www.icis.com 1 Circular Economy: Impact on global feedstocks strategies Elite Conference 21st International Conference Mumbai, November 2019 Stefano Zehnder Vice President, Global Feedstock & Refining ICIS Consulting
www.icis.com 1
Circular Economy: Impact on global feedstocks strategies
Elite Conference
21st International Conference
Mumbai, November 2019
Stefano Zehnder
Vice President, Global Feedstock & Refining
ICIS Consulting
www.icis.com 2
Agenda
Oil Demand Sensitivities
The Drive from Petrochemicals & Refinery Integration
Abundant Hydrocarbons Availability
An Indian Perspective on Feedstocks
Are we overestimating Petrochemical Demand?
Conclusions
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Oil Demand Trends
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Global Energy Demand Developments
Source: ICIS Supply and Demand Database
AAGR% Growth 2019 - 2040
Fuel Oil
0.09%
0.57%
1.77%
3.46%
1.29%
Coal
Oil
Nat Gas
Non Fossil
Total Energy
www.icis.com 5 Source: ICIS Supply and Demand Database
Shorter Term Increments (2018-25) MMTOE
Fuel Oil -100
0
100
200
300
400
500
600
North AM South AM EU F.USSR AF ME NEAsia SAsiaP
Coal Oil Gas Non Fossil
A refiner’s perspective:
Global Energy Demand Developments: Uneven Geographically…
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A refiner’s perspective (and of an Oil Producer…): Global Oil Demand Developments for Selected Products
Source: ICIS Supply and Demand Database
2018 Oil Demand Profile AAGR% Growth - 2018 - 2040
Fuel Oil
• Subtracting non-oil contribution from Demand, implies a net increase for oil of just 0.6%
• Petrochemical feedstocks and aviation fuels are the fastest growing areas, road fuels expansion is slowing
• Not all petrochemical feedstocks demand will be available to refiners…
LPG 7%
Naphtha 7%
Gasoline 25%
Gas Oil 31%
Jet/Kerosene 8%
Fuel Oil 9%
Others 13%
-1.84%
0.50%
2.31%
-0.01%
2.71%
0.57%
Fuel Oil
Gas Oil
Jet/Kero
Gasoline
Naphtha & LPG
Total Oil
www.icis.com 7 Source: ICIS Supply and Demand Database
Fuel Oil
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Para-Xylene
Toluene
Benzene
Butadiene
Propylene
Ethylene
AAGR % 2019-2040
Petchem growth shows a different scale….
www.icis.com 8 Copyright © 2016 ICIS – Private & Confidential
Not all “Oil Demand” is derived from crude (bio fuels, etc.)
Much of incremental petrochemical demand will be satisfied by NGLs (less feedstock per olefin yields…)
Naphtha still the key raw material, but role of lighter feedstocks (olefins) rapidly increasing
IMO implementation will affect Fuel Oil demand, with a major impact on gas oil requirements
-90
-60
-30
0
30
60
90
GO
Incremental, Million Tonnes
Source: ICIS Supply and Demand Database
Bio Fuels FO
Potential
Global Oil Demand one step further - 2019 vs. 2025
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Oil Demand Sensitivities
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country-level sales ban
Regional sales/ production/ circulation ban or country-level ban currently being considered
Denmark • petrol and
diesel car sales ban from 2030
Norway • ICE car sales
ban from 2025
France • petrol and
diesel car sales ban from 2040
• diesel car circulation banned in Paris from 2025
United Kingdom • ICE car sales
ban from 2050
Netherlands • ICE car sales
ban from 2030
Taiwan • ICE car sales
ban from 2040
India • ICE car sales
ban from 2030
Ireland • petrol diesel
car sales ban from 2030
United States • California, Connecticut, Maryland,
Massachusetts, New York, Oregon, Rhode Island and Vermont participating in International Zero-Emission Vehicle (ZEV) Alliance with an aim to make passenger car sales all in ZEV by 2050
Israel • Petrol and
diesel car import ban from 2030
Canada • Quebec participating
in International ZEV Alliance with an aim to make passenger car sales all in ZEV by 2050
Germany • considering petrol and diesel
car sales ban in long term (part of International ZEV Alliance)
• diesel car circulation limited in some cities, i.e. Hamburg
Spain • diesel car circulation
banned in Madrid from 2025
Mexico • diesel car circulation banned in
Mexico City from 2025
Greece • diesel car circulation
banned in Athens from 2025
Belgium • diesel car circulation
banned in Brussels from 2030
Italy • Diesel car circulation
ban planned in Rome from 2024
China • ICE car sales and
production ban currently being considered
Yes, Countries and Regions Plan ICE bans... but when?
