vma market outlook workshop / august 2017 global ... · confidential. © 2017 ihs markittm. all...
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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?
Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market - Houston, TX [email protected]
Presented to:
VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Addressing strategic
challenges with
interconnected
capabilities
2
Resources
Financial
Consolidated Markets
& Solutions
Transportation
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VMA MARKET OUTLOOK WORKSHOP / August 2017 3
Best-in-Class
Brand Names
Brought together to form the most comprehensive
single source for global data & information, key
industry events, market insights, analysis &
forecasts, technology & analytical platforms, and
consulting services
3
Oil Markets / Midstream / Downstream / Chemicals
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Core Segments within Energy & Natural Resources
4
• Country E&P Terms and
Above-Ground Risk
• Plays and Basins
• Costs and Technology
• Companies and
Transactions
UPSTREAM
• Global Gas
• Coal
• Power and Renewables
• Regional Gas, Power
and Coal Markets
POWER, GAS, COAL
& RENEWABLES
• Long-Term Planning & Scenarios
• Climate Strategy
• Curated Content
• Integrated Energy Events & CERAWeek
ENERGY-WIDE PERSPECTIVES
• Crude Oil Markets
• Midstream Oil and
Natural Gas Liquids
• Refining and Marketing
• Company Strategies and
Performance
OIL MARKETS, MIDSTREAM,
DOWNSTREAM & CHEMICAL
• Chemical Week and
Market Daily Service
• Base Chemicals
& Plastics
• Specialty Chemicals
• Costs & Technology
• Company Benchmarking
& Analytics
Our core capabilities serve our energy and chemical customers across the value chain
through focused data and insight subscriptions as well as consulting.
© 2017 IHS Markit
VMA MARKET OUTLOOK WORKSHOP / August 2017
© 2017 IHS Markit
VMA MARKET OUTLOOK WORKSHOP / August 2017
• Transportation
• Consumer products
• Packaging
• Construction
• Recreation
• Industrial
• Medical
• Pharmaceutical
• Personal care
• Textiles
• Electronics
• Aerospace
• Business equipment
Oil
Gas
Coal
Minerals
Renewables
Customers
Olefins
Aromatics
Chlor-alkali
Syn-gas
Ag-chems
Commodities
Differentiated
commodities
Technical
specialties
Chemical industry value chain
Formulated
products /
performance
materials
Natural
resources
Chemical
intermediates
Base
chemicals
CHEMICALS ENABLE MODERN LIVING
Polymers & plastics
Engineering resins
Synthetic fibers
Paints and coatings
Adhesives/sealants
Water treatment
Flame retardants….
5
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VMA MARKET OUTLOOK WORKSHOP / August 2017
• Energy markets will see natural gas in North
America significantly advantaged versus crude oil
• Global economy will grow at 2.5-3.0 % leading to
annual demand growth of:
❖Ethylene ~ 5.5 to 6 million tons
❖Propylene ~ 4 to 4.5 million tons
❖Methanol ~ 3.5 to 4 million tons
• North America will remain an attractive region for
base chemical and derivatives capital investments
• Investments continue in China and Middle East at
a more moderate pace
Petrochemical Market OutlookAs global demand grows, North America will continue to
attract new investments
Ethylene
Propylene
Methanol
6
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Energy fundamentals impact chemical industry investment decisions,
short term demand growth
• Energy trends impact regional competitiveness, industry
profitability, and ultimately drive investment decisions in the global
petrochemical industry
• Advantaged investments in North America, Middle East and China
see lower margins in low crude oil market
• IHS Markit Vice Chairman Daniel Yergin observes that there are
two major forces currently operating on the global oil market,
rebalancing and recalibration.
• The North American natural gas market is becoming more
integrated, complex, and globally connected, subject to
demand uncertainties in a currently oversupplied world market.
