01 gellrich utica 2016 - cantonchamber.org · ethylene economics source: nymex feb 2nd 2015 2.3x...
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ShaleGas:changingtheUSchemicalsindustry
TomGellrich
TopLineAnaly2cs
©2015TopLineAnaly2cs.Allrightsreserved.
October11th,2016U2caSummitIV–CantonOhio
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ShaleGas:changingglobalindustries
TomGellrich
TopLineAnaly2cs
©2015TopLineAnaly2cs.Allrightsreserved.
October11th,2016U2caSummitIV–CantonOhio
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1973EnergyShock
SourceEIA
3.2xIncrease
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1979EnergyShock
SourceEIA
2.0xIncrease
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Manufacturing
30%-
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ShaleShock
MarcellusMillionscuPperdaynaturalgas
Source:EIA
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2008–2012ShaleShock
3.8xDecrease
SourceEIANaturalGas
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Manufacturing
30%+
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NorthAmericanAdvantage
Source:WorldbankPinkSheetAveragenaturalgasprices$/MBtu
20162Q
$2.1 $4.1
$6.1$3.0
2008
$10.3 $11.4
$14.4$1.3
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MENaturalGasSqueeze
MiddleEastnaturalgasinternalconsump2onrises– Rapidlygrowingpopula2ons– Subsidizedelectricity&desaliniza2onwater
KuwaitlooksforwayoutofadomesDcgasconundrumInterfaxEnergyOct7,2014
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ShaleRevolu2on
“U.S.energylandscapeischangingonthebackofcheapnaturalgasfromshaledeposits,whichisturningproducersawayfrom“offshoring”energy-intensiveindustries.Thediscoveryofshalegasisperhapsthegreatestdevelopmentinthemodernera.Shalegasisahuge–andpoten2allylong-term–compe22veadvantageforU.S.-basedcompanies”
Andrew Liveris CEO Dow Chemical Company
Source:IHSCERAWeek2012HoustonTexas
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ShaleGasdrivestheChemicalIndustry
0%
20%
40%
60%
80%
100%
ChemicalFeedstock
Methane
EthanePropane
Fuel
TypicalShalegas
Source: Typical Shale Gas: Western Marcellus Shale Gas: Chesapeake Investor Presentation 2011
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GlobalChemicalShiP
• “Thefeedstockcostfornewcrackersin[SaudiArabia]willbearound$6/MBtuasthere’snotenoughethaneavailability…thiscostwillbemuchhigherthantheUSgasprice,whichiscurrentlyat$3.50-4.00/MBtu”
– JamalMalaikah,presidentandCOO,Na2onalPetrochemicalIndustrialCo(NATPET),Apr2013
• “Theshalegasrevolu2onini2atedintheUS…isnowreshapingnotonlytheenergyindustry,butglobaleconomyandgeopoli2csaswell.”Thiscouldcause“agreatdealofdiscomfort”toAsia’spetrochemicalsector.
– YoshimitsuKobayashi,chairmanoftheJapanesePetrochemicalIndustryAssocia2onatAPIC,May2013
• “Theshalegasrevolu2onintheUShasturnedtheglobalpetrochemicalindustryinsideout…BasicpetrochemicalscannowbemadeintheUnitedStatesforabouthalfthecostasinEurope”
– TomCropy,Ineosgroupdirector,ChemWeekInterviewOctober2013
• “Thesupplyoflow-pricedproductsthatarebasedoncoalandshalegaswillbecomeathreattotheexis2ngpetrochemicalindustryandwillbringasignificantchangeinitsstructure.”
– Han-HongBan,chairmanoftheKoreaPetrochemicalIndustryatAPIC,May2013
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ChemicalIndustryU.S.Investments2012to2022
• $164billionincapitalinvestment– 264projects– 70millionmetrictonsofchemicals– 61%foreigninvestment
• Jobs:– 738,000permanent– 316,000temporary
• $301billionincreaseeconomicoutput• $106billionincreaseinchemicalshipments
Source:AmericanChemistryCouncilMarch2016
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U.S.ChemicalConstruc2onInvestment
Source:ACCanalysisofCensusBureaudata
$Billions
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ChangesinGlobalIndustry
• M&A:Axiall(GeorgiaGulf+PPGChlor-Alkali)• JV:PPTGlobalChem+MarubeniCorp• Doublingdownoninvestments:LyondellBasell• Reloca2ngexis2ngplantstoU.S.:USMethanol• MiddleEastinvestmentinU.S.:SABIC• Commercializa2onofnewtechnologies:PDHBDH• European+Asianshutdowns:TotalCarling• IncreasedNAinvestments:Formosa• Non–GulfCoastU.S.investment:Shell• U.S.Ethaneexports:Ineos• U.S.BackwardIntegra2on:BASF
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EthyleneProduc2on
EthaneFeedstock
Ethylene Propylene
Butadiene FuelGas
Oil(naphtha)Feedstock
Ethylene Propylene Butadiene
FuelGas Aroma2cs
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EthyleneEconomics
Source:NYMEXFeb2nd20152.3xDelta
EthyleneCost US ChinaNaturalGascosts $/MMBTU 2.6CrudeOilcosts $/BBL 54Equivalent $/ton 128 521Ra2oforonetonethylene 1.29 2.98EthaneFeedstockcosts $/ton 165 1552Catalyst+Other $/ton 2 2ByProductCredits $/ton 108 1102U2li2es $/ton 94 127DirectCosts $/ton 167 172TotalethyleneCost $/ton 321 750 Typicalethylenemargin 2.50% Transferpriceforethylene $/ton 329 769