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How will Internal Combustion Engines Fit in Different Scenarios?
Source: various statistics with forecast and elaborations from ICIS Analytics and Consulting
0%
5%
10%
15%
20%
25%
30%
2010 2015 2020 2025 2030
Passenger Vehicles Fleet’s Electrification Scenarios Key Markets (Battery + all Hybrids)
China West Europe US (incl. Light Trucks)
40%
80%
“business as usual” Scenario
Future electrification scenarios may present huge variations in the role of ICE vehicles in the circulating fleet
A “business as usual” scenario would take a long time to replace conventional ICEs (hybrid would still use, albeit considerably downsized, ICEs).
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How will Internal Combustion Engines Fit in Different Scenarios?
Source: various statistics with forecast and elaborations from ICIS Consulting
0%
5%
10%
15%
20%
25%
30%
2010 2015 2020 2025 2030
Passenger Vehicles Fleet’s Electrification Scenarios Key Markets (Battery + all Hybrids)
China West Europe US (incl. Light Trucks)
40%
80%
“Drastic Scenario” 2022 ban on sales
of pure ICE vehicles
“business as usual” Scenario
Future electrification scenarios may present huge variations in the role of ICE vehicles in the circulating fleet
A “business as usual” scenario would take a long time to replace conventional ICEs (hybrid would still use, albeit considerably downsized, ICEs)
It would require a “Drastic” Scenario (i.e. assuming no pure ICE vehicles sales after 2022) to consistently bring electrification beyond 50% of the fleet by 2030
The effect of this “Drastic” scenario would be faster in the Chinese market.
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Road Fuel Demand Sensitivity: China EV Developments: a Base Case unlikely to impact on Oil Demand before 2025
Source: various statistics with forecast and elaborations from ICIS Consulting
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
1,80,000
(th
ou
san
d t
on
nes
)
China Road Fuel Demand
Gasoline_Demand_Low Gasoline_Demand_Base Gasoline_Demand_High
Diesel_Demand_Low Diesel_Demand_Base Diesel_Demand_High
-40,000
-30,000
-20,000
-10,000
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2017-2030 2030-40
China Incremental Road Fuel Demand
Road Fuel Demand Low
Road Fuel Demand Base
Road Fuel Demand High
‘000 Tonnes
www.icis.com 14 Source: various statistics with forecast and elaborations from ICIS Consulting
-60,000
-40,000
-20,000
-
2017-2030 2030-40
West Europe Incremental Road Fuel Demand
Road Fuel Demand LowRoad Fuel Demand BaseRoad Fuel Demand High
40,000
80,000
1,20,000
1,60,000
2,00,000
(th
ou
san
d t
on
nes
)
Western Europe Road Fuel Demand
Gasoline_Demand_Low Gasoline_Demand_Base Gasoline_Demand_High
Diesel_Demand_Low Diesel_Demand_Base Diesel_Demand_High
Road Fuel Demand Sensitivity: Western Europe EV Developments: a Base Case unlikely to impact on Oil Demand before 2025
‘000 Tonnes
www.icis.com 15 Source: various statistics with forecast and elaborations from ICIS Consulting
1,00,000
1,50,000
2,00,000
2,50,000
3,00,000
3,50,000
4,00,000
4,50,000
(th
ou
san
d t
on
nes
)
US Road Fuel Demand
Gasoline_Demand_Low Gasoline_Demand_Base Gasoline_Demand_HighDiesel_Demand_Low Diesel_Demand_Base Diesel_Demand_High
-1,20,000
-1,00,000
-80,000
-60,000
-40,000
-20,000
-
2017-2030 2030-40
US Incremental Road Fuel Demand
Road Fuel Demand Low
Road Fuel Demand Base
Road Fuel Demand High
Road Fuel Demand Sensitivity: US EV Developments: a Base Case unlikely to impact on Oil Demand before 2025
‘000 Tonnes
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-
100
200
300
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
Global Bunker Demand by Fuel (Million Tonnes)
The Other Key Sensitivity The IMO Impact is expected to be disruptive
High Sulfur Fuel Oil
Scrubbed High SulfurFuel Oil
Low Sulfur Fuel Oil
Gas Oil
LNG
Source: ICIS Supply and Demand Database & ICIS Consulting
IMO 2020 rules focus on reducing SOx emissions from global shipping. They will require reducing global sulphur content in Fuel Oil “Straight run” production of low sulfur fuel oil is very limited, blending required
The shift away from High Sulfur Fuel Oil will require a major increase in demand for Gas Oil bunkers and call for the need of “cracking more fuel oil”..
