MEG: Will Shale Gas &
Coal Based Projects Solve
the Supply Crunch
Ashish Pujari, Sr. Director, Aromatics & Fibers
August 5, 2014
Mumbai, India
• Supply – Demand Forecasts
• Olefins & Shale Gas
• American Construction Boom
• Coal & China
• Conclusions
Agenda
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Global Net Annual Capacity Change Global Demand Change
Global Net Changes – Capacity & Demand
Million Metric Tons
Saudi Operations issues are expected to
reduce available capacity
• Multiple extended shutdowns in
2014 -2015 for reactor replacement
• Rumored to be running at reduced
rates at 4-5 units, very high rates at
the rest to fill the gap
• They have managed the situation
effectively
We assume 400 Kta lost production each
year in 2014 - 2015. Increased risk of
unplanned shutdowns should not be
ignored
Global Supply Chain May Impact Supply
Significant uncertainty over Chinese
coal-based capacity
• Six units using Coal to MEG (CTM)
oxalate-ester technology
• Over 1 million MT capacity on-line,
and at least 2 million MT more in
the works
• Quality getting better, but still not
accepted by polyester fiber
• Unproven logistics capability –
can they deliver on-spec, on time?
We assume technology will be fully
successful with high operating rates by
2016
Nameplate Capacity Can Mislead
0
20
40
60
80
100
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Demand Total Capacity Operating Rate
MEG, Million Metric Tons Operating Rate, Percent
89%
Result: Stressful MEG Operating Rates!
• Supply – Demand Forecasts
• Olefins & Shale Gas
• American Construction Boom
• Coal & China
• Conclusions
Agenda
-12.0
-6.0
0.0
6.0
12.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Total Asia Others Middle East West Europe North America Annual Demand Increase
Million Metric Tons
Ethylene Capacity Additions
Chemical Projects Leveraging Local Natural
Resources Gas/Coal/Oil
Requires
Infrastructure
and policy
definition
Needs
infrastructure
and
government
support Focus is
primarily
LNG
LPG/MTO
investigations early
but promising
Active Projects Reserve potential
Numerous
shale and LPG
based projects.
Potential for
MTO
Continued
gas, liquid &
LPG based
investing
Numerous
CTO / MTO
projects
underway
Polyethylene 57%
EO/EG 12%
EDC 14%
Others 17%
2013 N. American Ethylene Demand = 31.1 Million Metric Tons
EO/EG Share of Ethylene Demand in North
America
Announced Polyethylene Requirement
65%
EOEG 1%
Other 22%
Undeclared 12%
Total New North America Ethylene Capacity = 12.4 Million Metric Tons
Great Expectations – The Time Is Right For
EOEG
0
200
400
600
800
1,000
1,200
1,400
C2 Integrated - Naphtha C2: Integrated - Ethane C2: Integrated - Ethane
MEG, US Dollars Per Metric Ton
2013 Asia Spot Price
Asia North America Middle East
The Shale Boom Promises Much for NAM
Cash Costs
Cash Costs
Cash Costs
• Huntsman – Port Neches, TX
− Re-purposing a PD Glycols reactor
− 160 kta MEG + DEG in 2015 (no HPEO)
• Shell – Geismar, LA; Qatar
− Not official; probable 200/275 kta EO/MEG 2017 at Geismar
− Announced 2 X 700kta MEG (OMEGA) Qatar 2018 – 2019
− Converting EGS Singapore to all-HPEO
• Ineos - Battleground, TX -Rumors say MEG only, HPEO “maybe later”
-Delayed from 2015 original forecast; 2017 possible
• Sasol – Lake Charles, LA
− Back-integration for ethoxylates; Engineering underway
− Estimate 100kta HPEO, 300kta MEG 2018
Dramatis Personae – Who Shall Build?
• Formosa Plastics Corp – TX or LA?
−Have announced 2 new crackers, nothing official on EOEG
−Low cost MEG for their global polyester business
• MEGlobal (Dow & PIC) – Freeport or Kuwait?
−MEG is their first name
−Need new capacity to retain strategic relevance
• Axiall/Lotte JV – Louisiana 2018?
−Recent JV announcement, exploratory effort
−Not obvious partnership, but some synergies
• Marley’s Ghost?
