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© 2016 IHS. ALL RIGHTS RESERVED.
OLEFINS AND METHANOL
34th IHS World Methanol Conference
OCTOBER 2016
Steve Lewandowski, Vice President - Olefins
+1 281 752 3230
© 2016 IHS. ALL RIGHTS RESERVED.
Agenda • On purpose olefins production becomes an
important segment of the capacity picture.
• Ethylene operating rates are high globally so on
purpose supply becomes critical to close
balance. Less so the case for propylene.
• Many methanol projects, in China, at different
stages of operations, construction, and
planning. Little activity in rest of the world on
methanol to olefins and derivatives.
• Coal to olefins/derivative margins in positive
territory.
• Merchant methanol based assets are more
challenged on margins. Will olefins move up or
methanol prices/margins have to adapt? 2
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Ethylene
The Market
34th Annual World Methanol Conference/ Oct 2016
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Primary Ethylene Production Routes Feed Mix and Co-products key to cracker Metrics
Natural Gas
Syn Gas Coal
MTO/MTP Ethylene
Propylene
MTO
CTO
Natural
Gasoline
Propane Butanes
Naphtha
Gas Oil Propylene
Pygas
Benzene
Toluene/Xylene
Heavy Aromatics
C5/C6 Non Aromatics
Crude C4
Butadiene
Mixed Butylenes
Fuel Oil
Ethane
Crude
Oil
Refinery
Gas Extraction plant NGL
Fractionator
Ethylene
Methane/Hydrogen
Ethylene
Unit
4
34th Annual World Methanol Conference/ Oct 2016
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0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021N. America S. America CIS & Baltics
W. Europe C. Europe SE Asia
NE Asia Indian Subc. Middle East
Africa Total Capacity Percent from Non Steam Cracker
16-pt - IHS clustered column - 2016
© 2016 IHS Source: IHS
World: Ethylene Production by Region
Global Ethylene Supply
Four main production regions. Non-traditional sources on the rise
Millio
n M
etr
ic T
on
s
5
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Global Ethylene Feed Type (China Break Down) Volumes by type up across the board driven by ethane and other (CTO/MTO)
Ethylene China by Feed
Type, MMTA
2011 2016 2021
Naphtha plus 14.1 15.6 17.9
Ethane - LPG 0.8 1.6 2.9
CTO 0.2 1.6 4.9
MTO 0.0 1.4 2.7
Ethane 36.3%
LPG 14.8%
Other 6.4%
Naphtha 42.6%
2016 Global
© 2016 IHS
Notes: Production = 146 Million Metric Tons
Source: IHS
Ethane 40.1%
LPG 13.3%
Other 8.6%
Naphtha 38.0%
2021 Global
© 2016 IHS
Notes: Production = 175 Million Metric Tons
Source: IHS
6
34th Annual World Methanol Conference/ Oct 2016
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Ethylene Demand and Demand Growth Dominated by Polyethylene
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
20
40
60
80
100
120
PE EO/EG EDC EB Other LAO VAM
GD
P E
las
tic
ity
2015 2020 GDP Elasticity
Ethylene Demand Growth by Derivative
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
7
34th Annual World Methanol Conference/ Oct 2016
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77
79
81
83
85
87
89
91
93
95
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Global Op Rate Global Op Rate (Steam Cracker)
NEA Op Rate WEP Op Rate
Global Ethylene Operating Rates
© 2016 IHS
Pe
rce
nt
Source: IHS
Global Ethylene NAMEPLATE Capacity Operating Rates 2015 peak not seen since early 2000’s, outlook stronger, effective operating rates
are high – are they sustainable at this level?
