N. America Polyolefins. Incremental Change or Transformation?

Transcription

1 N. America Polyolefins Incremental Change or Transformation? SPE Blow Molding Conference Pittsburgh October 8, 212

2 SPE Blow Molding Conference Braskem largest PO producer in the Americas Structural change in energy landscape Boom in ethylene Boom in propylene too? 2

3 Braskem is the largest polyolefin producer in the Americas Installed Americas capacity kt PP PE 6,52 5,35 5,185 3,465 1,23 3,94 3,55 Braskem 1,415 5,185 2,31 1,93 4,75 1,74 2,525 2, , ExxonMobil Dow LBI CPChem Formosa Ineos 1,62 1,18 44 Total SOURCE: CMAI; Braskem 3

4 Braskem is the leader in PP in N. America... N. America PP capacity kt 1,6 1,4 1,2 1, SOURCE: CMAI; Braskem 4

5 Braskem is also making new investments across the Americas in polyolefins capacity MEXICO ETHYLENE XXI PROJECT : Start-up in 215 Greenfield integrated petrochemical complex 1 Mt/year of ethylene based on ethane cracker 1 Mt/year of HDPE and LDPE Investment of ~$3.5 billion PERU under study Greenfield integrated petrochemical complex 1 Mt/year of ethylene based on ethane cracker 1 Mt/year of HDPE, LLDPE and LDPE BRAZIL PVC Expansion : Start-up in 212 Expansion of capacity by 21 kt/yr in Alagoas Investments of up to $5 million NEW PROJECTS under study Comperj: integrated petrochemical complex in the State of RJ New Projects SOURCE: Braskem 5

6 Braskem is the leading producer of renewable polymers; commercialized Green PE Start of works / Foundation Stone: April 29 Plant start-up: September 21 Investment: $25 million Capacity 2 kt/year SOURCE: Braskem 6

7 SPE Blow Molding Conference Braskem largest PO producer in the Americas Structural change in energy landscape Boom in ethylene Boom in propylene too? 7

8 Shale gas resources are potential game changer for the N. America energy landscape Producing (Tcf reserves) Developing Exploration L48 gas resources Hermosa Horn River Shale (4) Montney (152) Cody Lewis Mowry Gammon Niobrara Bakken Woodford (42) Granite Pierre Wash Bend Barnett and Woodford Barnett (118) Excello- Mulky New Albany Fayetteville (2) Woodford/ Caney Haynesville/ Bossier (251) Antrim Chattanooga Conasauga Floyd- Neal Utica Devonian Marcellus (256) Tcf xx Resources to production ratio (years) 1, , , , ,93 1, Shale Gas Tight Gas CBM Hilliard- Baxter- Mancos Mancos Conventional Pearsall/Eagle Ford (>1) SOURCE: EIA; Deutsche Bank; Shale Gas.com; USGS; NPC; McKinsey analysis 8

9 Shale gas in the US continues to expand, growing by 48% per year in the last 4 years, resulting in a collapse in US gas prices x% Percent of US production Growth in shale production US gas production from shale Bcfd Eagleford Woodford Fayetteville Marcellus Haynesville Barnett Decline in US natural gas prices $ / MMBtu 18 Henry Hub (US) NBP (UK) LNG import to Japan 48% p.a % 19% 28% SOURCE: EIA; HPDI; McKinsey analysis 9

10 Estimates of N. America shale gas production have increased with time June 21 estimate June 211 estimate Projected N. America NG supply 1,2 bcfd Projected N. America NG supply 1,3 bcfd US Shales 7 6 US Shales US CBM US Tight US Conventional US Offshore & Associated Canada US CBM US Tight US Conventional US Offshore & Associated Canada US tight gas based on horizontal wells in Permian, Anadarko, Tex-LA and all wells in Green River, Austin Chalk 2 Based on AEO 21 reference case gas demand 3 Based on AEO 211 reference case gas demand; Associated gas production from Bakken and Niobrara included in shale gas category SOURCE: HPDI, McKinsey NA gas supply model, Analyst Reports 1

11 Gas production can yield ~1% returns in the $4-6 / MMBtu range, setting a ceiling for US gas prices Full cost Breakeven for gas basins 1 2 $/MMbtu yrs of resources below $6/MMbtu 14 ~3 yrs of resources below $4/MMbtu 12 Shale Tight CBM Conventional Prod. = 24 TCF , 1,1 1,2 1,3 1,4 1,5 1,6 1,7 Technically Recoverable resources 2 Tcf 1 Excludes finding and land costs 2 Associated gas plays and predominantly oil basins excluded from this chart SOURCE: HPDI, Woodmac, Rystad, Industry reports, EIA, McKinsey 11

