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Prepared for:Prepared for:Gas Processors Gas Processors
AssociationAssociationOctober 2008October 2008
Prepared for:Prepared for:Gas Processors Gas Processors
AssociationAssociationOctober 2008October 2008
Olefins Feedstock Demand…If You Build It, Will It Come?Olefins Feedstock Demand…If You Build It, Will It Come?
Mike KellyMike Kelly
Consultant – Light OlefinsConsultant – Light Olefins
[email protected] [email protected]
Mike KellyMike Kelly
Consultant – Light OlefinsConsultant – Light Olefins
October 2008October 2008
Trends in Light OlefinsTrends in Light Olefins
Olefins Value Chain Current Conditions Near Term Strategic
Issues:Shifting Energy and
Regional CompetitionCapacity OverbuildOlefins Profitability
Wrap Up
Olefins Value Chain Current Conditions Near Term Strategic
Issues:Shifting Energy and
Regional CompetitionCapacity OverbuildOlefins Profitability
Wrap Up
October 2008October 2008
Olefins Supply-Chain DynamicsOlefins Supply-Chain Dynamics
EnergyEnergy Olefins ProductionOlefins Production DerivativesDerivatives
Durable / Non-DurableDurable / Non-Durable
ConsumersConsumers Retail SectorRetail Sector
October 2008October 2008
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
Unit
Ethylene
Unit
October 2008October 2008
Propylene Has Multiple SourcesPropylene 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 2008October 2008
October 2008October 2008
Current Conditions
Current Conditions
October 2008October 2008
U.S. Ethylene Cash Cost TrendsU.S. Ethylene Cash Cost Trends
October 2008October 2008
United StatesUnited States
Monthly Ethylene Net Equivalent Trade Monthly Ethylene Net Equivalent Trade
October 2008October 2008
U.S. Ethylene Capacity UtilizationU.S. Ethylene Capacity Utilization
October 2008October 2008
Energy Impact on Regional Ethylene
Economics
Energy Impact on Regional Ethylene
Economics
October 2008October 2008
High Energy Means Higher Cost In The Petrochemical Chain
October 2008October 2008
North America Energy Price Trends
Source: Purvin & Gertz
October 2008October 2008
N. America
NE Asia / W. Europe
2008
20082008
110 (~18)110 (~18)
9.49.4
High Energy Means Distinct Advantage High Energy Means Distinct Advantage Middle East Middle East
High Energy Means Distinct Advantage High Energy Means Distinct Advantage Middle East Middle East
50
250
450
650
850
1050
1250
1450
1650
1850
2050
0 20 40 60 80 100 120 140 160Cumulative Ethylene Capacity (Million Metric Tons)
Dollars Per Metric Ton
WTI Crude Oil, $/Bbl ($/MMBtu)WTI Crude Oil, $/Bbl ($/MMBtu)
USGC Natural Gas, $/MMBtuUSGC Natural Gas, $/MMBtu
N. America
Middle East
2003
NE Asia / W. Europe
20032003
31 (~5)31 (~5)
5.55.5
October 2008October 2008
Acceleration In Global Capacity Build-up
Acceleration In Global Capacity Build-up
October 2008October 2008
Middle East & Asia Dominate Current Wave Of New CapacityMiddle East & Asia Dominate
Current Wave Of New Capacity Middle East adding major Middle East adding major
portion of new additions, portion of new additions, driven by incentives for driven by incentives for industrial developmentindustrial development
Asia additions driven by higher Asia additions driven by higher self-sufficiency and industrial self-sufficiency and industrial developmentdevelopment
India, South America, Africa, India, South America, Africa, all adding capacity driven by all adding capacity driven by industrial developmentindustrial development
Limited to no new capacity in Limited to no new capacity in North America and EuropeNorth America and Europe
Middle East adding major Middle East adding major portion of new additions, portion of new additions, driven by incentives for driven by incentives for industrial developmentindustrial development
Asia additions driven by higher Asia additions driven by higher self-sufficiency and industrial self-sufficiency and industrial developmentdevelopment
India, South America, Africa, India, South America, Africa, all adding capacity driven by all adding capacity driven by industrial developmentindustrial development
Limited to no new capacity in Limited to no new capacity in North America and EuropeNorth America and EuropeYanpet Ethylene – Saudi ArabiaYanpet Ethylene – Saudi Arabia
October 2008October 2008
WorldWorldWorldWorldEthylene Capacity Growth TrendsEthylene Capacity Growth TrendsEthylene Capacity Growth TrendsEthylene Capacity Growth Trends
Japan Korea China TaiwanSingapore Thailand India Other AsiaNorth America Middle East
Million Metric Tons
0
10
20
30
40
50
60
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
October 2008October 2008
The Immediate Threat... Nine Million Tons By Mid-2009
The Immediate Threat... Nine Million Tons By Mid-2009
CompanyCompany CountryCountry CapacityCapacity(kT)(kT)
TimeTime
Arya SasolArya Sasol IranIran 10001000 Q1 08Q1 08
Jam PCJam PC IranIran 13401340 Q2 08Q2 08
Jubail Jubail ChevPhilChevPhil
Saudi ArabiaSaudi Arabia 300300 Q3 08Q3 08
SEPCSEPC Saudi ArabiaSaudi Arabia 10001000 Q3 08Q3 08
YansabYansab Saudi ArabiaSaudi Arabia 13001300 Q4 08Q4 08
Petro-RabighPetro-Rabigh Saudi ArabiaSaudi Arabia 12501250 Q4 08Q4 08
TKOCTKOC KuwaitKuwait 850850 Q4 08Q4 08
SHARQSHARQ Saudi ArabiaSaudi Arabia 12001200 1H 091H 09
RLOCRLOC QatarQatar 13001300 Q2 09Q2 09
Capacity Add., MMTCapacity Add., MMT
1H '08
Q4 '08
Q3 '08
1H '09
October 2008October 2008
Middle East Takes Market ShareMiddle East Takes Market Share
October 2008October 2008
Capacity Build-up Impact on the U.S.
