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The US shale gas boom, outlook and implications for global petrochemicals By ICIS Chemical Business

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  • 1. The US shale gas boom, outlook and implications for global petrochemicals To view the recording, please visit: www.icis.com/us_shalegas_webinar Joseph Chang, Global Editor ICIS Chemical Business August 06, 2013

2. About ICIS 3. www.icis.com ICIS Is Part of Worlds Largest Information Provider www.icis.com www.rbi.co.uk www.reedelsevier.com 4. www.icis.com Consulting Prices, News, Analysis, Consulting Prices NewsAnalysis Test 5. About our speaker 6. www.icis.com Joseph Chang Global Editor of ICIS Chemical Business 7. www.icis.com Agenda Macro and profit outlook US shale gas boom and petrochemical feedstocks Margin analysis US cracker projects US and global market implications Past North American expansion wave 2000-2002 LNG export threat? Conclusions 8. www.icis.com 2013 macro and profit outlook US economy slow but steady growth, led by housing, automotive and energy China growth rate slowing. Government policies geared towards tighter money Europe flat to down but stabilizing Q2 profits for US chemical companies solid but volumes flat; modestly positive outlook for 2013 Bullish outlook on US petrochemical and polymers margins because of low-cost shale gas feedstock 9. www.icis.com Shale gas boom now visible from space - FT 10. www.icis.com Main steam cracker feedstocks Naphtha derived from crude oil ethylene, propylene, aromatics, C4s for butadiene (Europe, Asia) Ethane derived from natural gas ethylene only (Middle East, North America) LPGs (propane, butane) derived from natural gas mainly ethylene and propylene Ethane 52% LPG 28% Naphtha 12% Other 8% North America steam cracker feedstock breakdown based on ethylene demand, 2012 Source: ICIS supply and demand database 11. www.icis.com US ethane prices fall as output rises 12. www.icis.com US contract ethylene margins hit record highs 13. www.icis.com US spot ethylene margins hit record 14. www.icis.com US ethane advantage vs naphtha 15. www.icis.com US cracker output of co-products (as % of total ethylene output) The lightening of cracker feedstocks to more gas cracking reduces availability of co-products. Ethane produces almost only ethylene! The pricing of co-products could shift from by-product pricing towards alternative, on-purpose processes Propylene 15% 18% 21% 24% 27% 30% 2000 2005 2010 2015 2020 SOURCE: ICIS Consulting Butadiene 4% 5% 6% 7% 8% 2000 2005 2010 2015 2020 SOURCE: ICIS Consulting Benzene 4% 5% 6% 7% 8% 9% 2000 2005 2010 2015 2020 SOURCE: ICIS Consulting 16. www.icis.com Global ethylene cost curve steepens Source: American Chemistry Council 17. www.icis.com US widens global ethylene cost advantage Source: ICIS 18. www.icis.com US polyethylene cost advantage Source: ICIS 19. www.icis.com US chemical prices track crude oil not natural gas R2 US IPEX, natgas = 4.0% R2 US IPEX, crude oil = 85.1% 20. www.icis.com New US ethane crackers based on shale gas Company Capacity Location Downstream Status Start-up Sasol 1.5m tonnes Lake Charles, Louisiana LDPE, LLDPE, EO, MEG Title V permit appl complete as of May 8, 2013; FID 2014 2017 OxyChem/ Mexichem 544,000 tonnes Ingleside, Texas EDC, VCM Submitted PSD appl Dec 21, 2012 Feb 2017 ExxonMobil Chemical 1.5m tonnes Baytown, Texas PE PSD draft permit as of Jun 3, 2013 Late 2016 Chevron Phillips Chemical 1.5m tonnes Cedar Bayou, Texas PE PSD permit granted Jan 17, 2013; FEED complete; FID to come 2013; Construction 2014 mid-late 2017 Dow Chemical 1.5m tonnes Freeport, Texas PE. LDPE, EPDM, elastomers, LAO EPC phase; responded to EPA on incomplete PSD permit appl mid-July 2017 Shell World-scale Monaca, Pennsylvania PE, MEG NA 2019-2020* Formosa Plastics 1.2m tonnes Point Comfort, Texas LDPE, MEG Incomplete PSD permit appl as of Apr 9, 2013 2017 21. www.icis.com Ethylene expansions based on shale gas * Timing uncertain due to June 13, 2013 explosion at site Company Capacity Location Start-up Williams 272,158 tonnes Geismar, Louisiana Q4 2013* INEOS 115,000 tonnes Chocolate Bayou, Texas end 2013 Westlake Chemical 113,399 tonnes Lake Charles, Louisiana 2014 Westlake Chemical 82,000 tonnes Calvert City, Kentucky Q2 2014 LyondellBasell 363,000 tonnes La Porte, Texas mid-2014 LyondellBasell 113,000 tonnes Channelview, Texas 2015 LyondellBasell 363,000 tonnes Corpus Christi, Texas Late 2015 BASF Fina Petrochemicals NA Port Arthur, Texas 2014 22. www.icis.com Companies considering new crackers in US Company HQ Capacity LyondellBasell Netherlands World-scale Hanwha Chemical South Korea World-scale Axiall US World-scale Indorama Ventures Thailand 1.3m tonnes SABIC Saudi Arabia World-scale Braskem Brazil World-scale PTT Global Chemical Thailand World-scale Aither Chemicals US 272,000 tonnes 23. www.icis.com US ethylene capacity could expand by 38%! New crackers: 9.0m tonnes* (7) Expansions/debottlenecks: 1.4m tonnes (8) Total: 10.4m tonnes = 