© 2013 Platts, McGraw Hill Financial. All rights reserved.
Shahrin Ismaiyatim,
Editorial Director, Petrochemicals Analysis
September 2013
Changing refinery economics and its impact on aromatics production
• Evolving feedstock options and shifting competitiveness
• Fluctuating oil & gas prices causing the switch from naphtha to ethane – can this be sustained?
• NGL and LPG as feedstock options for aromatics
• Who are the winners and losers?
2
Agenda
Shale gas puts US back on petchems map
Source: Platts Petrochemical Analytics
Strong ethane margins promotes US projects
Source: Platts
US aromatics production up at the refinery
315,124
318,024
312,760 315,700
322,400
318,250 319,250
305,870
285,470
298,620
270,820
297,311 296,911
317,511
260,000
270,000
280,000
290,000
300,000
310,000
320,000
330,000
Jan 1-2000
Jan 1-2001
Jan 1-2002
Jan 1-2003
Jan 1-2004
Jan 1-2005
Jan 1-2006
Jan 1-2007
Jan 1-2008
Jan 1-2009
Jan 1-2010
Jan 1-2011
Jan 1-2012
Jan 1-2013
• US aromatics production has reached levels not seen since 2006, up almost 15% since 2010 to reach over 317.5 kb/day according to EIA estimates. Output in 2014 is expected to be flat to 2013.
Source: EIA
US BTX output at refinery: PADDS I vs PADD 3
6
• PADD 3 aromatics production at a 4 year high
• Production from PADD 1 declined sharply, down 44% between 2011-2012 due to increased processing of unconventional tight oil\
• Shift in content from medium crude API 30.95 in 2008 to a lighter crude API value 32.93 in 2012
Source: EIA
Lighter feed good for some, bad for others
7
Focus on cracking lighter feeds increases ethylene output, but…
…cuts output of aromatics and other raw materials
Source: Platts
What does this mean for US pygas, BTX?
Base case assumption: • 6 new steamcracker
additions • 35 mil mt ethylene by
2023 • Pygas yield to rise by
6% from 2013 to 2023 • Benzene yield to rise
8% from 2013 to 2023 • Toluene yield to rise 4%
from 2013 to 2023 • MX yield to fall -2%
from 2013 to 2023
Source: Platts Petrochemical Analytics
US benzene yield from LPGs fairly attractive…
Base case assumption: • 6 new steamcracker
additions • 35 mil mt ethylene by
2023 • Benzene yield expected
to rise 17% from 2013 to 2023 or 89,000 mt
• Total benzene from LPGs expected to reach slightly over 600,000 mt/year by 2023
Source: Platts Petrochemical Analytics
Naphtha, refinery contribute 50% of benzene
• Benzene yield from naphtha nearly 2 X more than ethane
• Overall, benzene yield from naphtha, natural gasoline and gasoil = nearly half of US output
Source: Platts Petrochemical Analytics
How will toluene, MX fare using LPG feedstock?
• Toluene in numbers: • 2013 expected at
147,000 mt • 2023 expected at
125,000 mt • 15% decline or
minus 22,000 mt
• Mixed xylene in numbers: • 2013 expected at
6,000 mt • 2023 expected at
3,500 • 41% decline or
minus 2,400 mt
Source: Platts Petrochemical Analytics
Increased naphtha output, higher reformer rates
12
• Naphtha output from refinery (blue) increased at the end of 2012 • Largely above the annual average (red) this year • Rise in processing volumes by catalytic reforming units thus far in 2013 • Average fresh feed inputs into catalytic reformers increased by 44,000
barrels/day from 2011-2012
Source: EIA
Toluene production remain dependent on refinery
Source: Platts Petrochemical Analytics
Outlook for toluene
• Steady supply in the near term
• US toluene supply in 2014 expected to be largely flat to 2013
• Demand continue to be driven by blending into gasoline and feedstock use for chemical production
• Blend demand will be influenced by a variety of factors including unconventional tight oil reserves, processing capacity, utilization rates, GDP, etc.
• Chemical demand for feedstock will be driven by PX and PET, markets which could be oversupplied in the next 3-5 years
14
• Mixed xylene production from the cracker, after falling 33% from 2011-2012, is expected to grow a paltry 2.1% from 2012-2013
• Production expected to dip slightly from 2014-2015
• Going forward into 2023, production expected to remain largely flat
US MX is the biggest loser except via naphtha
Source: Platts Petrochemical Analytics
What this means for Asian aromatics
16
• Tighter supply has led to higher MX prices, and higher paraxylene prices
• PX is a feedstock for PTA, which along with MEG, are the feedstocks for PET.