By 2025, contribution from LNG and from “Scrubbers” will still be limited. LNG based fleet needs time to develop, and Scrubbers additions not always a fit.
Just one of the many possible scenarios…
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Road Transportation fuels: Shape and Size of the Global Fleet is Varied
Source: various statistics with forecast and elaborations from ICIS Analytics and Consulting
0
100
200
300
400
2010 2015 2020 2025 2030
Passenger Vehicles Fleet’s Evolution Key Markets (millions)
China West Europe US (incl. Light Trucks)
China is by now the largest global market, and its vehicles’ fleet is rapidly reaching the size of those in Western Europe and the US.
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Shape and Size of the Global Fleet is Varied
Source: various statistics with forecast and elaborations from ICIS Analytics and Consulting
Recent Market Profiles Key Markets
Sales "Scrap" Net Additions
China
West Europe
US, (incl.
Light Trucks)
Whilst China’s developments still imply “additional cars to the existing fleet”, West Europe and the US are already characterised by more important “replacements within the existing fleet”.
The impact from “restrictions to”, or “bans of”, Internal Combustion Engines (ICEs) will be strongly
linked to the size of new vehicles sales, but also the degree of “replacements”. China can “replace faster”…
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Electrification Profile: a small but fast Growing Trend
Source: various statistics with forecast and elaborations from ICIS Analytics and Consulting
China W. Europe
U.S.
Battery All Hybrids
Electrification Profile of Passenger Vehicles in Key Markets (sales) The combined 3 markets represent
about 60% of global Battery and Hybrid passenger vehicles sales, growing 40% on previous year…
…But still less than 4% of total sales
China is the only major market where Battery only vehicles are the predominant electrification option, reflecting domestic incentives.
