© 2017 IHS MarkitTM. All Rights Reserved.
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© 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
© 2017 IHS MarkitTM. All Rights Reserved.
2
IOC Petrochemical Conclave
Economy, Energy and Geo-politics
Global Chemical Industry Trends
India in the Context of the World
© 2017 IHS MarkitTM. All Rights Reserved.
3
IOC Petrochemical Conclave
Economy, Energy and Geo-politics
Global Chemical Industry Trends
India in the Context of the World
© 2017 IHS MarkitTM. All Rights Reserved.
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
© 2017 IHS MarkitTM. All Rights Reserved.
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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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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
© 2017 IHS MarkitTM. All Rights Reserved.
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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.
© 2017 IHS MarkitTM. All Rights Reserved.
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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
© 2017 IHS MarkitTM. All Rights Reserved.
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A near-term global supply surplus is set to re-emerge
90
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102
1Q
2013
2Q
2013
3Q
2013
4Q
2013
1Q
2014
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2014
4Q
2014
1Q
2015
2Q
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3Q
2015
4Q
2015
1Q
2016
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2016
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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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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
© 2017 IHS MarkitTM. All Rights Reserved.
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IOC Petrochemical Conclave
Economy, Energy and Geo-politics
Global Chemical Industry Trends
India in the Context of the World
© 2017 IHS MarkitTM. All Rights Reserved.
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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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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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Money flows move M&A to record levels
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3
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15
0
50
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150
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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
© 2017 IHS MarkitTM. All Rights Reserved.
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IOC Petrochemical Conclave
Economy, Energy and Geo-politics
Global Chemical Industry Trends
India in the Context of the World
© 2017 IHS MarkitTM. All Rights Reserved.
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
$
© 2017 IHS MarkitTM. All Rights Reserved.
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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
© 2017 IHS MarkitTM. All Rights Reserved.
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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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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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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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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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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
© 2017 IHS MarkitTM. All Rights Reserved.
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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