12 Light Tight Oil (LTO) plays in the US can provide somewhere between 5 to 24 billion barrels of recoverable resources Major US shale gas, liquids, and tight oil resources Tight oil play status Producing 6 Cardium Prospects Duvernay 17 Viking Total estimates vary widely, e.g.: NPC estimates 5-1 billion barrels of recoverable resource EIA estimates up to 24 billion barrels of recoverable resource 4 Monterey Shale (Antelope Play) CA 2 Bakken Shale ND 12 Exshaw Shales MT Cody Mowry Gammon Green River Oil 9 Mancos Hermosa 7 8 Bend 1 Permian Avalon 15 Sprayberry 11 Bakken Shale Canada Mowry/Niobrara Shale WY 13 7 Niobrara 16 Mississippi Lime 5 1 Barnett Anadarko Cleveland 14 Utica Marcellus Estimated recoverable oil resources MMbbl Permian (basin) Bakken (ND) Eagle Ford Monterey (Antelope) 7 Anadarko (basin) 6 Cardium 65 Niobrara 25 Atoka-Cherokee 15 Mancos 75 Barnett 7 Bakken (SK) 3 Exshaw 3 Waltman 1 Utica TBD Sprayberry TBD Mississippi Lime TBD Viking TBD 4,5 4, 3, 3 Eagle Ford/ Pearsall (>1) Eagle Ford/Midway/Wilcox formations TX SOURCE: EIA; Deutsche Bank; ShaleGas.com; USGS; NPC; company announcements; McKinsey 12

13 Light tight oil (LTO) is undergoing a growth trajectory and has now surpassed 1 million barrels per day in the US LTO production kbod Proportion of US production Percent of March 212 prod. LTO Other GoM & Alaska 1,3 1,2 1,1 1, Eagleford Bakken Granite Wash Spraberry Financial crisis 1 kbod March 26 Austin Chalk Bone Spring Niobrara Woodford Monterey Mississippi lime Wattenberg 1,2 kbod Mar L48 1 1% = 3.9 MMbod US 1% = 6.4 MMbod 43 Crude oil and petroleum products net imports kbod 9,472 Mar Conventional prod. + demand trends LTO 1, ,547 Mar-12 1 L48 = Lower 48 states (excludes Alaska) SOURCE: HPDI; EIA; McKinsey analysis 13

14 LTO development in the US is happening at a faster pace than shale gas Oil in kbod, Gas in kboed LTO Shale gas x Number of new wells 3,5 24,5 3, 2,5 6 years later, oil production rate is 45% higher than gas was 2, 1,5 1, 5 Point in time where gas and oil shale broke 1 kboed 16,785 8,2 LTO 1 3/26 Gas 1/22 6+ years 3/212 1/27 12/211 1 Bakken, Eagleford, Granite Wash, Spraberry, Austin Chalk, Bone Spring, Niobrara (classified wells not included), Woodford, Monterey 2 Barnett, Eagleford, Fayetteville, Haynesville, Marcellus, Woodford SOURCE: HPDI 14

15 Most crude production estimates call for significant increase in US crude production Several key concerns will drive LTO evolution Amount of LTO resource available within the plays Capital expenditures available for drilling and investment The cost of supply Estimates for 22 US LTO production range from 2. to 13.8 million barrels oil per day Oil production from LTO plays Million barrels per day May Current 215 Estimate Bernstein Bentek Goldman Sachs McKinsey 2. Rystad Energy High Case Low Case 22 Estimate 5.3 Bentek Belfer Center Base Case McKinsey SOURCE: Rystad; Belfer Center; Bentek; Bernstein Research; McKinsey 15

16 Significant shale gas resources in other regions could alter petrochemical landscape Canada 11 tm 3 Poland 5 tm 3 USA 24 tm 3 China 36 tm 3 Mexico 19 tm 3 Algeria 7 tm 3 Libya 8 tm 3 Argentina 22 tm 3 S. Africa 14 tm 3 Australia 11 tm 3 SOURCE: EIA 16

17 SPE Blow Molding Conference Braskem largest PO producer in the Americas Structural change in energy landscape Boom in ethylene Boom in propylene too? 17

18 Shale gas production has resulted in increase in NGL production, leaving more room for exports Ethane and propane production growth has pushed overall NGL production up NGL US production Million bbl per day Pentanes Plus Butane Propane Ethane The rapid growth has left a surplus allowing more exports NGL US exports Million bbl per day Pentanes Plus Butane Propane and Propylene This category also includes isobutene and isobutylene. SOURCE: Bentek 18

