SingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DüsseldorfDüsseldorf DubaiDubai
Prepared for:LSU Energy Summit
October 2007
Prepared for:Prepared for:LSU Energy Summit LSU Energy Summit
October 2007October 2007
Petrochemical Market OutlookPetrochemical Market Outlook
Chuck CarrDirector
Propylene [email protected]
Chuck CarrChuck CarrDirectorDirector
Propylene StudiesPropylene [email protected]@cmaiglobal.com
October 2007October 2007
Petrochemical OutlookPetrochemical Outlook
Petrochemical BasicsEconomy & Energy Impact On Regional Cost PositionsCapacity Additions, Demand, and TradeConclusion
Petrochemical BasicsEconomy & Energy Impact On Regional Cost PositionsCapacity Additions, Demand, and TradeConclusion
October 2007October 2007
Olefins Supply-Chain DynamicsOlefins Supply-Chain Dynamics
EnergyEnergy Olefins ProductionOlefins Production DerivativesDerivatives
Durable / Non-DurableDurable / Non-Durable
ConsumersConsumers Retail SectorRetail Sector
October 2007October 2007
Olefins Flow DiagramOlefins Flow Diagram
FeedstocksEnergy Petrochemicals
NaphthaNaphthaGas OilGas Oil
Field CondensatesField Condensates
EthaneEthanePropanePropaneButanesButanes
PropylenePropyleneEthyleneEthylene
Pygas• Benzene• Toluene/Xylene• Heavy Aromatics• C5/C6 Non Aromatics
Pygas• Benzene• Toluene/Xylene• Heavy Aromatics• C5/C6 Non Aromatics
Crude C4• Butadiene• Mixed Butylenes
Crude C4• Butadiene• Mixed Butylenes
Fuel OilFuel Oil
Methane/HydrogenMethane/Hydrogen
Natural GasNatural Gas
Crude OilCrude Oil
Refinery
GasSeparation
Unit
Ethylene
UnitEthylene
Unit
October 2007October 2007
Propylene Has Multiple Sources
Propane
MetathesisEthylene/Butylene
Naphtha/NGL
RefineryFCC Unit
Alkylation Unit
Isobutane
High Octane Alkylate Gasoline
Gas Oil
Non-ChemicalRefinery Grade60% purity
Cracker
Cumene, Oligomers, Isopropanol
Polymer Grade (99.5%)Chemical Grade (93%)
Purification Splitter
Propane
Chemical
Propane Dehydrogenation
(PDH) On Purpose
On Purpose
October 2007October 2007
2007 World Light Olefins Supply Profile
Ethylene Propylene
69 Million Metric Tons
Others6%
Stm. Crackers64%
FCC/Splitters30%
Others2%
Butane4%
Gas Oil5%
Propane8%Ethane
29%
Naphtha52%
115 Million Metric Tons
October 2007October 2007
EDC12%
Ethylene Oxide
14%
PE59%
Others8% EBZ
7%
Others3%
Acrylonitrile8%
Cumene4%
Acrylic Acid
4%
Oxo Alc.7%
Propylene Oxide
8%
PP66%
Ethylene Propylene
69 Million Metric Tons114 Million Metric Tons
2007 World Light Olefins Demand Profile
October 2007October 2007
North AmericaNorth America2007 Ethylene Supply/Demand2007 Ethylene Supply/Demand
Domestic Demand = 31 Million Metric TonsDomestic Demand = 31 Million Metric Tons
Production by Feedstock Demand by End-Use
EDC12%
Ethylene Oxide13%
PE59%
Others11%
EBZ5%
Propane17%
Ethane53%
Others5%Gas Oil
4% Naphtha17%
Butane4%
October 2007October 2007
North AmericaNorth America2007 PG/CG Propylene Supply/Demand2007 PG/CG Propylene Supply/Demand
Domestic Demand = 15 Million Metric TonsDomestic Demand = 15 Million Metric Tons
Production by Source Demand by End-Use
Stm. Crackers48%
Others3%
FCC/Splitters49%
Others6%
Acrylo-nitrile10%
Cumene1%
Acrylic Acid6%
Oxo Alc.7%
Propylene Oxide12%
PP58%
October 2007October 2007
Future Propylene Supply In North America
Future supply to meet continued growth in North America propylene demand will come from:
Capacity creep on existing unitsIncreased operating rates at on-purpose metathesis units. Debottlenecks, and increased feed flexibility at refinery’s and steam crackersCanadian tar sands production
Future supply to meet continued growth in North America propylene demand will come from:
Capacity creep on existing unitsIncreased operating rates at on-purpose metathesis units. Debottlenecks, and increased feed flexibility at refinery’s and steam crackersCanadian tar sands production
October 2007October 2007
Economy and Energy Impact on
Regional Ethylene Economics
Economy and Energy Impact on
Regional Ethylene Economics
October 2007October 2007
2007-2010 3.0% – 3.3%
Global GDP Growth
Positive economic factors still outweigh growing Positive economic factors still outweigh growing negatives. Balance is at risk of tippingnegatives. Balance is at risk of tipping……
Positive Factors
Monetary Policy
Corporate Profits
Fiscal Policies
Consumer Spending
