IHS Petrochemical Outlook Presentation to Indian Petrochem 2014 Tony Potter Vice President Asia Pacific IHS Chemical October 30, 2014
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Agenda: Petrochemical Outlook Key Drivers In Base Chemicals Energy at the Extremes Impacts Cracker Build Coproducts: Producers Adapt to Meet Supply Gap Costs and Profitability
Chemical Investments Seek A Sustainable Advantage Energy & Feedstocks make up 60-70% of the costs of chemical production. Investments seek a competitive advantage in energy and feedstock costs. Demand Growth Proximity to demand growth essential without distinct cost or technology advantage. Trade access is also key. Technology Technology to enable competitive production costs, economies of scale, high performance products. First to market is important.
Asia s Large Increase in Manufacturing Supports Base Chemical and Polymer Demand Growth Share of World Demand Growth 2008-2018, Percent Percentage 100 80 60 40 20 0 PE PP PVC Polyester Butadiene Bz PX China Rest of Asia 5 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Middle Class Growth and Urbanisation Population Growth Rate for 2013-2018 (15 to 65 years) 3% 2% Malaysia, 65 Singapore, 73 Indonesia, 150 1% 0% -1% Thailand, 120 S. Korea, 184 Taiwan, 149 Japan, 1,047 China, 1,221-2% -2% 0% 2% 4% 6% 8% 10% 12% Middle/ Upper Class Growth Rate for 2013-2018 (Household Income > USD5,000) Bubble Size: Total Consumption for Durable, Non-Durable and Semi-Durable Goods in 2018, Billion of
Agenda: Petrochemical Outlook Key Drivers In Base Chemicals Energy at the Extremes Impacts Cracker Build Coproducts: Producers Adapt to Meet Supply Gap Costs and Profitability
Feedstock Price Differentials vs. Crude Oil Create opportunities in coal, gas, ethane Price Difference, $MMBtu 20.0 16.0 12.0 8.0 4.0 0.0-4.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Brent - Nat Gas Brent - Coal Brent-ethane
Chemical Projects Leveraging Local Natural Resources Gas/Coal/Oil Numerous shale and LPG based projects. Potential for MTO Continued gas, liquid & LPG based investing LPG/MTO investigations early but promising Numerous CTO / MTO projects underway Requires Infrastructure and policy definition Active Projects Reserve potential Needs infrastructure and government support Focus is primarily LNG
A Time of Coal and Ethane Incremental Ethylene Capacity 2014-19, Million Metric Tons Rest of Asia China MDE/Afr Europe Americas -2 0 2 4 6 8 10 12 14 Naphtha & Heavier LPG Ethane Coal/ Methanol Others 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 10
Cracker Feed Stocks Are Getting Lighter, But the World Still Needs Naphtha 2009: 110.7 MT 2014: 137.3 MT 4% 1% 3% 1% 1% 32% 35% 50% 8% 2019: 167.1 MT 46% 5% 9% 5% 3% 1% 3% 3% 39% 40% 4% 7% Ethane Propane Butane Naphtha Gas Oil Methanol to Olefins Coal to Olefins Others 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
16 14 12 10 8 6 4 2 0 North America: The Natural Gas Shift Dollars per MMBtu 18 Gas as % of Crude 120% Forecast 100% 80% 60% 40% 20% 0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Crude (WTI) Natural Gas Gas as % of Crude 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
United States Basic Chemicals Growth 2000/2010 versus 2010/2020 Million Metric Tons 14 12 10 8 6 4 2 0-2 -4-6 Benzene Chlorine Chlroine Methanol Propylene Ethylene 00 to 10 10 to 20
A Wave of Investment in China Seeking to Reduce Dependency on Imports 25 Capital Expenditure, Billion US Dollar 20 15 10 5 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 C2 Cracker MEG MTO CTO/CTP PDH CTMEG
Coal-to-Olefin/ Methanol-to-Olefin Projects (2010 to 2018) Baotou Shenhua 600 KTA CTO Inner Mongolia, 2010 Datang International 500 KTA CTP Inner Mongolia, 2012 Zhongyuan PC 200 KTA CTO Henan, 2011 Completed Projects CTO/CTP: 4 MTO/ MTP: 2 Upcoming Projects CTO/CTP: 20 MTO/ MTP: 9 Shenhua Ningmei 500 KTA CTP Ningxia, 2010 Wison (Nanjing) 300 KTA MTO Nanjing, 2013 Fund Energy (Ningbo) 600 KTA MTO Zhejiang, 2013 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 15