• Crude oil (energy) “at the extremes” impacts demand for
chemicals and plastics. At the extremes, energy trends will both
destroy and stimulate demand
7
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Combination of high crude prices and stable gas is attractive for North America
chemical investments, based on natural gas and natural gas liquids
0
3
7
10
13
17
20
0
20
40
60
80
100
120
00 02 04 06 08 10 12 14 16 18 20 22 24
USGC Natural Gas
Brent Crude
Global crude oil vs. USGC natural gas
Source: History: Argus (crude), Intelligence Press (gas); Forecast by IHS Markit Energy
$/B
arr
el,
Cru
de
$/ M
MB
tu, N
atu
ral G
as
Source: IHS Markit
Lower longer case
8
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Demand growth for chemicals & plastics directly linked to global economic growth
• Basic chemicals and plastics represent the
key building blocks for durable and non-
durable consumer goods
• Multiple years of positive economic growth
results in acceleration of base chemical
demand growth
• Aligning capacity additions with demand
growth is the balance producers are seeking
• Economic contractions/stimulus causing
supply-chains to respond rapidly (inventor de-
stock / re-stock).
9
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Economic growth in advanced countries and emerging markets are key drivers to
petrochemical demand
2014 2015 2016 2017 2018 2019
World 2.8 2.8 2.5 3.0 3.2 3.1
USA 2.4 2.6 1.6 2.3 2.7 2.3
Canada2.6 0.9 1.4 2.7 2.3 2.3
Eurozone1.2 1.9 1.7 2.0 1.8 1.7
UK 3.1 2.2 1.8 1.4 1.0 1.2
China 7.3 6.9 6.7 6.6 6.3 6.1
Japan 0.2 1.2 1.0 1.3 1.0 0.7
India 6.9 7.7 7.0 7.3 7.4 7.6
Brazil 0.5 -3.8 -3.6 0.2 1.7 3.5
Russia 0.8 -2.8 -0.2 1.5 2.1 1.8
-4
-2
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
World Advanced countries Emerging markets
Real GDP, Annual % Change
Source: IHS Markit © 2017 IHS Markit
Annual % Change in GDP
10
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Chemical demand growth (vs GDP) has been decelerating over time; forecast to
continue
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990-1999 2000-2007 2011-2016 2017-2025
Ethylene Propylene Methanol Paraxylene
Benzene Chlorine Weighted Average
Average global GDP elasticity, by market & time period
Source: IHS Markit
11
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Ethylene and propylene continue pattern of accelerating demand growth / strong
capacity growth is needed
0.0
2.0
4.0
6.0
8.0
Ethylene Propylene Methanol
2016 Dmd GrowthAvg. Dmd Growth (2011-2015)Avg. Dmd Growth (2017-2021)
Demand growth: past / present / forecast
(million metric tons)
Source: IHS Markit
0.0
2.0
4.0
6.0
8.0
Ethylene Propylene Methanol
2016 Cap. Growth
Avg. Cap. Growth (2011-2015)
Avg. Cap. Growth (2017-2021)
Nameplate capacity growth: past / present / forecast
(million metric tons)
Source: IHS Markit
12
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Growth in base chemicals dominated by ethylene, propylene and
methanol; new capacity dominated by APAC
0
100
200
300
400
500
600
700
800
900
00 02 04 06 08 10 12 14 16 18 20 22 24
Ethylene
Propylene (PG/CG)
Methanol
Chlorine
Benzene
Paraxylene
World base chemical capacity by market (MM tons)
Source: IHS Markit
0
100
200
300
400
500
600
700
800
900
00 02 04 06 08 10 12 14 16 18 20 22 24
China
Asia + India (less China)
North America
Europe & Africa
Middle East
South America
World base chemical capacity by region (MM tons)
© 2017 IHS Markit
13
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Other unknowns impact strategic investment decisions
• Energy risk in an OPEC / shale regime
• Demand risk given China’s economic and
industrial pivot
• Unpredictable capital and project EPC
performance
• Climate policy post Paris Accords
• Disruptive technologies (e.g. Siluria)
• Country risk with geo-political unrest
• Market access risk under protectionist
backlash
14
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Capital investments in chemicals
are seeking a sustainable
competitive advantage
Chemical Investment “Drivers”
• Secure an energy & feedstock
advantage.
