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© 2017 IHS Markit TM . All Rights Reserved. 1 © 2017 IHS Markit TM . All Rights Reserved. State of the Chemical and Petrochemical Industry Is India the next driver? Presentation to IOC Conclave 29 July 2017 Dave Witte Senior Vice President, IHS Markit GM - Oil Markets, Midstream, Downstream and Chemicals +1 281 752 3276 [email protected]
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Page 1: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

© 2017 IHS MarkitTM. All Rights Reserved.

1

© 2017 IHS MarkitTM. All Rights Reserved.

State of the Chemical and Petrochemical Industry –Is India the next driver?

Presentation to IOC Conclave

29 July 2017

Dave Witte

Senior Vice President, IHS Markit

GM - Oil Markets, Midstream, Downstream and Chemicals

+1 281 752 3276

[email protected]

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2

IOC Petrochemical Conclave

Economy, Energy and Geo-politics

Global Chemical Industry Trends

India in the Context of the World

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3

IOC Petrochemical Conclave

Economy, Energy and Geo-politics

Global Chemical Industry Trends

India in the Context of the World

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4

Global economies poised to accelerate, but not to the levels seen in the last decade

-4

-2

0

2

4

6

8

10

2000 2003 2006 2009 2012 2015 2018

World Advanced countries Emerging markets

Real GDP, Annual % Change

Source: IHS Markit © 2017 IHS Markit

Annual % Change in GDP

2014 2015 2016 2017 2018 2019

World 2.8 2.8 2.5 3.0 3.2 3.1

USA 2.4 2.6 1.6 2.3 2.7 2.3

Canada 2.6 0.9 1.4 2.7 2.3 2.3

Eurozone 1.2 1.9 1.7 2.0 1.8 1.7

UK 3.1 2.2 1.8 1.4 1.0 1.2

China 7.3 6.9 6.7 6.6 6.3 6.1

Japan 0.2 1.2 1.0 1.3 1.0 0.7

India 6.9 7.7 7.0 7.3 7.4 7.6

Brazil 0.5 -3.8 -3.6 0.2 1.7 3.5

Russia 0.8 -2.8 -0.2 1.5 2.1 1.8

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5

Geo-political, economic and regulatory uncertainty impacts investment decisions

• Extent and degree of trend toward economic isolationism

– Goods movement - Global trade framework

– Labor movement

• China‟s economic pivot

– Reduced export reliance

– Push toward service

– Inter-Asia integration –„One-belt/One Road‟

• Climate policy

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6

How will OPEC manage the reactivity and velocity of US shale production?

History

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Jan-13 Apr-14 Jul-15 Oct-16 Jan-18

Monthly US crude oil production

Source: IHS Markit, EIA © 2017 IHS Markit

MM

b/

d

0

200

400

600

800

1,000

1,200

1,400

Feb-11 Feb-13 Feb-15 Feb-17

Other Bakken Permian Eagle Ford Niobrara

US horizontal oil rig count by play

Source: Baker Hughes, IHS Markit

© 2017 IHS Markit

Markit

Rig

co

un

t

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7

The oil industry is cutting costs to make up for lower prices

• The “cost of oil” – the oil price needed to justify investment – has fallen across the board, but by different degrees depending on the geography and type of development

• Lower service sector costs and improvements in how projects are designed, built and operated are two central forces that have pushed down the cost of oil around the world

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Middle East onshore

US tight oil Canadian oil sands (SAGD)

2014 2016

Break-even prices for representative new projects, 2014 and 2016

© 2017 IHS Markit

Fu

ll-c

ycle

co

sts

in

Date

d B

ren

t te

rm

s (

US

d

oll

ars p

er b

bl)

Source: IHS Markit

Notes: Full-cycle costs are expressed in terms of the Dated Brent price necessary for a project to break

even, assuming a 10% internal rate of return. The 2014 and 2016 break-even estimates for these supply sources

are intended to broadly depict the change from the start of the oil price collapse in mid-2014 to the latter part of

2016. For details on how break-even prices of representative new projects for each supply source are

estimated, please see the box "How we estimated the break-even prices in this report."

