Pemex seminar June 2012

Doug Rightler

PCI Xylenes & Polyesters Ltd

EO and MEG: China supply critical

for global balance

Global View EO & MEG: 2011-12

• 2011 was less than 50% growth of 2010 with China tightening credit to control

inflation, slowing demand in the second half.

• No new MEG capacity came on line in 2011 and none for 1012 but NanYa once

again in Taiwan lost significant production due to multiple fires at site. China

traders dominate pricing issues and MEG stocks finished at record high levels

in 2011.

• China remains the huge growth target, adding over 10 million tonnes of new

polyester capacity in 2012 but demand is weak and credit and inventory a

major issue.

• Middle East increased MEG production to maximum rates through May but now

having some trouble.

• All world EO/MEG plants will need to run near perfection in 2012-15 to meet

demand.

• China is key to MEG supply for next 4 years as no new capacity elsewhere.

Pure EO Market trends and Changes

• New PEO investments have moved east to China but U.S. should see new

wave on investment.

• Sinopec and others investing in PEO especially China => threat to traditional

EOE producers else where in world Japan, USA, Europe.

• Chinese growth in EODs was blistering in 2010 - cooled off a lot in 2011 due

to credit squeeze and cooling of the economy. (construction and consumer

goods, cement grinding aids, cement additives, solar cells, UPR polyols etc).

• Chinese investment in PEO is based on import substitution namely EODs from

Europe, USA and other areas plus growth. These investments are either local

(Sanijiang) or foreign firms investing in China (e.g. BASF Akzo).

• Will lead to loss of exports from other regions and concomitant issues in other

regions. It may lead to under running or closures possibly in other regions?

EO Demand and supply

THOUSANDS OF PRODUCTS USED IN

DIVERSE MARKETS

E O & D, Inc.

CRUDE EO

MEG

POLYESTER FIBER

PET RESIN

ANTIFREEZE

MEG-Industrial

PURE EO FOR EO DERIVATIVES

PERSONAL CARE

CONSTRUCTION

AGRICULTURE

I&I CLEANING, SANITIZING

MINING, METAL PROCESSING

OIL/GAS PROCESSNG

PAINTS/COATINGS

INSULATION

PLASTICS

EO MEG plant-supply limits at various pinch

points

EO

Limit on

Turndown

EO

Purification

Glycol Unit

MEG

DEG

TEG

Ratio

Note: Hydraulic Load Limit for low rate

EO Sales

&

internal EODsCracker

Ethylene

Oxygen

Power

Steam MEG

DEG

TEG

Pure EO

Crude

Aqueous

EO

Ethane

EP Mix

Naphtha

Etc.

Steam

Water

Pipeline

and

railcars

Railcar

turnaround

timing

(distance +

rail delays)

dictates fleet

size

distillation

column

railcar

loading

rack

Global EO Growth

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

To

nn

es

EO Demand EO Capacity

Global EO Demand by End-Use: 2007-2018

Polyester Fiber and PET continue to drive growth…

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1997 2000 2003 2006 2009 2012 2015 2018

Mill

ion

To

nn

es

Ethanolamines Ethoxylates Glycol Ethers Polyols PEGs Other/Inventory

New EO Capacity

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2011 2012 2013 2014 2015 2016 2017

Mill

ion

To

nn

es

North America Middle East/Africa China Other Asia

Ineos U.S. 2016, 150 kt PEO

Shell U.S. 2017 no PEO

North America PEO Demand growth 1997-2021

0

500

1000

1500

2000

2500

2007 2010 2013 2016Mill

ion

To

nn

es

Ethanolamines Ethoxylates Glycol Ethers Polyols PEGs Other/Inventory

World Fiber & PET MEG Growth

2008 First Decline Ever

World MEG

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1986 1990 1994 1998 2002 2006 2010 2014

Mill

ion

To

nn

es

Demand Increase Capacity Increase

World MEG Demand

-

2

4

6

8

10

12

14

16

18

mil tonnes

China

Other Asia

Europe

N.A.

M.E.