Hybrids vehicles were the electrification of choice in West. Europe and the US
A number of different scenarios could be possible in the future…
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New Refining Capacity & Integration with Petchem
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Almost 80% of refining capacity addition till 2025 will be in the Middle East and Asia
= 1000 kbd new capacity
Refining Capacity Additions (2019-2025)
= 1000 kbd speculative capacity
[VALUE]*
Crude
S & C AMERICA
31
Crude
FORMER USSR
2195
800
Crude
NORTH EAST ASIA
-80 Crude
EUROPE
610
340
Crude
NORTH AMERICA
1507
400
Crude
ASIA AND PACIFIC 538
200
Crude
AFRICA
1735
1250
Crude
MIDDLE EAST
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Almost 80% of refining capacity addition till 2025 will be in the Middle East and Asia
= 1000 kbd new capacity
Refining Capacity Additions (2019-2025)
= 1000 kbd speculative capacity
538 172 210
34
200
Crude FCC HC Coking
AFRICA
1735 198
408 125
1250
Crude FCC HC Coking
MIDDLE EAST
1507 390 400 58
400
Crude FCC HC Coking
ASIA AND PACIFIC
610 11 5 149 340
Crude FCC HC CokingNORTH AMERICA
550 129 80 133
Crude FCC HC Coking
S & C AMERICA
31 30 284 213
Crude FCC HC Coking
FORMER USSR
2195
326 723
238
800
Crude FCC HC Coking
NORTH EAST ASIA
-80
0 57 42
Crude FCC HC Coking
EUROPE
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More than one hundred million tons/year refining capacity may come on stream in the next five years. (+2 Million bd)
2022: SHENGHONG R&C 16,000 (320 mbd)
2019: HENGLI PC 20,000 (400mbd)
2019: ZHEJIANG PC 20,000 (400 mbd)
Legend
Green field
Brown field
2020: Start up
Confirmed Capacity Unit: KTA
2020: SINOPEC/KPC 10,000 (200 mbd)
2023: TANGSHAN RISUN CHEMICAL 15,000 (300 mbd)
Source: ICIS supply and demand database
2021: PETROCHINA/PDVSA 20,000 (400 mbd)
2020: SINOPEC SHANGHAI GAOQIAO 7,000(140mbd)
China Refining Capacity is rapidly expanding It will support Global Scale Naphtha Crackers and PX new Complexes
2024: NORINCO &ARAMCO 15,000 (300mbd)
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Much of new capacity could be delayed or canceled, implying potential rationalization at less competitive complexes. (another +2.5 million bd)
2020: CNOOC REF. AND PC 18,000
2026: SINOPEC QINGDAO 10,000
2021: FUJIAN GULEI PETROCHEMICAL 16,000
2021: SINOPEC ZHENHAI 17,000
2026: PETROCHINA JINXI 10,000
Legend
Green field
Brown field
2020: Start up
Speculative Capacity Unit: KTA
2022: PETROCHINA CHONGQING 10,000
2026: PETROCHINA SHANQIU 10,000
Source: ICIS supply and demand database
2026: SINOPEC YANSHAN 12,000
China Refining Capacity is rapidly expanding, more… The potential pace and scale could be disruptive (most petchem integrated…)
2023: YULONG PETROCHEMICAL 20,000
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Petrochemical and Petroleum Product Demand Comparison
Naphtha Surplus (Deficit) (MMTPA)
2018 2020 2025 2030
World 15 21 10 (14)
APAC (4) (2) (7) (17)
NEA (50) (43) (55) (90)
Asia Combined (55) (45) (62) (107)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2025 2030
CA
GR
fro
m 2
01
7 (%
)
Refined Products Petchem
* Petrochemical Demand Growth Proxy of Ethylene, Propylene and BTX Demand
A faster petrochemical growth vis-à-vis refined fuel products is promoting the construction and proposal of new sites which primarily are Petrochemical focused: • Hengli (2018-19) >40% Petrochemicals /Feed • Zhejiang (2019) >40% Petrochemicals /Feed • Rapid (2019) >30% Petrochemicals / Feed • Shenghong (2021) >30% Petrochemicals /Feed • Brunei (2019) >30% Petrochemicals /Feed • Saudi COTC (2024?) >45% Petrochemicals
Additional and refining capacity will be needed to prevent a naphtha deficit longer term
Global Growth in Demand
Global Refineries are increasingly targeting Petrochemicals A strategic opportunity away from fuels, but will require targeted investment
www.icis.com 26 Copyright © 2016 ICIS – Private & Confidential
Many new sites are very heavily integrated and pushing towards a “COTC” operation, although fuels “only” refineries are still prevalent
in or near markets with fuels product deficits
Rapid, Brunei Hengyi
Hengli, Zheijiang
Simple [SERIES NAME] Dangote, SA Jazan
Tangshan Risun, STAR Turkey
Sinopec / KPC
0 10 20 30 40 50 60 70 80 90 100
wt % Petrochemical Yield
Minor Integration Integrated Refinery Proposed COTC Future COTC ?
