economic impacts of value-added uses of oil and natural gas

ECONOMIC IMPACTS OF VALUE-ADDED

USES OF OIL AND NATURAL GAS

Evar Umeozor, Ph.D.

Senior Research Engineer

June 20, 2020

www.ceri.ca

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Allan Fogwill

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OVERVIEWFounded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors.

Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public.

CERI publications include:

Market specific studies

Geopolitical analyses

Quarterly commodity reports (crude oil, electricity and natural gas)

In addition, CERI hosts a series of study overview events and an annual Petrochemicals Conference.

CORE FUNDERS

FUNDING SUPPORT

IVEY FOUNDATION

IN-KIND SUPPORT

Alberta Energy Regulator | Bow Valley College | CEPA Foundation

JWN Energy | Northern Alberta Institute of Technology

Petroleum Services Association of Canada

S.M. BLAIR FAMILY FOUNDATION

AGENDA

Background

Methodology

Results

Conclusions

Questions?

4

BACKGROUND – Global Feedstocks

5

0

100

200

300

400

500

600

700

2015 2020 2025 2030 2035 2040 2045 2050

Mto

e

Year

Coal Oil Gas Biomass

Source: Data by IEA, Figure by CERI

BACKGROUND – Regional Feedstocks

6

71%

11%

66%

37%

11%

78%

15%

84%

56%

18%

11%

19%16%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

North America Europe Middle East China Other Asia

% o

f F

eedsto

ck u

sed

Ethane Naphtha Other

Source: Data by Deloitte, Figure by CERI

BACKGROUND – Feedstocks and Products

7

Source: IEA 2018

BACKGROUND – Study Focus

8

Feedstock Product Assessment Methods

- Gas-based

- Oil-based

- Gas-based (Natural

gas): Ammonia,

Methanol

- Oil-based (Naphtha):

Ethylene, Propylene

- Process (amounts of

feedstocks, products and

GHG emissions)

- Microeconomic (FOB

supply cost)

- Macroeconomic

(employment,

salary/wage, tax revenue,

GDP impacts)

METHODOLOGY – IPEM Workflow

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METHODOLOGY – Business Cases & Attributes

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Attribute Reference Business Case

(RBC)

Competitive Business Case

(CBC)

Facility Size Smaller Bigger

Process Efficiency Lower Higher

Project Funding Debt Equity

Carbon Tax Yes No

METHODOLOGY – Product Supply Scenarios

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• Business As Usual (BAU) Scenario;

𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝐷𝑒𝑚𝑎𝑛𝑑 + 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦 + 𝐼𝑚𝑝𝑜𝑟𝑡𝑠

• Medium Supply Growth (MSG) Scenario;

𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝐷𝑒𝑚𝑎𝑛𝑑 + 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦𝐵𝐴𝑈 + 𝐼𝑚𝑝𝑜𝑟𝑡𝑠𝐵𝐴𝑈 + 1% 𝐺𝑙𝑜𝑏𝑎𝑙 𝐸𝑥𝑝𝑜𝑟𝑡 𝑀𝑎𝑟𝑘𝑒𝑡

• High Supply Growth (HSG) Scenario;

𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝐷𝑒𝑚𝑎𝑛𝑑 + 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑆𝑢𝑝𝑝𝑙𝑦𝐵𝐴𝑈 + 𝐼𝑚𝑝𝑜𝑟𝑡𝑠𝐵𝐴𝑈 + 3% 𝐺𝑙𝑜𝑏𝑎𝑙 𝐸𝑥𝑝𝑜𝑟𝑡 𝑀𝑎𝑟𝑘𝑒𝑡

RESULTS – Supply Costs

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0

200

400

600

800

1000

1200

1400

1600

1800

AB SK NL AB SK NL

Reference Business Case (RBC) Competitive Business Case (CBC)

$/t

Ammonia Ethylene Methanol Propylene

RESULTS – Cash Costs

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0

400

800

1,200

1,600

Am

mo

nia

Me

tha

nol

Eth

yle

ne/P

ropyle

ne

Am

mo

nia

Me

tha

nol

Eth

yle

ne/P

ropyle

ne

Am

mo

nia

Me

tha

nol

Eth

yle

ne/P

ropyle

ne

AB SK NL

$/t

RBC CBC

RESULTS – Carbon Tax (Additional to Costs)

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37.36

31.93

44.74

39.64

33.03

27.42

44.74

39.64

0

10

20

30

40

RBC CBC RBC CBC RBC CBC RBC CBC

Ammonia Ethylene Methanol Propylene

$/t

RESULTS – Cash Flows and Pay Back Periods

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RESULTS – Cash Flows and Pay Back Periods

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RESULTS – Regional Price Competitiveness

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0

100

200

300

400

500

600

700

North America Europe Asia RBC CBC

Price

Ra

nge

(U

S$

/t)

Ammonia Price


18

0

100

200

300

400

500

600

700


Price

Ra

nge

(U

S$

/t)

Ammonia Price

$37

$32


19

0

50

100

150

200

250

300

350

400

450

500


Price

Ra

nge

(U

S$

/t)

Methanol Price


20

0

50

100

150

200

250

300

350

400

450

500


Price

Ra

nge

(U

S$

/t)

Methanol Price

$33

$27


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0

200

400

600

800

1000

1200

1400

1600

1800


Pri

ce R

ange

(U

S$/t

)

Ethylene Price


22

0

200

400

600

800

1000

1200

1400

1600

1800


Pri

ce R

ange

(U

S$/t

)

