ihsmarkit.com
Presentation
© 2016 IHS Markit
Mark Eramo, VP Global Business Development – Chemicals Houston, TX [email protected]
Global Petrochemical Market Outlook Planning For Growth Given Heightened Uncertainty In Market Fundamentals November 2016, Singapore
ASIA CHEMICAL CONFERENCE
© 2016 IHS Markit
Automotive / transportation
Consumer products
Packaging
Building / construction
Recreation / sport
Industrial
Medical
Pharmaceutical
Personal care
Textiles
Electrical / electronics
Aircraft / aerospace
Business equipment
GLOBAL CHEMICAL INDUSTRY…. ENABLING MODERN LIVING
CUSTOMERS
CHEMICAL INDUSTRY VALUE CHAIN NATURAL RESOURCES
Mining, drilling, refining,
gas processing
Oil Gas Coal Minerals Renewables
2
Plastics and engineering resins • Extruded films, pipe,
profiles, coatings, sheet, foams
• Blow-molded parts • Composites
Synthetic fibers
Rubber products
Paints and coatings
Adhesives and sealants
Lubricants
Water treatment products
Cleaning products
Industrial chemicals
Flame retardants
Others
Formulated products /
performance materials
Commodities
Differentiated commodities
Technical specialties
Chemical Intermediates
Olefins (Ethylene, propylene, butylene)
Aromatics (benzene,
toluene, xylenes)
Chlor-akali
(chorine, caustic soda)
Others (ammonia,
phosphorous)
Base Chemicals
© 2016 IHS Markit
Planning For Growth Given Heightened Uncertainty
AGENDA
3
• Impact of Energy on Chemical Investment Decisions.
• Where are the major investments in new capacity?
• Energy extremes enabling non-conventional capacity.
• Declining CAPEX and rising Mergers & Acquisitions
• Strategic Considerations
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Energy & Economic Fundamentals Impact Investment Decisions
• Energy trends impact regional competitiveness and profitability
• Advantaged investments in North America and China, see lower margins in low crude oil market.
• Economy and energy assumptions drive key decisions of location, feedstock, technology, scale…
• Uncertainty results in delayed approvals; when combined with steady growth leads to tighter market conditions in basic chemical value-chains
• Crude oil (energy) “at the extremes” impacts demand for chemicals and plastics. On the high end, it can “destroy” demand and on the low end it can stimulate demand.
4
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Steady Increase In Crude Oil Price; Stable/Low Natural Gas In North America; Moderate Global Economic Growth
5
% Change, GDP
2014 2015 2016 2017 2018
World 2.7 2.7 2.4 2.8 3.1
United States 2.4 2.6 1.4 2.2 2.2
Canada 2.5 1.1 1.2 2.2 2.3
Eurozone 1.1 1.9 1.6 1.4 1.6
United Kingdom 3.1 2.2 2.0 1.0 1.3
China 7.3 6.9 6.6 6.3 6.4
Japan -0.1 0.6 0.6 0.7 1.0
India 7.2 7.5 7.5 7.4 7.7
Brazil 0.1 -3.9 -3.2 0.6 2.2
Russia 0.7 -3.7 -0.7 0.8 1.6
0
30
60
90
120
0
5
10
15
20
10 11 12 13 14 15 16 17 18 19 20 21 22
Crude Oil vs. Natural Gas
Natural Gas WTI Brent
Global Crude Oil vs. USGC Natural Gas
Source: IHS © 2016 IHS
$/B
arr
el,
Cru
de
$/ M
MB
tu,
Na
tura
l G
as
$43.5/bbl
BASE CASE PLANNING SCENARIO:
© 2016 IHS Markit
Gas-to-Crude Ratio Favors North America Investments Since 2010
0%
20%
40%
60%
80%
100%
120%
0.0
3.0
6.0
9.0
12.0
15.0
18.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Crude (WTI) Natural Gas Gas-to-Crude Ratio
USGC Natural Gas Versus WTI Crude Oil Pricing (US$ / MM BTU)
Source: IHS
Gas-t
o-C
rud
e
6
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Impact of Changing Energy Dynamics On Regional Chemical Capacity Additions
-30%
0%
30%
60%
90%
120%
-10
0
10
20
30
40
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Gas-t
o-C
ru
de O
il B
TU
Rati
o,
%
Million
Metr
ic T
on
s
China Asia Less China (with India)
Middle East North America
West Europe Gas-To-Crude BTU Ratio, %
Annual Change - Total Basic Chemicals Capacity: Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
7
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Impact of Changing Energy Dynamics On Regional Chemical Capacity Additions
-30%
0%
30%
60%
90%
120%
-10
0
10
20
30
40
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Gas-t
o-C
ru
de O
il B
TU
Rati
o,
%
Million
Metr
ic T
on
s
China Asia Less China (with India)
Middle East North America
West Europe Gas-To-Crude BTU Ratio, %
Annual Change - Total Basic Chemicals Capacity: Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
8
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Impact of Changing Energy Dynamics On Regional Chemical Capacity Additions
-30%
0%
30%
60%
90%
120%
-10
0
10
20
30
40
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Gas-t
o-C
ru
de O
il B
TU
Rati
o,
%
Million
Metr
ic T
on
s
China Asia Less China (with India)
Middle East North America
West Europe Gas-To-Crude BTU Ratio, %
Annual Change - Total Basic Chemicals Capacity: Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
9
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Impact of Changing Energy Dynamics On Regional Chemical Capacity Additions
-30%
0%
30%
60%
90%
120%
-10
0
10
20
30
40
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Gas-t
o-C
ru
de O
il B
TU
Rati
o,
%
Million
Metr
ic T
on
s
China Asia Less China (with India)
Middle East North America
West Europe Gas-To-Crude BTU Ratio, %
Annual Change - Total Basic Chemicals Capacity: Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
10
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Planning For Growth Given Heightened Uncertainty
AGENDA
11
• Impact of Energy on Chemical Investment Decisions.
