Presented to: Asia Petrochemical Industry Conference Raw Materials Committee Meeting May 2, 24 Kuala Lumpur, Malaysia Mark Eramo Vice President Olefins & Elastomers meramo@cmaiglobal.com
Agenda! Ethylene comments "Capacity additions "Regional cost positions "Derivative trade "Demand growth "Recovery scenario! Propylene comments "Strategic issues "Demand growth "Regional trade
From Wellhead to Consumer Supply-Chain Is Changing Ethylene Base Energy Ethylene Unit PE Pellets Consumers Non- Durables
Strategic Issues Facing the Global Ethylene Industry! Economic recovery key to renewed demand growth! Emerging energy market trends re-defining cost positions! Regional incentives for investments are changing the global supply-chain! Trade patterns for finished goods and intermediates! Environmental regulations present new challenges
World Regional Ethylene Capacity Additions Million Tons Billion Pounds 8. 17.6 7. 6. 5. 4. 3. 2. 1.. 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 North America Middle East Total Asia West Europe Others Annual Demand Increase 15.4 13.2 11. 8.8 6.6 4.4 2.2.
Regional Million Tons 6 Ethylene Capacity Growth Continues in Asia and Middle East World Million Tons 16 5 4 3 2 1 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 World NAM MDE WEP Asia 14 12 1 8 6 4 2
Incentives to Build Capacity in North America Have Changed # New Focus in Middle East Million Tons 2 18 16 14 12 1 8 6 4 2 NAM NEA WEP MDE SEA SAM ISC ROW 89-99 - 1
Incentives to Build Capacity in North America Have Changed # New Focus in Middle East Million Tons 2 18 16 14 12 1 8 6 4 2 NAM NEA WEP MDE SEA SAM ISC ROW 89-99 - 1 Incentives to build ethylene capacity in Asia will continue.
Regional Ethylene Investment Strategies Will Vary in the Current Decade Middle East remains focused on majority of new construction Asia grows and seeks balance between upstream & downstream investment North America and Europe focus on domestic markets; and seek to improve cost position
A Third Wave of Middle East Ethylene Capacity Will Impact Market Starting in 26/7 (Million Metric Tons) 3 25 2 15 1 Middle East ethylene capacity is hitting the global market in waves. By the end of the 3 rd wave, MDE region capacity will likely rank among the top four regions globally. 1 st Wave; Mid-to-late 9 s 2 nd Wave; 2 25 3 rd Wave; 26+ $ Therefore, timing may not impact the forecast for the next peak in global plastics and base chemicals 5 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 Saudi Arabia Iran Qatar Kuwait UAE Turkey Israel Iraq
Amir Kabir furnace train from the west and BP process Linear PE unit - May 24
Ethylene Cash Cost Competitiveness! Higher energy prices create large advantage and increasing incentive for Middle East investments! Natural gas to crude oil ratio will define regional competitive positions in the future! Advantaged feed capacity is increasing on a global basis.
45 4 35 3 25 2 15 1 5 Higher Energy Prices Increase Middle East Advantage Dollars Per Ton MDE SEA WEP NEA NAM 97 98 99 1 2 3
$ / MM Btu 7. 6. 5. 4. 3. 2. 1. North America Energy Price Trends As the cost of natural gas approaches that of crude oil on a heating value basis, gas based olefins production becomes less competitive relative to naphtha based olefins production. Crude/Gas Ratio 6. 5. 4. 3. 2. 1.. 85 86 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 Natural Gas Crude (WTI) Crude / Gas Ratio.
Global Ethylene & Derivative Trade! Middle East will dominate ethylene derivative trade (mainly PE and MEG)! Asia import requirements continue to outpace capacity additions! North America role in trade declines more focus on domestic markets! West Europe (and others) become larger importers! Shipping infrastructure could be challenged
World North America a Major Supplier to Other Regions During 199 s Million Tons 8 Net Exports 6 4 2-2 -4-6 -8-1 Net Imports Ethylene Net Equivalent Trade 9 91 92 93 94 95 96 97 98 99 North America South America West Europe Middle East Indian Sub. Northeast Asia Southeast Asia Others
Middle East Will Dominate Trade During In Million Tons 25 Net Exports 2 15 1 5-5 -1-15 -2-25 Net Imports The Current Decade Ethylene Net Equivalent Trade 1 2 3 4 5 6 7 8 9 1 North America South America West Europe Middle East Indian Sub. Northeast Asia Southeast Asia Others
PE & MEG Exports Will Flow From The Million Tons 2 Net Exports 15 Middle East 1 5-5 Net Imports 98 99 1 2 3 4 5 6 7 8 9 1 Ethylene Vinyls Styrenics Polyethylene Glycol Others Ethylene Net Equivalent Trade
West Europe A Primary Target Thousand Tons 1 Net Exports 5-5 -1-15 -2-25 -3 Net Imports Ethylene Net Equivalent Trade 98 99 1 2 3 4 5 6 7 8 9 1 Ethylene Vinyls Styrenics Polyethylene Glycol Others Net Trade
North America s Role Will Decline Million Tons 5 Net Exports 4 3 2 1-1 Net Imports Ethylene Net Equivalent Trade 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Ethylene Vinyls Styrenics Polyethylene Glycol Others Net Trade
NAM Polyethylene Shifts To Net Imports Million Tons 5 Net Exports 4 3 2 1-1 Net Imports Ethylene Net Equivalent Trade 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Ethylene Vinyls Styrenics Polyethylene Glycol Others Net Trade
NAM Glycols and Vinyls Remain Positive Million Tons 5 Net Exports 4 3 2 1-1 Net Imports Ethylene Net Equivalent Trade 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Ethylene Vinyls Styrenics Polyethylene Glycol Others Net Trade
Can the Shipping Infrastructure Support the Rapid Growth In Trade? Infrastructure in place for current trade level Will it support expected growth? How fast can it be expanded? Will the cost structure change? What about efforts towards integration in Asia or Middle East?