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New Chinese Refinery are aiming at 40% petchem yields
www.icis.com 28
Key Products Integration, New Projects 2018-25 Asia additions are overwhelming, with China dominating
Asia and Middle East have key reliance on Refineries
0
10
20
30
40
50
60
70
80
NORTHAMERICA
SOUTH &CENTRALAMERICA
EUROPE FORMERUSSR
AFRICA MIDDLEEAST
NORTHEASTASIA
ASIAAND
PACIFIC
MM
TPA
Non Refinery Sources C2 Refinery
C3 Refinery C2/C3 ex NGL
PX
0%
20%
40%
60%
80%
100%
World NORTHAMERICA
SOUTH &CENTRALAMERICA
EUROPE FORMERUSSR
AFRICA MIDDLEEAST
NORTHEASTASIA
ASIA ANDPACIFIC
Non Refinery Sources C2 RefineryC3 Refinery C2/C3 ex NGLPX
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Abundant Hydrocarbon Availability
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US NGLs: Ethane Ethane Implications: Including expected domestic demand and committed current exports should still allow for availability of rejected ethane. Assuming all announced Chinese projects (included in the chart) is not realistic…
Source: ICIS Supply and Demand Database
Brazil
India
UK
Norway
Canada Sweden
Belgium
China Mexico
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LPG Scenarios
All rights reserved. By accepting this slide set, the recipient acknowledges that all information contained herein is confidential and will not be disclosed to third parties without the prior written agreement from ICIS
Source: ICIS
• Incremental US availability, primarily in the form of Propane, are feeding incremental deficits in Europe and Asia • Basically all the Middle Eastern surplus is addressed to Asia • International LPG markets will remain comfortably supplied thanks to higher production from NGLs in the US and the Middle East • Despite a growing role of petrochemicals, energy markets remain the largest demand factor, with seasonal price variations
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Naphtha Scenarios
All rights reserved. By accepting this slide set, the recipient acknowledges that all information contained herein is confidential and will not be disclosed to third parties without the prior written agreement from ICIS
Source: ICIS
• New refining capacity in Asia is sharply reducing the regional Naphtha deficit • Whilst naphtha release from Europe refiners is increasing (gasoline surplus), demand for petrochemicals is reduced by increasingly competing
access to ethane and LPG • Basically all the Middle Eastern surplus is addressed to Asia • International naphtha markets will remain comfortably supplied thanks to higher availability from US and reduced deficits from key importers • When crude prices increase, naphtha relative values tend to decline (larger crude-naphtha discounts). This is considered in the price forecast,
and in the different crude scenarios
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An Indian Perspective
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Indian Petrochemical Import Requirements
Source: various statistics with elaborations from ICIS Analytics and Consulting
www.icis.com 35 Source: various statistics with elaborations from ICIS Analytics and Consulting
0
1
2
3
4
5
6
7
8
Local NGLs Local Refineries Imports Local NGLs Local Refineries Imports
2010 >7 Million Tonnes
Naphtha
Ethane & Ref Gas
LPGs
27%
50%
23%
The Indian Ethylene Feedstocks Picture
www.icis.com 36
The Indian Ethylene Feedstocks Picture
Source: various statistics with elaborations from ICIS Analytics and Consulting
0
2
4
6
8
10
12
14
16
Local NGLs Local Refineries Imports Local NGLs Local Refineries Imports
2010 >7 Million Tonnes
Naphtha
Ethane & Ref Gas
LPGs
2020 >14 Million Tonnes
27%
50%
23%
10%
58%
32%
www.icis.com 37
The Indian Petrochemical Feedstocks Picture
Source: various statistics with elaborations from ICIS Analytics and Consulting
What’s Next?
More integration with domestic refineries Refinery Gases, Middle Distillates
More imports of Light NGLs Propane for PDH
Ethane from US?
Something Else? Coal, Methanol???