North American PET demand for bottled beverages; Asia PET demand for fiber • Higher MX and PX prices make US exports less attractive to Asia, which is
facing significant demand amid a surge of new Chinese PTA production
• China alone is expected to see 10.9 million mt of PTA capacity come online by the first half of this year. Asian PTA capacity is expected to increase by near 19 million mt by 2015.
• Volatility further exacerbated as PTA producers began to cut rates at the end of 2012 on weak derivative demand.
Tight oil impacts aromatic prices
• US aromatics production also constrained by refineries focus on unconventional oil
• Crude from the Eagle Ford set to increase more than three-fold between 2012-2020
• Before shale, US refiners utilized crude oil with about 40% naphthene and aromatic cut
• Naphthene and aromatic cut from unconventional oil estimated at 35%.
• The reduction of aromatics as a result of shale plays is difficult to fully quantify
• Trend shows that refiners in the Northeast and Gulf Coast are utilizing lighter crudes with a higher API.
17
• Asia structurally short of MX Around 800,000 mt to 1 million mt/year of MX supplied by the US • Shale gas boom in the US worsens Asian MX market US/Asia isomer-MX arbitrage has shut since Nov 20 2012 until now due to rising US MX prices
Outlook: Iso-MX Supply to remain tight
18
Asia capacity 75%
2,400,000 mt/year
US/Asia MX 25% 800,000
mt/year
Asia isomer-MX market size • Rising term contract prices – up $4-
10/mt premium FOB Korea • GS Caltex offer at $10/mt premium in
2013, compared to $5-6/mt in 2012 • SK Global Chemical offer at $6- 9/mt
premium • CFR Taiwan: Formosa buys at about discount $3-4/mt (2013), discount $24-28/mt (2012)
Conclusion – more famine than feast
• Pygas production from US steam crackers could fall by as much as 120,000 mt/year by 2023 from 2011
• Benzene output from steam crackers could decline by as much as 400,000 mt/year by 2023 from 2011
• This is on top of pre-existing constraints by refiners in the US and Caribbean in recent years, such as: • Sunoco’s closure of its Marcus Hook refinery at the end of 2011, taking an
estimated 19,000 b/d of benzene, toluene and xylenes out of the market
• HOVENSA shuttering its St. Croix refinery which had an estimated production capacity of 5,800 b/d of toluene, 4,500 b/d of benzene, and 4,000 b/d of mixed xylenes
• This is bad news for countries such as the US which are net short benzene and
are forced to import between 50-100kt/month depending on fundamentals.
Conclusion – other takeaway points
• Toluene demand, production and pricing will remain a function of blend
demand from gasoline and profitability as a feedstock for chemical production
• The xylenes chain will remain victim to overcapacity in the Asian PX, PTA and PET markets and taking it a step further, could depend on the macro-economic performance of developing nations.
• Future aromatics production in the US will be a function of refineries ability to increase processing capacity of unconventional tight oils.
• US refiners Marathon, FHR, Phillips 66, Citgo, and Valero have been amongst producers who are investing in operations in an effort to capitalize on unconventional tight oil and US Atlantic Coast refiners begin to shift to Bakken crudes and eschew imports. 20
Conclusion – other takeaway points 2
21
5.1
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2007 2008 2009 2010 2011 2012 Jan 2013Canada United States Saudi Arabia Linear (United States)
- 200 400 600 800
1,000 1,200 1,400 1,600 1,800 2,000 2,200
• The shale revolution remain a key point in petrochemical production as crude production continues to increase.
• Crude production grew almost 2 million b/d between 2007-2013.
• Output from Eagle Ford (graph below) expected to triple between 2012-2020
• If Bakken output is as expected, US oil production could increase by almost 4 million b/d by 2020.
• Increase in crude production likely to push naphtha prices lower
• Still logistical constraints and the potential for a bottleneck remain a concern.
Conclusion – other takeaway points 3
22
• Shale gas is not strictly a US phenomenon, and it’s only a matter of time before the cost advantage dissipates as other countries begin to develop their own shale plays
• Petrochemical prices continue to track crude prices, and this could restrict or boost margins from naphtha