−Possible surprise visitor(s)
Dramatis Personae – Who Might Build?
• Supply – Demand Forecasts
• Olefins & Shale Gas
• American Construction Boom
• Coal & China
• Conclusions
Agenda
The Wave Keeps Building Change in outlook since last year
0
5
10
15
20
25
2013 2015 2017 2019 2021 2023
Mill
ion
met
ric
ton
s
Capacity Addition
2013
2014
39% increase
0 5 10 15
Methanol
Ethylene
Ammonia
PE
Propylene
EDC
PVC
Million metric tons
Top Capacity Additions by 2020
2013 Forecast
2014 Forecast
The Wave Crests in 2017 but…
• New players continue to enter the water
• Others remain on shore waiting to see how good the
surf is
• Feedstock availability continues to expand keeping
pricing attractive
• This wave has the potential to keep building
Labor Shortage Pushing Costs UP
• Skilled and unskilled
labor represent 35% of
project cost
• Add engineering and
project management
total labor related costs
total 46%
• Based on this it is easy
to see why this is a
major concern
9%
19%
16%
8% 11%
27%
10%
TYPICAL PROJECT COST BREAKDOWN
Eng & PM Skilled Labor Un Skilled Labor
Bulks & Civil Steel & Pipe Equipment
Elec & Inst.
What Companies Are Doing
• Current projects will
require 50,000 skilled
labors in 2015
• Is there enough time
for training and co-ops
to help?
• Project timing critical
0 20 40 60 80
Provide co-op programs
Train specific competencies
Retain key talent
Increase college recruiting
Using nontraditional labor pools
Poach from others
Retain retiring employees
Percent
Skilled Labor is a Major Concern
• Key concerns
– Project foremen
– Welders
– Pipefitters
– Electricians
• Rates are rising
• Companies are being
proactive
• Higher rates encourage
relocations 0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Ind
ex 2
00
5 =
1.0
USGC Skilled Labor Index Welders Pipefitters Electricians
Unskilled Labor Issues
• Rates have not
increased significantly
• Availability is higher
• Opportunities to
develop skills
encourage loyalty
0.9
1.0
1.1
1.2
1.3
1.4
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Ind
ex 2
00
5 =
1.0
US Labor Cost
Unskilled Skilled
EPC’s Backlogs* Have Significant Increased
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
0
10
20
30
40
50
60
70
80
90
100
20
00
20
01
20
02
20
03
20
03
20
04
20
05
20
06
20
06
20
07
20
08
20
09
20
09
20
10
20
11
20
12
20
12
20
13
20
14
Year
s R
eve
nu
e
$ B
illio
n
$Billion Years
* Selected public companies
Equipment Lead Times
• Some increases in lead
times evident
• Many long lead time items
already ordered
• Some items could pose
issues
• LNG project equipment
has not been ordered
0 25 50 75
Multistage Pumps
Compressors
Atmospheric Vessels
Pressure Vessels
Heat Exchangers
Furnaces
Incinerators
Gas Fired Turbines
Transformers
Switchgear
Motor Control Centers
Control Valves
Lead Times (weeks)
2013Q4 2013Q3
Project Cost Escalation Outlook
50
100
150
200
250
300
2000 2005 2010 2015 2020
Ind
ex 2
00
0 =
10
0
North American Index
50
100
150
200
250
300
350
2000 2005 2010 2015 2020
Ind
ex 2
00
0 =
10
0
Market Index
Labor
Equipment
Steel
EPM
Permitting
• Many projects are
awaiting permits –
approvals taking up to 16
months
• Texas GHG permit
situation adds new
unknown.
