opportunities and challenges from new chemical and plastics investment · 2017-04-11 ·...
TRANSCRIPT
Opportunities and Challenges from New Chemical and Plastics Investment
LSU Energy Summit26 October 2016
Martha Gilchrist MooreSr. Director, Policy Analysis and Economics
Shifting Competitive Dynamics and New Chemicals Capacity
New Investment in Chemical and Plastics Capacity
Exports and Transportation
The Chemical Industry is Energy-Intensive
Source: ACC analysis
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Chlorine/Caustic SodaSodium Carbonate (Soda Ash)
AcrylonitrileAdipic Acid
AnilineBenzene
Butadiene (1,3‐)Cumene
EthylbenzeneEthylene
Ethylene Dichloride (EDC)Ethylene GlycolEthylene Oxide
MethanolPhenol
PropyleneStyrene
Terephthalic AcidVinyl Acetate
Polyethylene (LDPE)Polyethylene (LLDPE)Polyethylene (HDPE)Polypropylene (PP)
Polystyrene (PS)Polyvinyl Chloride (PVC)
Anhydrous AmmoniaUrea
Energy Costs Other Costs
Fuel, Power and Feedstock Costs as a Percent of Total Costs
Surging Ethane Supply
0
200
400
600
800
1,000
1,200
1,400
1,600
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Gulf Coast Oklahoma Appalachia Other
Thousand Barrels per Day
Sources: US Energy Information Administration, ACC analysis
NA Petrochemical Competitiveness Depends on Feedstock Spread
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.0099 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
16 Y
TD
Spread between Naphtha and Ethane Ethane Naphtha
$/gallon
Sources: US Energy Information Administration, IHS Chemical Week, ICIS
U.S. Chemical Industry Global Cost AdvantageRelative Position of U.S. (2005‐2015)(Petrochemical Production Costs)
2015
PRO
DU
CTIO
N C
OST
S Es
tim
ated
* (
$/lb
.)
GLOBAL SUPPLY(billion lbs.) *Based on estimates from
best available data
HIGH
LOW
MIDDLEEAST
UNITED STATESIN 2015
CHINA
WESTERNEUROPE
OTHERNORTHEASTASIA
RELATIVEPOSITION OF UNITEDSTATESIN 2005
Lower US Manufacturing Costs: Case of High Density Polyethylene (HDPE)
US GulfCoast(2005)
US GulfCoast(2015)
NorthwestEurope(2005)
NorthwestEurope(2015)
MiddleEast
(2005)
MiddleEast
(2015)
NortheastAsia
(2005)
NortheastAsia
(2015)
Raw Materials Utilities Direct Costs Other Costs
In 2005, U.S. is among highest cost producers globally because of high natural gas costs in U.S.
$ per Metric Ton
Lower US Manufacturing Costs: Case of High Density Polyethylene (HDPE)
US GulfCoast(2005)
US GulfCoast(2015)
NorthwestEurope(2005)
NorthwestEurope(2015)
MiddleEast
(2005)
MiddleEast
(2015)
NortheastAsia
(2005)
NortheastAsia
(2015)
Raw Materials Utilities Direct Costs Other Costs
$ per Metric Ton By 2015, US among the low cost producers globally, but because of falling oil and naphtha prices…a
shallower (less steep) cost curve
Oil-to-Gas Ratio: A Proxy for U.S. Petrochemicals Competitiveness
Oil price declines have created some uncertainty about future
Current ratio remains very favorable for U.S. competitiveness
When the ratio is above 7, U.S. competitiveness is enhanced.
Sources: EIA, ICE, NYMEX
New Investment in Chemical and Plastics Capacity
North American Ethylene Capacity
30
35
40
45
50
2005 2010 2015 2020 2025
Million metric tons
First Wave
Second Wave
Source: ICIS
Net Ethylene Capacity Additions by Region
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000-05 2005-10 2010-15 2015-20 2020-25
Other Asia-Pacific
Northeast Asia
Africa and Middle East
Eastern Europe
W. Europe
Latin America
North America
Thousand metric tons
Source: ICIS
ACC Database of New Chemical Industry Investment in the U.S.
• Building began as early as 2010 with small projects to increase ethane utilization
• As of mid-October, ACC is tracking 277 projects valued at $168B
• 61% of projects are foreign or include a foreign partner
• Additional projects in Canada and Mexico
• In addition, ACC is tracking more than 500 plastic processor projects
12%
34%47%
7%
Complete Under Construction
Planned Delayed/ Uncertain
Cumulative Announced Chemical Industry Investments from Shale Gas
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
0255075
100125150175200225250275300
Total Investment Number of Announced Projects
$Bil# of Projects
Source: ACC analysis, December 2010 – June 2016
Geography of Shale-Advantaged Chemical Investment
* Each green pin represents one or more announced chemical industry investments
Shale Advantage Driving Capacity Expansion Across Many Products
Ethane, Propane and NGL Feedstock• Ethylene – capacity expected to grow by half
• Ethylene Derivatives – PE, vinyls, MEG, EO, etc.
