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© 2013 Platts, McGraw Hill Financial. All rights reserved.
Kevin Allen
Managing Editor
Americas Petrochemicals and Biofuels - Platts
May 15, 2013
Houston, Texas
The changing dynamics & new challenges facing the North American petrochemical industry
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2
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production.
• Most significant in propylene as constraints impact pricing and facilitate volatility. Spillover effect for derivative products.
• Pending supply increases. Will it be enough?
• The shale boom and its impact on aromatics
• Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET
• Increased crude from shale plays and impact on crude import/export balance
• Northeast refineries shift to lighter crudes, trend likely to continue going forward.
• Conclusion
• What does this mean for the US petrochemical landscape going forward?
• How will this impact/alter global petrochemical trade flows?
Crude to gas ratio and the feedstock advantage
3
NGLs and the impact at the steam cracker
4
• Traditional light naphtha fed steam crackers produce significantly less ethylene however have a higher yield of propylene and C4s. For instance, light naphtha would give an ethylene yield of near 35% but would give a propylene yield of near 16% while offering up a C4 and butadiene yield of 9 and 5%, respectively.
• Pygas output cut significantly with ethane, propane and E/P mix feeds, down from 19% with naphtha to 2-7% depending on mix.
• Switching to NGLs, specifically ethane and propane, increases ethylene output to between 66-78% but cuts propylene and C4 output virtually in half.
Robust margins spur investment in new capacities
5
New builds
Company Location MM mt/yr ETA Aither Chemical/RMG TBD/USNE 0.20-0.30 2016
ExxonMobil Chemical Texas 1.5 2016 Formosa Plastics CUSA Texas 0.8 2016
ChevronPhillips Chemical Texas 1.5 2017 Dow Chemical Texas 1.5 2017 Sasol Louisiana 1.5 2017
Occidental/Mexichem Texas 0.55 2017 Shell Chemical Pennsylvania 1-1.50 2017
Expansions
Company Location MM mt/yr ETA BASF-Total Texas 0.06 2012
Dow Chemical (restart) Louisiana 0.40 2012 Westlake Chemical Louisiana 0.11 2013 Williams Louisiana 0.23 2013
Ineos Texas 0.12 2013 Westlake Chemical Kentucky 0.08 2014
BASF-Total Texas 0.10 2014 Westlake Chemical Louisiana 0.11 2015
LyondellBasell Texas (3) 0.83 2014-16 Dow Chemical TX/LA (2) 0.40 2014-16
New ethylene capacities likely to be polymerized
Company Location MM mt/yr ETA
Formosa Plastics USA Texas (1) 0.3 (LDPE) 2016
ExxonMobil Chemical Texas (2) 1.3 (TBD) 2017
ChevronPhillips Chemical Texas (2) 1.0 (TBD) 2017
NOVA Chemicals Joffre, Canada 1.0 (LLDPE) 2017
NOVA Chemicals Sarnia, Canada World scale 2017
Dow Chemical USG TBD 2017
Shell Chemical Pennsylvania 1.0 (TBD) 2017
New polyethylene projects announced:
• At least 5.5 million metric tons of new PE capacity announced as a result of lower production costs.
• Latin America is likely the target destination for US PE producers given higher prices and shorter delivery time. The region boasts a population of near 600 million people with a bourgeoning middle class in places like Mexico and Brazil.
• Additionally Latin America has seen strong economic growth with countries such as Panama, Peru and Chile posting GDP growth in 2012 of 10.5, 6.2 and 5.5% respectively.
• Growth expected to continue as the United Nations' Economic Commission for Latin America and the Caribbean (ECLAC) predicts the region's economy will expand by 4% in 2013.
Not all that glitters is gold…
7
So the US has a feedstock advantage, new ethylene and ethylene derivative capacities and an outlet for this material in Latin America. What is the problem?
• US producers would have to alter their current strategy.
• Margins destined to shrink over time as new
steam crackers increase ethane demand and push prices higher.
• US ethylene and PE prices yet to see benefit of cheap ethane.
• Producers must consider the 6.5 million metric
tons of additional capacities in Asia and the Middle East slated to come online by 2015.
• Protectionism. Brazil increased its import tariff
on US PE from 14% to 20% in 2012. Additionally Braskem is aggressively working to expand its market share with projects in Mexico, Venezuela, and Peru.
