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www.icis.com 1 The impact of a changing energy landscape on petrochemical industry 26 February 2017 Muhamad Fadhil Head of Middle East Markets ICIS
www.icis.com 1
The impact of a changing energy landscape on petrochemical industry
26 February 2017
Muhamad Fadhil
Head of Middle East Markets
ICIS
www.icis.com 2
About ICIS
ICIS provides price benchmarks, fundamentals data, analytics and advisory
services for the global petrochemical, energy and f ertilizer markets.
More than 30 years of industry
insight and data
Over 100,000 industry customers
Weekly contact with thousands
of market participants
Over 9,200 price assessments in 1,200 reports
covering 180 commodities
17,000+ annual news stories
Advisory and analytics services for
Major petrochemical producers
800+ global employees
www.icis.com 3
Our Customers
Key customers are buyers, sellers, traders,
brokers, analysts and senior commercial
management in companies who participate
in these markets.
Key use cases:
• Pricing transactions – writing long-term contracts
• Setting short-term trading strategy
• Planning long-term market entry, project feasibility
www.icis.com 4
Global Presence, Local Insight
www.icis.com 5Copyright © 2016 ICIS
Energy
Global energy demand is growing, but not very fast
Coal29%
Oil31%
Gas21%
Non Fossil19%
2015
0.7
0.9
1.9
2.2
1.3
0.0 0.5 1.0 1.5 2.0 2.5
COAL
OIL
NATURAL GAS
NON FOSSIL
TOTAL
Energy Demand AAGR% 2015-2025
Source: ICIS Supply and Demand Database
www.icis.com 6
Clean energy
A greater push toward clean and renewable energy
Will clean energy impact hydrocarbon consumption?
In the automotive space, a push for clean energy cars
Autonomous driving could lead to fewer cars through “shared driving”
Clean Energy
Renewable
Solar
Geothermal
Wind
www.icis.com 7
0
200
400
600
800
1000
1200
1400
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Global Gasoline Demand (million tonnes)
N. America S. America Europe & CIS Africa & ME Asia
Source: ICIS Supply and Demand Database
Gasoline demand will gradually flatten
Sensitivities are for a decline
Not a welcome development for refiners
Gasoline Demand
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New IMO regulations may hit fuel oil market
-30
-20
-10
0
10
20
30
40
50
60
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Global Balances (million tonnes)
Middle Distillates Residual Fuel Oil
Implementation of IMO regulations for lower sulphur bunker fuels could be anticipated to 2020
The global refining industry could suddenly move from a surplus of conversion capacity to a surplus of fuel oil
Source: ICIS Supply and Demand Database
www.icis.com 9
Challenges
Limit global warming to 1.5 degrees Celsius by the end of the century
How do you encourage investment in clean energy projects?
2015 Paris Agreement and Keystone Pipeline
Resistance for move towards renewable sources of energy such as solar and wind
www.icis.com 10
US
www.icis.com 11
New US administration
Global trade – redrawing the mapWithdrawal from NAFTATariffs on China?
Infrastructure boostInvest $550m directly in roads, bridges, ports, airports and transit systemsPlus spur $1 trillion in private investment, financed by tax credits
Energy deregulation‘Lift the restrictions’ on American energyStreamline permitting process for all energy projects
www.icis.com 12Copyright © 2016 ICIS
North America
0
1
2
3
4
5
6
2016 2017 2018 2019 2020
Mt/y North America PE new plants 2016-2020,by company
CPChem Dow ExxonMo.Ch Gemini HDPE
Sasol Braskem-Idesa Equistar
0
1
2
3
4
5
6
2016 2017 2018 2019 2020 2021
Mt/y North America Ethylene major capacity developments 2016-2020, by company
Braskem/Idesa CPChem Dow Chemical Equistar
ExxonMobil Indorama Ingleside Lotte-Axiall
Sasol Shell Shintech
Shale resources fuelled unprecedented investments
www.icis.com 13Copyright © 2016 ICIS
10.8
5.9
2.1
0.6
Eth PE Prop PP
North America
World olefins & polyolefin capacity additions by region 2015-2020
Source: ICIS Supply and Demand Database
0.0 0.1 0.0 0.0
Eth PE Prop PP
South & Central America
0.4 0.1 0.3 0.0
Eth PE Prop PP
Europe 1.3 1.40.5 0.6
Eth PE Prop PP
Former USSR
1.0 0.7 0.3 0.6
Eth PE Prop PP
Africa
5.1
3.51.6 1.1
Eth PE Prop PP
Middle East 7.05.0
12.0
9.6