19 Estimate of ethane supply has increased by ~ 4kbd, equivalent to seven million tonnes of ethylene L48 Ethane supply kbd June 21 estimate June 211 estimate 2, Other Granite Wash Bakken Marcellus Eagleford Current sources 2, Avalon Niobrara Woodford Barnett Granite Wash Bakken Marcellus Eagle Ford Current sources 1,8 1,8 1,6 1,4 Current level of consumption ~ 95 kbd 1,6 1,4 Current level of consumption ~ 95 kbd 1,2 1,2 1, 1, SOURCE: McKinsey North America Gas Model; OGJ; Company reports (ONEOK, Mistral, Pioneer, MarkWest, Eagle Rock, Chesapeake etc); EIA; MMS; US Bureau of Mines; Petral Consulting; Braskem 19

20 Crackers with higher ethane intake are now at a lower cost; cost curve has, therefore, steepened in N. America $/tonne ethylene US/Canada ethylene cash cost curve Uses reported/estimated feed mix by cracker Uses simplified, standardized assumptions for fixed cash costs Fixed cash cost Variable cost Crackers with >45% liquids 2 Average 27 Q1/ Includes plants that are not running 2 Over 45% of ethylene production is based on gas oil, naphtha, or butane SOURCE: McKinsey ethylene model 2

21 N. America crackers are now competitive in all markets Global ethylene costs curve plant gate; Region splits $/tonne 21 Q2 Oil price = $8/Bbl Excess ethane conditions in the US Alberta natural gas price = $2.8/MMBTU ME ethane = $.75/MMBTU Middle East Western Europe South America Global demand North America Asia ex China China 1,2 Price setting capacity 115 1,1 1, , 2, 3, 4, 5, 6, 7, 8, 9, 1, 11, 12, 13, 14, Effective capacity (93% of nameplate), KTA SOURCE: McKinsey cost curve model 21

22 US petchem players have restarted idled assets and are debottlenecking capacity to maximize ethane utilization ESTIMATES Company Location Year Investment Increased Ethane Demand Ethylene equivalent (kt) Lyondell Basell Channelview 29 Ethane Optimization 21 kbd 325 Dow Plaquemine 29 Ethane Optimization 13 kbd 2 CPChem Cedar Bayou 29 Capacity Rerated 7 kbd 11 Lyondell Basell Corpus Christi 21 Ethane Optimization 4 kbd 6 Lyondell Basell LaPorte 21 Ethane Optimization 17 kbd 26 ExxonMobil Beaumont 21 Ethane Optimization 15 kbd 23 Shell Norco 21 Ethane Optimization 26 kbd 4 CPChem Sweeney 211 Restart Idled Cracker 16 kbd 245 Eastman Longview 211 Restart Idled Cracker 4 kbd 6 Dow Various 211 Debottleneck 3% increase 8 kbd 125 Dow Taft 212 Restart Idled Cracker 15-2 kbd 23 Westlake Lake Charles 212 Debottleneck 5 kbd 55 Lyondell Basell Channelview/LaPorte 213 Debottleneck 15 kbd 23 Dow Plaquemine 214 Ethane Optimization 5 kbd 75 Westlake Lake Charles 214 Debottleneck 5 kbd 75 Dow Freeport 216 Ethane Optimization 1 kbd 155 SOURCE: Braskem; Press articles Total 2,835 kt 22

23 Several players are considering new-build crackers in the US Dow Chemical Co. launched an ambitious plan to increase ethylene and propylene production, as well as integrate U.S. operations into feedstock "opportunities" by using the prolific shale gas resources of the Marcellus and Eagle Ford shales. Dow is finalizing plans to construct a "world-scale" ethylene production plant along the U.S. Gulf Coast, for start-up in 217 April 25, 211 Shell Oil Co. said today it plans to build an ethylene "cracker somewhere in the Appalachian region, to process natural gas from the Marcellus shale region into substances used to make petrochemicals. The Houstonbased company said it's evaluating options for ethylene derivatives to make at the plant, and the leading one is Polyethylene June 6, 211 Chevron Phillips Chemical on Monday announced it was conducting a feasibility study to build a cracker, saying that it would be a world-scale unit using ethane as a feedstock. The new facility will utilize the advantaged feed sources expected from development of shale gas reserves, the company said March 28, 211 ExxonMobil Chemical plans to build a world-scale ethylene plant at its Baytown, Texas, olefins complex and two polyethylene units. Plans call for construction to begin by next March on a 1.5 million mt/year ethylene-capacity steam cracker at the Baytown complex. Start-up could come as early as 216 June 2, 212 SOURCE: Press articles 23