And then there is China…
• Finally there is China. If the country’s economic growth continues to lag at slightly under 8%, buy interest will wane and we could see re-exports targeting places like Peru and Chile
• As well, there have been a number of coal to olefins announcements in China. If all are realized and run at full rates, we could see an additional 12.5 million metric tons of olefins capacity come online
8
*Nexant
9
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in
ethylene/propylene production.
• Propylene and heavy products hit hard
• Production constraints due to NGL shift impact propylene pricing and facilitate volatility.
Spillover effect for derivative products.
• Pending propylene supply increases. Will it be enough?
US propylene output: refinery versus cracker
10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20002001
20022003
20042005
20062007
20082009
20102011
Refinery
Cracker
• Between the years of 2000 and 2011, the percentage of propylene coming off the steam cracker fell by roughly 40%. In 2011, propylene yields off steam crackers were roughly 34%.
• During that same period, the percent of propylene off of refineries grew by over 30% and accounted for near 65% of propylene production in 2011. Source: Chemical Market Resources
Overview of steam cracker production at the end of 2012
• The preference for lighter feed slates weighed heavy to close out 2012 .
• Propylene output from steam crackers in
December shrank 7.3% from the previous month, to 28.53 million lbs/day while the P/E (propylene/ethylene) ratio sank to 19.62%.
• The B/E (butadiene/ethylene) ratio has also seen
sharp declines in recent years, falling from near 8.25% in 2005 to close out 2012 at 5.50%, a decrease of approximately 35%.
• Output of propylene and butadiene from steam crackers seems unlikely to improve going forward as the use of naphtha as a feed continued to decline, estimated at 6.5% in December, down from 13% in 2011 and 23.8% in 2008.
Source: Hodson Report
US propylene production in billions/lbs
If these estimates are indeed accurate, then total US propylene supply from ethylene crackers in 2012 would be just under 4.4 million mt.
15.2
14.7
12.8
10.8
11.4
10.8
9.7
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2006 2007 2008 2009 2010 2011 2012
Tight supply supports high PGP prices, fosters volatility
Volatility spills downstream to spot polypropylene
US PP export prices not competitive globally
US polypropylene exports in metric tons: 2006-2012
16
1,564,342
1,998,633
1,530,651 1,600,054
1,231,368 1,195,139
1,083,800
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2006 2007 2008 2009 2010 2011 2012
Source: ITC
Higher PP prices open the door for HDPE substitutions
17
Anticipated additional propylene from cracker projects
77,936 91,831
165,402 169,481
252,492
392,577
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2012 2013 2014 2015 2016 2017
*based on 100% ethane feedstock when applicable
Metric Tons
Company Location Capacity (mt/year) ETA
Dow Chemical Freeport, TX 750,000 2015
Enterprise Mont Belvieu, TX 750,000 Q3, 2015
C3 Petrochemicals Alvin, TX 1,200,000 H2, 2015
Formosa Point Comfort, TX 600,000 2016
Williams Redwater, Alberta 500,000 2016
*Dow Chemical TBD TBD 2018
*Enterprise Mont Belvieu, TX TBD TBD
*Under Study
PDH units to provide lion’s share of new supply
• PDH announcements continue to increase with several companies announcing new capacities with at least two projects under study. Total increase in production expected at 3.8 million mt/year by 2016, assuming all projects a realized.
Anticipated North American PP consumption
7,758,000
7,940,000
8,133,000
8,338,000
8,553,000
7,200,000
7,700,000
8,200,000
8,700,000
2011 2012 2013 2014 2015
Source: Townsend Solutions
Metric Tons
21
• Total propylene output from steam crackers in the US in 2012 was just under 4.4 million mt.
• Additional output from new steam cracker projects expected to be about 392,500 mt.
• If all on purpose PDH units, not currently under study but including Williams Alberta unit, come to fruition, propylene supply in the US will increase 3.8 million mt.
4,400,000 + 392,500 + 3,800,000 -------------- 8,592,500 mt
Expected capacity increase from crackers and PDH units
• This raises the question: Is 8.592 million mt of new propylene capacity enough?
22
• To meet anticipated polypropylene demand in the North America in 2015, monomer supplies would need to be just under 8.725 million mt.
• Factor in continued growth in PP consumption at 2.5% per year and North American demand for propylene in 2016 would be 8,942,161 mt.
• In 2017, presuming consumption
levels in the region hold steady, total propylene demand needed for PP would be just under 9.165 million mt.
C3 from crackers will not meet expected PP demand
(Total US production - 2017) 8,592,500 – (PP demand in 2017) 9,165,720 -------------- (573,220)
23
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production.