38% of US capacity Current capacity: 27.1m tonnes/year *Assumption of world-scale cracker at 1.25m tonnes/year 24. www.icis.com 0 1000 2000 3000 4000 5000 6000 7000 2012 2013 2014 2015 2016 2017 2018 2019 AdditionalCapacity,000stonnes/yearTiming of announced US ethylene expansions 25. www.icis.com Oil/gas ratio and US announcements 26. www.icis.com North America PDH projects (on-purpose propylene from propane feedstock) Company Capacity Location Start-up Enterprise Products 750,000 tonnes Texas Q3 2015 Ascend Performance Materials 1,000,000+ tonnes Alvin, Texas Q4 2015 Dow Chemical 750,000 tonnes Freeport, Texas 2015 Williams 500,000 tonnes Alberta, Canada Q2 2016 Formosa Plastics 658,000 tonnes Point Comfort, Texas 2016 Dow Chemical NA NA 2018 Enterprise Products NA Texas NA Petrologistics NA Houston, Texas NA 27. www.icis.com Implications of the US shale boom 7 new ethane crackers and derivative units in the US will solidify the US footprint in the global petrochemical market Shift to gas-based feedstock leads to structural shortages of propylene (C3) and butadiene (C4). However, to fill the propylene gap, 8 PDH (on-purpose propylene) projects planned to use cheap propane $72bn in new chemical investments in the US by 2020 already announced ACC US chemical exports to jump, especially for PE plastic. US chemical trade surplus could rise to $46bn by 2020 from $800m in 2012 - ACC US manufacturing renaissance re-shoring could add $80- 120bn in economic output Boston Consulting 28. www.icis.com Global reaction: Asia Petrochemical Industry Conference (APIC), Taipei, Taiwan May 2013 The shale gas revolution initiated in the US is now reshaping not only the energy industry, but global economy and geopolitics as well. This could cause a great deal of discomfort to Asias petrochemical sector. Yoshimitsu Kobayashi, chairman of the Japanese Petrochemical Industry Association The supply of low-priced products that are based on coal and shale gas will become a threat to the existing petrochemical industry and will bring a significant change in its structure. Han-Hong Ban, chairman of the Korea Petrochemical Industry Association 29. www.icis.com Global reaction: Middle East The feedstock cost advantage of Gulf petrochemical producers used to be somewhat obvious. But changes in the global economy are challenging previously held assumptions. The shale gas boom in North America promises to provide fresh impetus to petrochemical producers there. Abdulwahab Al-Sadoun, secretary general of the GPCA, Nov 2012 The feedstock cost for new crackers in [Saudi Arabia] will be around $6/MMBtu as theres not enough ethane availability, so cracker operators will have to use more propane than ethane. This cost will be much higher than the US gas price, which is currently at $3.50-4.00/MMBtu but will be reduced to $2 once there is increased production of shale gas. Jamal Malaikah, president and COO, National Petrochemical Industrial Co (NATPET), Apr 2013 30. www.icis.com Global reaction: Europe INEOS deal to import US ethane for Europe crackers (Rafnes, Norway and potentially Grangemouth, UK) by 2015 Versalis considering importing US ethane for Europe crackers (Brindisi, Italy and Dunkirk, France). There are several companies that are already offering ethane at very favourable prices from North America either from the Gulf or the Philadelphia Marcus Hook area. There are some very large operators that are starting to look for long-term contracts CEO Daniele Ferrari, Apr 18 2013 Borealis investigating US ethane imports for cracker in Stenungsund, Sweden 31. www.icis.com US ethylene expansions in global context US (17%) Others (83%) ~39m tonnes of additional capacity expected globally 32. www.icis.com Global ethylene outlook 33. www.icis.com Global implications changes in behavior Japan: Companies planning to shut 3 naphtha crackers Recent changes in the global ethylene market such as forecasted production increases from shale gas in the United States, has resulted in an urgent need to fundamentally restructure and reform domestic petrochemical business Mitsubishi Chemical, Feb 2013, statement withdrawing from Keiyo Ethylene JV Comperj petrochemical project in Brazil delayed indefinitely Braskem/Petrobras project supposed to be the largest ever in Latin America Originally planned to be naphtha-based and start up in 2012-2013 Now will be gas-based IF Petrobras can supply at the right price Brazils Braskem shifting to gas-based investments Competing against a US polyethylene [PE] player is a challenge Ethylene and PE is where the money is being made in the US, and here we are looking into what we might do. A PE plant and cracker is one alternative. Fernando Musa, CEO, Braskem Americas, May 2013 34. www.icis.com Case study The last wave of North America cracker expansions 2000-2002 35. www.icis.com Last wave of North America crackers 2000-2002 3 world-scale crackers NOVA/Carbide, Formosa, BASF Fina Petrochemicals plus Dow expansion in

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