8
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Ethylene Equivalent Trade Flow
9
2010
2015
2020 *Others: Africa, Indian Sub., CIS & Baltic, Central Europe
North America
South America
West Europe
Middle East
Northeast Asia
Southeast Asia
Others*
4,924 5,331
11,079
-2,583 -2,912 -3,696
-172 -244 -1,563
12,269
17,365 19,628 -7,212
-9,445
-13,470
-457 -318 -806
-7,094
-10,013 -11,080
34th Annual World Methanol Conference/ Oct 2016
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Propylene
The Market
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS
Key Routes to Produce Propylene
Crude Oil
Natural
Gas
Crude
Unit
Nat Gas
Processing
FCC
Unit
Refinery
Grade
Propylene
Polymer/
Chemical
Grade
Propylene
Steam Cracker
Propylene
Splitter
Propane
Dehydrogenation
Methanol-to-Olefins
Methanol-to-Propylene
Coal-to-Olefins
Coal-to-Propylene
Ethane,
Propane,
Butane
Propane
LPG, Naphtha,
Gas Oil
Coal
Nat Gas
34th Annual World Methanol Conference/ Oct 2016
Ethane
© 2016 IHS
0.0
50.0
100.0
150.0
11 12 13 14 15 16 17 18 19 20 21
Stm. Crackers FCC Splitters Dehydro MetathesisMethanol to Olefins Coal to Olefins Coal to Propylene HS FCCOthers On-Purpose Total Capacity
World: PG/CG Propylene Prod. by Feedstock
Source: IHS
Millio
n M
etr
ic
To
ns
© 2016 IHS
Global Propylene Supply by Technology On-Purpose production needed to enhance supply to meet strong demand
By-Product /
Co-Product
12
34th Annual World Methanol Conference/ Oct 2016
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Global Propylene Capacity Growth (China Break Down) PDH and CTO lead the On-Purpose build
China Propylene 2011 2016 2021
Cracker 7,995 9,609 11,253
FCC 5,559 8,097 8,682
PDH - 3,017 6,550
Methanol 10 1,652 3,465
Coal Methanol 422 2,843 6,780
Metathesis 128 233 803
34th Annual World Methanol Conference/ Oct 2016
Cracker 50%
FCC 33%
Methanol 1%
PDH 9%
Coal 3%
Other 4%
2016 Global Supply
© 2016 IHS Source: IHS
Cracker 48%
FCC 31%
Methanol 3%
PDH 8%
Coal 6%
Other 4%
2021 Global Supply
© 2016 IHS Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
Propylene Demand and Demand Growth Dominated by Polypropylene
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
0
0.5
1
1.5
2
2.5
3
3.5
4
0
10
20
30
40
50
60
70
80
GD
P E
las
tic
ity
2015 2020 GDP Elasticity
Propylene Demand Growth by Derivative
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
14
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Propylene Equivalent Trade Flow
15
2010
*Others: Africa, Indian Sub., CIS & Baltic, Central Europe
North America
South America
West Europe
Middle East
Northeast Asia
Southeast Asia
2015
2020
1,912
1,032
1,757
-391 -432 -628
-88
132
-132
1,605
3,024
3,739
-1,534
-2,344
-4,169
Others*
-2,930
-2,408
-229
34th Annual World Methanol Conference/ Oct 2016
1,489 1,066
-263
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China and Methanol
34th Annual World Methanol Conference/ Oct 2016
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Coal-to-Olefin Doubling of Capacity More projects in the planning stage but many have been shelved.
Capacity (C2, C3)
In Production
Under Construction
China
Mongolia
34th Annual World Methanol Conference/ Oct 2016
Production
Construction
Planning
0
5
10
15
20
25
30
Millio
n T
on
s
2015 2018 2025
© 2016 IHS. ALL RIGHTS RESERVED.
Many merchant methanol-based MTO projects But like CTO/CTP, many have been shelved
Capacity (C2, C3)
Ethylene
Propylene
Derivatives
Import Domestic
Under Construction In Production
34th Annual World Methanol Conference/ Oct 2016
Millio
n T
on
s
Production
Construction
Planning
0
2
4
6
8
10
12
2015 2018 2025
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Stranded Western Canada Gas to China Options to serve China demand – Could be any of a number of gas producers.
19
Methanol Plant
Methanol Plant
MTO/PO plant
MTO/PO Plant
Ship
Methanol
Ship Pellets
Stranded gas: Trinidad, Russia, Iran, US, Canada, etc.
34th Annual World Methanol Conference/ Oct 2016
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World Cash Costs US loses some cost advantage but maintains about $400/ton.
0
200
400
600
800
1000
1200
1400
1600
U.S. Ethane NortheastAsia Naphtha
West EuropeNaphtha
China CTO China MTO China MTP China CTP China PDH
2013 2016 2019 SAR @1.75/Mmbtu
World Ethylene Cast Cost Comparison
Source: IHS © 2016 IHS
US
Do
lla
r P
er
Me
tric
To
n
Notes: CTO/MTO : Cash costs based on one ton of total olefin basis (50/50 ethylene/propylene)
20
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Coal-to-Olefins / Polyolefins Outlook on Margins Positive margins for all of the coal-to-olefins units.
