NOVEMBER 23, 2014 GLOBAL PETROCHEMICAL MARKET...

Information | Analytics | Expertise

GLOBAL PETROCHEMICAL MARKET OUTLOOK: BALANCING THE PUSH FROM REGIONAL SUPPLY WITH THE PULL FROM GLOBAL DEMAND

NOVEMBER 23, 2014

© 2014 IHS

Information | Analytics | Expertise

9th Annual GPCA Forum

Mark A. Eramo

Vice President, Chemical Industry Insights

[email protected]

© 2014 IHS 2

Global Petrochemical Market Outlook / November 2014

Agenda

Global Petrochemical

Market Outlook

Economic & Energy Impact • Chemicals Enable Modern Living

• Growth Assumptions

• Capacity Addition Trends

Key Strategic Issues in Basic

Chemicals • Ethylene

• Propylene

• Methanol

• Chlorine

• Benzene

Conclusions for Basic Chemicals

© 2014 IHS © 2014 IHS 3

The Chemical Industry Enables Modern Living

Consumer Goods Retail Consumers

Energy Chemicals Derivatives


© 2014 IHS 4

Energy Impact on

Chemicals

A sustained advantage for North America natural

gas and China coal versus crude oil will attract

investment and shift the balance of capital investment

and product trade flows.

Investments in ethylene, propylene and methanol;

will accelerate near term, driven by “supply-push”

dynamics as U.S., China and Middle East leverage

competitive feedstock positions.

On-purpose technology justified to fill supply gaps

created by energy market dynamics; supply

constraint and investment margins resulting from

divergence in energy.

Chemical industry profitability greatly influenced

by value-chain and regional availability/access to low-

cost energy and feedstocks. Significant pressure

building on “crude-based” technologies and regions to

take competitive action.


© 2014 IHS © 2014 IHS 5

Steady Global GDP Growth Essential To Chemical

Demand

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013 2014 2015 2016 2017 2018 2019 2020

Ethylene Propylene Methanol

Benzene Chlorine Global GDP, %

Percent GDP Growth Product Elasticity


© 2014 IHS © 2014 IHS 6

Energy & Demand Growth Dynamics Accelerate New

Capacity For Ethylene, Propylene, and Methanol

0

10

20

30

40

50

60

70

Benzene Chlorine Methanol Propylene Ethylene

00 to 10 10 to 20

Basic Chemicals Capacity Growth, Million Metric Tons

Total Capacity :

00 to 10 = 290 MM metric tons

10 to 20 = 650 MM metric tons


© 2014 IHS © 2014 IHS 7

Strategic Issues In Basic Chemicals

Incentives to build on-purpose threaten oversupply in the near

term; lower propylene prices will impact ethylene cash costs

for naphtha crackers; in the US market sees a shift in value to

chemicals versus refining; PP demand growth trending

towards GDP

Understanding methanol developments in China is

essential; light olefins feedstock and fuels end-uses

stimulate demand growth; US oversupply near term

driven by rush to build low cost capacity

Crude oil to natural gas ratio is key to location of new

capacity; and keep an eye on coal-to-chemicals

developments in China; new methane based technology

developments underway

Propylene

Ethylene

Methanol


© 2014 IHS 8

Ethylene Market

Key Takeaways

Advantaged feedstock's drive a surge in new capacity for

China and North America, as Middle East focus shifts to

feedstock diversification and downstream market

development.

MDE and NAM Ethane along with China CTO capacity sit

firmly in 1st quartile of global cost curve; provide for highly

profitable integrated economics. Natural gas and coal (via

methanol-to-olefins) emerge as viable technologies for light

olefins production

Naphtha crackers required to balance demand growth

leading up to 2020 and face lower operating rates to

balance markets near term.

