Confidential. © 2018 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US PetrochemicalsThe growing importance of export markets

EIA Energy ConferenceJune 4, 2018

Blake Eskew, Vice President - Business Development Oil Markets / Midstream / Downstream / Chemicals Houston, TX blake.eskew@ihsmarkit.com

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• Transportation• Consumer products• Packaging• Construction• Recreation• Industrial• Medical• Pharmaceutical• Personal care• Textiles• Electronics• Aerospace• Business equipment

OilGasCoalMineralsRenewables

Customers

Olefins AromaticsChlor-alkaliOthers

CommoditiesDifferentiated commoditiesTechnical specialties

Chemical industry value chain

Formulated products / performance materials

Natural resources

Chemicalintermediates

Base chemicals

The Chemical Industry Enables Modern Living

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-4

-2

0

2

4

6

8

10

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Perc

ent c

hang

e

World Advanced countries Emerging markets

Global economic growth remains strong and steady, if serious mistakes on trade, monetary policy, and international relations can be avoidedReal GDP

Source: IHS Markit © 2018 IHS Markit

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Economic growth in advanced countries and emerging markets are key drivers to petrochemical demand growth

0

1

2

3

4

1990-2000 2000-2010 2010-2020 2020-2030Ethylene Propylene (PG/CG) Methanol ChlorineBenzene Paraxylene Weighted Average

GDP Elasticity: rate of market growth / rate of global economic growth

Source: IHS Markit © 2018 IHS Markit

Per

cent

age

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

0

1

2

3

4

5

6

7

Ethylene Propylene(PG/CG)

Methanol Chlorine Benzene Paraxylene

Avg. 2012 - 2016 2017 Avg. 2018 - 2022

Global demand growth and 2017 estimated total demand

Source: IHS Markit © 2018 IHS Markit

Mill

ion

Met

ric T

ons

Ethylene and propylene remain in high growth mode; methanol growth stabilizes

152 102

78 73

46 41

Global demand estimate for 2017

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The energy and petrochemical industries are closely related

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There are several primary routes to produce olefins

Crude Oil

Natural Gas

Crude Unit

Nat Gas Processing

FCC Unit

Refinery Grade Propylene

Ethylene

Polymer grade PropyleneSteam Cracker

PropyleneSplitter

PropaneDehydrogenation

Methanol-to-OlefinsMethanol-to-Propylene

Coal-to-OlefinsCoal-to-Propylene

Ethane, Propane, Butane

Propane

LPG, Naphtha, Gas Oil

Coal

Nat Gas

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US NGL production is growing with shale gas and tight oil plays

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2005 2010 2015 2020 2025

NaturalGasoline

Isobutane

NormalButane

Propane

Ethane

US lower 48 NGL production by product

Source: IHS Markit © 2018 IHS Markit

Mill

ion

barr

els

per d

ay

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2005 2010 2015 2020 2025

Chart Title

Permian

SCOOP

Woodford

Utica

Niobrara

Marcellus

Eagle Ford

Barnett

Bakken

Other gassourcedRefining

NGL production from key shale gas and tight oil plays

Source: IHS Markit © 2018 IHS Markit

Mill

ion

b/d

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Combination of high crude prices and stable natural gas is attractive for North America gas-based chemical investments

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Brent Crude Henry Hub Gas USGC Ethane USGC Propane NEA Naphtha

Con

stan

t201

4 D

olla

rs P

er M

MB

tu

Crude Oil - VS - Natural Gas & NGLsCrude Oil - VS - Natural Gas & NGLsCrude Oil - VS - Natural Gas & NGLsCrude Oil - VS - Natural Gas & NGLs

Source: IHS Markit © 2018 IHS Markit

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Ethane cracking is expected to maintain a large cash cost advantage

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600

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1400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017USGC - Ethane Northeast Asia - Naphtha