Eth PE Prop PP
North East Asia
4.13.6 3.0
2.1
Eth PE Prop PP
Asia Pacific
www.icis.com 14
New US crackers under construction
CompanyC2 capacity
(kt/year)
Downstream
(kt/year)Location Start-Up
Chevron Phillips Chemical 1,500Bimodal HDPE (500), mLLDPE
(400) at SweenyCedar Bayou, Texas Mid-2017
Dow Chemical 1,500ELITE PE (400), LDPE (350), EPDM
(200), elastomers (320)Freeport, Texas Q2 2017
ExxonMobil Chemical 1,500mLLDPE plus LLDPE (650 x2) at
Mont BelvieuBaytown, Texas H2 2017
Occidental/
Mexichem544 Feed existing VCM plant of 1,050 Ingleside, Texas Q1 2017
Formosa Plastics 1,250PE (525), LDPE (625.5), MEG
(1,000), plus DEG, TEG, PEGPoint Comfort, Texas H1 2018
Sasol 1,500
LDPE (450), LLDPE (450), EO/EG
(300), ethoxylates, detergent
alcohols (300)
Lake Charles, LouisianaH2 2018
LDPE early 2019
Others H2 2019
Westlake (Axiall)/Lotte 1,000MEG (700) by Lotte, feed into
existing PVC for WestlakeSt Charles, Louisiana Q4 2018
Shintech 500VCM (300), PVC (300), caustic
soda (200)Plaquemine, Louisiana 2018
Shell 1,500 HDPE/LLDPE (550 x2), HDPE (500) Monaca, Pennsylvania Early 2020s
9 new crackers = 10.8m tonnes/year
Through 2018 = 9.3m tonnes/year
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Expansions of existing US crackers, plus 1 restart
Company Capacity (kt/year) Location Status/Start-Up
Westlake Chemical 113Lake Charles,
Louisiana
Started up late July
2016
LyondellBasell 363 Corpus Christi, Texas Nov 2016
Dow Chemical 250Plaquemine,
LouisianaLate 2016
Westlake Chemical 32Calvert City,
KentuckyH1 2017
Indorama (restart) 370Lake Charles,
LouisianaEnd 2017
LyondellBasell 250 Channelview, TexasOn hold for early
2020s
Expansions about 1m tonnes/year +
new crackers 9.3m = 10.3m, or 36% of existing US capacity by 2018
www.icis.com 16
The 2nd wave?
CompanyCapacity
(kt/year)
Downstream
(kt/year)Location Start-up Status
Total 1,000None – to meet
derivative needsUS Gulf Coast NA Feasibility
PTT Global
Chemicals1,000
HDPE (700), MEG
(500), EO (100)
Belmont County,
Ohio2021
Feasibility,
FID Q1 2017
Formosa
Plastics1,200 LDPE, HDPE, EG Louisiana NA Feasibility
Odebrecht/
Braskem1,050 PE (3 units)
Wood County,
West VirginiaNA On hold
SABIC/
ExxonMobil1,800 NA US Gulf Coast NA In talks
www.icis.com 17
China
www.icis.com 18Copyright © 2016 ICIS
China
1270
3470
1690
250260
2015 2016 2017 2018 2019
New propylene capacity ex PDH(thousand metric tonnes/year)
*Capacity is pro-rated according to the plant start up date
0
500
1000
1500
2000
2500
3000
3500
4000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
'000
TO
NN
ES
Estimated CTO/MTO Additions in China
Ethylene via CTO Ethylene via MTO
Propylene via CTO Propylene via MTO
Huge investments in CTO/MTO technologies, and PDH, but delays emerge
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Company Location FacilityC2 capacity
(‘000 tonnes/yr)
C2 downstreamcapacity (‘000
tonnes/yrStart-up schedule
Shenhua Coal to Liquid and Chemical Co Urumqi, Xinjia ng CTO 300 270 LDPE Started - Sep 2016
Zhong Tian He Chuang EnergyErdos, Inner
MongoliaCTO 670
370 LDPE, 300 HDPE/LLDPE
Started - Oct 2016
Qinghai Salt Lake Industry Golmud, Qinghai CTO 160 300 PVC End 2016
Jiangsu Sailboat PetrochemicalLianyungang,
Jiangsu MTO 370
300 EVA/LDPE, 180 EO, 20 MEG
End 2016/Q1 2017
Fund (Changzhou) Energy & Chemical Changzhou, Jiangsu MTO 165 NoneNo firm date, could be
end 2016/2017
Jiutai Energy Inner Mongolia CoErdos, Inner
MongoliaCTO 250
250 HDPE/LLDPE
2017
Zhong'an Lianhe Coal Chemical Huainan, Anhui CTO 350350
HDPE/LLDPE2017
Shanxi Coking (Group) Co Hongdong, Shanxi CTO 300 300 HDPE/LLDPE
2017
Qinghai Damei Coal Industry Co Xining, Qinghai CTO 300 300 HDPE/LLDPE
2017
Qinghai Mining Haixi, Qinghai CTO 300300
HDPE/LLDPE, 100kt/yr OCU
2017
Total new C2 supply:3,165
China CTO/MTO ethylene less than expected
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Changing Scenes of Asian Petrochemical World
IndiaAmong the fastest growing Asian petrochemical marketsSurplus naphtha but high import dependency for petrochemicals mainly due to “lack of olefins feedstock”“Make In India” intended to drive investment, however is marred by inward looking fiscal policies
Japan and South Korea (ex-China)Matured markets with majors looking for growth in overseas marketsDomestic capacities continue on their consolidation pathPrice setting region due higher cost of production
