Feedstock competitiveness and olefins margins Ng Baoying Managing Editor Asia Petrochemicals
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Feedstock competitiveness and olefins margins
Ng Baoying
Managing Editor
Asia Petrochemicals
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Petrochemicals
Private & Confidential 2
• Europe maximizes flexibility
• Opportunities for Taiwan
Cracker margins
• Market fundamentals and margins
• Can the good times last? Ethylene
• Market fundamentals and margins
• Shaky margins, uncertain future Propylene
Agenda Feedstock competitiveness and olefins margins
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Petrochemicals
Private & Confidential 3
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• Adopt robust internal quality control procedures applicable to the submission and evaluation of market data used in an assessment
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• Maintain robust and publicly available methodologies
• Give priority to concluded transactions and, if not, explain the reasons
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Highest level of IOSCO standards IOSCO issued formal Principles for Oil Price Reporting Agencies in 2012
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Petrochemicals
Private & Confidential 4
Transparent and rigorous assessments Trust and reliability
Details the specific
dimensions of our assessments
A living document
Backbone of Platts’ prices
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Private & Confidential 5
SGX-Platts swaps vols hits all-time high in July 254,000 mt swaps traded – that’s 25% of monthly physical PX volume into China
Petrochemicals
-
50,000
100,000
150,000
200,000
250,000
300,000
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
mt
Traded volumes of Platts-based SGX PX swaps triple
Source: SGX
Exchange-traded
contracts settle off
Platts prices
PX swaps contract volumes
surge amid volatility
Hedge with limited basis
risk
PX volumes tripled year
on year
More than 250 kt in July
That’s 25% of the monthly PX physical imports in
China
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Petrochemicals
Private & Confidential 6
• Europe maximizes flexibility
• Opportunities for Taiwan
Cracker margins
• Market fundamentals and margins
• Can the good times last? Ethylene
• Market fundamentals and margins
• Shaky margins, uncertain future Propylene
Agenda Feedstock competitiveness and olefins margins
No content below the line No content below the line
Petrochemicals
Private & Confidential 7
NEA naphtha still more expensive than most Despite naphtha price falls
-
100
200
300
400
500
600
700
800
900
1,000
- 20,000 40,000 60,000 80,000 100,000 120,000 140,000
$/MT
Cumulative Capacity ('000 MT)
Saudi Ethane US Ethane
US E/P Mix
WE Ethane
SE Asia Naphtha
NE Asia Naphtha
ME Ethane
US Ethylene Price
NW Europe Ethylene Price
NE Asia Ethylene Price
CTO/MTO
Source: Platts Analytics
Red oval: NEA naphtha producers VS
everyone else
Many producers at
lower cost
C2 NEA most expensive in the world, cost push a
factor
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Petrochemicals
Private & Confidential 8
Historical cost curve: Major landscape shifts Naphtha-based producers gains competitive edge against ethane-based producers
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200
400
600
800
1,000
1,200
1,400
1,600
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
De
c-1
4
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
$/MT Ethylene production cost
NE Asia Naphtha
US Ethane
Delivered EthaneChinaCTO
Saudi Ethane
Asia Ethylene
Source: Platts Analytics
Source: Platts Analytics
Red line: Ethylene price has
been rocky
Other lines: Cost to produce
C2
Naphtha-based
costs have fallen
Margins have
widened
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Petrochemicals
Private & Confidential 9
CTO/MTO advantage eroded by low oil Cost of production via naphtha falls 57%
Inner Mongolia Self-owned mine May-16 Jun-14
Feedstock Cost