“China”
Emerging Countries
High Productivity
Oil $ Re-Investment
High Energy PricesHigh Energy Prices
Credit CrunchCredit Crunch
Government DeficitsGovernment Deficits
OverOver--zealous Lendingzealous Lending
Consumer IndebtednessConsumer Indebtedness
Currency DisparityCurrency Disparity
Geopolitical InstabilityGeopolitical Instability
Rising InflationRising Inflation
The Risks
October 2007October 2007
World Ethylene GDP ElasticityWorld Ethylene GDP ElasticityElasticity
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
90 92 94 96 98 00 02 04 06 08 10
Average Elasticity '90 to '99 = 1.96
Average Elasticity '90 to '99 = 1.96
Average Elasticity '00 to '05 = 1.25
Average Elasticity '00 to '05 = 1.25
Average Elasticity '06 to '11 = 1.33
Average Elasticity '06 to '11 = 1.33
October 2007October 2007
North America Energy Price Trends
0
2
4
6
8
10
12
90 92 94 96 98 00 02 04 06 08 10 12
$ / MM Btu
0%
20%
40%
60%
80%
100%
120%Gas-to-Crude Ratio
Crude (WTI) Natural Gas Gas-to-Crude Ratio
Historically natural gas in North America traded at well below
equivalent fuel value for crude oil, but by the start of this decade the two fuel sources converged. The longer term forecast shows gas becoming slightly favored on a
BTU basis.
October 2007October 2007
Higher “worry premiums” regarding perceived threats or real constraints to international crude oil
supplies favor gas based petchem units.
Exports from Canada and U.S. to Europe and Asia are possible as long as this advantage prevails. In the longer term, cost parity and severe surpluses could limit export opportunities – but for now…
Export Markets Are Very Attractive
Higher “worry premiums” regarding perceived threats or real constraints to international crude oil
supplies favor gas based petchem units.
Exports from Canada and U.S. to Europe and Asia are possible as long as this advantage prevails. In the longer term, cost parity and severe surpluses could limit export opportunities – but for now…
Export Markets Are Very Attractive
Ratio of Natural Gas to Crude Oil Price
October 2007October 2007Cumulative Capacity (Million Metric Tons)
2006 Global Ethylene Cost Curve2006 Global Ethylene Cost CurveDollars Per Metric Ton1050
50150250350450550650750850950
0 20 40 60 80 100 120 140
Advantaged Feedstock UnitsAdvantaged Feedstock Units
Market Based Feedstock UnitsMarket Based Feedstock Units
October 2007October 2007
Ethylene Production BasisGlobal Ethylene Cash Costs By Site
Southeast Asia
West Europe
Southeast Asia
Northeast Asia
North America
Northeast Asia
Middle East
West Europe
North America
50
250
450
650
850
1050
1250
0 20 40 60 80 100 120 140
CUMULATIVE ETHYLENE CAPACITY (million tons)
Dollars Per Ton
2003
Average Feedstock Basis
2007USGC Natural Gas, $/MM Btu 5.45 6.97Brent Crude Oil, $/Bbl ($/MM Btu) 29 (~5) 66 (~11)
2003 2007
October 2007October 2007
Middle East
EuropeAmericas
23%19%
15% 41%
Asia & IndiaAmericas
37%
37%
Middle East
3%
Asia & India
22%
Europe
1990 vs. 20151990 vs. 2015Basic Chemicals & Plastics Capacity DistributionBasic Chemicals & Plastics Capacity Distribution
Basic Chemicals & Plastics Global Capacity Increase
0%1%2%3%4%5%6%7%8%
1990 1995 2000 2005 2010 2015
Annual Percentage Capacity Gain
October 2007October 2007
Global Ethylene Capacity GrowthGlobal Ethylene Capacity Growth( -000- Metric Tons )( -000- Metric Tons )
America's 40,293 41,315 1,022Europe 30,860 31,735 875
Major Region2006
Capacity2011
Capacity '06 to '11
Delta
Middle East / Africa 14,843 34,146 19,303Asia Pacific 35,225 49,687 14,462
World Total 121,221 156,883 35,662
October 2007October 2007
Regional Ethylene Capacity AdditionsRegional Ethylene Capacity Additions
0.0
2.0
4.0
6.0
8.0
10.0
12.0
01 02 03 04 05 06 07 08 09 10 11
Million Metric Tons
North America Middle East Southeast AsiaWest Europe Northeast Asia Others
* Two* Two--year rolling averageyear rolling average
Annual Demand Change*
October 2007October 2007
Global Basic Chemicals and PlasticsPercent of World Total being added by New Gulf & China
Then Emphasis Shifts to the Then Emphasis Shifts to the ““New GulfNew Gulf””
Revolutionary shift in new capacity emphasis is Revolutionary shift in new capacity emphasis is altering value chain patternsaltering value chain patterns……
0%10%20%30%40%50%60%70%80%90%