Southeast AsiaGrowth initiatives impeded by
domestic issuesRelatively small market size
with most, if not, all capacities requiring export markets to optimize cost of productionBuzz at Indonesia continues
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Base case – Delayed Reforms
The government postpones reforms and the real estate bubble continues. There are plenty of people who still want this to happen
Gradual. Well-Managed Reform
Reforms gather pace and we see a slight reduction in crude prices, chemicals prices and chemicals demand as the air is gradually taken out of the bubble
A Collapse In Demand
A collapse in crude, chemicals prices and demand occurs. Several factors could trigger this, including a financial sector crisis in China and greater global trade tensions on a weaker Yuan
Three China scenarios for the next 12-18 months A likely slowdown in petrochemical consumption growth
www.icis.com 22
72%
53%
Increasing domestic production moves China towards less imports dependent, at least for some products
31%
12%
PP
8%
0%
PVC 40%
13%
PS MEG
28%
11%
Elastomers
32%
1%
PTA
Import dependency
Domestic
2010: Inner Ring
2025: Outer Ring
Source: ICIS Supply and Demand Database
China
40%40%
PE
www.icis.com 23Copyright © 2015 ICIS – Private & Confidential
Source: ICIS Supply and Demand Database *2016 data are estimates
For some Middle East countries the dependence on China is increasing
0%
10%
20%
30%
40%
50%
60%
70%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Ton
ne
s
UAE's polyethylene exports
Total exports Exports to China Percentage to China
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Ton
ne
s
Iran's polyethylene exports
Total exports Exports to China Percentage to China
www.icis.com 24Copyright © 2015 ICIS – Private & Confidential
Source: ICIS Supply and Demand Database *2016 data are estimates
Progress made to lower the China dependence
0%
5%
10%
15%
20%
25%
30%
35%
40%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Ton
ne
s
Saudi Arabia's polyethylene exports
Total exports Exports to China Percentage to China
0%
10%
20%
30%
40%
50%
60%
0
50,000
100,000
150,000
200,000
250,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
To
nn
es
Oman's polypropylene exports
Total exports Exports to China Percentage to China
www.icis.com 25Copyright © 2015 ICIS – Private & Confidential
But in some value chains there are few alternatives to China
0%
10%
20%
30%
40%
50%
60%
70%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Ton
ne
s
Saudi Arabia ethylene glycols
exports
Total exports Exports to China Percentage to China
0%
10%
20%
30%
40%
50%
60%
70%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2010 2011 2012 2013 2014 2015 2016*
Ton
ne
s
Oman paraxylene exports
Total exports Exports to China Percentage to China
Source: ICIS Supply and Demand Database
www.icis.com 26
Iran
www.icis.com 27
Iran has more than sufficient olefins for its domestic downstream demand
Source: ICIS Supply and Demand Database
NOTE: Derivative net trade = Monomer Consumption – Downstream Demand
(2000)
-
2000
4000
6000
8000
10000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s o
f E
thy
len
e
Iran Ethylene Derivative Net Trade in Monomer
Equivalence
Ethylene Consumption Ethylene Downstream Demand
Ethylene Derivative Net Trade
(1000)
-
1000
2000
3000
4000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s o
f P
rop
yle
ne
Iran Propylene Derivative Net Trade in Monomer
Equivalence
Propylene Consumption Propylene Downstream Demand
Propylene Derivative Net Trade
Domestically, Iran requires only about half of the derivatives (in monomerequivalence) it producesThe surplus would be export bound – Where are Iran’s opportunities?
www.icis.com 28
Polyethylene – Iran in contrast to other major regions
Source: ICIS Supply and Demand Database
Iran’s PE surplus is 2nd only to Saudi Arabia in theMiddle East, with its surplus reaching more than 4 milliontonnes by 2025China would be one major market opportunity forIranian’s exports, as the deficit in China is expected tocontinue to grow, reaching above 15 million tonnes.Europe, in particular Turkey, also presents a potentialfor Iran.
