Naphtha Export Markets:Petchem Demand & Refining Outlook
Andrew Reed, PrincipalESAI Energy, LLC
Argus Condensate & NaphthaSeptember 30, 2016
ESAI Energy, LLC
ESAI Energy originated in 1984, and provides independent, objective analysis of
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New Studies
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“Invisible” Naphtha Market
North Asia Demand
Europe Demand
Refining Outlook
Conclusions for U.S. Exports
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Invisible Naphtha Market
Heavy
Light-Full Range
C5+
0
5,000
10,000
15,000
20,000
2016 Global Supply('000 b/d)
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Naphtha Absorption
Petrochemical
Gasoline
Diluent & Other
0
5,000
10,000
15,000
20,000
2016 Disposition('000 b/d)
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Gasoline Blending Considerations
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Naphtha Absorption in Gasoline
28%
13%
2016 Global Gasoline Blending Ratios
Heavy Naphtha
Light Naphtha (isomerate and straight-run)
Cracked Gasoline (FCC and other)
Oxygenates (ethanol, alkylate, butane, other)
• Gasoline market > 40% naphtha
• High content in Africa/Europe/ME
• Low content in China/Asia
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
North America Latin America Europe FSU/EE Africa Middle East Asia
Naphtha/C5+ Demand by Region('000 b/d)
Naphtha Demand by Region
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(500)
500
1,500
2,500
3,500
4,500
5,500
6,500
2015 2016 2017
Ethylene Capacity,‘000 TPA
Asia Ethylene Capacity by Feedstock: Cumulative Change vs 2014
Ethane
LPG
Naphtha & C5+
CTO/MTO & Other
Rationalization in Japan & Taiwan leads to net
decrease in Asian naphtha-fed capacity
Asia Ethylene Investment
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Asian Naphtha Consumers
Japan, S. Korea & Taiwan
2.3 million b/d
Naphtha-fed crackers,
little flexibility
Biggest contributors to global demand growth in 2015
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(500)
(400)
(300)
(200)
(100)
0
100
200
Japan South Korea Taiwan China Other Asia India
Asia Naphtha Balances'000 b/d
“Big 3” deficit exceeds 1 million b/d
Asia’s Biggest Importers
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Rationalized 1.3 MTPA capacity
Ethylene output rose 4% in 2015, will fall ~7% in 2016
Japan’s “Capacity Constraint”
14
15
16
17
18
19
20
21
22
23
Q1 '14 Q2 Q3 Q4 Q1 '15 Q2 Q3 Q4 Q1 '16 Q2 Q3 Q4
Ethylene,'000 t/d
Japan Ethylene Capacity & Production
Projected Ethylene Production
Ethylene Production
Capacity
Sumitomo Chaiba
Mitsubishi Kashima
Asahi Kasei Mizushima
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“Big 3” naphtha demand will fall 60,000 b/d in 2016, erasing half of 2016 gains
Naphtha Demand in Decline
760
800
770
600
650
700
750
800
850
2011-2014 avg 2015 2016
'000 b/d Japan Naphtha Demand
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U.S. Naphtha Supply to Asia
400
500
600
700
800
900
1,000
2014 2015 2016 2017 fcst
'000 b/dJapan & South Korea Deficit & Imports from Selected Sources
Mideast & India
Russia
Europe
Africa
USA
S/D Deficit
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Europe Loss of Naphtha to NGLs
U.S. ethane displaces naphtha at some units
Antwerp FAO- more NGLs
Carling, Porta Marghera
~1.5-2 MTPA loss of naphtha-cracking capacity
Rafnes (Ineos)
Grangemouth (Ineos)
Wilton (SABIC)
Stenungsund (Borealis)
Fife (Exxon-Shell)
Antwerp (Fina Olefins)
Carling (Total)
Porta Marghera (Versalis)
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900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
Q1 '14 Q2 Q3 Q4 Q1 '15 Q2 Q3 Q4 Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4
('000 b/d) OECD Europe Naphtha Demand & Capacity
Naphtha Demand Demand implied by Ethylene Capacity Adjustment for Outages
Slightly stronger demand in 2016, capacity decreases lay ahead
Outages Undermined 2015 Demand
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U.S. Naphtha Supply to Europe
0
50
100
150
200
250
300
2014 2015 2016 2017 fcst
('000 b/d)OECD Europe Deficit & Imports from Selected Sources
Russia
Algeria
USA
Deficit
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Refining Outlook
Will refinery supply follow demand lower?
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1,100
1,120
1,140
1,160
1,180
1,200
1,220
1,240
1,260
1,280
1,300
Dec
'14
Mar
'15
Jul '
15
Sep
'15
Dec
' 15
Mar
'16
Jul '
16
Sep
'16
Middle Distillate StocksMln bbls
Storm Clouds for Refiners
640
650
660
670
680
690
700
710
720
730
740
Dec
'14
Mar
'15
Jul '
15
Sep
'15
Dec
' 15
Mar
'16
Jul '
16
Sep
'16
Gasoline StocksMln bbls
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Non-OECD Throughput Growth & Recovery
0
250
500
750
1,000
Q115 Q315 Q116 Q316 Q117 Q317
China & India Throughput Growth,Yoy change (‘000 b/d)
China India
(250)
0
250
500
750
1,000
Q115 Q315 Q116 Q316 Q117 Q317
Middle East Throughput,yoy change (‘000 b/d)
(750)
(500)
(250)
0
250
500
Q115 Q315 Q116 Q316 Q117 Q317
LatAm, Africa & Russia Throughput,yoy change (‘000 b/d)
Latin America
Africa
Russia
Total
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Margins: Evidence of Pressure in Europe/Asia
$3
$6
$9
$12
$15
Q115 Q315 Q116 Q316 Q117 Q317
$/bblSingapore Cracking (Dubai)
$3
$6
$9
$12
$15
Q115 Q315 Q116 Q316 Q117 Q317
$/bblRotterdam Cracking (Brent)
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Displacement of Throughput in Europe & Asia
(750)
(500)
(250)
0
250
500
750
1,000
Q115 Q315 Q116 Q316 Q117 Q317
Europe Throughput, yoy change (‘000 b/d)
(500)
(250)
0
250
500
750
Q115 Q315 Q116 Q316 Q117 Q317
Japan, S. Korea & Taiwan Throughput,yoy change ('000 b/d)
Japan South Korea
Taiwan Total
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Conclusions
Petrochemical Naphtha Demand• Asian demand on decline, Europe to follow
Refinery supply• Throughput cuts undermine supply, but not
enough to lift imports
Naphtha Deficits• Europe deficit flat ~150,000 b/d• North Asia deficit falls to < 1.1 mln b/d
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Andrew ReedPrincipal, ESAI Energywww.esaienergy.com
Thank you
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