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© 2014 Platts, McGraw Hill Financial. All rights reserved. Could coal be the answer to global plastics shortages? Ben Gonzalez May 7, 2015 1
© 2014 Platts, McGraw Hill Financial. All rights reserved.
Could coal be the answer to global plastics shortages? Ben Gonzalez May 7, 2015
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• The CTO/MTO process
• CTO/MTO Economics
• Current Status – Projects
• Impact on the global ethylene feedstock slate
• Impact on PE and PP fundamentals
• Conclusions
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Outline
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Petrochemical Value Chain
Refining
Gas Processing
Olefins
Aromatics
Cracker Feedstock
Crude Oil
Associated Gases
Ethane
LPG
Propane
Butane
Methane
Naphtha Steam Cracking
Ethylene
Propylene
Butadiene
Raffinate-1
Pygas
Benzene
Toluene
Xylene
NaphthaCatalytic
ReformingReformate
Gas Oil
Natural Gas NGLs
Ethane
Propane
Butane
Natural Gasoline
Methane
StyreneEthylbenzene
Polypropylene
Cumene
Polystyrene
Polyethylenes
Methanol
MTBE
ABS
PVC
Vinyl Chloride Monomer
EthyleneDichloride
Phenol
Acetone
P-Xylene
Ethylene Oxide
PETPTA
Ethylene Glycol
LDPE
LLDPE
-46%
-42%
-39%
-38%
-42%
-40%
-39%
-38%
-1%
-33%
-22%
-26%
-5%
-35%
-33%-13%
-18%
-18%
-14%
-23%
-13%-5%
-15%
-12%
-17%
-30%
-35%
-25%
-36%
Petrochemical Value Chain - Price DeltasAvg Asia Monthly Prices Current vs. June 2014
HDPE
Coal Syngas
C4 Stream
Polymers
-11%
CTO/MTO
-38%
-29%
Source: Platts, Platts Analytics
© 2014 Platts, McGraw Hill Financial. All rights reserved.
China’s Position – CTO/MTO
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• 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
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Why CTO/MTO?
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Asia PE Outlook
© 2014 Platts, McGraw Hill Financial. All rights reserved.
CTO/MTO Process
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• 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
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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).
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UOP/Hydro MTO Process
2011
2009
1990s
2013
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.
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DMTO Process
2010
2006
1991
2014
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
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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
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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
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Reasons For China MTO/CTO Investment
© 2014 Platts, McGraw Hill Financial. All rights reserved.
CTO/MTO Challenges
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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
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Far from Markets
0%5%
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
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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
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Challenges to CTO/MTO
© 2014 Platts, McGraw Hill Financial. All rights reserved.
CTO/MTO Economics
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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
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Cost Curve
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Based on Average April Price
$/MT
Thousand MT/Year Olefin Ethylene Capacity
Olefin Production Margins
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Global Ethylene Prices
Source: Platts
© 2014 Platts, McGraw Hill Financial. All rights reserved.
Current Status
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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
© 2014 Platts, McGraw Hill Financial. All rights reserved.
Future Projects and Outlook
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CTO/MTO Projects
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• 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
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What Could Happen?
Source: Platts
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© 2014 Platts, McGraw Hill Financial. All rights reserved.
Impact of Ethylene Production and Feedstock
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Asia Ethylene Production
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China Ethylene Production
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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
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Future Capacity Additions
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Impact on Feedstock Globally
© 2014 Platts, McGraw Hill Financial. All rights reserved.
Impact On The PE and PP Market
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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
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North America
• Trade Partners – South America
• Brazil • Colombia • Peru • Chile
– Asia • China • Singapore
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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
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Europe
• Trade Partners – Middle East
• Saudi Arabia • Qatar • Iran
– Americas • US • Brazil
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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
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Middle East
• Trade Partners – Asia
• China • India
– Western Europe • Turkey • Italy • Belgium • Spain
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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
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Asia
• Trade Partners – Middle East
• 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
– North America • US
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China
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New Capacity
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New Capacity
Total 15,322 4,945 HDPE 5,330 2,075 LDPE 2,712 180 LLDPE 7,280 2,690
CTO/MTO
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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
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North America PP
• Trade Partners – Asia
• 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
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Europe PP
• Trade Partners – Middle East
• Saudi Arabia – Asia
• India • S. Korea
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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
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Middle East PP
• Trade Partners – Asia
• China – Western Europe
• Turkey • Italy • Belgium
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New Capacity
Total 2,025
• Production expected to be 31.6 million mt
• 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
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Asia PP
• Trade Partners – Middle East
• Saudi Arabia • UAE • Oman • Kuwait
– North America • US
• Production expected to be 15.8 million mt
• 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
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China PP
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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.
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Conclusions
Source: Platts, EIA
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Global Polyolefins Report (GPO)
