h a n e C 2 = f r o m L t . N a p h t h a
July 2008
Ethylene Cash Costs, c/lb
0
10
20
30
40
50
60
70
80
E P N E P N E P N E P N
Apr May Jun Cur
Var Cost Fixed Cost M&A,Distr C2 Prc
Ethylene General Trends
Significant ethylene capacity additions in Middle East and Asia• Most of the Middle East is gas cracking
• Most of Asia is liquid or naphtha cracking
Little to no capacity additions in Western World
New trend for ethylene units outside of US to be more flexible to be able to run more gas feeds• Historically have been naphtha crackers
Expect more flexible cracking; hence, more variable Butadiene supply
Butadiene (Bd) Supply
Globally tight due to lighter cracking and higher
demand• 2008 Bd supply estimated at 75-85% of 2007
New Bd and ethylene capacity due on-stream in Asia
Expected capacity utilization to be lower than 90% for
the foreseeable future
Regional differences
• US crude Bd supply tight due to light cracking in first half
• US has excess purification capacity and buys crude Bd from
Europe to fill capacity
• Europe tight on supply due to somewhat lighter cracking;
thus, less crude Bd to export to US
• New Asian capacity needs to catch-up with demand
North American Butadiene
Consumption
Poly-
chloroprene
Rubber
2%
Poly
Butadiene
Rubber
28%
Other
3%
Adiponitrile
13%
Acrylonitrile
Butadiene
Styrene
5%
Nitrile
Butadiene
Rubber
3%SBR (crumb
form)
28%
SBS (For
Asphalt)
6%
SBR Latex
12%
What Factors Will Influence
Supply?Positive New capacity
Bd pricing itself out of
some applications
High gas prices:
• Less driving mean
fewer replacement tires
• Smaller
vehicles/smaller new
car tires
Slowing economy; less
growth
Negative Higher natural rubber
prices driving
consumers to synthetic
rubbers based on Bd
Lighter cracking
• Higher naphtha prices
• Structural change in US
ethane market
Low cost gas-based
ethylene capacity
coming on-stream in
Middle East.
Tire Demand Data
New Tire Demand• June vehicle production down
8% and falling
• Vehicle production skewed
towards smaller vehicles
• Tire demand could be down
over 12% Replacement Tires
• Higher gas prices are
reducing miles driven
• Expect reduced tire demand
over time
• May take 3-6 months to play
out.
October 2008
Spread between gas and liquid feeds now down to $.05
Demand is shrinking –tire demand is down• Asian market
price drop of $0.10- $0.15 per lb
October 2008
Hurricanes Gustav and Ike – temporarily shut down Gulf Coast crackers• Expected Bd price increase of $0.10 per lb• Reduced demand caused spike of only $0.04 per lb
Crackers are back on line, but tire compound plants are not Tire Demand is way down – Frees up Butadiene for SBS
Suppliers• Result – 100% Bd available to SBS producers for now• SBS suppliers will be able to build up substantial inventory this
winter
Alternatives to SBS Polymer
SBS polymer-modified asphalts are typically cross-linked systems• Contractor friendly
Terminal blend supply
Do not require agitation
Storage stable
No major changes to HMA plant operation
No major changes to HMA laydown and compaction
Alternative modification systems should exhibit similar qualities
Alternatives to SBS Polymer
SBR Latex – butadiene based polymer that is not in short supply at this time• Not storage stable• Must be blended at HMA plant• Contractor now becomes
asphalt modifier and must test and certify product
Non- butadiene polymers• Reactive Ethylene Terpolymer
(Elvaloy)• Ethyl Vinyl Acetate (EVA)
Used in warm climates Blended with SBS in cold
climates
Polyphosphoric Acid (PPA)• An extender, not an
alternative• Can be blended with SBS to
reduce SBS content
Alternatives to SBS Polymer
Ground Tire Rubber (GTR) –wet process• 15-20% GTR melted
and swelled into asphalt
• No cross-linking occurs
• Not storage stable
• Not a terminal blend process
• AR binder cannot be PG graded in a meaningful way
• Recipe specification
Alternatives to SBS Polymer Ground Tire Rubber
(GTR) – terminal blend• Typically proprietary
process• 10-12% GTR added at
high temperature and processed with high shear milling
• Chemical stabilizer added
• 70% of GTR is non rubber material Carbon black Calcium carbonate
• Settlement may be an issue
• SBS is sometimes used to stabilize the system
• Cannot be PG graded under current DSR test procedures
Alternatives to SBS Polymer
Hybrid Binders• Blend of SBS and
GTR
• Cross-linked system
• Storage stable
• Terminal blend system
• Current research sponsored by FL DOT at University of Florida
Alternatives to SBS Polymer
„NOTHING‟ is not
an option• PG Grading system is
based on climate and traffic
• Using the wrong grade will lead to poor performance
• We have enough historical data to prove that PMA does improve pavement performance
• Flexibility and creativity are needed to come up with answers
DON’T SHOOT THE
MESSENGER