China Is Reducing Ethylene Derivative Import Dependency (But Still Needs Imports) Million Metric Tons Equivalent Ethylene Percent, % 60 80 50 40 30 20 10 0 20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net Equivalent Import (Export) Domestic Derivative Equivalent Demand Self-sufficiency 70 60 50 40 30 16 16
1.0 0.0-1.0-2.0-3.0 India Import Requirement Grows Despite New Capacity Build Million Metric Tons, Equivalent Ethylene Net Exports -4.0-5.0 Net Imports 08 09 10 11 12 13 14 15 16 17 18 Ethylene Vinyls Styrenics Polyethylene Glycol Others Net Trade 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Agenda: Petrochemical Outlook Key Drivers In Base Chemicals Energy at the Extremes Impacts Cracker Build Coproducts: Producers Adapt to Meet Supply Gap Costs and Profitability
2000 = 100% 110% Cracker Production of Propylene and Butadiene Falls Relative to Ethylene 100% 90% 80% 70% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 P/E B/E 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Propylene Producers Adapt, Some More Aggressively China Propylene Supply US Propylene Supply 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 00 02 04 06 08 10 12 14 16 18 20 22 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 00 02 04 06 08 10 12 14 16 18 20 22 Stm. Crackers FCC Splitters Dehydro Metathesis Olefin Cracking Methanol to Olefins Methanol to Propylene Coal to Olefins Coal to Propylene HS FCC Others On-Purpose 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Coal and Propane Drive Propylene Incremental Propylene Capacity 2013-18, Million Metric Tons Rest of Asia China MDE/Afr Europe Americas -2 0 2 4 6 8 10 12 14 16 18 20 Steam Cracker FCC Coal/ Methanol PDH Others 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Upcoming PDH Projects in Northeast Asia (to 2018) Bohai Chemical 600 KTA C3 Tianjin Hyosung 165 KTA C3 Ulsan Tae Kwang 250 KTA C3 Ulsan Completed Projects 1 (China) 2 (South Korea) Upcoming Projects 12 (China) 2 (South Korea) 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 22
Agenda: Petrochemical Outlook Key Drivers In Base Chemicals Energy at the Extremes Impacts Cracker Build Coproducts: Producers Adapt to Meet Supply Gap Costs and Profitability
Global Ethylene Balance Is Tightening Million Metric Tons Operating Rates, % 200 95 150 90 100 85 50 80 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Demand Total Capacity Operating Rates 75 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
But Substantial Over-Build of Propylene Capacity Million Metric Tons, Propylene 12 8 4 0-4 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 23 North America Middle East China West Europe Others Annual Demand Increase 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ethylene Cash Cost Snapshot Regional Comparison: 2013 vs 2023 U.S. Dollars Per Metric Ton 1575 1350 1125 900 675 450 225 0 Western Canada U.S. Ethane U.S. Weighted Average China CTO West Europe Naphtha Northeast Asia Naphtha Southeast Asia Naphtha China MTO 2013 2023 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Global Profit on the Upswing; Down-Cycle Will Be Muted for Advantaged Regions $ per Ton $300 $250 $200 $150 $100 $50 $0 -$50 Basic Chemicals & Plastics EBIT Comparison $ per ton $300 $250 $200 $150 $100 $50 $0 -$50 -$100 Global Average West Europe Asia North America 85 88 91 94 97 00 03 06 09 12 15 18 -$100
Conclusions The petrochemical world has split between advantaged cost feedstock haves and have nots But.the world still needs investment in naphtha crackers Shale (and Coal) create supply imbalances in other value chains Profits are on the upswing; but large regional variations
IHS Petrochemical Outlook THANK YOU Tony Potter Vice President, Asia Pacific IHS Chemical Tony.Potter@ihs.com