Theme:
Year: Date: Location:№
Executive Panel DiscussionModerator:Dave Witte - IHS MarkitPanelists:Walter Pinto - LyondellbasellTony Jones - ValeroRon Corn - CPChemMike McAtee - BASF
Executive Panel Discussion, Thursday Dec 14, 2017
Dec 12-152017 Boca Raton, FL49
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Addressing strategic challenges
with interconnected capabilities
© 2017 IHS Markit. All Rights Reserved.
Brought together to
form the most
Comprehensive
sources of data,
analytics and insight
for the Energy
Upstream, Oil
Markets, Midstream,
Downstream &
Chemical Markets
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The opportunity - outlook for shale oil,
gas and petchems
The threat – analyzing capital build
options through the supply chain
The challenge – panelists ideas to offset
threats and capture opportunities
Agenda
© 2017 IHS MarkitTM. All Rights Reserved.
Chemicals are illustrative of the energy supply chain. Global chemical demand is
concentrated in developing world with more than 50% of demand growth in China…
74%
DEMAND
© 2017 IHS MarkitTM. All Rights Reserved.
…But petroleum supply is concentrated elsewhere
67%
SUPPLY
74%
DEMAND
© 2017 IHS MarkitTM. All Rights Reserved.
3119
340
503 9626
1234
To NE AsiaFrom N. America
29602960
290
2384933
1386
600
347
43
Volumes greater than 5,000 metric tons noted; intra-regional trade excluded.
20
1101
164
27462
11
190
81
451
251
Trade from advantaged hydrocarbon regions fills the demand gap – typically at the
first value chain node with reasonable logistic costs and product market liquidity
Net exporter
Net importer
2026 World Monoethylene Glycol Trade Flows, Kilotons
7614
1046
Illustrative
© 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Capital investments seek to maximize
returns – preferably with a sustainable
competitive advantage
Investment “Drivers”
✓Secure an energy & feedstock advantage
✓Leverage current technology and build world-
scale for maximum capital efficiency
✓Invest with proximity to local markets and/or
access to trade routes
✓Build to leverage an upstream and/or
downstream integrated position
Braskem-Idesa Ethylene/PE Plant
Nanchital, Veracruz, Mexico
Start-Up: June 2016
Photo courtesy of Braskem IDESA
© 2017 IHS MarkitTM. All Rights Reserved.
Combination of high crude prices and stable gas is attractive for those North
America investments based on natural gas and natural gas liquids
0
3
7
10
13
17
20
23
0
20
40
60
80
100
120
140
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Natural Gas
Brent Crude
Global crude oil vs. USGC natural gas (2017 Constant $)
Source: IHS Markit © 2017 IHS Markit
$/ B
arr
el, C
rud
e
$/ M
M B
TU
,N
atu
ralG
as
© 2017 IHS MarkitTM. All Rights Reserved.
Global crude and condensate production requires ~20 MMb/d new supply by 2022
82
69 69
Conventional, 10 Sanctioned, 7
Unsanctioned, 5
88
Unconventional, 3
Unconventional, 7
40
50
60
70
80
90
100
Total crude and condensateproduction in 2016
Base declines to 2022 New capacityadditions to 2022
Total crude and condensateproduction in 2022
Global crude oil and condensate outlook balance in 2040
MM
b/d
Global crude and condensate supply in 2022
© 2017 IHS MarkitSource: IHS Markit
© 2017 IHS MarkitTM. All Rights Reserved.
Nearly 1,300 Tcf North American gas supply at Henry Hub <$4/MMBtu
Breakeven price at Henry Hub ($/MMBtu) for natural gas resources (Tcf)
$(15)
$(13)
$(11)
$(9)
$(7)
$(5)
$(3)
$(1)
$1
$3
$5
$7
$9
$11
$13
$15
0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000
Ave
rag
e B
rea
k-e
ve
n c
os
t a
t H
en
ry H
ub
555 Tcf
@$2.50
1267 Tcf
@$4.00150 Tcf
@~ $0.00
Demand 2017-25: ~333 Tcf
Demand 2017-40: ~1,018 Tcf
Source: IHS Markit © 2017 IHS Markit
© 2017 IHS MarkitTM. All Rights Reserved.