• Ethlyene cracker co-products – on-purpose propylene (PDH, MTP), butadiene
• Propylene derivatives - polypropylene
• Complementary products, i.e., chlor-alkali for PVC, industrial gases, etc.
Methane Feedstock• Methanol and derivatives
• Nitrogeneous fertilizers – ammonia, urea and derivatives (AN, UAN)
Demand Driven Products • Chemistry used in hydraulic fracturing, drilling, and oil/gas production
New Investment in Chemicals and Plastics
$0$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000
$0$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000
00 02 04 06 08 10 12 14 16
Chemicals (left axis) Plastics and Rubber Products (right axis)
$ million (3 month average annual rate)
Source: Census Bureau
Investment by Industry Segment*
Chlor-Alkali and other Inorganics
2%
Fertilizers20%
Bulk Petrochemic
als60%
Plastic Resins11%
Other7%
Source: ACC analysis*Some large cracker projects with derivatives projects not separately broken out
Shale-Driven Benefits
Other Benefits of U.S. manufacturing• Increased consumer desire for “Made in the USA” products
• Rising costs (wages) in China
• Reduction of transportation/logistics costs
• Manufacturing proximity to customers, supply chain
Industry Investments & Plastics Processors
• 70% of announced chemical industry investment is bulk petrochemicals and plastic resins.
• Increased resin capacity increased processing capacity
Plastics Processor Projects
Source: Plastics News, ACC analysis
NOTE: The data is based on publicly available information, which is believed to be accurate, but have not been independently verified by ACC.
• ACC is tracking over 500 plastics processor projects.• 30% New Construction• 70% Expansions
— Adding capacity— New lines— New equipment
• Since June 2012, plastics processor projects have been announced by over 400 companies in over 40 states.
New Construction
Expansions
Announced Plastics Processor Projects by State
Announcements since June 2012Source: Plastics News, ACC analysis
NOTE: The data is based on publicly available information, which is believed to be accurate, but have not been independently verified by ACC.
Updated 8/1/16
Note: 1 project has been announced in AK; none in HI (not shown)
Announced Projects
40+
30‐39
20‐29
10‐19
5‐9
1‐4
0
Investment across markets:
• One-third in Consumer & Institutional Products and/or Transportation markets
— Medical/Healthcare and Automotive are large subsets
• One-fifth in Packaging markets
• Various other markets also experiencing growth
Consumer and
Institutional Products
Transportation
Building & Construction
Electrical &Electronic
Packaging
Industrial/Machinery
NOTE: This chart is intended to be a proportional representation, based on ACC analysis and publically available information, of plastics processor projects by Major Markets. The PIPS definitions for Major Markets were used to develop this chart.
Healthcare/Medical Products
Automotive
Impact on Major Markets
Exports and Transportation
50
70
90
110
130
150
1987 1992 1997 2002 2007 2012 2017 2022
United States Western Europe Japan
U.S. Captures Market Share Away From Western Europe…
Chemistry Production (2012=100)
Sources: Eurostat, Federal Reserve, METI, ACC analysis
Where Will New Production Go?
• Olefins generally move via pipeline. The majority expected to go to domestic derivatives producers, but exports will also increase
• Derivative products, i.e., plastic resins easier to transport
• About half of plastic resins expected to be exported to markets in Latin America, Asia, and Europe
• Port of Houston will see largest increase in outbound volumes creating challenges to upgrade and expand infrastructure and networks
• Panama Canal expansion may shift shipping patterns and expand opportunities for exports to Asia
Much of the New Capacity is Export-Oriented
• U.S. trade surplus for the selected chemicals increases from $19.5 billion to $43.3 by 2030.
• Trade deficit in C1 chemistry shrinks, but continues for aromatics
• C2 trade balance expands in just about every regions.
• C3 derivative exports recover after PDH/MTP projects come online.
Source: Nexant
Key Investment Risks for Chemicals and Plastics
• Workforce development• Chemical plant operations
personnel, engineers, etc.• Construction trades and labor
• Shortages of key equipment, etc.
capital cost escalation
• Transportation and Logistics
• Unpredictable energy dynamics
• Market access/trade exposure
• More stringent environmental and other regulations
• Market imbalances created by variations in regional supply vs. demand growth and government policies
Transportation Challenges
• Port congestion in Houston Ship Channel may lead to alternate routes (i.e., Charleston) or greater use of intermodal
• Container imbalance along Gulf Coast• Rail car loadings will grow significantly - rail congestion
expected to worsen, esp. Houston• Trucking capacity constrained by driver shortages, etc.• Expansion of packaging, warehousing capacity