Source:NYMEXSep2015
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Drama2cCostShiPEthylene
1980-2010
MiddleEastNAmericaChinaWEuropeNWAsia
OldNormal:MiddleEasthalfthecostoftherestoftheworld
2015
NewNormal:• MiddleEastand
NAatparity• Restoftheworld
at>2xcost
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PolyethyleneEconomics
1.9xDeltaSource:NYMEXSep2015
PolyethyleneCost US ChinaNaturalGascosts $/MMBTU 2.6CrudeOilcosts $/BBL 54Ethylenecost $/ton 329 769Ra2oforonetonofHDPE 1.025 1.025Ethylenecost $/ton 337 788U2li2es $/ton 10 13DirectCost $/ton 51 51OtherCosts $/ton 132 132TotalCosts $/ton 530 984 Typicalpolyethylenemargin 3.00% PotenDalHDPEsellingprice $/ton 546 1013
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ChemicalIndustryDrivestheNextWave
Shal
e G
as
Ethane
Methane
Propane
Butane
Ammonia
Methanol
Ethylene
Propylene
N-Butylene
Isobutylene
MarketSectors
ApparelandAccessories
BeveragesandTobaccoProducts
Chemicals
ComputerandElectronics
FabricatedMetalProducts
FoodandKindredProducts
LeatherandAlliedProducts
Machinery,ExceptElectrical
NonmetalicMineralProducts
Paper
PetroleumandCoalProducts
Pharmaceu2cals
Plas2csandRubberProducts
PrimaryMetalManufacturing
PrintedMaperandRelatedProducts
Tex2leandFabrics
Tex2leMillProducts
Transporta2onEquipment
WoodProducts
ProductCategories
Fer2lizers
Adhesives/Sealants
AlkydResins
Solvents
CorrosionInhibitors
Tex2les
Inks,Adhesives
Shampoos,Detergents,Soaps
Paints
Coa2ngs
Pipes,Hoses,WireCoa2ng
Coolant,An2freeze
Films,Packaging,Boples
PaintRemover
Plas2cs
TiresandRubber
LubricantAddi2ves
Solvent,IndustrialCleaners
>98%
Source:PwCandTopLineAnaly2cs
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Wherearethechemicalsgoing?
AsianMiddleClass
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U.S.istheLandofOpportunity
• HighlyprofitableduetoShaleGas• Uniquemul2decadesadvantage• Lowpoli2calrisk• Chemicalindustryacceptance• Highmanufacturingproduc2vity• Growinglaborpool• Compe22on
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ChemicalIndustryManufacturingJobs
• Full2mepermanentjobs• Averagesalaryforoperator$60k+benefits• Jobscon2nueyearaPeryear• Verydifficulttooff-shore• Skilledposi2ons–hightech• Communityfocused
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AppalachianBasin
• Avoidtransporta2oncosts– LocalrawmaterialsfromShaleGas– Localcustomerdemand
• AvoidtheGulfCoastboplenecks– Landtoexpand– Railandtolesserextentroadinfrastructure– EPAnon-apainmentarea
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AppalachianBasin
• Shellbroketheice– Valida2onofloca2on– Demonstratevaluetothepublic– Localcommunitysupport– Buildoutof‘ecosystem’
• SuppliersandLaborpool• Voca2onaland2yeardegreeprograms• Upgradeofroad,railandbargeinfrastructure
• Nextprojectwillbemucheasier
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BasinStorageHub
• Keyenablinginfrastructure• Reducesriskfornewchemicalplants• Makesregionalinvestmentspossible• Publicprivatepartnership• $10Billionmegaproject• KeydriverbehindsuccessofU.S.GulfCoast
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Déjàvu?
AppalachianStorageHubpoten2alreachesfromShellfacilitytoannouncedPTT/Braskemsites.ItcoverssamegeographicaldistancesastheTexas–LouisianaStorageHubwithkeystoragepointareainthesaltdomesofMontBelvieuTexas.
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InvestmentPause
• UnprecedentedU.S.ChemicalInvestment– Isitreal?Willcondi2onscon2nue?
• Acceptanceofnewnorm– CrudeOilat$50barrel– NaturalGasinU.S.at$3withrestofworld2-3x
• Demandonsupplychainraisescostby30%• Megaprojectsares2ll:
– Betthecompany– Betyourcareer
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NextWaveSh
ale
Gas
Ethane
Methane
Propane
Butane
Ammonia
Methanol
Ethylene
Propylene
N-Butylene
Isobutylene
Source:PwCandTopLineAnaly2cs
Polyethylene
EDC
EPDM
Ethanol
Alpha Olefins
Vinyl Acetate
Ethylene Glycol
Ethanolamine
Ethyl Oxylates
Glycol Ether
Chloro Ethanes
Polyvinyl Chloride
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NextWaveSh
ale
Gas
Ethane
Methane
Propane
Butane
Ammonia
Methanol
Ethylene
Propylene
N-Butylene
Isobutylene
Source:PwCandTopLineAnaly2cs
40%Imported
50%Imported
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ShaleGasConclusions
• TheNAShaleGasrevolu2onhascausedaGlobalChemicalIndustryrevolu2on
• ChemicalsandmanufacturedproductscanbeproducedcheaperinNA
• Implica2onsaredisrup2veandofferopportunity
• Newnormal,unconven2onalthinkingisrequired
• Leaderslead,isyourorganiza2onmobilized?
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TopLineAnaly2csWeassistcompaniesinaddressingthechallengesandopportuni2estocompeteinthechanginglandscapebroughtonbytheshalegasrevolu2on
TomGellrich www.TopLineAnaly2cs.com 267-205-1263
Ques2ons?