$0

$10

$20

$30

$40

$50

$60

$70

$80

Q1 2

013

Q2 2

013

Q3 2

013

Q4 2

013

Q1 2

014

Q2 2

014

Q3 2

014

Q4 2

014

Q1 2

015

Q2 2

015

Q3 2

015

Q4 2

015

Q1 2

016

Q2 2

016

Q3 2

016

Q4 2

016

Median well break-even prices of several US tight oil wells

Source: IHS Markit © 2017 IHS Markit

Break-e

ven

pric

e i

n W

TI t

erm

s (

US

doll

ars

per b

bl)

Notes: The break-even price is the WTI price required for the project to cover all of its estimated capital and

operating costs and generate a 10% rate of return. The plays are the Bakken, Bone Spring, Eagle

Ford, Niobrara/Wattenberg, Scoop, Stack, Wolfcamp Delaware, and Wolfcamp Midland.

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8

Non-OPEC supply growth neutralizing OPEC cut impact

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Can

ad

a

Unite

d S

tate

s

Bra

zil

Ru

ssia

Unite

d K

ingd

om

Ka

za

kh

sta

n

Norw

ay

Om

an

Ind

ia

Arg

en

tin

a

Aze

rba

ijan

Colo

mb

ia

Me

xic

o

Chin

a

2016 2017 2018

Annual change in crude oil production for selected non-OPEC countries, 2016–18

Source: IHS Markit

Mil

lio

n b

arrels

per d

ay

© 2017 IHS Markit

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9

A near-term global supply surplus is set to re-emerge

90

91

92

93

94

95

96

97

98

99

100

101

102

1Q

2013

2Q

2013

3Q

2013

4Q

2013

1Q

2014

2Q

2014

3Q

2014

4Q

2014

1Q

2015

2Q

2015

3Q

2015

4Q

2015

1Q

2016

2Q

2016

3Q

2016

4Q

2016

1Q

2017

2Q

2017

3Q

2017

4Q

2017

1Q

2018

2Q

2018

3Q

2018

4Q

2018

Demand Production

World oil (liquids) demand and production by quarter

Source: IHS Markit © 2017 IHS Markit

Millio

n b

arrels

per d

ay

Outlook

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10

New non-OPEC supply needs sanctioning by 2019; half is deep water and ultra-deep water (mainly Brazil and DWGoM)

0

2

4

6

8

10

12

2015 2020 2025

Non-OPEC projects by terrain

© 2017 IHS Markit

Millio

n b

arrels

per d

ay

Deepwater(1,000-5,000 ft)

Shallow water(<1,000 ft)

Ultra-deep water(>5000 ft)

Source: IHS Markit

Onshore

0.0

0.5

1.0

1.5

2.0

2.5

3.0

North

America

Africa Asia CIS Europe Latin Middle

East

Onshore

Shallow water (<1,000 ft)

Deepwater (1,000-5,000 ft)

Non-OPEC projects by terrain in 2025

© 2017 IHS Markit

Millio

n b

arrels

per d

ay

Source: IHS Markit

Page 11: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

© 2017 IHS MarkitTM. All Rights Reserved.

11

IOC Petrochemical Conclave

Economy, Energy and Geo-politics

Global Chemical Industry Trends

India in the Context of the World

Page 12: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

© 2017 IHS MarkitTM. All Rights Reserved.

12

Uncertainty driving some common reactions across the industry

Dynamic Strategy

Increasing protectionism • Defensive: domestic-focusexcept for clear areas of competitive advantage

Uncertain gas-oil spreads • Asset optimization via feedstock flexibility

• Focused opportunisticinvestment

Economic mediocrity, policy uncertainty

• Inorganic expansion via M&A• Corporate and industry

restructuring

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13

Capital investment has fallen to the lowest levels since Y2K – recent uptick toward 2021

0%

2%

4%

6%

8%

0

20

40

60

80

100

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

China Asia ex China Middle East & Africa

Americas Europe Spend

Capital Spending in the Chemical Industry

Source: IHS Markit

Mill

ion

of To

ns o

r

Bill

ion $

(2014)

Perc

ent

Base A

dded

Additions well below 4%required to balance growth

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14

Money flows move M&A to record levels

0

3

6

9

12

15

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Transaction Size Commodity Specialty

Dea

l V

olu

me

, U

S$

(B

illio

n)

X L

TM

EB

ITD

A

Sources: Company research, FactSet, Capital IQ, press releases, HSBC Notes: Multiples based on LTM EBITDA at the time of the transaction

