© 2013 platts, mcgraw hill financial. all rights reserved. life after shale gas: a race for...

© 2013 Platts, McGraw Hill Financial. All rights reserved.

Life after shale gas: A race for marketshare

Prema Viswanathan, Associate Editorial Director, Petrochemicals, PlattsIPF, Tehran, 7-8 June 2014

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Time

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Heards system propels market interface

PX: Bid July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, T/T 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX:Jun/Jul bid heard at $13/mt CFR TND, Asia origin(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Offer Any July at $1,238/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Offer Any July at $1,240/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

PX: Jul bid heard at $1,215/mt CFR TND, Asia origin, T/T 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

PX: Bid July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, T/T 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX:Jun/Jul bid heard at $13/mt CFR TND, Asia origin(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Offer Any July at $1,238/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Offer Any July at $1,240/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

PX: Jul bid heard at $1,215/mt CFR TND, Asia origin, T/T 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

PX: Bid 1H July at $1,210/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H1 Jun offer heard at $1,238/mt CFR Ningbo, Asia origin, if form e, +1.75% return (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H1 Jul bid heard at $1,220/mt CFR Ningbo/Dalian/Jiangyin, Asia origin(exluding India/China/ME and Iran), L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX : 1h June offer at 1236 cfr NB, asia, if form e, +1.75% return (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

PX: Bid 1H July at $1,210/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H1 Jun offer heard at $1,238/mt CFR Ningbo, Asia origin, if form e, +1.75% return (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H1 Jul bid heard at $1,220/mt CFR Ningbo/Dalian/Jiangyin, Asia origin(exluding India/China/ME and Iran), L/C 30 days(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt(for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px) PX : 1h June offer at 1236 cfr NB, asia, if form e, +1.75% return (for details contact Michelle Kim at mihee.kim@platts.com or +65-6530-6425; yahoo IM: platts_asia_px)

May 21, 2014

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Agenda

• US shale boom and impact on aromatics • Production shifts to Middle East, Asia • Middle East shift away from light feeds• China’s opportunities & challenges• India’s unmet potential• Conclusion

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Chemical companies profit from growth

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• Despite narrowing margins the global chemical industry accounts for $3 trillion

• Stocks of US chemical companies (eg. Dow Chemical) have been doing well

Dow Chemical (NYSE:DOW)Historical Stock Chart1 Year : From Apr 2013 to Apr 2014

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US projects capitalise on ethane surplus

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Ethane use to grow for next decade

10Source: Platts

• Ethane consumption in US crackers has climbed from 41% of total feedstock in 2005 to 58% of total feedstock in 2013

• Ethane is expected to account for 76% of US cracker feedstock by 2024– Cut in propane use is

necessitating PDH development– Aromatics output at the cracker

has diminished, contributing to a tighter benzene market

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Cheap ethane driving the boom

11Source: Platts

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US cracker margins – never better

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Source: Platts

• Since early 2011, margins for US ethane and E/P Mix have climbed from $500/mt to $1,000/mt

• Naphtha margins, though, fluctuate from negative to $500/mt

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Greenfields: Producers are “all-in”

13Source: Company announcements, Platts

Company Location ,000 mt/yr ETA

Formosa Plastics CUSA Texas 800 2016

ExxonMobil Chemical Texas 1,500 2017

Chevron Phillips Chemical Texas 1,500 2017

Dow Chemical Texas 1,500 2017

Sasol Louisiana 1,500 2017

Occidental/Mexichem Texas 550 2017

Appalachian Resin W. Virginia 250 2017

Aither Chemical/RMG W. Virginia 200-300 2017

Odebrecht (Braskem) W. Virginia 1,000-1,500 2018

Axiall Louisiana 1,000 2019

Shin-Etsu (Shintech) Louisiana 1,000 2019

Shell Chemical Pennsylvania 1,000-1,500 2019

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Brownfield projects: Good barometers

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Source: Company announcements, Platts

Company Location +,000 mt/yr ETA

BASF-Total Texas 60 2012

Dow Chemical (restart) Louisiana 400 2012

Westlake Chemical Louisiana 110 2013

Williams Louisiana 230 2013

BASF-Total Texas 100 2014

Westlake Chemical Kentucky 80 2014

Ineos Texas 120 2014

Westlake Chemical Louisiana 110 2015

LyondellBasell Texas (3) 830 2014-16

Dow Chemical TX/LA (2) 400 2014-16

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The abundance of ethane Is encouraging investment

Ethane demand will struggle to keep pace with supply growth

Short balance in 2018 indicates ethane needs to flow from the Williston to supply crackers in the Gulf Coast

Source: Bentek Market Call: North American NGLs

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But investments based on imported ethane may not be cost-effective

Plant SpecsPlant size (million mt) 1

Operating Rate 95%Ethane feedstock requirement (b/d) 50,000.00 Total feedstock (b/year) 17,337,500.00

