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SHALE-ADVANTAGED CHEMICAL INDUSTRY INVESTMENT /media/others/events/2013/detroit...SHALE-ADVANTAGED...

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  • SHALE-ADVANTAGED CHEMICAL INDUSTRY INVESTMENT

    9 April 2013

    Martha Gilchrist Moore

    Sr. Director, Policy Analysis and Economics

  • Shale Gas

    Shale gas is possibly the most important

    energy development in the past 50

    years.

    Shale gas now accounts for 30% of

    production.

    Abundant supplies of natural gas liquids

    are changing the economics of global

    petrochemical production patterns.

    Lower natural gas costs are improving

    the competitiveness of not only chemical

    producers, but other gas-intensive

    manufacturers

  • Chemical Industry Energy Requirements

    0

    200

    400

    600

    800

    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    Natural Gas Natural GasLiquids

    Heavy Liquids& Other

    Petroleum

    Electricity Coal & Coke Other

    Fuel and Power Feedstock

    Trillion BTUs

    Total energy consumption:

    5.5 quad btus

  • Petrochemical Feedstocks

    HYDROCARBON RESOURCES PETROCHEMICAL FEEDSTOCKS

    Natural Gas Methanol

    Petroleum

    Natural Gas Liquids (NGLs)

    (i.e., Ethane, Propane, Butane)

    OLEFINS:

    Ethylene

    Propylene

    Butadiene

    Naphtha and

    Other Heavy Liquids AROMATICS:

    Benzene

    Toluene

    Xylenes

  • Global Natural Gas Costs: 2012 ($US per million BTUs)

    Note: Prices generally reflect domestic wellhead/hub prices or imported prices via pipeline. Some nations (e.g., Japan and Korea) import LNG.

    Thus, the higher prices. Other nations import LNG if its a minor share of demand but these prices arent generally reflected in the above.

    USA: $2.74

    Mexico: $2.69

    Canada: $2.19

    Saudi Arabia: $0.75

    Iran: $2.98

    Brazil: $9.46

    Germany: $11.86

    China: $9.05

    India: $8.56

    Korea: $15.37

    Japan: $15.59

    UK: $9.48

    Belgium: $11.47

    Russia: $2.81

    Ukraine: $11.57

  • Global Natural Gas Price Trends

    $0.00

    $2.00

    $4.00

    $6.00

    $8.00

    $10.00

    $12.00

    $14.00

    $16.00

    $18.00

    02 03 04 05 06 07 08 09 10 11 12

    United States Belgium Germany JapanBrazil China India

    Source: EIA, Petrobas, IMF, World Bank, various national statistical agencies

    $ per million BTUs

  • Oil and Natural Gas Prices (oil equivalent)

    0

    20

    40

    60

    80

    100

    120

    Oil (WTI) Oil (Brent) Natural Gas (Henry Hub)

    $/Barrel

    Source: Energy Information Administration

  • Oil-to-Gas Ratio: A Proxy for US Gulf Coast Competitiveness

    0

    5

    10

    15

    20

    25

    30

    35

    40

    70 75 80 85 90 95 00 05 10 15

    Ratio of the price of oil (WTI) to

    the price of natural gas (Henry

  • Global Ethylene Supply Curve (Petrochemical Production Costs by Country/Region)

    $0.00

    $0.10

    $0.20

    $0.30

    $0.40

    $0.50

    $0.60

    $0.70

    $0.80

    0 73 136 172 247 307

    Pro

    ducti

    on C

    ost

    s ($

    /pound)

    Global Supply (Cumulative in billions of pounds)

    2005

    Middle

    East

    United

    States

    China

    Other

    Northeast

    Asia

    Western

    Europe

  • Global Ethylene Supply Curve (Petrochemical Production Costs by Country/Region)

    $0.00

    $0.20

    $0.40

    $0.60

    $0.80

    $1.00

    $1.20

    0 73 136 172 247 307

    Pro

    ducti

    on C

    ost

    s ($

    /pound)