21
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013 2014 2015 2016 2017 2018
Int CTO Margins CTO Margins Int CTP Margins CTP Margins
Int and Non-Int Margins
Do
lla
rs P
er
Me
tric
To
n
Source: IHS © 2016 IHS
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Merchant Methanol-to-Olefins and Derivatives Outlook on Margins Will these assets run with negative margins? Product slate for ethylene less PE
driven more by MEG/vinyls. Propylene slate better aligned with global average
22
-400
-300
-200
-100
0
100
200
2010 2011 2012 2013 2014 2015 2016 2017 2018
Int MTO Margins MTO Margins Int MTP Margins MTP Margins
Int and Non-Int Margins
Do
lla
rs P
er
Me
tric
To
n
Source: IHS © 2016 IHS
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
China’s Ethylene Self-Sufficiency Approaches 60%
23
0
20
40
60
80
100
0
10
20
30
40
50
60
11 12 13 14 15 16 17 18 19 20 21
Domestic Derivative Equivalent Demand Net Equivalent Import Self-sufficiency
Million Metric Tons Percent, % China’s Ethylene Balance
© 2016 IHS
Millio
n M
etr
ic T
on
s
Source: IHS
Pe
rce
nt
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
0
20
40
60
80
100
0
10
20
30
40
50
60
11 12 13 14 15 16 17 18 19 20 21
Domestic Derivative Equivalent Demand Net Equivalent Import Self-sufficiency
Million Metric Tons Percent, % China’s Propylene Balance
Source: IHS © 2016 IHS
Millio
n M
etr
ic T
on
s
Perc
en
t
China’s Propylene Self-Sufficiency above 80%
24
34th Annual World Methanol Conference/ Oct 2016
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MTO/CTO Ethylene Derivatives CTO is PE based, MTO more non-PE builds
34th Annual World Methanol Conference/ Oct 2016
Merchant 20%
EDC 10%
Ethylene
Oxide 27%
HDPE 43%
MTO-Ethylene Derivative
© 2016 IHS Source: IHS
EDC 4%
HDPE 96%
CTO- Ethylene Derivatives
© 2016 IHS Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
34th Annual World Methanol Conference/ Oct 2016
CTO/CTP
© 2016 IHS Source: IHS
CTO/CTP- Propylene Derivatives
Polypropylene
100%
Merchant 28%
MTO/MTP- Propylene Derivatives
© 2016 IHS Source: IHS
Propylene
Oxide
3%
Polypropylene
63%
Acrylonitrile
6%
MTO-MTP/CTO-CTP Propylene Derivatives CTO is PP based, MTO aligned with global mix of products.
© 2016 IHS. ALL RIGHTS RESERVED.
0%
5%
10%
15%
20%
25%
30%
35%
10
20
30
40
50
60
Ethane + PDH CTO MTE + PDH Hvy. Nap + PDH GTO
Base Capex Base IRR
US Ethylene Producer Investment Scenarios
Source: IHS © 2016 IHS
$ B
illi
on
IRR
20
18
-2035
Relative Capex / return Returns okay for Methanol chemistry, capital outlay is extremely high.
© 2015 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise
distributed in any form without prior written consent.
C2= 6 units 20 units 6 units 6 units 20 units 6 MMTA
C3= 5.33 units LONG 5.33 units 0.68 units LONG 4 MMTA
27
34th Annual World Methanol Conference/ Oct 2016
© 2016 IHS. ALL RIGHTS RESERVED.
Take Away • Global ethylene gets tight and on purpose methanol
chemistry will play and an important role.
• Global propylene will be better supplied and less
stress on system to close the balance.
• Trade trends for contained ethylene and propylene
trade are completely opposite for China, ethylene
shorter – propylene balanced.
• Margins will be more challenged for methanol plants
on merchant methanol purchases. Will methanol drop
or olefins move up in price to keep margins in the
black?
• Investment cost for methanol chemistry to supply
ethylene/propylene needs should require a risk
premium due to the overall level of investment, even
with a cash cost advantage.
34th Annual World Methanol Conference/ Oct 2016
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