Ethylene Cast Cost Comparison

Source: IHS Markit © 2018 IHS Markit

USD

olla

r Per

Met

ric T

on

Cash cost = Feed + VC + FC – co-product

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63,832 57,481

21,706 9,812

Global Ethylene production by feed type (KTA ethylene by feed)

Source: IHS Markit © 2018 IHS Markit

Naphtha, 66,669

Ethane, 69,629

Other, 22,891

LPG, 13,383

NGLs increasingly important to olefins as crackers shift to ethane

0%

20%

40%

60%

80%

100%

2000 2003 2006 2009 2012 2015 2018 2021Gasoline (FCC) Naphtha Gas OilNat Gas Ethane PropaneButane Coal Other

Propylene production by feedstock

Source: IHS Markit © 2018 IHS Markit

Propane

More ethane for ethylene more propane for propylene

2017 (inner)Production = 143 MMTA

2022 (outer)Production = 173 MMTA

3.5 MMTA Ethylene~ 9 MMTA LPG

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Ethylene equivalent trade will continue to expand as the industry builds in low-cost regions and exports to high demand growth regions

-40

-20

0

20

40

1990 1995 2000 2005 2010 2015 2020 2025

North America South America West Europe Middle EastIndian Sub. Northeast Asia Southeast Asia Others

Global Net Equivalent Trade - Ethylene

Source: IHS Markit © 2018 IHS Markit

Mill

ion

Met

ric T

ons

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

0

10

20

30

40

50

60

70

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2005 2010 2015 2020 2025

Chart Title

Base Chemical Price Sensitive Miscellaneous Fuel Exports Rejection

US ethane demand and rejection

Source: IHS Markit © 2018 IHS Markit

Mill

ion

barr

els

per d

ay

1st Wave 2nd Wave

MIll

ion

Met

ric to

ns p

er y

ear

The first wave of US ethane crackers and exports is proceeding but the second wave is uncertain

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Improvements in ethane shipping and capital cost differentials are changing olefins investment patterns

Ethane Export Terminal(s)

Ethane CrackerPE unit

Ethane

Ship Pellets

Ethane CrackerPE unit

Capital costs in China are currently 50 to 70% of USGC

Can the advantage be sustained? Similar

pattern seen for propylene, but China incentive is stronger

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Ethylene cash costs and capital cost advantages make Chinese ethane-based capacity competitive

0

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800

USGC - Ethane China - Ethane from US China - Naphtha Europe - Naphtha

2020-2025 Average

2020-2025 Average

World Ethylene Cast Cost Comparison

Source: IHS Markit © 2018 IHS Markit

USD

olla

r Per

Met

ric T

on

Cash cost = Feed + VC + FC – co-product

• Cash costs for ethane cracking in China are higher than in the US due to ethane transport costs

• But - finished product shipping is reduced or eliminated

• In addition, capital cost savings may outweigh the higher operating and feedstock costs

• Ethane cracking capital cost in China is roughly half of naphtha cracking –economics depend on need for co-products

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NGL and mixed feed crackers dominate near-term capacity additions

• In addition, over 9 million tons of additional ethane-based units have been announced for China but are still in the planning stages

• In the US, almost 15 million tons of additional ethane-based capacity is under discussion

• With annual demand growth of 6 million tons, the capacity will be needed

• But – is there enough ethane? And where will it be built?

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

China India Other Asia Middle East Europe/CIS Africa North America

Ethane Other NGL Mixed Naphtha Other

World Ethylene Capacity Changes: 2017-2022

Source: IHS Markit © 2018 IHS Markit

Thou

sand

Met

ric T

ons

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Energy and chemical exports from North America will continue to rise• Natural gas in North America remains

advantaged versus crude• North America will remain an attractive

region for capital investments in base chemicals, derivatives, and feedstocks

• Ethane to China can work - capital versus operating cost dynamics and supply risk tolerance will determine how much is built

• Second wave of ethane crackers will come – but in US or China?

• ,

19

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