SA

China demand for domestic use and 25-30% exports

MEG Production: 2011-2014 (’000 Tonnes)Areas of Concern

Country 2011 2012 2011-12 2013 2012-13 2014 2013-14

World 22160 23685 1525 25111 1426 26713 1602

China 3032 3528 496 4747 1219 6438 1691

Taiwan 1895 2216 321 2266 50 2322 57

Japan 513 666 153 647 -19 645 -3

India 977 1129 152 1120 -8 1108 -12

Saudi Arabia 6417 6532 115 6524 -8 6500 -24

Europe 1337 1417 80 1415 -2 1409 -6

USA 1674 1738 63 1744 6 1717 -27

Thailand 258 320 62 341 21 343 2

Korea 1103 1156 54 1163 7 1092 -71

Singapore 700 746 46 760 14 746 -14

South America 123 164 41 158 -6 160 2

Kuwait 1157 1121 -37 1174 54 1168 -7

Canada 1434 1395 -39 1411 16 1433 22

New MEG Supply

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2011 2012 2013 2014 2015 2016 2017

Mill

ion

To

nn

es

North America Middle East/Africa China Other Asia

New MEG 2012-2014 (kt)

Country Company Location EO Nameplate

Capacity or

Expansion

EO Capacity

Effective for

Startup Year

MEG Nameplate

Capacity or

Expansion

MEG Capacity

Effective for

Startup Year

Start-

up

China Hebi Baoma Henan 0 0 250 126 Q3 2012

China Hen-Tongliao Jinmei Anyang 0 0 200 200 Q1 2013

China Hen-Tongliao Jinmei Luoyang 0 0 200 200 Q1 2013

China Hen-Tongliao Jinmei Puyang 0 0 200 200 Q1 2013

China

Heyang Bio Ethanol

Co Henan 88 88 80 80 Q1 2013

China Sinopec Wuhan Hubei 404 404 380 380 Q1 2013

China Petrochina Sichuan

Pengzhou,

Sichuan 354 179 380 192 Q3 2013

Taiwan CMMFC new Kaohsiung 240 61 240 61 Q4 2013

China Kailuan

Inner

Mongolia 0 0 400 400 Q1 2014

China

Qianxi Coal

Chemical

Qianxi,

Guizhou 0 0 300 300 Q1 2014

China

Yizheng Chemical

Fiber Anhui 500 500 400 400 Q1 2014

New MEG 2015-2017 (kt)

Country Company Location EO Nameplate

Capacity or

Expansion

EO Capacity

Effective for

Startup Year

MEG Nameplate

Capacity or

Expansion

MEG Capacity

Effective for

Startup Year

Start-

up

China Anhui Huayi Chemical Wuwei, Anhui 160 160 200 200 Q1 2015

India Reliance Industries Jamnagar 600 600 750 750 Q1 2015

China Dahua Chemical Dalian 420 300 500 375 Q2 2015

USA INEOS - 550 550 700 700 Q3 2015

China Jiangsu Shenghong Lianyungang 540 540 650 650 Q1 2016

China Tong Kun Group

Zhapu,

Zhejiang 400 400 500 500 Q2 2016

Malaysia Petronas Pengerang 540 540 540 540 Q2 2016

China Petrochina Zhejiang 480 480 600 600 Q3 2016

Saudi Arabia JUPC3 Al-Jubail 640 320 800 400 Q3 2016

China Sinopec-Kuwait

Zhanjiang,

Guandong 650 650 750 750 2017

USA Shell North East 540 540 750 750 2017

Qatar Shell Ras Laffan 1,080 1,080 1,500 1,500 2017

Unpredictable New MEG Supply: 2011-2014 (’000 Tonnes)

Site 2011 2011-12 2012-13 2013-14

Yangzi Petrochemical 82 178 54 25 EO to EODs instead

Nan Ya, Taiwan 1351 243 16 0 Can they run w/o incident

Tongliao Jinmei Chem 18 71 19 0 DMO does it work

Hebi Baoma, Henan 0 64 140 0 DMO does it work

Global Biochem 21 15 42 30 Corn availability

Grupo Idesa 123 11 70 0 Will Pemex add EO cap

Henan-Tongliao Jinmei Anyang 0 0 60 36 DMO does it work

Henan-Tongliao Jinmei Luoyang 0 0 12 66 DMO does it work

Henan-Tongliao Jinmei, Puyang 0 0 77 47 DMO does it work

Henan-Tongliao Jinmei, Shangqi 0 0 0 0 DMO does it work

Heyang Bio Ethanol Co 0 0 65 11 Very expensive

Heyuan Chemical, Ningbo 0 0 131 301 MTO buy MEOH

Kailuan 0 0 0 243 DMO does it work

Qianxi Coal Chemical 0 0 0 150 DMO does it work

Yizheng Chemical Fiber 0 0 0 468 Integ MTO

What If All New EO MEG Is Built?