Coal Price ( ex-plant) $ 45.03 $ 63.83
Coal Consumption per/ton MeOH 1.4 1.4
Methanol Consumption per/ton olefins 3 3
Total Feedstock Cost per ton olefins $ 189.12 $268.10
Co-Products
Total co-product credits $ 91.23 $166.93
Electricity
Total electricity cost per ton olefins $ 103.56 $ 103.56
Depreciation and Labor
Total depreciation and Labor $ 91.05 $ 91.05
Water cost
Total water cost $ 31.87 $ 31.87
Effluent treatment cost
per ton olefins $ 17.30 $ 17.30
Others
others $ 125.95 $125.95
Transportation cost for olefins product
Transportation cost per ton olefins $ 86.49 $ 86.49
Total production cost per ton olefins $ 554.11 $557.39
Eastern China naphtha cracker May-16 Jun-14
Naphtha Feedstock Cost
Naphtha price (ex-plant) $ 417.25 $ 991.63
Naphtha consumption per ton olefins 2 2
Feedstock cost per ton olefins $ 834.50 $1,983.26
Co-Products
Total co-product credits $ 487.16 $ 879.16
Electricity
Total electricity cost per ton olefins $ 22.15 $ 22.15
Depreciation and Labor
Total depreciation and Labor $ 54.40 $ 54.40
Water Cost
Total water cost $ 4.99 $ 4.99
Effluent treatment cost
per ton olefins $ 2.50 $ 2.50
Others
others $ 159.36 $ 159.36
Transportation cost for olefins product
Transportation cost per ton olefins 0 0
Total production cost per ton olefins $ 590.74 $1,347.50
Source: Platts Analytics
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Petrochemicals
Private & Confidential 10
Sup
ply
gro
wth
• U.S.
• Atlantic basin
• Middle East
• Russia
• Iran?
Mo
re V
LGC
s • 48 new VLGCs in 2016
• Freight rates to ease
• Expanded Panama canal D
eman
d g
row
th
• Indonesia
• Thailand
• Brazil
• China
What about LPG? Spread to naphtha hits $70/mt
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Petrochemicals
Private & Confidential 11
Asia LPG-naphtha spread starts to widen Prices typically move somewhat in tandem – till now
200
400
600
800
1000
1200
1400
January-12 January-13 January-14 January-15 January-16
Naphtha C+F Japan Cargo
Propane Refrigerated CFR South China 20-35 days cargo
Butane Refrigerated CFR South China 20-35 days cargo
Diverging spread
between LPG and naphtha
LPG supply rose on US cargo flows
LPG now cheaper than naphtha - $50 difference is
the threshold
Impact: Formosa using more LPG as
cracker feedstock
(15% in May)
Source: Platts
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Petrochemicals
Private & Confidential 12
Asia LPG discount to naphtha gains a foothold Some producers switch
-400
-300
-200
-100
0
100
200
300
1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016
Asia propane discount to naphtha
Asia butane discount to naphtha
$50
Source: Platts
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Petrochemicals
Private & Confidential 13
Europe LPG-naphtha spread widens time to time Unlike Asia, price don’t move in tandem and vary
0
200
400
600
800
1000
1200
1400
1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016
Naphtha CIF NWE Cargo
Propane CIF NWE 7kt+
Butane CIF NWE 3kt+
From 2015, wide
spread more
entrenched
2014 spot cracker margin:
$265
2015 spot cracker margin:
$558
Source: Platts
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Petrochemicals
Private & Confidential 14
Europe propane/naphtha spread above 10% Stable spread allows European producers to switch comfortably
-30
-20
-10
0
10
20
30
40
50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Propane discount to naphthaButane discount to naphtha10%
2014 average
spread: 17% discount
2015 average
spread: 23% discount
Naphtha weak, but propane weaker
Source: Platts
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Petrochemicals
Private & Confidential 15
• Europe maximizes flexibility
• Opportunities for Taiwan
Cracker margins
• Market fundamentals and margins
• Can the good times last? Ethylene
• Market fundamentals and margins
• Shaky margins, uncertain future Propylene
Agenda Feedstock competitiveness and olefins margins
No content below the line No content below the line
Petrochemicals
Private & Confidential 16
NEA naphtha still more expensive than most Despite naphtha price falls