    Global Supply (Cumulative in billions of pounds)

    2005

    2012Middle East

    Middle East

    United

    States

    United

    States

    China

    Western Europe China

    Western

    Europe

    Other Northeast Asia

    Other

    Northeast

    Asia

  • North American Thermoplastics Exports and Oil-to-Gas Ratio are Correlated

    500

    750

    1,000

    1,250

    1,500

    0

    5

    10

    15

    20

    25

    30

    35

    40

    45

    50

    05 06 07 08 09 10 11 12 13

    Oil to Gas Ratio Exports (right)

    Ratio: Oil-to-Gas Exports (Millions of Pounds 3MMA)

    Note: Thermoplastics includes LDPE, LLDPE,

    HDPE, PP, and PVC

  • 0

    5

    10

    15

    20

    25

    30

    35

    01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

    Exports Gaining as a Share of North American Thermoplastics Production Exports as % of Total Production

  • Petrochemical Competitiveness

    Then

    USGC petrochemicals

    competitively

    disadvantaged

    Near top of global cost

    curve

    Major capacity build in the

    Middle East with stranded

    ethane from that region

    Now

    By 2011, USGC cost

    position had improved that

    region follows Middle East

    Ethane supplies tightening

    in Middle East; era of low-

    cost feedstocks may be

    over - some producing

    nations may ride up the

    cost curve

  • Outlook for Chemicals (excluding Pharmaceuticals)

    -15

    -10

    -5

    0

    5

    10

    15

    0

    25

    50

    75

    100

    125

    07 08 09 10 11 12 13 14 15 16 17 18 19 20

    % Change in Volume from New Production (right) % Change in Volume (right)

    Production Volume (left) Production Volume including New Production (left)

    Production Volume Index

    (Where 2007 = 100)

    % change Y/Y

    Consensus forecast does not account for supply shocks, i.e., shale gas. With production from

    announced investments is accounted for, production growth is substantially higher. Growth

    shifts from an average of 3.0% per year in the baseline to 7.8% per year with output from new

    investments.

    Sources: Federal Reserve, American Chemistry Council

  • 16

    Incremental Shale-Advantaged Chemical Industry Investment (2012-2020)

    $0

    $2

    $4

    $6

    $8

    $10

    $12

    $14

    $16

    2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

    Low Case High Case

    Billions of 2012 Dollars The $72-82 billion total

    investment is spread over 10 years.

    The peak year for investment spending is 2015.

  • Shale Advantage Driving Capacity Expansion Across Many Products

    Ethylene capacity expected to grow by half

    Ethlyene cracker co-products - propylene, butadiene

    Derivatives PE, vinyls, MEG, alpha-olefins, etc.

    Co-products chlor-alkali

    Methanol

    Nitrogeneous fertilizers ammonia, urea and derivatives (AN, UAN)

  • Olefin Yields by Feedstock

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Ethane Naphthas LPG Mix (80/20)

    Other

    Aromatics

    C-4

    Propylene

    Ethylene

  • Geography of Petrochemical Investment

    A flood of announced investments by more than a dozen

    companies to capitalize on new cost advantage

    Much of the petrochemical investment will occur along the

    US Gulf Coast

    However, there will be significant investment in new

    regions, i.e., Appalachia, Midwest

  • Announced Chemical Industry Investment, 2012-2020

    Ohio Valley 13%

    Midwest 8%

    Other 1%

    Gulf Coast 78%

  • Concluding Remarks

    Shale gas changes everything. Renewed US competitiveness from shale gas is already lifting chemical exports and production and will grow as new capacity comes online.

    Strong investment growth in chemicals already materializing.

    Investments by other customer industries will create additional opportunities.

    Further gains in plastic and chemical exports, employment, and capital spending.

    Challenges: skilled labor, environmental permitting, etc.

  • Thank you

    martha_moore@americanchemistry.com

    (202) 249-6182

    www.americanchemistry.com

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