Olefins Industry
Capacity Build-up Impact on the U.S.
Olefins Industry
October 2008October 2008
United States Ethylene Net Equivalent Trade
October 2008October 2008
United States Ethylene Demand Forecast
October 2008October 2008
United StatesEthylene Feedstock Consumption
October 2008October 2008
U.S. Steam Crackers Shift Lighter
October 2008October 2008
Feedstock Impact on U.S. Steam Cracker Feedstock Impact on U.S. Steam Cracker Propylene ProductionPropylene Production
October 2008October 2008
Light Olefins Margin Trough Expected By 2010
Light Olefins Margin Trough Expected By 2010
October 2008October 2008
Ethylene Oversupply To Follow Period Of Balanced Conditions
Ethylene Oversupply To Follow Period Of Balanced Conditions
October 2008October 2008
U.S. Ethylene Supply & DemandU.S. Ethylene Supply & Demand
October 2008October 2008
The Olefins Business Cycle Continues… The Olefins Business Cycle Continues…
90919293949596979899000102030405060708091011 12131415
Dollars Per Metric Ton
0
100
200
300
400
500
600
700
800
U.S. Integrated Olefins/PolyOlefins Cash Margins
October 2008October 2008
Volatile energy markets continue Volatile energy markets continue to challenge producer economicsto challenge producer economics
Oversupply due to acceleration Oversupply due to acceleration in new olefins capacity and in new olefins capacity and slowing demand growthslowing demand growth
Olefins markets transitioning Olefins markets transitioning from peak to trough cycle from peak to trough cycle conditions…trough margins most conditions…trough margins most severe for naphtha crackerssevere for naphtha crackers
NGL consumption in US market NGL consumption in US market depends on Gas-to-Crude ratio depends on Gas-to-Crude ratio and investment in light feed and investment in light feed capabilitycapability
Volatile energy markets continue Volatile energy markets continue to challenge producer economicsto challenge producer economics
Oversupply due to acceleration Oversupply due to acceleration in new olefins capacity and in new olefins capacity and slowing demand growthslowing demand growth
Olefins markets transitioning Olefins markets transitioning from peak to trough cycle from peak to trough cycle conditions…trough margins most conditions…trough margins most severe for naphtha crackerssevere for naphtha crackers
NGL consumption in US market NGL consumption in US market depends on Gas-to-Crude ratio depends on Gas-to-Crude ratio and investment in light feed and investment in light feed capabilitycapability
ConclusionsConclusions
October 2008October 2008
Forecast assumes capacity build-Forecast assumes capacity build-up will result in lower U.S. steam up will result in lower U.S. steam cracker operating ratescracker operating rates
Current energy dynamics have Current energy dynamics have supported max light feed supported max light feed cracking…we’ve seen the peakcracking…we’ve seen the peak
Increased NGL consumption by Increased NGL consumption by U.S. steam crackers is not U.S. steam crackers is not expected to come without expected to come without investment in light feed investment in light feed capabilitycapability
Empty Field of DreamsEmpty Field of Dreams
Forecast assumes capacity build-Forecast assumes capacity build-up will result in lower U.S. steam up will result in lower U.S. steam cracker operating ratescracker operating rates
Current energy dynamics have Current energy dynamics have supported max light feed supported max light feed cracking…we’ve seen the peakcracking…we’ve seen the peak
Increased NGL consumption by Increased NGL consumption by U.S. steam crackers is not U.S. steam crackers is not expected to come without expected to come without investment in light feed investment in light feed capabilitycapability
Empty Field of DreamsEmpty Field of Dreams
Will It Come?Will It Come?
October 2008October 2008
Say it ain’t so Joe!
October 2008October 2008
HoustonHoustonHoustonHouston
LondonLondonLondonLondon
SingaporeSingaporeSingaporeSingapore
DubaiDubaiDubaiDubai
New YorkNew YorkNew YorkNew York
ShanghaiShanghaiShanghaiShanghaiDuesseldorfDuesseldorfDuesseldorfDuesseldorf
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.