Ethylene capacity additions globally on pace with demand

growth, no oversupply forecast, low operating rates impact

high cost production

Ethylene derivative trade balance will shift as China self-

sufficiency increases and North America faces “supply

push” into export markets


© 2014 IHS © 2014 IHS 9

Ethylene Cash Cost Snapshot Comparing Technologies around the world

0

220

441

661

882

1102

1323

1543

1764

U.S.Ethane

WesternCanada

U.S.WeightedAverage

ChinaCTO

US GTO WestEuropeNaphtha

NortheastAsia

Naphtha

SoutheastAsia

Naphtha

US MTO

2014 2024

Ethylene Cash Costs From

Ethane in Saudi Arabia

U.S. Dollars Per Metric Ton, Ethylene


© 2014 IHS © 2014 IHS 10

Unprecedented Ethylene Capacity Additions Driven By Low Cost Ethane Supplies

Ethylene Capacity Additions

Projected North American Ethylene

(Thousand Metric Tons per Year) Total Additions

2014 - 2020

Company Location

BASF/Total Port Arthur. TX 170

ChevronPhillips Cedar Bayou, TX 1,500

Dow Freeport, and Plaquamine 1,720

Eastman Longview, TX 17

Equistar All Locations 862

ExxonMobil Baytown, TX 1,500

Flint Hills PT Arthur 100

Formosa Point Comfort, TX 1,150

Oxy/Mexichem Ingleside, TX 550

Sasol Lake Charles, LA 1,550

Westlake All Locations 216

Williams Geismar, LA 1,758

Braskem Idesa Mexico 1,000

Nova Sarnia 168

Total: 12,261

North America forecast to start up

more than 12 million tons of new

ethane based capacity by 2020.

Current wave of new capacity

mainly built by existing producers;

look for new entrants beyond 2020

Braskem-Idesa scheduled to start

up the first grass-roots ethylene

unit since 2001.

Peak additions forecasts to

overlap in 2018/2019…oversupply

is possible.


© 2014 IHS © 2014 IHS 11

Middle East Developed By Advantaged Ethane

Feedstock …Trending Heavier, Expanding Portfolio

0

10

20

30

40

50

60

70

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Ethane Propane Butane Naphtha Others

Million Metric Tons of Feedstock


Performance Polymers

• ABS

• Synthetic Rubber

• Polycarbonate

• Polyacetal Resins

• Nylon 6

• C8 PE/Elastomers

Specialty Chemicals

• MDI/TDI

• Polyols

• EO/PO

• Amines

• Glycol Ethers

• Acrylate Monomers

• Epichlorohydrin

Polymer Commodities

• Polyethylene

• Polypropylene

• Polystyrene

Commodities

• Ethylene Glycol

• Styrene

© 2014 IHS © 2014 IHS 12

China Unconventional Investments Increase Ethylene Self-

Sufficiency to 60%; Demand Forecast to Reach 50 MM tons

0%

10%

20%

30%

40%

50%

60%

70%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

10 11 12 13 14 15 16 17 18 19 20

Domestic Deriv. Ethylene Demand Net Equiv. Imports (Exports) Self-Sufficiency

Million Metric Tons, Ethylene Self Sufficiency


© 2014 IHS © 2014 IHS 13

Ethylene Capacity Additions Vs Demand Growth

Shows Balanced Market Conditions

-8

-4

0

4

8

12

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Annual Change in Capacity Annual Change in Demand

Million Metric Tons, Ethylene


© 2014 IHS 14

Propylene Market

Key Takeaways

Changes to global steam-cracking feed-slate and

refining dynamics in North America have created

a significant supply gap for global propylene

markets...

…propylene is facing potential oversupply in the

near term, driven by massive investments in on-

purpose technology to fill the supply-gap.

Propylene-to-Ethylene (P/E) price ratios could

drop (to PDH cash costs), impacting steam

cracker cash costs (operating rates on heavy

feeds) and offer more incentives to refineries to

invest in alkylation. This could also boost

demand (for PP) at the expense of other plastics.

US could return to a high P/E ratio if refineries

invest sufficiently to get back to RGP price

setting based on gasoline economics.


