Global Energy Outlook: Implications for Petrochemical...

Global Energy Outlook:Implications for Petrochemical Feedstocks

Stephen Halliday, CEO

November 2015, Dubai

Trusted commercial intelligencewww.woodmac.com

2

The key themes shaping the market for energy and petrochemical feedstocks

� Dynamics driving oil, gas (HH) and ethane pricing

� Impact on margin and competitiveness of downstream industry

� Changing role of US

� Outlook for Ethylene supply and demand


2


3

Co

mm

od

itie

s

Oil/oil

products

Gas/LNG

Coal

Metals

Petro-chemicals

Fin

d

Ext

ract

Re

fin

e

Tra

nsp

ort

En

d m

ark

et

Macro

Corporate

Geographic

Asset

Historic/forecast

Wood Mackenzie is the Reference Source for commercial intelligence in Energy, Chemicals, Metals & Mining

Fully-integrated SolutionsConsistent view across commodities and the

value-chain developed over 40 years

Global coverage based on regional dynamics; leveraging 29 global office locations

Bottom-up approach combined with corporate/macro perspective

Objective analysis and advice on assets, companies and markets, empowering

clients to make better strategic decisions

Deep understanding of our clients’ business


4

Energy Benchmarks Today: Fall in oil price; Uncertainty in chemicals industry investment

Key Global Energy Benchmarks - Annual

0

2

4

6

8

10

12

14

16

18

0

16

32

48

64

80

96

112

128

144

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$/m

mb

tu$/b

bl

China Coal Range Brent Oil US Henry Natural Gas US Ethane

Source: ArgusMedia, NYMEX, SXCoal, forecast Wood Mackenzie

40

119

79

159

198

238

278

318

357

$ p

er to

n (c

oal)

Middle East Nat. Gas Range

North America & Middle East Gas-based

& China Coal-based: Chemical

Industry Advantage

Uncertainties over advantage


5

Oil: Oil supply has outpaced oil demand growth in both 2014 and 2015, as suppliers battle for market share; depressing the oil price

Global oil supply and demand Oil Price Index – 2008 vs 2014

Source: Wood Mackenzie

0

20

40

60

80

100

120

0 50 100 150 200 250 300

Ind

ex (

peak c

rud

e o

il p

rice =

100)

Days from price peak

2014 decline

2008 decline

0.0 0.5 1.0 1.5 2.0 2.5

Demand

Supply

Million b/d

2014 2015

15%

41%

36%

19%

40%

30%

OPEC

Non-OPEC

N. America

2008 2014


6

Oil: Spend is being cut across all major oil sectors; supply / demand rebalances during 2016 – stabilizing crude prices

Estimated reduction in 2015/16 Global Capex Y-o-y change in supply demand


-0.5 0.5 1.5 2.5

Demand

Supply

Million b/d

2014 2015 2016 2017Global capex reduced by US$286 billion

(28%) in 2015/16

US$30-40 billion

US$20-25 billion

US$5-20 billion

US$1-5 billion

< US$1 billion

US$150+ billion

Capex reduction 2015 & 2016


7

Oil: Ongoing demand growth and production decline will result in a supply gap, pushing oil prices back up

Supply gap – 2014 to 2025, million bpd


60

65

70

75

80

85

90

95

100

105

Millio

n b

/d


8

US Gas: Reduced upstream activity, technology improvements and understanding of plays lowers costs; Strong supply growth continues

Marginal US cost curve for 2020 (H1 ‘15 vs H2 ‘14) US natural gas supply outlook

Source: Wood Mackenzie North American Gas Service

0

20

40

60

80

100

120

2010 2012 2014 2016 2018 2020 2022 2024

bcfd

Conventional Associated CBM Tight Shale

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0 5 10 15

US

$/m

mb

tu

bcfd

H1 2015 H2 2014


9

US Ethane: Ethane supplies will increasingly need to be extracted rather than rejected from the gas system – increasing cost and price

North America Ethylene Capacity US Ethane Supply and Demand, 2014-2025


0

500

1000

1500

2000

2500

3000

2014 2016 2018 2020 2022 2024

kb

d

Gas plants at max capacity Supply

Demand plus exports

40%

60%

80%

100%

0

20

40

60

2005 2010 2015 2020 2025

Hypothetical Projects Firm/Likely Projects

Existing Capacity % Ethane Feedstocks

Million Tons, Ethylene Capacity


10

Energy Benchmarks Outlook: Low US gas price maintained, Ethane decouples and global crude prices rise again

Key Global Energy Benchmarks - Annual

40

119

79

159

198

238

278

318

357

$ p

er to

n (c

oal)

0

2

4

6

8

10

12

14

16

18

0

16

32

48

64

80

96

112

128

144

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$/m

mb

tu

$/b

bl

China Coal Range Brent Oil US Henry Natural Gas US Ethane

Source: ArgusMedia, NYMEX, SXCoal, forecast Wood Mackenzie

Middle East Nat. Gas Range


11

Impact: Refining and chemicals sectors have been benefiting from the crude oil price collapse; USGC long term outperforms other regions