• Environmental groups
impacting process
Longer Project Cycles
• The wave will continue to build
– New project will be added
• Project delays can be anticipated
– Permitting is biggest risk here
• Project costs will increase from current levels
– Labor is the main risk factor
– Average project cost increases generally below levels
anticipated by many
• Modularization can help mitigate delays and
labor risks
• Supply – Demand Forecasts
• Olefins & Shale Gas
• American Construction Boom
• Coal & China
• Conclusions
Agenda
Non Conventional Capacity Share Increasing
Rapidly in China
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Conventional Selective EO Hydration
METEOR (Dow Trademark) OMEGA (Shell Trademark)
Bio Ethanol – Ethylene – EO Glycerine/Sorbitol Hydrogenolysis
Coal-Based Oxalate Ester Methanol - Ethylene - EO
Coal to MEG Process Flow
Coupling Reactor
Regeneration
Reactor
Purified Syngas
2CO 2NO
2RONO
½ O2
Make-up ROH
Make-up NO
4H2
(CH2OH)2
(MEG)
2ROH
H2O
(COOR)2
Hydrogenation
Reactor
GEM Chemical
+Tongliao,150 KTA
Startup Dec 2009
+Tongliao 2nd Phase: 2015-2016
400 KTA
Henan Yongjin Chemical
Luoyang, 200 KTA
Sinopec Hubei Fertilizer
200 KTA
Startup May 2014
Shanxi Xiangkuang Coal Chemical
Signed EPC, 200 KTA
Startup 2015
Hualu Henshen Chemical
Pilot Plant, 50 KTA
Aug. 2012
Henan Yongjin Chemical
Xingxiang, 200 KTA
Startup July, 2012
Henan Yongjin Chemical
Puyang, 200 KTA
Startup Aug. 2012
Henan Yongjin Chemical
Anyang,200 KTA
Startup Jan. 2013
Inner Mongolia Xinhang Energy
Signed EPC in 2012, 200 KTA
Startup 2015
Project Locations and Status
Xinjiang Tianye Chemical
Pilot Plant, 50 KTA
Jan 2013
Qianxi Coal Chemical
Signed EPC, 300 KTA
Startup 2015
GEM Tongliao
On-stream Project
High-probability Project
Medium/Low-probability Project
Coal mining Area
Main Polycondensate Base
• FRISM (Fujian Research Institute on the Structure of Matters, Chinese Academy of Sciences)
• SRIPT (Shanghai Research Institute of Petrochemical Technology, Sinopec)
• Ube / Highchem • Wuhuan Engineering
Major Coal to MEG Technologies
• Ube is a pioneer of syngas to MEG process. Ube / Highchem’s new technology claims to be highly competitive.
• FRISM, SRIPT (Sinopec), and Wuhuan provide competing indigenous technologies.
• MEG selectivity in hydrogenation reaction is the key to economics and product quality.
• Some side reaction products such as 1,2 butanediol are difficult to separate.
• FRISM process continues to experience product quality issues in the first four plants.
• However, the issues can possibly be overcome with better control of reaction conditions, improved catalyst with better MEG selectivity, and better purification technology.
Status of Coal to MEG Technologies
Assumption:
Process
Technologies
− Oxalate Ester
Route - Fujian
Research Institute
of Structured
Matters
Plant
− Integrated from
coal to MEG
− Modern design with
200 KTA MEG
Feedstock
− Thermal Coal
(5,000 kcal/kg) at
local market price
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000 RMB per Metric Ton
Inner Mongolia Xinjiang Henan
Margin FD Cost TFC VC (Exclude FD)
Coal to MEG Cash Cost and Margin – Base Case
Coal to MEG Cash Cost Comparison
Cumulative MEG Capacity (Million Tons)
2012 EOEG Industry Cash Costs
Inner Mongolia
WEP Avg.
NEA Avg.
NAM Avg.
MDE Avg.
0
200
400
600
800
1000
0 5 10 15 20 25
Dollars per Metric Ton
Total Cash Cost
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Xinjiang
Henan
• Supply – Demand Forecasts
• Olefins & Shale Gas
• American Construction Boom
• Coal & China
• Conclusions
Agenda
Non Conventional Supplies Essential to Avoid
Shortage
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
North America West Europe Middle East
Indian Subcontinent Northeast Asia Southeast Asia
Demand
Change in Capacity, Million Metric Tons
Next wave of new EO-EG capacity online
2015-2018
Next committed investments:
• Huntsman 115/160 Kta EO/MEG Texas
2015
• Shell 1.5 million tons MEG Qatar, 2017-
2018
• Sadara HPEO & Derivatives, 2016
• Reliance 550/800 kta EO/ MEG India 2016
USA Outlook - three new units possible by
2018/19
China – high MEG prices will encourage
continued efforts to prove Chinese Oxalate
Ester technology.
It Is A Far, Far Better Thing…
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