Transcript Document

Olefins Feedstock Demand…
If You Build It, Will It Come?
Prepared for:
Gas Processors
Association
October 2008
Mike Kelly
Consultant – Light Olefins
[email protected]
Singapore
Shanghai
Houston
New York
London
Düsseldorf
Dubai
Trends in Light Olefins
 Olefins Value Chain
 Current Conditions
 Near Term Strategic
Issues:
 Shifting Energy and
Regional Competition
 Capacity Overbuild
 Olefins Profitability
 Wrap Up
October 2008
Olefins Supply-Chain Dynamics
Consumers
Energy
Retail Sector
Olefins Production
October 2008
Durable /
Non-Durable
Derivatives
Energy
Feedstocks
Petrochemicals
Crude Oil
Refinery
Gas
Separation
Unit
Ethylene
Propylene
Methane/Hydrogen
Naphtha
Gas Oil
Crude C4
Ethane
Propane
Butanes
Field
Condensates
• Butadiene
• Mixed Butylenes
Ethylene
Unit
Pygas
•
•
•
•
Benzene
Toluene/Xylene
Heavy Aromatics
C5/C6 Non Aromatics
Fuel Oil
Natural Gas
Olefins Flow Diagram
October 2008
Propylene Has Multiple Sources
Alkylation
Unit
Refinery
FCC Unit
Gas Oil
High Octane
Alkylate Gasoline
Isobutane
Non-Chemical
Refinery Grade
60% purity
Cumene, Oligomers,
Isopropanol
Chemical
Purification
Splitter
Polymer Grade (99.5%)
Chemical Grade (93%)
Propane
Naphtha/NGL
Propane
Ethylene/Butylene
Cracker
Propane
Dehydrogenation
(PDH)
On Purpose
On Purpose
Metathesis
October 2008
United States
2008 Ethylene Supply/Demand
Production By Feedstock
Demand By End-Use
PE
55%
Ethane
51%
Others
6%
Gas Oil
5%
Naphtha
17%
Propane Others
13%
18%
Butane
3%
EBZ
5%
EDC
14%
Domestic Demand = 25.4 Million Metric Tons
October 2008
Ethylene
Oxide
13%
Current
Conditions
October 2008
U.S. Ethylene Cash Cost Trends
Cents Per Pound
80
70
60
50
40
30
20
10
0
06
A
J
O
07
A
Ethane
J
O
08
A
Lt. Naphtha
October 2008
J
O
Propane
09
A
J
O
United States
Monthly Ethylene Net Equivalent Trade
Thousand Tons
500
Net Exports
400
Million Pounds
1102
882
300
661
200
441
100
220
0
-100
0
Net Imports
-220
03 A J O 04 A J O 05 A J O 06 A J O 07 A J O 08 A J
Ethylene
Glycol
Vinyls
Alpha Olefins
Styrenics
Vinyl Acetate
October 2008
Polyethylene
Others
U.S. Ethylene Capacity Utilization
Billion Pounds
17
Operating Rate
105%
16
100%
15
95%
14
90%
13
85%
12
80%
11
75%
10
70%
9
65%
01 Q3 02 Q3 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3
Total Demand
Effective Operating Rate
October 2008
Nameplate Operating Rate
Energy Impact on
Regional Ethylene
Economics
October 2008
High Energy Means Higher Cost In The
Petrochemical Chain
Ethylene Wtd. Avg. Cash Costs – Cents Per Pound
55.00
50.00
45.00
40.00
35.00
30.00
25.00
U.S. market has seen
an upward shift in cash
cost of more than 30
cents per pound
20.00
15.00
10.00
5.00
0.00
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
October 2008
North America Energy Price Trends
Gas-to-Crude
Ratio
120%
$ / MM Btu
20
18
Source: Purvin & Gertz
100%
16
14
80%
12
10
60%
8
40%
6
4
20%
2
0
0%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
WTI Crude (Left Axis)
Gas-to-Crude Ratio (Right Axis)
Natural Gas (Left Axis)
October 2008
High Energy Means Distinct Advantage
Middle East
Dollars Per Metric Ton
2050
2008
2003
1850
WTI Crude Oil, $/Bbl ($/MMBtu) 31 (~5)
1650
USGC Natural Gas, $/MMBtu
1450
2008
110 (~18)
9.4
5.5
NE Asia / W. Europe
1250
N. America
1050
850
650
Middle East
2003
450
N. America
250
NE Asia / W. Europe
50
0
20
40
60
80
100
120
140
Cumulative Ethylene Capacity (Million Metric Tons)
October 2008
160
Acceleration In Global
Capacity Build-up
October 2008
Middle East & Asia Dominate
Current Wave Of New Capacity
Yanpet Ethylene – Saudi Arabia
 Middle East adding major
portion of new additions,
driven by incentives for
industrial development
 Asia additions driven by
higher self-sufficiency and
industrial development
 India, South America, Africa,
all adding capacity driven by
industrial development
 Limited to no new capacity in
North America and Europe
October 2008
World
Ethylene Capacity Growth Trends
Million Metric Tons
60
50
40
30
20
10
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Japan
Korea
China
Taiwan
Singapore
Thailand
India
Other Asia
North America
Middle East
October 2008
The Immediate Threat...