0

1

2

3

4

5

6

7

2011 2012 2013 2014 2015 2016 2017

Mill

ion T

onnes

EO Capacity Increase MEG Capacity Increase

EO Demand Increase MEG Demand Increase

2008 FORECAST----WRONG!

The EO view from 2008, overcapacity for long time, too much risk for new

capacity, now results in an investment drought

-1000

-500

0

500

1000

1500

2000

2500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

000 tonnes Surplus World EO

Global MEG Balances at 89% Rate

(considered effective max)

-500

0

500

1000

1500

2000

2500

3000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

000 tonnes

Coal to MEG in China-new technology

• Coal to Syngas → using CO/CO2 to make Methanol then Olefins. Olefins are

then used via traditional route to make Ethylene/EO/MEG (Oxidation of

ethylene to EO, hydration of EO to MEG). Also methanol to MTO to Olefins to

EO/MEG.

• Coal to Syngas (CO/CO2) to make DMO (di methyl oxalate), an ethanedioic

acid ester → Oxidized using steam + Oxygen and water to make MEG.

1 Tonne MEG = 0.95 Tonnes CO + 0.133 Tonnes H2 plus coal catalyst + others

ASU

Coal

Refining

MEG

Gasification

Syngas

Separation

Hydrogenation

Carbonylation

Regeneration

OxygenCO

NO

H2

Di-Methyl

Oxylate

OO

OO

Impact of DMO Needed for MEG with EO rates

at 88+%

20

22

24

26

28

30

32

2012 2013 2014 2015 2016

mil tonnes

MTO

DMO

EO

Demand

Forecast for actual DMO MEG from China

00.20.40.60.8

11.21.41.61.8

2011 2012 2013 2014 2015 2016 2017

mil tonnes

A huge unknown variable that could be real trouble for the EO world if

it fails as MEG will have to come from conventional EO based MEG

plants

The Big Question – To be Resolved

• The longer DMO technology

remains unproven the more

uncertainty grows for 2013-2015.

• The different technologies used for

DMO might prove the solution to

the uncertainty. I.e. 2013 when the

first of the “different” DMO

technology plants start up.

• To replace 1 million tonnes of DMO

MEG in 2014 EO needs to run at

91.4% and to replace 1.4 million

tonnes of DMO origin MEG in 2015

at 93%.

• This will also push up PEO values

and affect EOD segments and their

costs.

World EO Surplus at 89% EO Rate with and w/o

DMO MEG from China

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2011 2012 2013 2014 2015 2016 2017 2018

Mill

ion

To

nn

es

w/o DMO w DMO

EO from conventional EO MEG

plants would have to be used to

makeup for MEG not made by DMO

thus creating intense competition for

the EO molecule

EO Rates High Through 2015, High Prices

74

76

78

80

82

84

86

88

90

92

94

-100

-50

0

50

100

150

200

250

300

350

400

450

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

EO

Ra

te %

$/T

on

ne

World EO Rate Asia MEG margin US MEG margin

Historical high profit level was 86-87% EO rate but not in 2011

China MEG stocks go out of control

0

200

400

600

800

1000

1200

Jan-2011 Jan-2012 Jan-2013

kt

local prodn imports inventory demand

China buyers take the lead from oil

50

60

70

80

90

100

110

120

400

600

800

1000

1200

1400

1600

1800

2000

Jan

10

Feb

10

Mar

10

Ap

r10

May

10

Jun

e10

Jul1

0

Au

g10

Sep

10

Oct

10

No

v10

Dec

10

Jan

11

Feb

11

Mar

11

Ap

r11

May

11

Jun

11

Jul 1

1

Au

g 1

1

Sep

t 1

1

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

$/brl$/tonne

MEG PTA PX WTI

China Daily Prices

Oil decline with high stocks, time to sell

0

200

400

600

800

1000

1200

1400

1600

1800

0

20

40

60

80

100

120

140

8 9 10 11 12

C2,MEGBrent oil

oil

MEG

70

90EO

World EO Rate

Asia Values

U.S. & Canada MEG Production

MEG Production (KT)