• Where are the major investments in new capacity?
• Energy extremes enabling non-conventional capacity.
• Declining CAPEX and rising Mergers & Acquisitions
• Strategic Considerations
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
GLOBAL BASE CHEMICAL ASSETS BY LOCATION
12
Benzene
Chlorine
Ethylene
Methanol
Paraxylene
Propylene PG
580 MM metric tons in 2015
© 2016 IHS Markit
Investment Decisions Must Evaluate Many Factors Beyond Energy & Economy
13
Investment Assumptions: • Global crude oil price scenarios
• Global economic growth outlook
• Geo-political considerations
• North American energy market
• Current state of the profit cycle
• China structural changes
• Non-conventional technology
• Sustainability
• Levels of integration
• Regional CAPEX differentials
• Logistics investments
Braskem-Idesa Ethylene/PE Plant Nanchital, Veracruz, Mexico
Start-Up: June 2016
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
0
150
300
450
600
750
900
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
China Asia Less China (with India)North America Middle East + AfricaEurope South America
Base Chemicals – Total Capacity By Region Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
Chemical Investment “Drivers”
• Secure an energy & feedstock advantage.
• Leverage current technology and build world-scale.
• Invest with proximity to local markets and/or access to trade routes.
• Build to leverage an upstream and/or downstream integrated position.
14
Global Petrochemical Outlook / November 2016
Base Chemical Capacity To Exceed 750 MM Metric Tons By 2025
© 2016 IHS Markit
Beyond 2020…Where Will The Next Wave Of Capacity Be Built?
Region 2015 2025 Delta
North America
90
137
47
South America
24
26 2
Europe
89
101
12
Middle East / Africa
77
119
42
Asia/India (less China)
130
163
33
China
172
241
69
Total
582
787
205
Total Basic Chemical* Capacity (Million Metric Tons)
* Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine
15
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
China: Slower Pace Of New Capacity & Increased Focus On: > Industry Competitiveness > Safety & Pollution control > Segment Consolidation
16
• Tighten pollution control; industry safety performance; rationalize inefficient/non-competitive assets.
• Develop modern coal chemicals asset base.
• Consolidation of 100+ chemical industry parks into seven national chemical industrial zones.
• Rapid growth in private investment potentially changes future behavior.
• Overseas investment activity.
China 13th Five Year Plan
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
China 13th 5-Year Plan Slows Pace Of Investment; Focus On Competitive Position, Safety & Pollution, Consolidation
0
50
100
150
200
250
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
Propylene (PG/CG) Ethylene Paraxylene Benzene Methanol Chlorine
China - Base Chemical Total Capacity
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
17
Basic chemicals expansions of 200 MM metric tons over two decades (2005 – 2025). Self-sufficiency in propylene 85+% by 2020; ethylene remains near 60%.
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Middle East Rate Of Investment Slows; > Adding Diverse Feedstocks; > Focused On Operational Efficiencies
18
• Ethane prices in Saudi Arabia raised to reflect transition in strategy for future investments.
• Low crude prices sharpen focus on operational costs.
• Sadara project in Saudi Arabia represents measured approach to diversify businesses.
• Lifting of nuclear sanctions on Iran has re-opened plans to expand the chemical space.
• Significant dependence on exports continues well into the future.
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Middle East Focus Shifting To Feed-slate Diversity And Improving Operational Efficiencies
0
20
40
60
80
100
120
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Mil
lio
n M
etr
ic T
on
s
Propylene (PG/CG) Ethylene Paraxylene Benzene Methanol Chlorine
Middle East Base Chemical Capacity
19
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
North America: An Attractive Place For Chemicals Investments Once Again
• Low cost energy and natural gas liquids
provide sustainable advantage.
• Advantaged feedstock will enable an
additional wave beyond 2020, assuming
crude oil price recovery (near $80/bbl)
and low natural gas pricing (near $4/MM
BTU).