• Propylene and heavy products hit hard
• Production constraints due to NGL shift impact propylene pricing and facilitate volatility. Spillover effect for derivative products.
• Pending propylene supply increases. Will it be enough?
• The shale boom and its impact on aromatics
• Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET
• Increased crude from shale plays and impact on crude import/export balance
• Northeast refineries shift to lighter crudes, trend likely to continue going forward.
The shale boom and it’s impact on aromatics
24
The shift to lighter feed slates by US steam cracker operators has negatively impacted aromatics output at the cracker. From 2011-2012 we can see a sharp reduction in benzene production from steam crackers in where volumes declined by over 17.5%.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2011 2012 2013 2014 2015 2016 2017
Metric Tons
112,405
125,584
99,376
128,385
99,450
141,212
130,619
145,038
109,478
149,697
80,000
90,000
100,000
110,000
120,000
130,000
140,000
150,000
160,000
170,000
Aug2011
Sep2011
Oct2011
Nov2011
Dec2011
Jan2012
Feb2012
Mar2012
Apr2012
May2012
Jun2012
Jul2012
Sep2012
Nov2012
Oct2012
Dec2012
Jan2013
Feb2013
Mar2013
Benzene exports from South Korea (in metric tons)
Benzene prices strong, prone to volatility
26
Toluene and MX from crackers to experience similar fate
Blue = Anticipated toluene output
Red = Anticipated MX output
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2011 2012 2013 2014 2015 2016 2017
This is bad news for aromatic derivatives
28
• Tighter supply has led to higher mixed xylene
prices which means higher paraxylene prices.
• Paraxylene is a feedstock for PTA, which then is a feedstock for PET. The end use for PET in North America is from bottled beverages though PET fiber constitutes a larger chunk of demand in Asia.
• Higher mixed and paraxylene prices also make US
exports less attractive to buyers in Asia, which is significant as demand for xylenes in the region is expected to be strong amid a surge of new PTA production.
• China alone is expected to see 10.9 million mt of capacity come online by the first half of this year. Asian PTA capacity is expected to increase by near 19 million mt by 2015.
US mixed xylene and toluene blend values
29
Impact from shale not confined strictly to gas
• Aromatics production in the US has been constrained, not only by the shift to lighter feeds at the cracker, but also at the refinery due to increased production of unconventional tight oil.
• Crude from the Eagle Ford play is set to surge in the coming years with production slated to increase more than three-fold between 2012-2020.
• Prior to the shale boom, refiners were utilizing crude which had an estimated 40% naphthene and aromatic cut. The naphthene and aromatic cut from unconventional tight oil is estimated at near 35%.
• The reduction of aromatics as a result of shale plays is difficult to quantify though as many US refiners cannot run straight Eagle Ford crude and are most likely to blend with heavier crudes.
• Trend shows that refiners in the Northeast and Gulf Coast are utilizing lighter crudes with a higher API.
30
US crude production versus imports
MBPD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
US Production
US Imports
MBPD
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Average API of crude input GC/NE refineries
32
Since 2007-08, we can see a shift toward lighter crudes with higher APIs. Of particular interest here is the input into refineries in the Northeast, which have seen a shift from medium crudes in 2008 to lighter crudes in 2012. Similar movement can be seen in the US Gulf inputs below, though not as pronounced.
27.83
29.7
30.95
32.93
22
24
26
28
30
32
34
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Conclusion
• Vast reserves of shale gas have revived the US petrochemical industry and prompted investment in new projects.
• Brownfield projects most likely to benefit from cost advantage while those who come late to the game will see margins crunched as demand for ethane pushes costs higher.
• New ethylene capacities likely to be polymerized and global trade flows will shift as US demand will not keep pace. US sellers will likely target Latin America, the Caribbean and to a lesser extent Europe and Africa however increased PE capacities globally, shrinking prices/margins due to increased PE supply, and protectionism in Latin America could prove to be problematic.
• Propylene and derivatives will continue to take a beating as a result of the shift to lighter feed slates at the cracker. Even with new production from planned PDH units, propylene supply from crackers will be insufficient to meet PP demand.
• US aromatics production negatively impacted by shale gas and crudes with benzene likely to be hardest hit.
• Processing unconventional tight oil likely to continue as companies such as Phillips 66, FHR and Marathon invest in Eagle Ford projects and look to increase capacity to process Eagle Ford crude.
33
Thank you
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great petchems content & why not join the
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Kevin Allen Managing Editor – Americas Petrochemicals [email protected]