Outlook for Global Economy and State of the Petrochemicals Industry Clive Gibson, cgibson@nexant.com Vice President, Nexant
Outlook for Global Economy and State of the Petrochemicals Industry Sapporo, Japan Clive Gibson
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Current petrochemicals industry landscape shaped by the Big Four Politics Economics Feedstocks Markets 6
216-17 has seen unexpected political changes which may have longer term impacts for the petrochemicals industry Impacts likely to be limited to UK-EU relations Contagion not spreading following elections in France and Netherlands Domestic energy policy uncertain but America First likely to incentivise domestic investments Environmental policies to be relaxed Revised trade agreements to impact export opportunities to the U.S. Significant increase in regional tensions Escalation could have significant global impact 217 Iran election may impact global relationships Syria remains a source of conflict/diplomatic challenges
Global GDP growth remains stable, with Asia accounting for almost two thirds of total growth in 216 Global GDP Growth (Real percent) 15% 1% Global Share of GDP (216) OTHER 18% CHINA 15% NAM 28% 5% % -5% 28 29 21 211 212 213 214 215 216 World China India SE Asia OTHER 3% CHINA 39% ASIA exc CHIN ASIA exc CHINA WE 18% 21% Share of GDP Growth (216) Global NAM 19% WE 15% SEA 13% India NEA 1% exc Chin Asia Other 7% China 62% Amongst other developing economies, Brazil and Russia remained in recession 8
Global GDP growth supporting growth in petrochemicals Global Linkage - GDP to Petrochemicals Demand Growth 1% 8% Base Chemicals & Polymers Consumption Breakdown - 216 Polymers Olefins 6% 4% 2% Methanol Aromatics Petrochemicals Demand/GDP Growth Ratio 21-16 2 % 211 212 213 214 215 216 Global GDP Growth Petrochemicals Demand Growth 1 China Asia N America Europe 9
China s 13 th 5 year plan focuses on consuming rather than heavy industries and combines with its One Belt One Road policy China GDP Growth (Real percent) China GDP Breakdown - 216 5 Year Plan Key features - petrochemicals 12 1 8 6 4 2 Industr Agro Servs Implement an innovation driven strategy Promote transformation of traditional industries Develop new chemical materials Promote integration of IT and industrialisation Strengthen safety management Standardise industrial park developments 21 212 214 216 Promote construction of 7 petrochemicals hubs One Belt One Road Expand international co-operation Launched in 213 Huge infrastructure program in over 6 countries China seeking to invest >USD15bn 1
Crude oil pricing has shown signs of stability FOB Brent Oil Price (US$/bbl) 15 125 1 75 5 OPEC production cuts 5 year futures contango flattened 25 28 21 212 214 Jan-216 Jan-217 BUT US Crude oil production up 1 million barrels since trough in mid 216. Production increases offset by OPEC discipline Declining US Production 218 22 222 11
Petrochemicals feedstock sourcing is evolving. Feed Flexibility will be a critical part of future trends Middle East Gas China Coal US Shale Feed Flexibility 12
A transition in transportation fuels will drive closer refinerypetrochemicals integration Bunker Fuel Quality Improvement Regulations require global reduction in sulphur content from 3.5 percent to.5 percent Refiners must find alternative use for up to 8 million tons per year fuel oil in Asia 22 Electric Vehicle Penetration Cost competitiveness of EVs versus conventional vehicles improving rapidly due to technology Global gasoline demand to slow and decline in certain markets requiring alternative outlets 216-235 Selective Diesel Ban? Environmental concerns relating to tailpipe emissions Potential city bans and replacement with fuels with cleaner emissions to limit long term growth potential 225-? 13
Energy price differentials continued to narrow in 216 on an energy equivalent basis Global Energy Prices (US$/mm BTU) 25 2 15 1 5 27 28 29 21 211 212 213 214 215 216 Henry Hub Gas US Ethane US Propane 14
Ethylene Cash Cost (Current US dollars per ton ethylene) Petrochemicals feedstock cost advantages remain at lower oil prices but are substantially reduced Global ethylene production cost curves versus crude oil price 2 18 16 14 12 1 8 6 4 2 Liquids cracking Lighter feedstocks Ethylene Cumulative Capacity Oil Price (US$ per bbl) 1 7 216 15
Buoyant demand in 216 supported industry operating rates Petrochemicals Demand 216 Petrochemicals Operating Rates - 216 Million tpy 2 15 1 5 1% 75% 5% 25% % Significant olefins capacity additions are imminent outside China 16
NexantThinking Profitability Index (1995=1) Global Petrochemical Profitability has improved at lower oil prices Global and Regional NexantThinking Profitability Index 2 15 1 5 United States Middle East Global 17
Shell EBITDA US$ billion Brent crude oil price US$/bbl Crude oil price continues to the key driver of profitability for International Integrated Major Energy Players Company Performance with Crude Oil price 1 125 75 5 25 1 75 5 25 1986 199 1994 1998 22 26 21 214 Source: Nexant, Company Results EBITDA Brent crude oil 18
Return on Average Capital Employed percent Advantaged refining and petrochemicals portfolios continue to deliver good returns across the industry cycle Company Financial Performance by Sector - ExxonMobil 6 5 4 3 2 1 25 27 29 211 213 215 Upstream Downstream Chemicals Source: Nexant, Company Results 19
M&A Transaction Value US$bn M&A activity has been strong. Top 5 deal values in 216 exceeded prior years Nexant Transaction Tracker - Chemicals 25 2 15 1 5 21 211 212 213 214 215 216 Large Other Deal activity peaked in late 215/1H216 Top 5 deals in 216 totalled USD16 bn Total reported deal volumes up around 5 percent on 215 Mega deals focused in Fertilisers/Agro Monsanto, Syngenta, Agrium Ind Gases - Linde Source: Nexant and, Company Annoucements 2
A 35 percent increase in base chemicals investments 216-2 is focused in US ethylene Global Base Chemicals Capacity Outlook 21-215 215-22 China N America Mid East Rest of Asia Other 21-215 215-22 Methanol Aromatics Propylene Polymers Ethylene 21
Conclusions Political risks and uncertainties have increased significantly Economic trends have been stable..but depend on above Feedstocks trends are transitioning. Markets offering a mix of investment opportunities Industry Outlook remains positive but varies by sector 22
Clive Gibson Vice President Energy & Chemicals Advisory T: +66 2793 462 E. cgibson@nexant.com Nexant, Inc. 22nd Floor, Rasa Tower I, 555 Phahonyothin Road, Kwaeng Chatuchak, Khet Chatuchak, Bangkok 19 Thailand Telephone: +662 793 46 Facsimile: +662 937 144 www.nexant.com This presentation was prepared by Nexant Asia Limited ( Nexant ). Except where specifically stated otherwise in the presentation, the information contained herein was prepared on the basis of information that is publicly available and has not been independently verified or otherwise examined to determine its accuracy, completeness or financial feasibility. Neither NEXANT, nor any person acting on behalf of NEXANT assumes any liabilities with respect to the use of or for damages resulting from the use of any information contained in this presentation. NEXANT does not represent or warrant that any assumed conditions will come to pass. This presentation is integral and must be read in its entirety. The presentation is given on the understanding that the recipient will maintain the contents confidential except for internal use. The presentation should not be reproduced, distributed or used without first obtaining prior written consent by NEXANT. This presentation may not be relied upon by others. This notice must accompany every copy of this presentation. San Francisco New York Houston Washington London Frankfurt Bahrain Singapore Bangkok Shanghai Kuala Lumpur www.nexant.com