1
Renato Monteiro
VP Business Develop., M&A
Hydrocarbon gas liquids: Developments in petrochemicals
2
Chemicals is the largest U.S. industrial consumer of energy resources
1. Includes coal, natural gas, petroleum, hydrothermal, Source: EIA data 2014, AEO 2015
98
28%
2014
19%
100
28%
22%
TransportaLon
Industrial
ResidenLal
31%
19%
2005
Commercial
97
2010
32%
22% 22%
18%
32%
28%
Total U.S. energy consump9on1
Quadrillion BTU
12%
8%
Refining
Other
70%
Bulk chemicals -‐ feedstock
Bulk chemicals -‐ energy 10%
Breakdown of 2014 US industrial energy consump9on %
3
NGLs became the dominant petrochemical feedstock…
Source: Nexant, IHS WPC 2015
2019
58%
2018
2017
55%
2016
2015
53%
2014
2013
49%
2012
2007
48%
2006
2005
48%
2011
46%
2010
2009
47%
2008
NGL
Methane
Ethane
LPG
Naphtha
Heavy Feed
2006
86%
2005
62%
86%
2018
2017
2016
2012
2011
2010
2019
50%
2009
82%
2008
2007
68%
85%
2015
41%
2014
2013
Others
Naphtha Ethane
Propane/Butane NGL
Feedstock quan9ty MMtons/year
Feedstock quan9ty MMtons/year
U.S. petrochemicals feedstock North American olefins feedstock
Historical Forecast Historical Forecast 86%
41%
4
… due to its competitive advantage over oil, naphtha
Source: IHS energy price forecasts
Ethane, US
Oil, Brent
Butane, US Propane, US
Naphtha, ARA
Natural Gas, US
Price $/MMBTU
Historical Forecast
5
This has led to an ethylene capacity growth wave…
Source: IHS data
2020 2015 2010 2005
40
30
50
2009 2008 2007 2006 2011 2012 2013 2014 2016 2017 2018 2019
45
35
North American ethylene capacity MMtons
Included projects: • Braskem-‐Idesa • ChevronPhillips • LyondellBasell • Exxon Mobil • Flint Hills • Formosa • Dow • SASOL • Oxy/Mexichem • Shin-‐Etsu
1st Growth Wave
6
…followed by investments in plastic conversion
NOTE: 1 project has been announced in AK; none in HI (not shown) Source: PlasLcs News, ACC
Announced plas9cs processors projects by state, Jun 2012 – Feb 2015
Announced Projects
30+
20-29
11-19
6-10
3-5
1-2
0
~450 projects in 42 states
7
Feedstock advantage is not enough to justify a 2nd wave
Source: IHS data, Press search
52
46
48
44
42
38
30
34
40
36
32
50
Cri9cal challenges
Oil price uncertainty
Poten9al 2nd Growth Wave
Poten9al projects:
• Braskem (Ascent) • Shell • PTT • Total • Axiall/Loge
North American ethylene capacity MMtons
Business dynamics will have to play into supply-‐demand
Feedstock price volaLlity
EPC cost escalaLon
8
Significant oil price uncertainty
Source: IHS, EIA, Bentek, PIRA, Wood Mackenzie
PIRA
Woodmac
Woodmac 76
EIA
IHS
Bentek
Is the U.S. feedstock advantage large enough?
Oil price uncertainty
Oil price forecasts $/bbl
9
Margin compression over the different oil prices
Source: Woodmac analysis
Oil price uncertainty
• North America will con9nue to be one of the most compe99ve petchem regions • Will this compe99veness be sufficient to return the capital costs?
10
Ethylene costs (incl. co-‐product credit, capital returns1), 6-‐months trailing average cpp
Feedstock volatility impacts plant design priorities
1. 10% Capital return on a 100% parLcular feedstock dedicated cracker Source: Braskem analysis, IHS
Ethane
Light Naphtha
Butane
Propane
2015 Apr
2014 Dec
2014 Jun
2013 Dec
2013 Jun
2012 Dec
2012 Jun
Prior to Dec 2014, ethane was preferred feedstock for majority of ;me from Jan 2012
Will the ethane advantage return?
Feedstock price volaLlity
Industrial and feedstock sourcing flexibility will con9nue to be important
11
1st Wave led to EPC cost escalation above inflation
1. Based on wages for boilermaker, carpenter, cement mason, electrician, iron worker, laborers, operaLng engineers, plumber/figer Source: Wood Group wage data, US DOL, Braskem analysis
EPC cost escalaLon
2014 2010
InflaLon
2013 2012 2011
Wages1
2008 2009 2015e
Construc9on wages1 and infla9on escala9on % change year-‐over-‐year
Required expansion of labor force may create buffer for future construc9on boom
12
Lower oil prices leads to higher GDP, lower capacity
Source: Bloomberg, Oxford Economics, IHS
• Improvement of the global economic health • Challenges to grow capacity at upcoming petchem centers (Russia, Middle East)
Supply-‐demand
Oil prices
GDP growth
PE Capacity
13
Higher GDP should stimulate increased PE demand
Source: IHS data
40
35
30
25
10 20
50
60
2014
80
12
40
04 02 30
06 2000
70
08
GDP nominal (lej axis) PE demand (right axis)
Global GDP nominal Tri US$
Global PE demand MMtons
PE demand
Oil prices
GDP growth
PE Capacity
Supply-‐demand
Global GDP-‐to-‐Demand elas9city of 1 – 1.5X
14
Tighter supply-demand drives higher utilization, margins
PE demand
Oil prices
GDP growth
PE Capacity
PE margins
Supply-‐demand
y = 0.152e0.083x R² = 0.43265
0
50
100
150
200
250
300
350
400
450
80 82 84 86 88 90 92 94
U.S. Ethylene margin, 2001 -‐ 20111 $/ton
U.S. opera9ng rate %
1. Excludes the crisis years of 2008, 2009 Source: IHS data
• How fast will global GDP grow? • How individual companies will take growth decisions?
15
Forthcoming evolution will define the speed of growth
Cri9cal challenges
Oil price uncertainty…
Feedstock price volaLlity…
EPC cost escalaLon…
Level of influence
Supply-‐demand…
Fundamental aspect
Influence design, but is not a blocker
Might improve, but depends on “ground work”
Might improve, but: How fast? Which intensity?
16
The world needs crackers: U.S. is a good place for them
The world needs 4-‐5 new world-‐scale crackers per year to sa9sfy the ethylene global demand growth
North American benefits North American challenges
• Oil price uncertainty • Feedstock volaLlity • EPC cost escalaLon • Export logisLc bogleneck • Exchange rate appreciaLon
• Feedstock availability, cost advantage
• Robust O&G industry • Conducive investment
climate: stability • Market economy