-
100
200
300
400
500
600
700
800
900
1,000
- 20,000 40,000 60,000 80,000 100,000 120,000 140,000
$/MT
Cumulative Capacity ('000 MT)
Saudi Ethane US Ethane
US E/P Mix
WE Ethane
SE Asia Naphtha
NE Asia Naphtha
ME Ethane
US Ethylene Price
NW Europe Ethylene Price
NE Asia Ethylene Price
CTO/MTO
Source: Platts Analytics
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Petrochemicals
Private & Confidential 17
Asia ethylene enjoy stable, firm margins Ethylene prices fall slower than naphtha
0
200
400
600
800
1000
1200
1400
1600
1800
1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016
Ethylene-Naphtha spread
Ethylene CFR NE Asia
Naphtha C+F Japan Cargo
Source: Platts
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Petrochemicals
Private & Confidential 18
Bulk of ethylene investments in Asia, N. America Over 2015-2025
17%
2%
3%
37%
40%
1%
Global cracker additions by feedstock
CTO/MTOButanePropaneNaphthaEthane
28%
18% 14%
37%
3%
Global cracker additions by region
North AmericaMiddle EastEuropeAsiaAfrica
Source: Platts Analytics N. America, Asia most
new plants
Mid East already has
many
Ethane most
popular feedstock
(US)
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Petrochemicals
Private & Confidential 19
Eight steam crackers under construction in USGC More projects proposed
19 Total Petrochemicals, TX
Williams Geismar 2, LA
Badlands NGL, ND
PTT Global Chemical & Marubeni, OH
ChevronPhillips
ExxonMobil
Dow Sasol
Odebrecht/ Braskem, WV
Shell, PA
Under Construction
Formosa
Oxy
Axiall & Lotte
Proposed
Formosa Petrochemical, LA
Shintech
Source: Platts Analytics
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Petrochemicals
Private & Confidential 20
USGC exported ethane on oversupply First waterborne cargo left Marcus Hook in March 2016
20
Petchem Company
INEOS
Borealis
SABIC
Reliance
-
100
200
Mb
/d
US Ethane Exports
Marcus Hook Enterprise
Other Potential C2 Customers: • Versalis • BPCL (Asia) • GAIL (Asia) • Braskem • SP Chemical (Asia)
Source: Platts Analytics
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Petrochemicals
Private & Confidential 21
• Europe maximizes flexibility
• Opportunities for Taiwan
Cracker margins
• Market fundamentals and margins
• Can the good times last? Ethylene
• Market fundamentals and margins
• Shaky margins, uncertain future Propylene
Agenda Feedstock competitiveness and olefins margins
No content below the line No content below the line
Petrochemicals
Private & Confidential 22
Asia propylene margin shrinks on 2016 Largely due to excess supply in market
R² = 0.8307
R² = 0.7809
0
200
400
600
800
1000
1200
1400
1600
Jan-13 Jan-14 Jan-15 Jan-16
Naphtha C+F Japan Cargo
Propylene Poly Grade CFR China
Poly. (Naphtha C+F Japan Cargo)
Poly. (Propylene Poly Grade CFR China)
Source: Platts
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Private & Confidential 23
New Asia propylene capacities add to supply Strong supply creates downward pressure on propylene prices
• 2015: 2 mil mt/year of new C3 capacities started
• More new plants to start up in 2016 and 2017
• 2016 PDH: 2.6 mil mt/year expected in China
Source: Platts
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Petrochemicals
Private & Confidential 25
2.6 mil mt new China PDH capacity in 2016 Propylene faces supply pressures with new supply, after 2.9 mil mt added in 2014-15
Source: Platts
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Petrochemicals
Private & Confidential 26
PDH profitable after early 2016 struggle Despite price pressures from new supply
(350.00)
(150.00)
50.00
250.00
450.00
650.00
850.00
1050.00
1250.00
1450.00
1650.00
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16
Estimated Profit margin (Actual price VS cost)
Propane Refrigerated CFR South China 20-35 days cargo
Propylene Poly Grade CFR China
Breakeven cost to produce propylene
Source: Platts
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Petrochemicals
27
Ng Baoying
Managing Editor
Asian Petrochemicals
D: +65 6530 6588
M: +65 9105 5221
Thank you