• Leverage current technology and
build world-scale.
• Invest with proximity to local
markets and/or access to trade
routes.
• Build to leverage an upstream and/or
downstream integrated position.
Braskem-Idesa Ethylene/PE Plant
Nanchital, Veracruz, Mexico
Start-Up: June 2016
Photo courtesy of Braskem IDESA
15
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VMA MARKET OUTLOOK WORKSHOP / August 2017 16
Beyond energy and economic
growth, there are many other
factors to consider:
Additional Investment Considerations:
• Crude oil/energy price trends
• Global economic growth
• Geo-political considerations
• Govt. fiscal policy / currency strength
• Global energy markets
• State of industry profit cycle
• China structural changes
• Non-conventional technology
• Sustainability
• Levels of integration
• Regional CAPEX differentials
• Logistics investments
• Evolving Consumer Products
Braskem-Idesa Ethylene/PE Plant
Nanchital, Veracruz, Mexico
Start-Up: June 2016
16
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VMA MARKET OUTLOOK WORKSHOP / August 2017 17
17
Benzene
Chlorine
Ethylene
Methanol
Paraxylene
Propylene PG ❖ 470 MM metric tons of production in 2016
❖ What are the best locations for future investments?
GLOBAL BASE CHEMICAL ASSETS
BY LOCATION - 2016
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Market uncertainty results in slowdown in new capacity additions; 2019 forecast to
decline to 2012 levels
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Mil
lio
n M
etr
ic T
on
s
Ethylene Propylene Methanol Chlorine Benzene Paraxylene
Annual Base Chemical Capacity Change By Market
© 2017 IHS MarkitSource: IHS Markit
18
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Driven by a number of major initiatives, China investment in base chemicals has
accelerated since 2000 and will continue into the 2020’s
• Secure an energy & feedstock
advantage
• Leverage current technology
and build world-scale
• Invest with proximity to local
markets and/or access to
trade routes
• Build to leverage an upstream
and/or downstream integrated
position0
50
100
150
200
250
300
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26
United States Canada
Mexico Saudi Arabia
Iran South Korea
Singapore China
India
Total base chemical capacity for select countries
Millio
n M
etr
ic T
on
s
Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine
19
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Beyond China and the United States, since the early 90’s some countries have
continued to invest in base chemicals while others have seen investments stall
• Saudi Arabia, Iran; leveraging
low cost hydrocarbons to
drive industrial development
• S.Korea, Singapore, India are
driven by strong demand
growth in APAC
• Mexico and Canada linked to
strong demand via NAFTA,
but limited by energy
developments 0
5
10
15
20
25
30
35
40
45
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26
Canada Mexico
Saudi Arabia Iran
South Korea Singapore
India
Total base chemical capacity for select countries
Millio
n M
etr
ic T
on
s
Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine
20
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Market uncertainty causing delayed project approvals, results in falling capital
spending across global chemical markets by early 2020’s
21
0
10
20
30
40
50
60
70
80
90
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Aromatics Fibers Inorganics Olefins Plastics Syngas Products
Capital Spending by Product (2014 Constant$, billions)
Source: IHS Markit © 2017 IHS Markit
0
10
20
30
40
50
60
70
80
90
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
AFR CEP FSU ISC MDE NAM NEA SAM SEA WEP
Capital Spending by Region (2014 Constant$, billions)
Source: IHS Markit © 2017 IHS Markit
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Ammonia, along with ethylene, propylene (and related derivatives) make up the
vast majority of new capital spending in the next wave of investments
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
