Impact of a changing global landscape - · PDF file2010 2011 2012 2013 2014 2015 2016 n...

Impact of a changing global landscape David Lines - Principal

• Global Polyolefin Business:

Challenges and Prospects• Petrochemical & Polymer Market Overview

• Investment Landscape

• Growth Opportunities

• Competitive Outlook

• Conclusions

Agenda

Petrochemical

& Polymer

Market

Overview

GCC Polymer Value Chain: Creating Future Leverage

What does low oil mean for the petrochemicals and polymers sector?

• Investment slowdown in the Middle East and in other

geographies

• Shifts in industry competitiveness; naphtha cracking

more competitive relative to other feedstocks

• Bio-chemicals and recycle less attractive

• Strong polyolefins markets and low feedstock prices

have seen value move from olefins to polyolefins

Issues for Global Chemicals

0

50

100

150

200

250

300

350

400

450

500

20

40

60

80

100

120

140

Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Min

e-M

outh

The

rmal

Coa

l, C

NY

per

ton

Cru

de O

il, U

S d

olla

rs p

er to

n

Brent Crude Oil ($/ton) Ordos Thermal Coal (CNY/ton)

Feedstock Prices


Petrochemicals feedstock spreads have narrowed

• Prior to 2014, oil at more than $100/bbl

• Naphtha at a premium to NGLs as petrochemical

feedstock

• Saudi and U.S. ethane at low prices giving competitive

advantage to crackers in those regions

• Fall in crude oil price since mid-2014 has shifted

industry competitiveness

• Naphtha cracking has regained some competitiveness

versus lighter feedstocks

• European producers regained some competitiveness

comparative to US and Middle East producers

• This has impacted on investments across regions

• Shifts in cracker feedstock slates has implications for

downstream markets

Issues for Global PetrochemicalsFeedstock Prices

0

200

400

600

800

1000

1200

2010

2011

2012

2013

2014

2015

2016

Cur

rent

dol

lars

per

ton

Naphtha FOB Med Ethane - KSA Contract

Ethane - US Brent Crude Oil


Middle East Petrochemical profitability has been eroded by low oil prices

Global Petrochemical Profitability has improved, particularly in

Europe, whereas Middle East advantage eroded by low oil prices

0

20

40

60

80

100

120

140

160

180

1995 1996 1997 1998 2000 2001 2002 2003 2005 2006 2007 2008 2010 2011 2012 2013 2015 2016

Nex

antT

hink

ing

Cas

h M

argi

n P

rofit

abili

ty I

ndex

(19

95=

100)

Western Europe United States Middle East South Korea Global

Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program


Demand growth for polyolefins has varied over time yet the trend remains linked to GDP

• Polymer consumption growth driven by economic

growth

• Asia expected to continue to be global GDP growth

engine

• Short-term global GDP forecasts (to 2020) recently

reduced by almost 0.5% due to uncertainty about

China and other economic factors

• Some oil exporting regions in trouble

Global Polyolefins Demand

Growth and Economic Growth

Polyolefins demand VS GDP

-5

0

5

10

15

2000 2005 2010 2015 2020

pe

rcent

Average Global GDP LDPE LLDPE HDPE Polypropylene


China faces challenges on both domestic consumption and production for export

CAGR 2015-2020

*includes polyethylene and

polypropylene

Global Polyolefins Demand* 2015

(150 million tons)

0

1

2

3

4

5

6

7

Global US WesternEurope

China

Per

cent

GDP Polyolefins Demand*

US

Western Europe

China

Rest of World



US, ME & China are leading the global expansion of olefins & polyolefins capacity

Firm Capacity Expansions (announced 2016-2021)

-2

0

2

4

6

8

10

12

14

US China Middle East Eastern Europe Western Europe

Milli

on to

ns

Ethylene Propylene HDPE LDPE LLDPE PP

Investment

Landscape


Regional Petrochemical Feedstock Sources and Trends

A number of new petrochemical projects are expected to be delayed

due to the impact of low oil prices

• Increased focus on coal to

chemicals

• Surge in imports of NGLs

for cracking and PDH

• Refinery/chemicals

investment much reduced

• Variable competitive

position depending on

feedstock but access to

markets is key

China

• Increased O&G production

resulting in lower energy

prices

• Increased production of co-

product ethane and other

NGLs

• Low NGL prices leading to

new olefin capacity but NGL

exports will lift prices

• Questions over sustainability

of supply at low oil & gas

prices

US

• Growth restricted by shortage of

additional advantaged NGLs

outside Iran/Iraq

• New refinery investment with

focus on petchem integration

• Declining competitive position off-

set by mixed feeds, integration,

scale and higher value products

Middle East


Naphtha remains a major feedstock for ethylene, but ethane is driving investments