(2000)
-
2000
4000
6000
8000
10000
12000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Middle East PE Balance
IRAN SAUDI ARABIA KUWAIT QATAR
Surplus
(4000)
(3000)
(2000)
(1000)
-
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Europe PE Balance
EUROPE (excl. Turkey) TURKEY
(20000)
(15000)
(10000)
(5000)
-
5000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
China and India PE Balance
CHINA INDIA
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Polypropylene – Iran in contrast to other major regions
Source: ICIS Supply and Demand Database
Iran is expected to see growing surplus of PP, albeit being at a moderate volume of around 1.7 million tonnesChina remains a key market for PP exports despite its capacity development, while India has turned into net deficit, and it is expected to widen in the foreseeable futureEurope would also see a growing deficit, with Turkey being one key growth engine.
(1000)
-
1000
2000
3000
4000
5000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Middle East PP Balance
IRAN SAUDI ARABIA KUWAIT QATAR
(5000)
(4000)
(3000)
(2000)
(1000)
-
1000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
China and India PP Balance
CHINA INDIA
(4000)
(3000)
(2000)
(1000)
-
1000
2000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Europe PP Balance
EUROPE (excl. Turkey) TURKEY
Surplus
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Methanol – Iran in contrast to other major regions
Source: ICIS Supply and Demand Database
Iran’s methanol surplus is currently second only to Saudi Arabia in the Middle East. Recent developments planned point to Iran emerging as the largest surplus in the region.This positions Iran well with the rising deficits of China, India, as well as Europe that would present a good opportunity for increase in exports.
(2000)
-
2000
4000
6000
8000
10000
12000
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Middle East Methanol Balance
IRAN SAUDI ARABIA KUWAIT QATAR
Surplus
(25000)
(20000)
(15000)
(10000)
(5000)
-
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
China and India Methanol Balance
CHINA INDIA
(8000)
(6000)
(4000)
(2000)
-
2005 2010 2015 2020 2025
'00
0 t
on
ne
s
Europe Methanol Balance
EUROPE (excl. Turkey) TURKEY
www.icis.com 31
Crude
www.icis.com 32
OPEC led production cuts drive a recovery in crude prices
www.icis.com 33
Demand outpacing supply in first half of 2017
Global demand expected to exceed supply in H1 2017 between 200-600,000 bbl/day
OPEC and non-OPEC production cuts reducing supply by around 1.758m bbl/day
www.icis.com 34
2017 - Demand exceeding Supply but stocks remain high
Non-OPEC production up in 2017 mostly in US – higher oil prices, enhanced productivity Global demand growth lower in 2017 - higher oil product prices and fuel efficiencies Demand growth all in developing economies – Asia accounting 70% of growthGlobal inventories expected to remain high. OECD stocks 300m bbl above five year average
(Source: IEA, EIA)
www.icis.com 35
OPEC and non OPEC agree production cuts
First joint OPEC, non-OPEC production cut agreement in 15 yearsOPEC 1.2m bbl/day output cut new ceiling 32.5m bbl/day effective from 1 January 2017Agreement only for six months may not be extended – Saudi Oil Minister
(Source: IEA)
OPEC Production Cuts(Source: OPEC)
Member Country Supply
Adjustment m
bbl/day
Algeria -0.05
Angola -0.078
Ecuador -0.026
Gabon -0.009
IR Iran 0.09
Iraq -0.21
Kuwait -0.131
Libya 0
Nigeria 0
Qatar -0.03
Saudi Arabia -0.486
UAE -0.139
Venezuela -0.095
Total OPEC Cut -1.164
non-OPEC Production Cuts(Source: IEA)
Country Supply
Adjustment m
bbl/day
Azerbaijan -0.035
Kazakhstan -0.02
Mexico -0.1
Oman -0.045
Russia -0.3
Others -0.058
Total Non OPEC cut -0.558
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Oil demand growth in 2016 -2017 in Asia
Global oil demand is expected to hit 97.8m bbl/day in 2017, up 1.3m bbl/day – lower than 1.5m bbl/day in 2016Indian demand expected to grow 6.8% in 2017 slightly lower than 2016 –currency concerns
expected higher product pricesChina demand growing 2.8% in 2017 slight own on 2016 , lower economic growth , higher oil
product prices.
(Source: IEA)
www.icis.com 37
Thank You
Muhamad FadhilHead of Middle East Markets, [email protected]+971 56 333 8265