Nine Million Tons By Mid-2009
Capacity Add., MMT
Company
Country
Capacity
(kT)
Time
10.0
9.0
Arya Sasol
Jam PC
Iran
Iran
1000
1340
Q1 08
Q2 08
8.0
Jubail
ChevPhil
Saudi Arabia
300
Q3 08
7.0
SEPC
Saudi Arabia
1000
Q3 08
Yansab
Saudi Arabia
1300
Q4 08
Petro-Rabigh
Saudi Arabia
1250
Q4 08
TKOC
Kuwait
850
Q4 08
SHARQ
Saudi Arabia
1200
1H 09
2.0
RLOC
Qatar
1300
Q2 09
1.0
1H '09
6.0
5.0
4.0
3.0
0.0
October 2008
Q4 '08
Q3 '08
1H '08
Middle East Takes Market Share
World Ethylene Net Equivalent Trade, Million Metric Tons
25
Net Exports
20
15
10
5
0
-5
-10
-15
-20
Net Imports
-25
03
04
North America
Indian Sub.
05
06
07
South America
Northeast Asia
08
09
10
West Europe
Southeast Asia
October 2008
11
12
13
Middle East
Others
Capacity Build-up
Impact on the U.S.
Olefins Industry
October 2008
United States
Ethylene Net Equivalent Trade
Million Metric Tons
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
03
04
05
Ethylene
Vinyls
06
Styrenics
07
08
09
Polyethylene
October 2008
10
Glycol
11
Others
12
13
Net Trade
United States
Ethylene Demand Forecast
Million Metric Tons
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
03
PE
04
05
06
Ethylene Oxide
07
EDC
08
09
EBZ
October 2008
10
Others
11
12
Capacity
13
United States
Ethylene Feedstock Consumption
MBPD
2000
1800
1600
1400
1200
1000
800
600
400
200
0
03
04
Others
05
06
Gas Oil
07
Butane
08
09
Propane
October 2008
10
11
Naphtha
12
Ethane
13
U.S. Steam Crackers Shift Lighter
Percent Ethylene Produced From
60%
50%
40%
30%
20%
10%
0%
2003
2004
2005
2006
2007
Ethane
2008
2009
Naphtha
October 2008
2010
2011
2012
2013
Feedstock Impact on U.S. Steam Cracker
Propylene Production
Million Metric Tons
8.0
Percent of Total Supply
80%
7.0
70%
6.0
60%
5.0
50%
4.0
40%
3.0
30%
2.0
20%
1.0
10%
0.0
0%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
October 2008
Light Olefins Margin Trough
Expected By 2010
October 2008
Ethylene Oversupply To Follow Period Of
Balanced Conditions
Million Metric Tons
12
* Demand change based on 2-Year rolling average
10
8
6
4
2
0
00
01
02
03
04
North America
Southeast Asia
Northeast Asia
05
06
07
08
09
Middle East
West Europe
Others
October 2008
10
11
12
13
U.S. Ethylene Supply & Demand
Million Metric Tons
35.0
% Operating Rate
100
30.0
95
25.0
90
20.0
85
15.0
80
10.0
75
5.0
70
0.0
65
03
04
Demand
05
06
07
08
09
Capacity
October 2008
10
11
12
% Operating Rate
13
The Olefins Business Cycle Continues…
U.S. Integrated Olefins/PolyOlefins Cash Margins
Dollars Per Metric Ton
800
700
600
500
400
300
200
100
0
90 91 92 93 9495 96 97 98 9900 01 02 03 04 0506 07 08 09 1011 12 13 14 15
October 2008
Conclusions
 Volatile energy markets continue
to challenge producer economics
 Oversupply due to acceleration
in new olefins capacity and
slowing demand growth
 Olefins markets transitioning
from peak to trough cycle
conditions…trough margins
most severe for naphtha crackers
 NGL consumption in US market
depends on Gas-to-Crude ratio
and investment in light feed
capability
October 2008
Will It Come?
 Forecast assumes capacity buildup will result in lower U.S. steam
cracker operating rates
 Current energy dynamics have
supported max light feed
cracking…we’ve seen the peak
 Increased NGL consumption by
U.S. steam crackers is not
expected to come without
investment in light feed
capability
 Empty Field of Dreams
October 2008
Say it ain’t so Joe!
October 2008
THANK YOU !
Contact any CMAI location to assist in your
petrochemicals market analysis
New York
London
Duesseldorf
Shanghai
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Singapore
CHEMICAL MARKET ASSOCIATES, INC.
October 2008