Redrawing the global petrochemicals map and implications for olefins/polymers

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Redrawing the global petrochemicals map and implications for olefins/polymers Anu Agarwal 4-Feb-2016 Mumbai London Houston Washington New York Portland

1 Redrawing the global petrochemicals map and implications for olefins/polymers Anu Agarwal 4-Feb-2016 Mumbai London Houston Washington New York Portland Calgary Santiago Bogota Rio de Janeiro Singapore Beijing Tokyo Sydney Dubai Moscow Astana Kiev Porto Johannesburg Riga Market Reporting Consulting Events

2 Changing global production map -US capacity growth driven by shale -Middle East Gulf runs out of cheap gas -Europe defends its business -China bets on alternate feeds

Cheap ethane spurs US cracker investments Abundant LPG (propane, butane) also attractive

4 This has changed the US cracking slate Naphtha continues to be displaced by ethane and propane. Propane has been more economical in the recent past due to weakness in the LPG markets Copyright 2012 Argus Media Ltd. All

5 US to add 8mnt ethylene, 5mnt PE Most to hit market in Company /2020 Dow BFLP 190 Ineos 115 LyondellBasell 380 Westlake 90 CP Chem 90 Williams 270 LyondellBasell LyondellBasell 380 Westlake 114 Dow 250 CP Chem 1500 ExxonMobil 1500 Dow 1500 Oxy/Mexichem 500 Indo Rama Ventures 370 Sasol 1500 Formosa 1200 Shinestu 500 Total 1000 Axiall/ Lotte 1000 Total New US Ethylene capacity Others in discussions for : Shell, Appalachian Resins, Formosa, Sabic, PTTGC/Marubeni, Hanhwa, Copyright 2012 Argus Media Ltd. All

This will lead to major growth in derivative exports Ethane, LPG

7 Middle East Gulf looses access to cheap ethane Few capacity adds, more mixed feed crackers Feed UAE Borouge # ethane Saudi Sadara Mixed feed Saudi Petro Rabigh Ethane/ metathesis Iran Kavyan PC Ethane/ LPG Kuwait PIC 1400Mixed feed Oman Orpic 800 Mixed feed Saudi Sabic Oil to Chemicals 1200Mixed feed Egypt Tahrir 1350Naphtha Qatar Al Sejeel cancelled QP Qatar Al Karana cancelled Shell Total New Capacity Reflects lower availability and higher cost of ethane Captures refinery integration benefits Facilitates diversified downstream development Copyright 2012 Argus Media Ltd. All

8 Saudi Arabia Ethylene Production mn t More LPG and naphtha being cracked Ethane is in limited supply but propane and butane are sold at a discount to MOPJ and are attractive feedstocks to support downstream business, especially where this is propylene based. 60% 50% 40% 30% 20% 10% 0% Copyright 2015 Argus Media Ltd. All

10 Meanwhile, Europe defends its petchem industry Capacity rationalization, higher operating costs

European LPG costs lower relative to naphtha boosting the

flexibility, more robust model 2015 Average propane costs in

the US to increase light feed and boost competitiveness 40pc of

11 European LPG costs lower relative to naphtha boosting the attractiveness as a cracking feedstock Increased feedstock flexibility, more robust model 2015 Average propane costs in Europe very close to Saudi propane Future ethane exports from the US to increase light feed and boost competitiveness 40pc of European ethylene production now based on LPG Copyright 2015 Argus Media Ltd. All

12 Profitability has returned to the European ethylene chain Bolstered by derivative trade Cracker cash margins well above trend PE margins at record highs PE imports ease, exports profitable Copyright 2015 Argus Media Ltd. All

13 The structural fall in crude pricing and the weaker $/ exchange has significantly boosted Europe s relative cost competitiveness and supported net-trade. USD/t 1,400 1,200 1, $100/bbl Sep $50/bl Argus forecasts Brent crude oil pricing to remain below $60/bbl until 2018 ECB s ongoing policy of Quantitative Easing and the enduring economic challenges within the Eurozone will continue to weaken values US Ethane ME Ethane EU Naph Asian Naph Ethylene cash cost of production Argus Dewitt Economic recovery in the US, a lower crude oil value and the expectation of increased interest rates will support $ values. Weak $/ is allowing European producers to export competitive derivatives and stabilize/reduce imports, leading to a boost in domestic sales. Copyright 2015 Argus Media Ltd. All

China bets on alternate feeds, on-purpose production CTO/MTO share

Coal and LPG play a bigger role as feeds Unconventional propylene to account for

US emerges as the single largest ethylene

18 Polymers China polymer demand and imports Capacity expansions in India and impact on trade The polymer story in Europe

China PE imports to taper But even with modest growth China

Majority of China PP capacity standalone/

China PP imports to decline Standalone PP production

23 India PE capacity jumps starting 2016 India may need to export PE in the short term India imports around 1.5mnt of PE New capacity startups in include OPaL, GAIL, BCPL and Reliance PE imports to drop and exports to increase New capacity will be absorbed by Copyright 2012 Argus Media Ltd. All

Thus US growth in Europe and in China could take time

24 Middle Eastern producers have tended to focus on China where again the US is currently a small player. Thus US growth in Europe and in China could take time to become established. Copyright 2015 Argus Media Ltd. All

25 Europe will see PE imports growing over time New US PE exports will take time to grow. Kt 1,400 1,200 1, Net HDPE Net LD/LL Total Actual and forecast West European PE trade Argus Dewitt Even with modest Chinese growth, majority of US PE will flow to Asia. Low crude values and strong USD will slow down imports European producers can use marginal LPG integrated costs to defend markets Ultimately assume that European growth will be taken up by imports Major risk from US based multi-nationals who optimise globally. Copyright 2015 Argus Media Ltd. All

26 Our takeaways US growth as an ethylene derivatives exporter on the back of shale Consolidation of Middle East Gulf production, Iran potential growth in supply Europe defends its position by increasing feedstock flexibility Further rationalization in Taiwan, Japan but low crude oil and naphtha prices may push this back Restructuring in China to impact business. Feedstock changes to bring volatility Copyright 2012 Argus Media Ltd. All

27 On-purpose propylene will impact pricing of derivatives Asian crackers will look to more LPG feeds to compensate for lower C3 returns Asian crackers to face threat once crude prices rise towards end of the decade Polymer growth rates remain robust in India. Producers will need to diversify feedstocks and enhance competitiveness in time for new wave of US capacity in and the higher oil environment in years thereafter. Copyright 2012 Argus Media Ltd. All

28 Anu Agarwal VP Petrochemicals, Asia Phone: Copyright notice Copyright 2015 Argus Media Ltd. All All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, METAL-PAGES, JIM JORDAN & ASSOCIATES, JJ&A, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

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