Source: Platts Petrochemical Analytics

Capital Requirements

Ship Capacity (bbls) 250,000

Total deliveries needed 69.00

Vessels needed for total deliveries 12

Vessel cost $ 85,000,000.00

Total vessel outlay $ 1,020,000,000.00

Per year contract volume (bbl) 17,337,500.00

Per year contracted outlay $ 86,940,000.00

Total contract outlay (20-years) $ 1,738,800,000.00

Anticipated Plant Cost $ 3,500,000,000.00

Total plant capital cost $ 6,258,800,000.00

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Regional PE net trade overview

17Source: Platts Petrochemical Analytics

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Propylene squeezed at the cracker

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Propylene will see a much larger impact

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• During the next decade, propylene produced by US crackers will fall 30% to 3.5 million metric tons in 2023 – down from just below 5 million metric tons in 2013

• Such a drop is forcing industry to adopt on-purpose processes

2020

Shale gas will yield less aromatics

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US shift to light feeds expected to sink aromatics output

Source: Platts Petrochemical Analytics

• Pygas to decrease 40%• Crude C4 to decrease 20%• Propylene to decrease 20%

• 69% growth in ethane based output• 32% decrease in naphtha based

output

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Middle East adds petchem capacity

Source: GPCA

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Gas shortage to intensify in Middle East

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-50

-45

-40

-35

-30

2012 2013 2014 2015

In billion cubic metersSource: Booz & Co

• Depleting supply of ethane in the GCC has forced producers to look at refinery-petchem integration and production of aromatics• Government push towards job creation has also led to downstream expansion and diversification into aromatics

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Middle East opts for aromatics, adds value

Source: GPCA

Aromatics product Capacity in MT/year

Benzene 3,655,000

Styrene 3,295,000

Toluene 2,035,000

Paraxylene 3,618,000

Mixed Xylenes 4,533,000Source: Platts

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Iran is the wild card which could bolster Middle East advantage

Source: UN Comtrade, Platts Petrochemical Analytics

Iranian PE exports prior to sanctions

• Iran exports continue despite sanctions

• China is now Iran’s No1 trading partner

• Major exporter of PE and methanol to China

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Asia leads in chemicals capacity growth

• US, Europe. Japan have been the major production hubs in the past• But Asia and the Middle East are fast catching up

Region Country Growth : 2012-2020

North America 25%

Latin America 33%

Western Europe 24%

Emerging Europe 35%

Africa, Middle East 40%

Asia-Pacific 46%

China 66%

India 59%

South Korea 35%

Japan 22%

Source: American Chemistry Council (ACC)

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• Chemical production in China seen rising 8.5% in 2015 versus 8.8% in 2014, 8.5% in 2013: ACC

• China moving towards self-sufficiency, new methanol-to-aromatics and coal-to-benzene projects to help boost competitiveness

• But China expected to continue importing petchems, including aromatics in the next decade

China: Opportunities

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China’s shale gas ambitions

• China targeting shale gas output of 6.5 billion cubic meters/year by 2015, 60 billion-100 billion cu m/year by 2020

• China’s shale gas output in 2013 was just 200 million cu m, according to the Ministry of Land and Resources

• Sinopec, CNPC leading the way• By 2015, 110 new wells likely at

Changning-Weiyuan

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New CTO/MTO projects

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CTO/MTO could flood global PE market

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• CTO and MTO projects in China could add up to 10 million mt of new PE capacity in the country by 2020 – nearly equal to China’s forecast demand growth.

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China’s coal advantage

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• While coal CFR China has averaged just over $7/MMBtu, naphtha has averaged just over $20/MMBtu and JKM or spot LNG price just over $18/MMBtu. So a ratio of 1:2.8:2.6.

Source: Platts

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India: Unfulfilled Potential

• New optimism with business-friendly government at the helm, promise to prioritise infrastructure projects

• IMF said in April that India’s GDP is set to grow 5.4% in FY 2013-2014, and 6.4% in 2015-2016

• Forecast based on strengthening global growth, improving export competitiveness, recently approved projects, stabilising currency

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India’s petchems imports to increase

Source: 12th Five Year Plan report, Government of India

• Inflation, policy delays, regulatory logjam, high interest rates curbing growth

• But low per capita consumption an opportunity for petchem players

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Global oil markets: Stable on the surface

34Source: Platts Dated Brent assessments

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Petchems don’t always track crude

Petchem markets are increasingly driven by supply-demand factors

Source: Platts

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Conclusion

• US petchem industry set to revive on shale gas boom• But US will be short of aromatics, may need to import

more• Europe set for consolidation on uncompetitive feedstocks• Middle East diversifying from gas based petchems to

liquids, may meet the US shortfall• China growth moderates, but imports to continue despite

move towards self-sufficiency• India’s growth story yet to unfurl, but demand set to

improve

Thank you!

Prema.Viswanathan@Platts.com