Site 2012 2013 2014 2015 2016 2017 2018 2019 2020

MEGlobal total 1017 1059 1092 1121 1124 1084 1084 1083 1095

Shell total 672 677 689 727 737 1307 1302 1328 1299

Indorama, TX 312 328 334 334 335 334 328 304 305

Formosa Plastics, TX 329 336 336 336 336 336 336 336 336

DOW, USA, Seadrift, TX 282 285 267 214 264 217 219 271 200

Equistar, TX 245 238 232 235 235 233 227 220 215

Huntsman,TX 234 225 351 341 319 289 281 302 281

Eastman, TX 71 74 73 73 73 72 71 71 71

Indorama, Gulf prop 500 500 500

Ineos, Gulf proposed 650 690 690 690 690

Mexico EOE Balance

000 tonnes 2012 2013 2014 2015 2016 2017 2018

EO

Capacity 400 400 400 400 400 400 400

Production 369 368 368 368 368 368 368

Utilisation Rate 92% 92% 92% 92% 92% 92% 92%

Total Glycols 216 211 204 198 192 189 185

Ethanolamines 28 28 25 27 30 29 29

Ethoxylates 66 69 75 78 80 83 86

Glycol Ethers 17 17 18 18 18 18 18

Polyols 14 14 17 18 18 19 19

PEGs 22 23 23 24 24 25 25

Other/Inventory 5 5 6 6 6 6 6

Total EODs 153 157 164 169 176 179 183

MEG

Capacity 340 340 340 340 340 340 340

Production 266 260 251 245 236 232 227

Polyester Total 447 467 468 468 457 458 462

EGI/EGAF Total 44 44 45 46 46 47 48

Total Consumption 490 512 513 514 503 505 510

Imports (226) (255) (265) (270) (272) (277) (284)

Ethylene EO/MEGAither Chem WV 100 2016 ?Chevron Phillips Cedar Bayou 1500 2015Dow Taft 400 2012Dow Freeport 1500 2017 ?ExxonMobil Baytown debottleneck 2013ExxonMobil Baytown 1500 2016Formosa Pt.Comfort 800 2016Ineos Choc Bayou 113 2013 YLyondell Channelview 113 2013Lyondell LaPort 400 2014Sasol Lake Charles 1000 2017 ?Shell Monaca 1500 2017 YWestlake Calvert City debottleneck 2014Westlake Lake Charles 113 2012Westlake Lake Charles 113 2014Indorama seeking JV Y

New U.S. EO/MEG Ethylene (KT)

(1,000)

(500)

-

500

1,000

1,5002

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

000 tonnes

N.A.

U.S.

North America and U.S. MEG Balances

E O & D, Inc.

But who should invest in future?

0

5

10

15

20

25

Asia 6 China 78

ME 9 NA 6 SA 2 Russia 3

mil tonnes

EO

MEG

proposed new plants, # and volume, next 8 years

anyone for poker? lots of losers on the high cost

side

Comparative Cash Cost Economics Integrated

PEO from cash cost ethylene

0

200

400

600

800

1000

1200

1400

1600

$/tonne

Canada

U.S./Mexico ethane

Naphtha-Asia, Europe

Middle East

Green EO in India and Taiwan

from ethanol near $1650/tonne

cash cost

China DMO,MTO

Comparative MEG Integrated Economics US

Ethane at 50 ¢/gallon oil at 110 Brent

0

200

400

600

800

1,000

1,200

1,400

1,600

$/T

onne

Sets the Price Floor in Oversupplied Market

Conclusions

• New MEG capacity at all time low, long dry spell lead by lack of

Middle East.

• Unreliable and unpredictable new MEG plants in China.

• Usually big booms followed by big busts so expect major surplus

in 2016 but US lower costs and thus not at risk as was the case

in the past. Great for integrated producers.

• World DEG demand at mercy of China to suck it all away in

markets that are GDP sensitive.

• US PEO at capacity and must compete with MEG margins to

maintain supply.