Lots of feedstock unlocked by shale suggest another wave of US-based investment
– but where?
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2005 2010 2015 2020 2025
Base Chemical Miscellaneous Fuel Exports Rejection
US Ethane Demand and Rejection
Source: IHS Markit
Millio
n b
arr
els
pe
r d
ay
1st
wave
2nd
wave
0
50
100
150
200
250
300
350
400
450
Tri
llio
n C
ub
ic F
ee
t
US Proven Gas Reserves
© 2017 IHS MarkitTM. All Rights Reserved.
For chemicals, plant builds either aligned with demand or hydrocarbon supply; lately
total capital investment has trended down - except in the US. Will it continue?
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
-
15,000
30,000
45,000
60,000
75,000
90,000
Billio
n (
2014)
$
Millio
ns o
f To
ns
ROW Americas Spend © 2017 IHS Markit
Capital Spending in the Chemical Industry
© 2017 IHS MarkitTM. All Rights Reserved.
Plenty of value creation available for US investment, but high execution risk as
delays and overruns destroy value
© 2017 IHS MarkitTM. All Rights Reserved.
1,000
1,500
2,000
2,500
3,000
At target CAPEX 10% overrun
NP
V,
Mill
ions $
Impact of Project Underperformance on Base US Ethane Cracking NPV
On Schedule 6 Months Delay
-12%
-14%
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Case study - Multiple models for investment exist to satisfy Chinese demand growth
Option Cash Cost Capital Market Risk
Export ethane, build
cracking in China
Build US methanol,
export to MTO in China
Build ethane cracker in
US, export product
Highest Lowest Lowest
Moderate MediumLowest
Highest HighestModerate
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Operating Zone
0
30
60
90
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Eth
an
e te
rmin
al, fre
igh
t a
nd
du
ty, co
sts
Location factor - China vs USGC
Equivalent NPV: China vs USGC Ethane CrackingEthane Differential vs Location Factor
Low-cost Chinese and high US capital costs means Chinese investment beats US
returns even after accounting for high feedstock shipping costs
Location
Factor Range
Green line is
Breakeven NPV. Below
line China NPV >USGC
Cents/Gallon
SHIPPING COST RANGE
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At expected ethane prices, cash costs favor naphtha at crude prices below $60/Bbl.
Will crude to ethane spreads be low enough for Chinese ethane to beat naphtha?
0
200
400
600
800
1000
1200
1400
0 50 100 150 200 250 300 350 400 450 500 550 600 650 700
Eth
yle
ne
Ca
sh
Co
st,
$/T
on
Brent ($/Bbl) OR Ethane ($/Ton)
Equivalence Graph - Cash Cost For EthyleneAsian Ethylene
vs Brent
Ethylene
vs Ethane
Forecast Ethane
Delivered China
$500/ton =
$10/MMBTU =
67 cpg
Ethane
($/Ton)
Brent
($/Bbl)
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Conclusions
• Demand growth concentrated in developing
world and dislocated from hydrocarbon supply
• Shale has unlocked huge amounts of
competitive supply supporting investment
growth in Energy and Chemicals
• Poor (relative) EPC performance eroding
feedstock advantages
• New approaches to improve US EPC
productivity are needed, or risk a shift of
building to overseas
© 2017 IHS MarkitTM. All Rights Reserved.
Our distinguished panel
Walter PintoSenior Director, Global Projects
and Engineering
Mike McAteeSenior Vice President, Strategic
Projects
Ron Corn Senior Vice President,
Petrochemicals
Tony Jones Senior Vice President,
Project Execution