Global Ethylene Capacity Development & Ethylene Capacity Profile

• Global growth in NGLs cracking is driven by US and Middle East where low-cost NGLs are available

• CTO projects in China are supported by cheap inland coal, ease of financing, and deficit polyolefin markets

• Naphtha/heavy liquids cracking elsewhere in Asia will make up most of the balance of supply, aided by refinery integration.

0

50

100

150

200

250

300

2005 2010 2015 2020 2025 2030

Mill

ion

tons

per

yea

r of t

otal

cap

acity

Naphtha/Liquids Cracking NGLs Cracking CTO/MTO Others

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2020 2025 2030

Per

cent

of t

otal

cap

acity

Naphtha/Liquids Cracking NGLs Cracking CTO/MTO Others


Naphtha remains a major feedstock for ethylene, but ethane is driving investments

Steam Cracker Products:

Naphtha vs. Ethane

• On-purpose propylene required by market since co-produced sources limited

• PDH margins are still strong despite low propylene prices, more capacity will come in N America, ME, Asia & possibly Europe

• Firm CTO projects are limited to China supported by local low-cost mine-mouth coal

• Metathesis has become the swing supply source.

Global Propylene Capacity Profile

0

1

2

3

4

Naphtha Feedstock Ethane Feedstock

Ethylene Propylene Others

0%

20%

40%

60%

80%

100%

2005 2010 2015 2020 2025

Perc

ent o

f tot

al c

apac

ity

Steam Cracker Refinery PDH CTO/MTO Others


Net polyethylene capacity additions set to ramp up over the next 5 years

Regional PE Incremental Capacity Additions (Mio MT)

HD

LD

LL

Incremental Changes 2015-2020



PP mainly in China, strong emphasis around new refinery & on-purpose propylene

Regional PP Incremental Capacity Additions (Mio MT)

Incremental Changes 2015-2020


Growth

Opportunities


Global PE demand was 87 million tons in 2015, an increase of over 3% from 2014

Global PE Demand, 2015

(Total = 87 million tons)

HDPE will continue to be the largest volume polyethylene, followed by LLDPE. LDPE will continue to lose market share, despite a

relatively high short-term growth rate

Global Polyethylene Growth by

Resin (percentage volume growth)

LDPE

LLDPE

HDPE

0.0 2.0 4.0 6.0

LDPE

Total PE

HDPE

LLDPE

2000-2015 2015-2020


Global PP demand was 60 million tons in 2015, an increase of over 4% from 2014

Global PP Demand by End

Use, 2015

Film applications are expected to have the highest growth rate, but almost all applications are forecast to have good growth

Regional PP Demand, 2015

Film

FibreInjection Moulding

Other Extrusion

OthersNorth

America

South America

Western Europe

CEE

Middle East

AfricaChina

Asia (ex China)


Investment is either in advantaged feedstock or high market growth regions

Polyolefins Capacity Growth by Region

Capacity additions have focused in China, the Middle East, and now in North America

North America

South America

Western Europe

Central Europe

Eastern Europe

Middle East

Africa

China

Asia (ex China)

North America

South America

Western Europe

Central Europe

Eastern EuropeMiddle

EastAfrica

China

Asia (ex China)

North America

South America

Western Europe

Central Europe

Eastern Europe

Middle East

Africa

China

Asia (ex China)

2020(Total Capacity =

222 million tons per year)

2015

(Total Capacity =


2000

(Total Capacity =



Investment is either in advantaged feedstock or high market growth regions

Asia Polypropylene Demand Growth

Polymer consumption growth is associated with substitution of traditional materials, infrastructure development and population

demographics (income, urbanisation etc.)