Refining margins (real 2015, US$/bbl)

USGC: United States Gulf CoastSource: Wood Mackenzie

0

100

200

300

400

500

600

700

800

900

2010 2015 2020 2025

Europe - Region 'Average Size Plant, Naphtha Feed' Margin

United States Gulf Coast - US 'World Scale Plant, Ethane Feed' Margin

0

2

4

6

8

10

12

2010 2015 2020 2025

Europe USGC

Regional Ethylene Margins (real 2015, US$/ton)


12

Outlook: US will play an important role as a global feedstock producer –supplying existing facilities in Europe and Asia

US Refined Product Balance - million bpd


-2,000

-1,000

0

1,000

2,000

3,000

4,000

2005 2010 2015 2020 2025

Bala

nces (

kb

/d)

LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil

Deficit

Surplus


13

0

200

400

600

800

1000

1200

1400

0 2500 5000 7500 10000

Thousand Tons, Monthly Global Ethylene Production

$/ton

Mid

Ea

st

Eth

an

e

No

rth

Am

eri

ca

Eth

an

e

Mid

Ea

st

LP

G/N

ap

hth

a

Re

st

ofW

orl

d

Asia

N

ap

hth

a

WE

uro

pe

Na

ph

tha

N A

me

rica

LP

G

WE

uro

pe

LP

G

Asia

L

PG

Ch

ina

Co

al

N A

me

rica

Na

ph

tha

Outlook: Lower feedstock costs reduce but do not remove the US gas based chemicals ‘advantage’ – supporting further investment

Global Ethylene Production Cost Supply Curve – Sept 2014 vs Sept 2015

0

200

400

600

800

1000

1200

1400

0 2500 5000 7500 10000

$/ton

Thousand Tons, Monthly Global Ethylene Production

Mid

Ea

st

Eth

an

e

No

rth

Am

eri

ca

Eth

an

e

Mid

Ea

st

LP

G/N

ap

hth

a

Re

st

ofW

orl

d

Asia

N

ap

hth

a

WE

uro

pe

Na

ph

tha

N A

me

rica

LP

G

WE

uro

pe

LP

G

Asia

L

PG

N A

me

rica

Na

ph

tha

Ch

ina

CT

O

Ch

ina

MT

O

Sept 2014 Sept 2015

~$800/t “advantage

~$350/t advantage

Brent Crude Oil = $98/bbl; US Natural Gas = $3.90/mmbtu; US Ethane = 23cpg Brent Crude Oil = $48/bbl; US Natural Gas = $2.67/mmbtu; US Ethane = 19 cpg; US Spot Ethylene = $484/ton (22cpp)Source: Wood Mackenzie


14

Outlook: China, North America and the Middle East will see the most Ethylene capacity additions

Ethylene Production by Feedslate Global Ethylene Capacity Additions

-

50,000

100,000

150,000

200,000

250,000

2005 2010 2015 2020 2025

All Others

Methanol

Gas Oils

Paraffinic Naphthas

LPG

Ethane

Refinery Ethylene

-4

0

4

8

12

2005 2010 2015 2020 2025

Americas

Europe + Japan

Russia and The Caspian

Middle East + Africa

China + India

Rest of World

million tons

Emergence of the North America Gas-based & China Coal-based

ChemicalIndustry Advantage

Source: Wood Mackenzie, Long-Term Ethylene Service

Units: Thousand Tons


15

Outlook: Demand and trade in ethylene and primary derivatives will be driven by China

Net Ethylene equivalent Demand Growth (m tons) Global Trade of Ethylene Equivalents

-60

-40

-20

0

20

40

60

2005 2010 2015 2020 2025

United States + Canada Latin AmericaEurope Russia and The CaspianMiddle East China + IndiaJapan + S. Korea + Taiwan Rest of World

Net Imports (+)

Net Exports (-)

Million tons

-9

-6

-3

-

3

6

9

12

15

2006 2009 2012 2015 2018 2021 2024

China Demand Growth Rest of World India



16

The Wood Mackenzie market view

� Tremendous uncertainty in oil markets – but prices will rise

� US gas supply is dominating demand – prices will rise but only modestly

� Ethane pricing will decouple from HH due to rise in demand but remain advantaged with rising crude oil

� China will continue to dominate demand outlook with the US and Middle East being key suppliers

� Despite rise in ethane pricing, environment still positive for chemicals investment but beware of contracting margins due to risk of over investment

� Investment is expected to slow following the looming wave of new capacity

� Capex constraints amongst oil major and recent uncertainty in energy markets will likely delay future investment decisions


16


17

Disclaimer

� This report has been prepared for GPCA 2015 conference delegates by Wood Mackenzie Limited. The report is intended solely for the benefit of GPCA 2015 conference delegates and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

� The information upon which this report comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

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