91 93 95 97 99 01 03 05 07 09 11 13 150%
10%20%30%40%50%60%70%80%90%
China Leverages its China Leverages its CoalCoal--toto--Chemicals Chemicals
Capabilities for Vinyls Capabilities for Vinyls and Methanoland Methanol
ChinaChina
““New GulfNew Gulf””
““New GulfNew Gulf””
ChinaChina
October 2007October 2007
Ethylene Investments In The Americas Ethylene Investments In The Americas Western Canada limited by ethane availability. Olefins supply based on oil sands development under study
Western Canada limited by ethane availability. Olefins supply based on oil sands development under studyU.S. Gulf Coast priority shifts to feed flexibility, energy efficiency and domestic market focus
U.S. Gulf Coast priority shifts to feed flexibility, energy efficiency and domestic market focusMexico looking to leverage upstream and downstream integrationMexico looking to leverage upstream and downstream integrationTrinidad and Venezuela offer “advantaged feedstock” based investments
Trinidad and Venezuela offer “advantaged feedstock” based investments Brazil driven by upstream and downstream integration, focused on MERCOSUR
Brazil driven by upstream and downstream integration, focused on MERCOSUR
October 2007October 2007
Olefins Demand Growth Remains Steady With The Economy
Olefins Demand Growth Remains Steady With The Economy
A strong and resilient global economy continues to drive demand growth for light olefinsEthylene demand growth forecast at ~4% per year
Strongest Growth In PE and EO/EG
Propylene demand growth forecast at ~5% per year
Strongest growth in PP and Cumene
A strong and resilient global economy continues to drive demand growth for light olefinsEthylene demand growth forecast at ~4% per year
Strongest Growth In PE and EO/EG
Propylene demand growth forecast at ~5% per year
Strongest growth in PP and Cumene
October 2007October 2007
United StatesEthylene Demand Forecast
Total Demand Growth = -0.4% AAGR 2007-12
0.0
5.0
10.0
15.0
20.0
25.0
30.0
02 03 04 05 06 07 08 09 10 11 12PE 2.6 / -0.7 * Ethylene Oxide 0.0 / -1.6 * EDC 1.1 / 2.0 *EBZ 0.2 / -2.3 * Others -0.5 / 0.4 * Capacity 0.1 / -0.2 *
Million Metric Tons
*%AAGR 02-07 / %AAGR 07-12
October 2007October 2007
North America Monthly Ethylene Net Equivalent Trade
-100
0
100
200
300
400
500
600
03 A J O 04 A J O 05 A J O 06 A J O 07-220-1100110220330440550660770880
Million Pounds
Ethylene Vinyls Styrenics PolyethyleneGlycol Alpha Olefins Vinyl Acetate Others
Net Exports
Net Imports
Others - consists of Acetaldehyde and Ethylene Propylene Rubber
Thousand Metric Tons
October 2007October 2007
North AmericaEthylene Net Equivalent Trade
-1.0
0
1.0
2.0
3.0
4.0
5.0
02 03 04 05 06 07 08 09 10 11 12
Million Metric Tons
Net Exports
Ethylene Polyethylene Vinyls StyrenicsGlycol Others Net Trade
October 2007October 2007
Olefins Derivative Trade Dominated By The Middle East
Olefins Derivative Trade Dominated By The Middle East
By 2009, ethylene net trade is dominated by the Middle East RegionNorth America net trade moderatesAsia imports, mainly China, remain the largest
By 2009, ethylene net trade is dominated by the Middle East RegionNorth America net trade moderatesAsia imports, mainly China, remain the largest
October 2007October 2007
The Olefins Business Cycle Continues…The Olefins Business Cycle Continues…U.S. Integrated Olefins/Polyolefins Cash MarginsU.S. Integrated Olefins/Polyolefins Cash Margins
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Dollars Per Metric Ton
0
100
200
300
400
500
600
700
800
October 2007October 2007
• Global Demand Remains Robust• New Capacity somewhat delayed
but market impact unavoidable• North America loses many “export
opportunities” while imports of finished goods accelerate
• By late 2008, evident markets are softening – emotional then physical
• Consolidations and closures occur; recovery signs appear by 2012
Our vision of the next five years…
October 2007October 2007
HoustonHoustonHouston
LondonLondonLondon
SingaporeSingaporeSingaporeDubaiDubaiDubai
New YorkNew YorkNew York
ShanghaiShanghaiShanghaiDuesseldorfDuesseldorfDuesseldorf
THANK YOU !Contact any CMAI location to assist in your
petrochemicals market analysis
THANK YOU !Contact any CMAI location to assist in your
petrochemicals market analysis
CHEMICAL MARKET ASSOCIATES, INC.