China

Korea

Indonesia

Malaysia

Thailand

India Vietnam

0%

2%

4%

6%

8%

0 10 20 30 40

Dema

nd C

AGR

in 20

15-20

25 (%

)

Consumption per Capita in 2015 (kg)

High growth potential

Competitive

Outlook


The Middle East cost advantage has decreased, but not gone away

Integrated Ethylene/HDPE Cash Cost

• European ethylene costs fell by over 70%, helped by strong pygas credit

• Saudi Arabian ethane costs have more than doubled

• Saudi propane prices now linked to propane rather than naphtha, thus bringing seasonal price volatility

• After logistics and duty costs, there is little advantage selling into Europe

0

500

1000

1500

2010 2011 2012 2013 2014 2015 2016

Cur

rent

dol

lars

per

ton

Saudi Advantage Western Europe - Naphtha Saudi - Ethane


Accounting practices underestimate the competitiveness of MTO in China

• Integrated coalfield operations benefit from coal

prices circa half the level of coastal benchmarks

• Most are fully integrated with coal-based utilities, and

consume 6-7 tons of coal per ton polyolefins

• Even using a fully-loaded cost price, each ton of

polyolefins produced provides a margin to the coal

business of 1063 RMB, or $170 per ton of polyolefins

• While fixed costs and depreciation for integrated

CTO are high, these do not influence operating

decisions, and variable costs are down to ~$200 per

ton of polyolefins

MTO costsH1 2015 Coal Costs

(Thermal coal, RMB per ton)

0

50

100

150

200

250

300

H1 2015

Raw materials, fuel and power Personnel

Maintenance Depreciation

Other

Transfer Price, 277 RMB

Variable Cost, ~50 RMB

Full Cost, 117 RMB

• Source: Shenhua Group, Nexant estimates.


Most regions have excess capacity growth over 2015-2020

Polyolefins* Market Growth

2015-2020

*Includes both PE & PP - Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program

Global Polyolefins* Capacity Growth

2015-2020 (+49 million tons)

0

2

4

6

8

10

12

14

16

18

20

NAmerica

SAmerica

Europe MiddleEast

Africa China Rest ofAsia

Mill

ion

tons

Capacity Growth Consumption Growth

N America

Europe

Middle East

Africa

China

Rest of Asia


New Capacity in the US and Middle East is focused on specialities

Regional Petrochemical Feedstock Sources and Trends

• Focus on butene-1 LLDPE

• HDPE plans include some

Hostalen and INNOVENE

S bimodal technology

• Massive development of

HP and CP PP, including

Sinopec, Novolen,

UNIPOL, Spherizone

licenses

China• ExxonMobil 1.3m tons LLDPE

focused on specialties

• Dow using DOWLEX technology

for octene LL grades and building

separate elastomers unit

• CPChem building bimodal HD/LL

• Formosa to produce LDPE, gas-

phase LL using B1 and H1 co-

monomers, and now PP

• Braskem Idesa and INEOS/Sasol

building 2 INNOVENE S plants,

focusing on bimodal grades

North America

• All Borouge III capacity (>2m

tons/yr) aimed at “differentiated”

PE and PP, esp. pipe grades

• Sadara - first solution plant in

KSA will focus on Octene grades

• Iran capacity will include more

commodity grades

Middle East

Conclusions


Conclusions

Demand fundamentals are expected to remain strong in the outlook

• Global PP demand was 60 million tons in 2015, up over 4% on 2014

• Demand for PE (LD,LL,HD) totalled 87 million tons in 2015, up more than 3%

• Global growth driver is Asia – China forecast to account for 65% of Asia’s incremental demand over next 5 years

• Low oil prices, uncertainty about China & other economic factors have reduced short-term global GDP

• Success of Chinese consumption-led economic model key to global polyolefin markets

• Per capita demand, lower labour costs favour growth in places such as Vietnam over China

Demand Outlook:

• Source: Shenhua Group, Nexant estimates.

Supply Developments and Net Trade: Demand fundamentals are expected to remain strong in the outlook

• Most new US and Middle Eastern plants target value-added grades

• Chinese capacity developments include both speciality and commodity grades

• Existing Middle Eastern operators face tough challenges to 2020, selling commodity products into an

increasingly oversupplied market with less competitive advantage

• European exporters of speciality grades will face increased competition from US and ME

• Will converters unable to utilise higher performance polymers come under pressure?

Thank youwww.gpca.org.ae

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