24 Projected cracking capacity additions will not cover ethane supply in the short term Ethane supply versus cracker capacity Thousand bbl per day Excess ethane supply 1 Cracker capacity to consume (CTC) 2 1,65 1,5 1,35 1,2 1, Huge early excess of ethane; ethane price likely to fall to fuel value but risk that excess is used by 22 unless ethane supply growth continues or additional delays in new crackers Based on EIA data plus 9KBD additional supply from refineries (above average 2-4KBD reported by EIA). Includes inventory removals 2 Based on Goldman/ICIS estimates of expansions/flexibility changes in existing crackers plus new crackers by Dow, CP Chem, Exxon, Shell, Sasol, but with 1-2 year delays in start of new crackers from initial start-up date announcements SOURCE: EIA; Hodson; Petral; Goldman Sachs, ICIS, McKinsey analysis 24

25 Americas could become an island continent; ME will continue to export primarily to Asia and Europe Ethylene cost curve (plant gate, 211, Scenario No. 2) with ethylene derivative trade flow 1 USD per metric ton ethylene; million metric tons ethylene equivalents; nameplate ethylene capacities North America Europe/FSU China 1,2 1, South America Middle East/Africa Non-China Asia 1,2 5.8 Preference for 1, 66% of ME EU vs. NCA can production will swing back and 8.9 be exported forth as relative 2. costs change % % 75% 93% % XX Imports Utilization Domestic demand 63% Based on April 29 prices for feeds and coproducts (except CC4 prices determined by model); outlook demand based on significant recession SOURCE: McKinsey 25

26 SPE Blow Molding Conference Braskem largest PO producer in the Americas Structural change in energy landscape Boom in ethylene Boom in propylene too? 26

27 Propylene supply-demand situation in N. America is tightening, leading to higher prices Key drivers Base case NA Propylene supply and demand 215, KTA Refining: US FCC throughput decrease (16%) Includes Coker capacity additions (488 KBPD) Assumes some refinery shutdowns (highest volume in Northeast) 1 Constant FCC propylene yield (7.88% US & Mexico, 1% Canada) 13,684 3,458 1,328 18,47 16,356 Deficit could be removed or turn to surplus, depending on how many new builds materialize Chemicals: No debottleneck or expansions Naphtha % of feedstock constant thru 215 Additional builds included: Dow PDH (75 KTA) Enterprise PDH (75 KTA) Others (75 KTA) Refining Crackers Onpurpose Supply Chem demand 4,336 Alky/poly 75 1,5 Add l builds 28 Net SOURCE: Braskem analysis 27

28 N. America refined gasoline demand projected to decline Demand 1 kbd 16, 14, 12, 1, 8, 6, 4, 2, 8.% p.a. Biofuels Net refined gasoline 1.9% p.a. -1.8% p.a. Efficiency gains Diesel Gasoline x.x CAGR (29-2), % demand to fall by 18%, or 1,595 MBD, in North America by 22 Continued legacy gains in fleet fuel efficiency extend downward trend in transportation fuels Substitution towards biofuels will also have a substantial impact on gasoline demand All scenarios will lead to at least some degree of refinery shutdowns Area chart uses MGI Scenario 2 Battered but resilient SOURCE: McKinsey Global Institute 28

29 As a result, refining rationalization is likely to continue PADD 1 net margin, 29 $/bbl Sunoco Conoco PBF Others Net margin ($/bbl) PBF Delaware City: closed in 29, but to be restarted in coming weeks Sunoco Eagle Point: permanently shut February 1, Shutdown sequence 1 Sunoco-Eagle Point 73 2 United-Warren 68 3 Conoco-Linden 27 4 Demonstrated throughput 1 kbd Sunoco-Philadelphia Conoco-Trainer 192 PBF Paulsboro: 1 employees laid off (Oct. 13, 29) PBF-Delaware City 167 Sunoco-Marcus Hook Western-Yorktown 5 9 Hess-Port Reading 58 1 PBF-Paulsboro Total 2 1,57 Demonstrated throughput (kbd) 1 Based on regional maximum recorded annual average throughput (24) 2 Does not include small ASPH/LUB stand-alone assets Sources: OilDesk; McKinsey analysis 29

30 Higher PP prices appear to have impacted demand growth relative to its substitutes Sales growth (annualized) % Total Sales HDPE PP Domestic sales Compounders Film Sheet Injection Molding Distributors Exports SOURCE: Braskem 3

31 For many years, propylene-propane spreads could not justify PDH economics; more recently, spreads have been favorable PG Propylene-Propane spreads 1 $/tonne Margin for 1% IRR 6 1,2 1, Spreads between Propylene and 1.22*Propane price, which is stoichiometry for propane conversion to propylene in PDH; cost to convert propane to propylene is about $11/tonne and required return on investment is $2/tonne SOURCE: CMAI; Braskem 31

32 Thank You!