Page 15: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

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15

IOC Petrochemical Conclave

Economy, Energy and Geo-politics

Global Chemical Industry Trends

India in the Context of the World

Page 16: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

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16

Customers: India population to exceed China within ten years; GDP lags but turning up

0

500

1,000

1,500

2,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

China India

China and India Population 2000-2040

Source: IHS Markit © 2017 IHS Markit

Pop

ula

tion

Mil

lion

s

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

China India

China and India GDP Growth Rate 2000-2040

Source: IHS Markit © 2017 IHS Markit

GD

P B

illi

on

$

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17

Industry not meeting domestic demand

• Decision making and permitting remains a slow process in India

• Although India is a naphtha exporter, new cracker projects struggle to source sufficient feeds; feedstock pooling required

• C3 derivatives (ex PP), chloralkali, styrene – little/no capacity in India. Investment would stimulate downstream demand

• Not much petchem investment by foreign companies in India

-4000

-3000

-2000

-1000

0

1000

2000

India

Ethylene Equiv Propylene Equiv

Benzene Equiv Paraxylene Equiv

India Net Trade 2016

Source: IHS Markit © 2017 IHS Markit

Millio

n M

etr

icT

on

s

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18

Growth headroom exists for all value chains

0

5

10

15

20

25

Styrenics Polyester PE PP PVC

China India World

2016 Per Capita Consumption

Source: IHS Markit © 2017 IHS Markit

Kg

pe

r C

ap

ita

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19

Specialties also have opportunity for strong demand growth – leading the world

0

50

100

150

200

250

300

350

North America Western Europe

Middle East and Africa

China Other Asia

Regional specialty chemicals consumption per capita: 2016

Source: IHS Markit © 2017 IHS Markit

Average world per

capita consumption

= 75 kg pp

Kg

/Ca

pit

a

0

1

2

3

4

5

6

7

8

North America

Central and

South America

Western Europe

Central and

Eastern Europe

Middle East and

Africa

Japan China India Other Asia

Forecast specialty chemicals volume growth rates by region: 2016–21

Source: IHS Markit © 2017 IHS Markit

Pe

rce

nt

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20

Demand growing from a small base; current capacity quickly outpaced

0

100,000

200,000

300,000

400,000

500,000

2015 2020 2025 2030

India China World

PVC, PTA,PP and PE Demand, ‘000 Tons

Source: IHS Markit © 2017 IHS Markit

Th

ou

san

d M

etr

ic T

on

s

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

2015 2020 2025 2030

Capacity Demand Net Deficit

India: PVC, PTA, PP & PE Capacity, Demand and Net Deficit

Source: IHS Markit © 2017 IHS Markit

Th

ou

sa

nd

Me

tric

To

ms

• Healthy demand growth will lead to a net deficit of about 24 million tons by 2030 for PVC, PTA, PP & PE

Note: India capacity growth build beyond 2020 without hypo capacity.

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21

Maintaining a reasonable trade balance will require massive investment

0

10

20

30

40

50

60

70

80

90

0

5

10

15

20

25

30

35

40

45

2017 2019 2021 2023 2025 2027 2029 2031

Total Demand Total Deficit Total Capex Required, $ Bn

India : Opportunity and Capex Requirement (PE, PP, MEG and PVC)

Source: IHS Markit © 2017 IHS Markit

Millio

n M

etr

icT

on

s

Ca

pe

x R

eq

uir

ed

, $

Bn

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22

Challenges exist, but not insurmountable with policy and planning

Attribute Issue

Feedstock Availability

Availabilityconstrained

Feedstock CostNo advantage; but CAPEX advantaged

Demand/Demand growth

High Demand Growth Potential

Technology Access Low

Ease of doing business

Low but improving

Infrastructure Below average

Growing refined product demandcreates refinery integration options

Competitive with global liquids investment; need scale/integration

Large growing local market a substantive structural advantage

Needs policy support for efficient regulatory framework, incentives and public investment

Page 23: State of the Chemical and Petrochemical Industry Is India ... · State of the Chemical and Petrochemical Industry – Is India the next driver? ... but by different ... 2015 2020

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23

Conclusions

• Economic outlook trending higher

• Oil pricing still uncertain; shale retards upward price movement

• uncertainty impacting chemical investment and changing industry structure via M&A

• India‟s improving fundamentals stand out as a bright beacon in a „sea of uncertainty‟

• The time is now for policy and investment planning to capture the chemical potential


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