• Domestic and International companies
seek to invest; leveraging the low-cost
opportunities. New entrants to create
increased competition in domestic
markets
• Logistics & port infrastructure investment
needed to support higher level of exports.
20
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
North America Low Cost Brings Back Base Chemical & Associated Derivative Investments
-10
10
30
50
70
90
110
130
150
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
Ethylene Propylene (PG/CG) Methanol Chlorine Benzene Paraxylene
North America - Base Chemical Total Capacity
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
21
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Planning For Growth Given Heightened Uncertainty
AGENDA
22
• Impact of Energy on Chemical Investment Decisions.
• Where are the major investments in new capacity?
• Energy extremes enabling non-conventional capacity.
• Declining CAPEX and rising Mergers & Acquisitions
• Strategic Considerations
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Propylene
Energy At The Extremes Has Catalyzed A “New Era” In Light Olefins Production
23
• For decades, light olefins supply based on refinery & naphtha cracker integrated sites
• Ethane crackers emerged where ethane was advantaged; USGC, Mexico, Alberta, Middle East; other areas where liquids rich gas was “trapped”.
• Propylene was a byproduct of refining and heavy or flexible steam cracking.
• Today light olefins are being made on purpose via a variety of technologies beyond refining and steam cracking: PDH, CTO/P, MTO/P, Metathesis, GTO/P, OCM
Ethylene
Global Petrochemical Outlook / November 2016
CTO = Coal to Olefins MTO = Methanol to Olefins GTO = Natural gas to Olefins OCM = Oxidative Coupling of methane
PDH = Propane Dehydro CTP = Coal to Propylene MTP = Methanol to Propylene GTP = Natural gas to Propylene
© 2016 IHS Markit
Energy & Feedstocks Influence Location & Technology For New Capacity Decisions
• Energy and feedstock deltas emerged in 2009 as part of the North America shale developments.
• These spreads supported “on-purpose” capacity to be viable as an incremental supply option.
• The spreads remained high through 2014, attracting a new investment wave.
• 2015 collapse in crude pricing has created a pause in new approvals.
24
0
5
10
15
20
25
2000 2003 2006 2009 2012 2015 2018 2021 2024
Brent Crude Henry Hub Gas USGC Ethane
USGC Propane NEA Naphtha China Coal
Crude Oil – vs – Natural Gas & NGLs
© 2016 IHS
Co
ns
tan
t 2
01
4$
Pe
r M
MB
tu
Notes: China Coal is on a 6000kcal/kg basis, Qinhuangdao FOB
Source: IHS
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Non-conventional Technology Providing Options For Future Investments In Olefins Production
0
200
400
600
800
1000
1200
1400
US Ethane US PDH NEA PDH NEA
Naphtha
WEP
Naphtha
2011 2013 2015
Conventional Light Olefins Cash Cost
US GTP US GTO NEA CTO NEA MTO
Non-Conventional Light Olefins Cash Cost
PDH = Propane Dehydro; GTP = Gas to Propylene; GTO = Gas to Olefins; CTO = Coal to Olefins; MTO = Methanol to Olefins
US$ / Metric Ton US$ / Metric Ton
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
Planning For Growth Given Heightened Uncertainty
AGENDA
26
• Impact of Energy on Chemical Investment Decisions.
• Where are the major investments in new capacity?
• Energy extremes enabling non-conventional capacity.
• Declining CAPEX and rising Mergers & Acquisitions
• Strategic Considerations
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
As CAPEX Declines, M&A Activity Increases As Means To Achieve Growth
27
0
20
40
60
80
100
120
140
2001 2004 2007 2010 2013 2016 2019
Americas Europe Middle East
Asia Pacific ROW
Global Chemical Capital Expenditures
$B
(2
01
4$
)
0
2
4
6
8
10
12
14
0
20
40
60
80
100
120
140$ Value Multiple
Annual M&A Value and EBITA Multiples
Va
lue
, $
B
EB
ITA
Mu
ltip
le
Source: IHS
Global Petrochemical Outlook / November 2016
© 2016 IHS Markit
• Higher level of uncertainty (in market fundamentals) presents difficulty in planning best options for future growth.
• Board level decisions delayed; non-conventional technology being considered; higher CAPEX; higher risk premiums; increased M&A
• Investment decisions delays in 2015/16 could lead to supply limitations in the 2020+.
• On-purpose supply options are viable given “extreme energy”; will be key drivers of market dynamics in the future.
28
Planning For Growth Given Uncertain Fundamentals
Strategic Implications
Global Petrochemical Outlook / November 2016
ihsmarkit.com
Presentation
© 2016 IHS Markit
Mark Eramo, VP Global Business Development – Chemicals Houston, TX [email protected]
Global Petrochemical Market Outlook Planning For Growth Given Heightened Uncertainty In Market Fundamentals November 2016, Singapore
ASIA CHEMICAL CONFERENCE