Ethylene Price

$45

$40


23

0

200

400

600

800

1000

1200

1400

1600

1800


Pri

ce R

ange

(U

S$/t

)

Propylene Price


24

0

200

400

600

800

1000

1200

1400

1600

1800


Pri

ce R

ange

(U

S$/t

)

Propylene Price

$45

$40

RESULTS – Economic Impacts of Scenarios

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Economic Impacts

BAU

Total GDP Increase

(USD Million)

Total Tax Increase

(USD Million)

Jobs created Total Pay

Increase

(USD Million)

Methanol 2020 - - - -

2030 5.69 0.88 16 0.46

2040 44.30 9.30 64 0.75

2050 107.02 28.27 103 1.21

Ammonia 2020 - - - -

2030 68.99 4.70 199 2.04

2040 261.22 20.49 376 3.83

2050 574.02 48.96 551 5.81

Ethylene 2020 - - - -

2030 134.10 53.41 386 4.27

2040 604.83 280.04 870 10.21

2050 1,528.16 777.57 1,466 18.35

Propylene 2020 - - - -

2030 15.77 5.38 45 0.61

2040 79.67 33.09 115 1.37

2050 204.22 96.83 196 2.50


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Economic Impacts

MSG

Total GDP Increase

(USD Million)

Total Tax Increase

(USD Million)

Jobs created Total Pay Increase

(USD Million)

Methanol 2020 4.01 0.62 115 0.63

2030 50.34 10.90 145 0.97

2040 131.79 35.50 190 1.57

2050 262.99 82.57 252 2.52

Ammonia 2020 7.45 0.37 214 1.17

2030 122.33 8.31 352 2.69

2040 357.91 28.05 515 4.54

2050 718.59 61.18 689 6.59

Ethylene 2020 26.63 8.31 766 4.17

2030 426.14 171.52 1,226 9.40

2040 1,288.35 593.25 1,854 17.25

2050 2,748.08 1,384.92 2,636 28.00

Propylene 2020 15.08 4.76 434 2.36

2030 194.07 76.83 559 3.80

2040 513.16 231.80 738 6.13

2050 1,019.11 504.83 978 9.62


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Economic Impacts

HSG

Total GDP Increase

(USD Million)

Total Tax Increase

(USD Million)

Jobs created Total Pay Increase

(USD Million)

Methanol 2020 6.39 1.23 184 1.00

2030 80.03 20.29 230 1.54

2040 208.95 62.80 301 2.48

2050 415.99 140.99 399 3.98

Ammonia 2020 14.91 0.85 429 2.34

2030 200.35 14.35 577 3.97

2040 522.11 41.95 751 5.96

2050 977.99 84.34 938 8.15

Ethylene 2020 48.62 15.66 1,399 7.62

2030 680.57 275.87 1,959 13.98

2040 1,891.42 871.36 2,722 23.52

2050 3,828.88 1,924.97 3,673 36.59

Propylene 2020 26.90 8.71 774 4.22

2030 336.63 135.50 969 6.46

2040 868.79 396.73 1,250 10.10

2050 1,693.17 844.49 1,624 15.56

CONCLUSIONS

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• Tariffs on imports is a major driver of whether to import or produce locally (relatively higher in Asian countries)

• In terms of global trading opportunity, decreasing order would be: methanol, ethylene, propylene, and ammonia

• Lower emissions transportation is a major driver of methanol demand growth

• Many countries are going for self-sufficiency in ammonia production due to its ties to agricultural sector for fertilizer production

• A lot of countries with negative olefins trade balance, indicate potential export opportunities

• Export-focused olefins production might need to be in polymer form for ease of movement to destination markets

• Oil-based pathways may not be viable in Canada, still crude oil access to market needed and future refinery-petrochemical investments integration maybe way forward

QUESTIONS?

33

Please submit your text questions and comments using the Questions panel.

A recording of the presentation will be sent to you following the event.

UPCOMING EVENTS

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CERI 2020 Petrochemical ConferencePetrochemicals and the Energy Evolution

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THANK YOU

Canadian Energy Research Institute

ceri_canada

Visit www.ceri.ca for the latest research

Addendum – General Model Assumptions

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Input Value

OPEX inflation 2%

Feedstock price inflation 2%

Discount rate 10%

Interest rate 3.5%

Utilization factor 70% (Year 1), 80% (Year 2), 95% (Other)

CAPEX allocation 20% (Year 1), 50% (Year 2), 30% (Year 3)

Construction period 3 Years

Operating period 27 Years

Corporate tax AB (11%, 10%, 9%, 8% - all other years), SK (10%), NL (15%), Canada (15%)

Addendum – Canadian Refining Capacity

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479

67

318

130

392402

130

0

100

200

300

400

500

600

Alberta British Columbia New Brunswick Newfoundland andLabrador

Ontario Quebec Saskatchewan

Capacity M

b/d

Addendum – Major Methanol Importers

32

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Tho

usa

nd

USD

Imported value in 2015 Imported value in 2016 Imported value in 2017 Imported value in 2018 Imported value in 2019

Addendum – Major Ammonia Importers

33

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

India USA SouthKorea

Morocco China Belgium Turkey Germany Ukraine Taipei,Chinese

France Mexico Norway Thailand Spain

Tho

usa

nd

USD


Addendum – Major Ethylene Importers

34

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Tho

usa

nd

USD


Addendum – Major Propylene Importers

35

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Tho

usa

nd

USD

Imported value in 2015 Imported value in 2016 Imported value in 2017

Imported value in 2018 Imported value in 2019

economic impacts of value-added uses of oil and natural gas

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