© 2014 IHS © 2014 IHS 15

Key Routes to Produce Propylene

Direct Refinery Grade chemical consumption

Alkylation

Unit

High Octane Motor

Gasoline

Other Fuel Uses

Motor

Gasoline

Purification

Splitter Unit

Other Propylene

consumers

Crude

Oil

Steam Cracker

(Olefins Plant) Ethane

Propane

Naphtha

Refining Industry

Crude

Unit

Motor

Gasoline

Chemical Industry

Injection

Molding,

Fibers, Films

Polypropylene

On-Purpose

FCC

Unit

Nat.

Gas


© 2014 IHS © 2014 IHS 16

Global On-purpose Propylene Production Propane-Dehydrogenation And Coal To Olefins…Technologies of Choice

0

5

10

15

20

25

30

35

2000 2002 2004 2006 2008 2010 2012 2014 2016 2022

Ex Dehydro - PDH Metathesis Olefin Cracking

Via Methanol: CTP HS FCC Others On-Purpose

25%

45%

Propylene Production, Million Metric Tons


Global on-purpose propylene production

forecast to reach 30 million metric tons by

2022, representing 30+% of total supply,

impacting regional price mechanisms.

© 2014 IHS © 2014 IHS 17

PDH Investment Accelerates Around the World North America, Middle East, and China Lead the way

0

2

4

6

8

10

12

14

2000 2004 2008 2012 2016 2020

North America Europe Africa/Middle East

Northeast Asia Southeast Asia

Million Metric Tons PDH Production by Region New PDH investment relies

upon propane availability from

shale oil & gas development,

anticipating supply surge from

North America.

New capacity will impact

“propylene economics”;

supply and price volatility

continued.

PP capacity investment returns

to North America, a reversal of

recent trends.


© 2014 IHS © 2014 IHS 18

Global Propylene Equivalent Trade Trade patterns are shifting with regional investments

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

00 02 04 06 08 10 12 14 16 18 20 22 24

North America West Europe Middle East Asia (Ex China) Others China

Net Exports

Net Imports

Million Metric Tons, Propylene


© 2014 IHS 19

Methanol Market

Key Takeaways

Substantial investment returns to North America

driven by forecast of abundant supplies of low-cost

methane from shale oil & gas. Investments in

North America include re-starts, relocations,

expansions and new building.

North America will become a major exporter by

2018. Status of sanctions on Iran will play key role

in methanol trade balance…Iran likely restricted to

China and India as trade partners.

China adding significant capacity of coal-based

methanol, supporting MTO investments; a new

source of rapid demand growth. Some China

based investors seeking methanol investments in

North America.

Methanol use in fuels applications represents

healthy upside to current demand growth forecast.


© 2014 IHS © 2014 IHS 20

Global Methanol Consumption; Use as Olefins Feedstock

Will Accelerate Demand Growth / Capacity Investment

0

10

20

30

40

50

0.0

20.0

40.0

60.0

80.0

100.0

08 09 10 11 12 13 14 15 16 17 18

Fuel (11.0/7.5) MTO/MTP (0.0/46.5)

Other (4.1/4.9) Percent Fuel Use Merchant Methanol(% AAGR = 08-13/13-18)

Million Metric Tons Percent Fuel Use


© 2014 IHS © 2014 IHS 21

Northeast Asia Methanol Supply Driven By China

Domestic and International Investments (imports)

0.0

15.0

30.0

45.0

60.0

75.0

08 09 10 11 12 13 14 15 16 17 18 23

Million Metric Tons, Methanol

China Supply Net Imports


© 2014 IHS © 2014 IHS 22

Surge In North America Methanol Capacity Will Shift

The Global Trade Balance

0.0

2.0

4.0

6.0

8.0

10.0

08 09 10 11 12 13 14 15 16 17 18 23

Imports Exports

Million Metric Tons, Methanol North America Methanol Trade


© 2014 IHS © 2014 IHS 23

Strategic Issues In Basic Chemicals

Electricity cost is the major factor for ECU cash cost;

demand growth linked to construction materials, mainly

PVC applications; integration from ethylene to PVC

provides competitive edge for US producers.

Chlorine

Benzene

Weakening co-product from refining and olefins.