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Are we overestimating petrochemical demand?
www.icis.com
PE more “local for local”, driven by daily necessities than other polymers
Source: ICIS Supply & Demand Database
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Kilo
gra
ms
China per capita PE consumption US per capita PE consumption European per capita PE consumption
Copyright © 2019 ICIS – Private & Confidential
www.icis.com 40 ICIS Supply & Demand Database
Are we Overestimating Demand? Risk of major demand loss, an example…
• Business as usual is that public and legislative pressure to deal with plastic rubbish goes away
• Medium case: Industry responds – demand loss 60m tonnes versus base case during the whole forecast period
• Worst case is an industry failure and more lost demand
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
‘00
0 t
on
nes
Global PE demand
Base case, business as usual - 3.6% per year Crisis builds, industry responds - 3% per year
Crisis builds, industrt fails to respond - 2% per year
Ethylene Cash Cost Curve
Lighter feedstock maintain their cost advantages; at ~70 USD/bbl oil MTO remains uncompetitive
0
200
400
600
800
1000
1200
1400
0 20 40 60 80 100 120 140 160
Eth
yle
ne
Co
sts
of
Pro
du
ctio
n (
USD
/to
nn
e)
Cumulative Ethylene Production; Million Tonnes per Year
Estimated Regional Ethylene Cash Cost Curve - 2018
North American Ethane
North American LPG
Middle East Naphtha
Europe LPG
Europe Naphtha
NEA Naphtha
China CTO
Middle East LPG
SEA Naphtha
China MTO
Europe Imported Ethane**
SOURCE: ICIS Consulting
Middle East Ethane
**Imported Ethane costs are representative of purchasing Ethane FOB Mt BV USG and shipped to Destination, includes Liquefaction & Handling Costs
www.icis.com 42
Source: ICIS Supply & Demand Database
24%
20% 52%
4%
Ethane&Ref Gas LPGs Naphtha Others
What About Feedstock? A simplified approach…but not the full story…
The Base Case (PE at 3.6% AAG)
Incremental Feedstock Demand 140 Million Tonnes per year
(to produce 65 MMt/y of Ethylene)
2019-2030
www.icis.com 43
Source: ICIS Supply & Demand Database
24%
20% 52%
4%
Ethane&Ref Gas LPGs Naphtha Others
What About Feedstock? A simplified approach…but not the full story…
The Base Case (PE at 3.6% AAG)
Incremental Feedstock Demand 140 Million Tonnes per year
(to produce 65 MMt/y of Ethylene)
Sensitivity Cases: Potential Feedstock Impact (expressed in Million Tonnes per year of Naphtha Equivalent)
0
50
100
150
200
250
Base CasePE at 3.6% AAG
Industry ReactsPE at 3% AAG
Industry FailsPE at 2.4% AAG
ReducedDemand ?
Naphtha
Others
-35 MMT/y
-48 MMT/y
-83 MMT/y
Reduced PE demand could wipe off 40% of incremental feedstock requirements in naphtha terms, but…
Assuming a $60/bbl oil scenario tends to keep incremental ethane/light feedstocks in the picture, basically zeroing incremental naphtha demand in worst case…
Degree of PE chemical recycling will influence volumes of “CO2 attractive” incremental feedstocks to flexible naphtha crackers (Pyrolysis…?)…
Will naphtha get cheaper? Oil demand affected? What about environmental values?
Will ethylene and derivatives lose relative value to steam-cracking co-products?
A new competitive landscape…requiring careful scenario planning…
LPGs
Ethane & Ref Gas
+74 MMT/y
2019-2030
www.icis.com 44
Conclusions & Key Implications
www.icis.com 45
Conclusions & Key Implications
Demand for lower Carbon Intensity fuels and greater efficiency is supporting ample hydrocarbons avails, with Oil Demand affected. A concern for Oil Producers?
Refiners, and more so Oil Producers, with Asia and Middle East at center stage, are heavily moving into petrochemicals releasing additional feedstocks, and potentially participating in increased supply. Too much supply?
Incremental Petrochemical demand is not “granted”: Refiners and Petrochemical producers will need to be “proactive”, to ensure new materials will answer future needs, in a sustainable way. “Hydrocarbon Processing” will gain in relative importance.
www.icis.com 46
THANK YOU
Any Questions?
Please Contact us: www.icis.com
Balasubramaniam Ramani
Senior Consulting Manager,
Singapore
Stefano Zehnder,
Vice President Consulting,
Italy