PROPYLENE OXIDE
BUTADIENE
BENZENE
ETHYLENE OXIDE
CHLORINE
LLD POLYETHYLENE
LD POLYETHYLENE
HD POLYETHYLENE
PARAXYLENE
MONOETHYLENE GLYCOL
POLYPROPYLENE
TEREPHTHALIC ACID
METHANOL
MIXED XYLENES
PROPYLENE (PG/CG)
AMMONIA
ETHYLENE
Capital Spending (US$ billions) Capacity Additions (million tons)
Capacity additions (MM tons) and Capital spending (US$ billions) by chemical market: 2016 to 2025
Source: IHS Markit © 2017 IHS Markit
22
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VMA MARKET OUTLOOK WORKSHOP / August 2017
North America Low Cost Brings Back Base Chemical & Associated Derivative
Investments
-10
10
30
50
70
90
110
130
150
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Ethylene Propylene (PG/CG) Methanol Chlorine Benzene Paraxylene
North America - Base Chemical Total Capacity
Source: IHS Markit
Millio
n M
etr
ic T
on
s
© 2017 IHS Markit
23
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VMA MARKET OUTLOOK WORKSHOP / August 2017
North America ethylene capacity growth including firm and announced projects
24
Company Location TimingTotal Growth
-000- metric tons
Dow Plaquemine, LA 1H-17 250
Equistar Corpus Christi, TX 1H-17 401
Oxy/Mexichem Ingleside, TX 1H-17 550
ChevronPhillips Cedar Bayou, TX 2H-17 1,500
Dow Freeport, TX 2H-17 1,500
ExxonMobil Baytown, TX 1H-18 1,500
Indorama Lake Charles,LA 2H-18 420
Formosa Point Comfort, TX 2H-18 1,150
Shin-Etsu Plaquemine, LA 1H-19 500
Sasol Lake Charles, LA 1H-19 1,550
LACC Lake Charles, LA 1H-20 1,000
Shell Monaca, PA 1H-22 1,500
Total additions 11,821
Company LocationTotal Growth
-000- metric tons
Ascent / Braskem West Virginia 1,000
Badlands NGL 1 North Dakota 1,500
Badlands NGL 2 “Shangri-La” 1,000
ChevronPhillips 2 Cedar Bayou, TX 1,500
Formosa St James Parish, LA 1,000
Formosa LA 1,000
Hanwha TBA 1,000
Indorama LA or TX 1,500
PTTCG/Marubeni Shadyside, OH 1,000
Total additions 10,500
Firm Projects: 2017 - 2022 Announced Projects: 2022+
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Chemical industry earnings forecasts to decline with new waves of capacity in the
near term; Chlor-alkali market showing good recovery by 2020
-200
-100
0
100
200
300
400
500
600
700
800
900
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Do
lla
rs P
er
Me
tric
To
n
Global
Aromatics Chlor Alkali Olefins Plastics Syn Gas
Global Cash Earnings Trends by Chemical Value-Chain
Source: IHS Markit © 2017 IHS Markit
25
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VMA MARKET OUTLOOK WORKSHOP / August 2017
Lower earnings in Americas and Middle East are offset by stronger earnings in Asia
and Europe where new capacity discussions are also underway
0
50
100
150
200
250
300
350
400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Do
llars
Per
Metr
ic T
on
World Africa_MidEast Americas Asia Europe
Regional Weighted Average Cash Earnings
Source: IHS Markit © 2017 IHS Markit
26
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VMA MARKET OUTLOOK WORKSHOP / August 2017
• Energy markets will see natural gas in North America
advantaged versus crude oil (BTU basis)
• Two major forces in the global oil market, rebalancing
and (cost) recalibration will play out in the near term
• Global economic fundamentals remain solid;
uncertainty indicators have declined; US is strong;
Europe is brighter; China remains resilient.
• Capital spending slowdown will create tight market
conditions in olefins and chlor-alkali by end of the
decade
• North America will remain an attractive region for
petrochemical and related investments; investors to
include both domestic and foreign companies
27
Final Thoughts As You Plan Your
Next Move In The Chemical Sector
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
VMA MARKET OUTLOOK WORKSHOP / August 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?
Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market - Houston, TX [email protected]
Presented to:
VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA
Thank You!