Executive Panel Discussion

Transcription

1 Theme: Executive Panel Discussion, Thursday Dec 14, 2017 Executive Panel Discussion Moderator: Dave Witte - IHS Markit Panelists: Walter Pinto - Lyondellbasell Tony Jones - Valero Ron Corn - CPChem Mike McAtee - BASF 49 Year: Date: Location: 2017 Dec Boca Raton, FL

2 Addressing strategic challenges with interconnected capabilities Brought together to form the most Comprehensive sources of data, analytics and insight for the Energy Upstream, Oil Markets, Midstream, Downstream & Chemical Markets Confidential IHS Markit TM. All Rights Reserved IHS Markit. All Rights Reserved.

3 Agenda The opportunity - outlook for shale oil, gas and petchems The threat analyzing capital build options through the supply chain The challenge panelists ideas to offset threats and capture opportunities Confidential.

4 Chemicals are illustrative of the energy supply chain. Global chemical demand is concentrated in developing world with more than 50% of demand growth in China DEMAND 74%

5 But petroleum supply is concentrated elsewhere SUPPLY 67% DEMAND 74%

6 Trade from advantaged hydrocarbon regions fills the demand gap typically at the first value chain node with reasonable logistic costs and product market liquidity 2026 World Monoethylene Glycol Trade Flows, Kilotons Illustrative 2960 To NE Asia From N. America Net exporter Net importer Volumes greater than 5,000 metric tons noted; intra-regional trade excluded.

7 Capital investments seek to maximize returns preferably with a sustainable competitive advantage Braskem-Idesa Ethylene/PE Plant Nanchital, Veracruz, Mexico Start-Up: June 2016 Investment Drivers Secure an energy & feedstock advantage Leverage current technology and build worldscale for maximum capital efficiency Invest with proximity to local markets and/or access to trade routes Build to leverage an upstream and/or downstream integrated position Confidential IHS Markit 2017 TM. IHS All Rights Markit TM Reserved.. All Rights Reserved. Photo courtesy of Braskem IDESA

8 $/ Barrel, Crude $/ MM BTU, Natural Gas Combination of high crude prices and stable gas is attractive for those North America investments based on natural gas and natural gas liquids Global crude oil vs. USGC natural gas (2017 Constant $) Natural Gas Brent Crude Source: IHS Markit 2017 IHS Markit

9 MMb/d Global crude and condensate production requires ~20 MMb/d new supply by 2022 Global crude oil and and condensate supply outlook in 2022 balance in Unconventional, 3 Unconventional, 7 Unsanctioned, 5 70 Conventional, 10 Sanctioned, Total crude and condensate production in 2016 Base declines to 2022 New capacity additions to 2022 Total crude and condensate production in 2022 Source: IHS Markit 2017 IHS Markit

10 Average Break-even cost at Henry Hub Nearly 1,300 Tcf North American gas supply at Henry Hub <$4/MMBtu Breakeven price at Henry Hub ($/MMBtu) for natural gas resources (Tcf) $15 $13 $11 $9 $7 $5 $3 $1 $(1) $(3) $(5) $(7) $(9) $(11) $(13) $(15) 150 $ Demand : ~333 Tcf 1267 Demand : ~1,018 Tcf ,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 Source: IHS Markit 2017 IHS Markit

11 Million barrels per day Trillion Cubic Feet Lots of feedstock unlocked by shale suggest another wave of US-based investment but where? US Ethane Demand and Rejection US Proven Gas Reserves st wave nd wave Base Chemical Miscellaneous Fuel Exports Rejection Source: IHS Markit 50 0

12 Millions of Tons Billion (2014) $ For chemicals, plant builds either aligned with demand or hydrocarbon supply; lately total capital investment has trended down - except in the US. Will it continue? Capital Spending in the Chemical Industry 90,000 75,000 $120,000 $100,000 60,000 45,000 30,000 15,000 - $80,000 $60,000 $40,000 $20,000 $0 ROW Americas Spend 2017 IHS Markit

13 NPV, Millions $ Plenty of value creation available for US investment, but high execution risk as delays and overruns destroy value Impact of Project Underperformance on Base US Ethane Cracking NPV 3,000 2,500-12% 2,000-14% 1,500 1,000 At target CAPEX On Schedule 6 Months Delay 10% overrun

14 Case study - Multiple models for investment exist to satisfy Chinese demand growth Option Cash Cost Capital Market Risk Export ethane, build cracking in China Highest Lowest Lowest Build US methanol, export to MTO in China Lowest Moderate Medium Build ethane cracker in US, export product Moderate Highest Highest

15 Ethane terminal, freight and duty, costs Low-cost Chinese and high US capital costs means Chinese investment beats US returns even after accounting for high feedstock shipping costs Cents/Gallon 90 Equivalent NPV: China vs USGC Ethane Cracking Ethane Differential vs Location Factor Green line is Breakeven NPV. Below line China NPV >USGC SHIPPING COST RANGE Operating Zone Location Factor Range Location factor - China vs USGC

16 Ethylene Cash Cost, $/Ton At expected ethane prices, cash costs favor naphtha at crude prices below $60/Bbl. Will crude to ethane spreads be low enough for Chinese ethane to beat naphtha? Asian Ethylene vs Brent Equivalence Graph - Cash Cost For Ethylene Forecast Ethane Delivered China $500/ton = $10/MMBTU = 67 cpg Ethylene vs Ethane Brent ($/Bbl) Ethane ($/Ton) Brent ($/Bbl) OR Ethane ($/Ton)

17 Conclusions Demand growth concentrated in developing world and dislocated from hydrocarbon supply Shale has unlocked huge amounts of competitive supply supporting investment growth in Energy and Chemicals Poor (relative) EPC performance eroding feedstock advantages New approaches to improve US EPC productivity are needed, or risk a shift of building to overseas

18 Our distinguished panel Walter Pinto Senior Director, Global Projects and Engineering Mike McAtee Senior Vice President, Strategic Projects Ron Corn Senior Vice President, Petrochemicals Tony Jones Senior Vice President, Project Execution