Supply chain dislocation implies high volatility as

benzene trades while derivatives are local; Asia supply

chain structure into North America is a key market

dynamic.


© 2014 IHS 24

Chlor-Alkali & Vinyls

Markets

Key Takeaways

Cost structure is critical to investment; electricity is

the major cost for ECU production.

US has low cost ECU’s due to favorable energy; tight

ethylene market will be a challenge for non-integrated

producers.

New US capacity requires higher exports of both

vinyls (EDC, VCM, PVC) and caustic.

Europe is high cost and must address the mercury

cell issue; slow domestics demand growth; specialty

resin technology is an opportunity.

Asia has high cash cost and excess capacity. India

requires increasing imports; China is self-sufficient in

PVC production; look for increasing China exports.

Merger & acquisition activity continues as the global

market consolidates.


© 2014 IHS © 2014 IHS 25

Energy Chain Flows Supporting Vinyls Production Vary By Region

China

Coal Carbide Acetylene

Coal Electricity Chlor-Alkali VCM PVC

North America & Middle East

Natural Gas Ethane Ethylene

Natural Gas Electricity Chlor-Alkali EDC VCM PVC

Most of the World

Oil Naphtha Ethylene

Oil valued energy Electricity Chlor-Alkali EDC VCM PVC

Pip

e/S

idin

g &

Oth

er

Fab

ricate

d P

rod

ucts


© 2014 IHS © 2014 IHS 26

How Do The Chlorine and Ethylene Advantages Flow

To The PVC Side?

400

500

600

700

800

900

1000

1100

1200

08 09 10 11 12 13 14 15 16 17 18

North America West Europe * Northeast Asia China Cash Cost (Acetylene based)

*NEA excludes China

Integrated Regional PVC Cash Costs – Asset Sharing Method

Dollars per Metric Ton


© 2014 IHS 27

Benzene Market

Key Takeaways

North American benzene supply has declined due to

a shift in feedstocks for ethylene and gasoline, and

global oversupply of MX/PX (poor MX economics).

Some shale oil plays have lower benzene yields;

refinery operations and renewable fuel trends are

critical to future supply.

North America’s benzene shortfall filled via “push” of

imports from Asia; price volatility reduced due to

over-supply in global market.

New benzene derivative capacity in North America

limited to debottlenecks until benzene supply picture

becomes more clear.

Styrene margins are forecast to improve as global

balances tighten with improving demand and limited

capacity additions.


© 2014 IHS © 2014 IHS 28

While US Shale Developments Constrain Benzene Supply,

Some Derivatives Benefit


Benzene Cumene/

Phenol

20%

EB/Styrene

51%

Cyclohexane

11%

Polystyrene

EPS

ABS, SBR, UPR

Bisphenol A Polycarbonate

Advantaged Ethylene

Disadvantaged Propylene

Phenolic Resins

Caprolactam Nylon 6

Adipic Acid Nylon 6,6

Advantaged Hydrogen

Acetone

© 2014 IHS © 2014 IHS 29

The Benzene Supply Gap in North America Will Limit New

Derivative Capacity Investment

0

2

4

6

8

10

Coke Oven Reformate Pygas PX HDA Demand

Million Metric Tons, Benzene


© 2014 IHS 30

Global Petrochemical

Outlook

Key Take-a-ways

Demand growth trends fueled by steady economic

growth, slightly above GDP for ethylene and

propylene; methanol strong growth is driven by use

as light olefin feedstock and use in fuel

applications

Investments in ethylene, propylene and methanol;

will accelerate near term, driven by “supply-push”

dynamics as U.S., China, and Middle East leverage

competitive feedstock positions.

Derivative trade continues to grow, as low-cost

centers supply high-demand growth regions.

Effective go-to-market strategies are essential;

notable exception in global propylene

Chemical industry profitability greatly influenced by

value-chain and regional availability/access to low-

cost energy and feedstocks. Increasing pressure

builds on “crude-based” technologies and regions


© 2014 IHS

Thank You!!

31

Mark A. Eramo

Vice President, Chemical Industry Insights

[email protected]


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