Global Ethylene Demand Growth! Global ethylene recovery dependent upon return to strong economic growth in major regions! Forecast assumes near term growth of about 5. million tons per year! Total consumption in Asia accelerates well beyond other regions driven mainly by growth in China
Percent Change 8 7 6 5 4 3 2 1-1 -2-3 Global Economic Growth Forecast Strong GDP growth in major regions results in strong petrochemical demand growth 9 92 94 96 98 2 4 6 8 World N. America W. Europe SE Asia NE Asia
7 6 5 4 3 2 1 Return to Strong Demand Growth Driven by Assumption of Global Economic Recovery Percent Growth 8 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 Ethylene Demand Growth GDP Growth
Return to Strong Demand Growth Driven by Assumption of Global Economic Recovery Percent Growth 8 7 6 5 4 3 2 1 1994-1998 Annual average growth of 4.1 million tons 24-28 Annual average growth of 4.8 million tons 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 Ethylene Demand Growth GDP Growth
World Ethylene Consumption Driven by Major Regions Million Tons 14 12 1 8 6 4 2 Total ethylene consumption forecast to reach 13 million tons by 21! 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Asia North America West Europe Middle East World
Consumption of Ethylene Derivatives Million Tons 5 Ethylene Equivalent Consumption By Region 45 4 ASIA 35 3 25 NAM WEP 2 15 1 5 MDE 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1
Global Ethylene Recovery Begins in 24! Million Tons 14 % Operating Rate 11 12 1 8 6 4 2 98 99 1 2 3 4 5 6 7 8 98 95 92 89 86 83 8 Demand Capacity % Operating Rate
North America Ethylene Supply/Demand & Utilization Million Metric Tons % Operating Rate 4 14 35 3 25 2 15 1 5 98 99 1 2 3 4 5 6 7 8 1 96 92 88 84 8 76 72 Demand.7 / 2.7 * Capacity 2.6 /.6 * % Operating Rate *%AAGR 98-3 / %AAGR 3-8
Million Metric Tons 3. West Europe Ethylene Supply/Demand & Utilization % Operating Rate 1 25. 96 2. 92 15. 88 1. 84 5. 8. 98 99 1 2 3 4 5 6 7 8 Demand 2.3 / 1.1 * Capacity 2.6 / 1. * % Operating Rate 76 *%AAGR 98-3 / %AAGR 3-8
Ethylene Cash Margins Support Re-Investment But With New Approach Dollars Per Ton 5 45 4 35 3 Re-Investment Cash Margins 25 2 15 1 5 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 NAM Ethane NAM Light Naphtha WEP Naphtha SEA Naphtha
Ethylene Market Conclusions % Ethylene capacity growth restrained in North America and Europe as investments shift to low cost regions (MDE) and continue in high demand regions (Asia) % Regional competitive positions will shift with crude and natural gas price volatility % Recovery supported by renewed economic and manufacturing sector growth. Global shift in supply chain will change regional trade patterns % Margin recovery pushed to 5 /7 with sustained but more moderate margins through 28.
Global Strategic Issues for Propylene Middle East ethylene industry growth satisfies Asia C2 demand growth but little of the C3 growth. Asia stays critically short on propylene and other steam cracker co-products. Europe has similar problem, but not as bad. P/E price ratios in Europe & Asia expected to be higher. On-purpose propylene investments become justified, especially in Asia. Large propylene-sourcing related investments under consideration to solve supply problems.
23 PG/CG Propylene Demand PP 64% Northeast Asia PP 57% North America Cumene 1% Acrylo. 11% Oxo Alc. 7% Pro. Oxide 11% Others 13% Domestic Demand = 14.3 Million Metric Tons Cumene 4% Acrylo. 15% Oxo Alc. 7% Pro. Oxide Others 4% 6% Domestic Demand = 15.8 Million Metric Tons West Europe Cumene 6% PP 61% Others 8% Acrylo. 7% Oxo Alc. 8% Pro. Oxide 1% Domestic Demand = 13.7 Million Metric Tons
23 PG/CG Propylene Supply North America Stm. Crackers 49% Others 1% FCC/Splitters 5% Total Production = 14.8 Million Metric Tons Northeast Asia Stm. Crackers 73% West Europe Stm. Crackers 77% Dehydro FCC/Splitters 2% 25% Total Production = 15.7 Million Metric Tons Dehydro FCC/Splitters 3% 2% Total Production = 13.5 Million Metric Tons
Million Metric Tons 9 World PG/CG Propylene Demand Forecast Demand Growth = 4.7% AAGR 23-1 8 7 6 5 4 3 2 1 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Polypropylene 7.9 / 5.2 * Cumene 3. / 4.4 * Acrylonitrile 2.5 / 2.1 * Oxo Alc. 3.1 / 3.7 * Propylene Oxide 3.7 / 4.7 * Others 3.6 / 4. * *%AAGR 9-3 / %AAGR 3-1
Thousand Tons 6 Net Exports 5 4 3 2 1-1 -2-3 -4-5 -6 World Propylene & Derivatives Trade Net Imports 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 North America West Europe Middle East Northeast Asia Southeast Asia Others