Global Petrochemical Market Outlook Leveraging Competitive Feedstocks Given Energy Market Uncertainty Presented To: Congreso Argentino de Petroquimica June 14, 216 Centro Costa Salguero Buenos Aires, Argentina Mark Eramo Global Business Development IHS Chemical
The Global Chemical Industry Enabling Modern Living ENERGY & ENERGY & FEEDSTOCKS FEEDSTOCKS CHEMICAL INDUSTRY VALUE CHAIN Base Chemicals Chemical Intermediates Formulated products / performance materials CUSTOMERS Mining, drilling, refining, gas processing Oil Gas Coal Minerals Renewables Olefins (ethylene, propylene, butylene) Aromatics (benzene, toluene, xylenes) Chlor-akali (chlorine, caustic soda) Others (ammonia, phosphorous) Commodities Differentiated commodities Technical specialties Plastics and engineering resins Extruded films, pipe, profiles, coatings, sheet, foams Blow-molded parts Composites Synthetic fibers Rubber products Paints and coatings Adhesives and sealants Lubricants Water treatment products Cleaning products Industrial chemicals Flame retardants Automotive / transportation Consumer products Packaging Building / construction Recreation / sport Industrial Medical Pharmaceutical Personal care Textiles Electrical / electronics Aircraft / aerospace Business equipment
Basic Chemicals 215 Demand Growth Performance & Forecast to 22 215 Demand Growth, Average Growth to 22, and GDP Elasticity 6, 4, Million Metric Tons 4,5 3, 1,5 3, 2, 1, Global GDP Elasticity, -1,5 Ethylene Propylene Methanol 215 Avg: 216 to 22 215 Elasticity (right axis ), -1, 3
Global Energy & Economic Fundamentals Have Changed Impacting Investment Decisions Crude oil price trends impact regional competitiveness, cash margins, project returns and future investment decisions. Global economic growth patterns are shifting as developing countries adjust to lower energy and changes inside China evolve. Key decisions of location, feedstock, technology, scale, growth, cost position: are much less obvious Result is a slowdown in approving new investments for 22+ 4
The Brics Have Stumbled With Local And Global Issues Impacting The Near Term Growth Outlook Real GDP 15 1 Percent change 5-5 -1 2 22 24 26 28 21 212 214 216 218 22 China India Brazil Russia
In China, Headlines Mask Underlying Growth In Domestic Markets Select County GDP, $US Trillion 2 16 12 8 4 11 th 5-year Plan 12 th 5-year Plan 1995 2 25 21 215 India Germany Japan China USA Chinese growth slowing, but absolute growth dwarfs other economies Growth shifting to services sector and away from fixed investment Slowdown concentrated in industrials primarily in mining, utilities and heavy manufacturing Increasing consumer spending will continue to drive domestic consumption of basic chemicals and plastics >75% of Chinese plastics demand is in consumer nondurable 6
Energy Prices Influence Location & Technology For New Capacity Decisions Crude Oil - Natural Gas - NGLs - Naphtha - Coal : Constant 214 Dollars Per MM Btu 2 15 1 5 2 25 21 215 22 Brent Crude Henry Hub Gas
Energy Prices Influence Location & Technology For New Capacity Decisions Crude Oil - Natural Gas - NGLs - Naphtha - Coal : Constant 214 Dollars Per MM Btu 2 15 1 5 2 25 21 215 22 Brent Crude SEA Naphtha Henry Hub Gas US Propane US Ethane China West Coal
Non-conventional Technology Providing Options For Future Investments In Light Olefins Production Conventional Olefins Cash Cost Non-conventional Olefins Cash Costs $US Per Metric Ton, Light Olefins 14 12 1 8 6 4 211 215 2 US Ethane US PDH NEA PDH NEA Naphtha WEP Naphtha US GTP US GTO NEA CTO NEA MTO PDH = Propane Dehydro; GTP = Gas to Propylene; GTO = Gas to Olefins; CTO = Coal to Olefins; MTO = Methanol to Olefins 9
Key Assumptions Regarding Future Investments Are No Longer Obvious Photo courtesy of Braskem Idesa Investment Key Assumptions: Global crude oil price scenarios Global economic growth outlook North American energy market China structural changes Non-conventional technology Current state of the profit cycle Project Financing Sustainability (GHG emissions) Levels of integration Logistics investments Geo-political considerations 1
Chemical Investments Dominated By Asia/Pacific With China Leading The Way Base Chemicals Total Capacity By Region Ethylene, Propylene, Methanol, Benzene, Paraxylene, Chlorine 9 Technology & Economies of Scale Raw Material & Energy Costs Demand Growth & Access to Markets Million Metric Tons 75 6 45 3 15 From 214 to 22, total capacity will increase by 144 MM metric tons. Current wave is set; what about beyond 22? 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 24 China Asia Less China (with India) North America Middle East + Africa Europe South America 11
Where To Invest The Next Wave Beyond 22? Benzene Chlorine Ethylene Methanol Paraxylene Propylene PG 12
Next Ten Years Will See Slower Investment Pace In China and New Countries In The Top 1 Base Chemical Capacity Growth: 25-15 Base Chemical Capacity Growth: 215-25 Million Metric Tons 18 12 6 Total Additions, MM Ton 298 Total top 1 Countries, MM Tons 252 Top 1 Countries, % of total 84% Total Closures, MM Tons 11.5 Million Metric Tons 18 12 6 Total Additions, MM Ton 265 Total top 1 Countries, MM Tons 222 Top 1 Countries, % of total 83% Total Closures, MM Tons 7.5 CERI Congreso 216 Argentino Petrochemical de Petroquimica, Conference: June 14, 5-7, 216 13
China Aggressively Adds Chlorine, Methanol, Propylene China demonstrating aggressive investments in basic chemicals to maintain a high degree of self-sufficiency. China will add nearly 25 MM metric tons during a period of three decades. Since 21, major additions in propylene, methanol, and chlorine. China self-sufficiency in propylene could reach 85+% by 22 China - Base Chemical Total Capacity Million Metric Tons 25 2 15 1 5 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 24 Propylene (PG/CG) Ethylene Paraxylene Benzene Methanol Chlorine CERI Congreso 216 Argentino Petrochemical de Petroquimica, Conference: June 14, 5-7, 216 14
US Low Cost Brings Back Methanol and Ethylene After peaking near 8 MM metric tons near 21, the US shut down capacity in methanol and ethylene near 21. Shale oil & gas have 6 brought back competitive economics 4 to the US, resulting in 2 expansions in methanol and ethylene capacity United States - Base Chemical Total Capacity Million Metric Tons 14 12 1 8 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 24 Propylene (PG/CG) Ethylene Paraxylene CERI Congreso 216 Argentino Petrochemical de Petroquimica, Conference: June 14, 5-7, 216 Benzene Methanol Chlorine 15
Planning Future Investments In Petrochemicals Strategic Implications High level of uncertainty in energy and economic fundamentals present difficult scenarios for future project evaluations. The investment landscape is changing with shifting demand growth and non-conventional options on technology and feedstocks. Board rooms likely to require higher returns; approvals deferred until conditions signal more predicable outcomes. Investment decisions for 216 placed on hold could lead to supply limitations in the 22+ time-period. 16
Global Petrochemical Market Outlook Thank You Presented To: Congreso Argentino de Petroquimica June 14, 216 Centro Costa Salguero Buenos Aires, Argentina Mark Eramo Global Business Development IHS Chemical