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April 2011 Petrochemicals— General Page 1 350.0000 A © 2011 by the Chemical Economics Handbook—SRI Consulting CEH Product Review PETROCHEMICAL INDUSTRY OVERVIEW By Sean Davis CEH Product Reviews provide analysis, historical data and forecasts pertaining to the international competitive market environment for chemical products. Supply and demand data are developed for the United States, Western Europe, Japan and other relevant countries or regions with the cooperation of chemical producers and consumers worldwide. The detail and analysis may be more limited than that found in CEH Marketing Research Reports. Updated information may be available from the following CEH Program services: SRIC Web Library—Available at www.sriconsulting.com. Manual of Current Indicators (MCI)—Updates of statistical data derived from published sources. Issued semiannually. The Economic Environment of the Chemical Industry (EECI)—Economic indicators that impact the chemical industry. Issued semiannually. CEH Inquiry Service—SRI Consulting researchers are available to answer your questions. U.S.A.—Telephone: 650/384-4334 Fax: 650/330-1149 Zürich—Telephone: 4144/283-6333 Fax: 4144/283-6330 Tokyo—Telephone: 813/5202-7320 Fax: 813/5202-7333
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Page 1: Petrochemical Industry Overview

April 2011 Petrochemicals—GeneralPage 1

350.0000 A

© 2011 by the Chemical Economics Handbook—SRI Consulting

CEH Product Review

PETROCHEMICAL INDUSTRY OVERVIEW

By Sean Davis

CEH Product Reviews provide analysis, historical data and forecasts pertaining to the international competitive market environment for chemical products. Supply and demand data are developed for the United States, Western Europe, Japan and other relevant countries or regions with the cooperation of chemical producers and consumers worldwide. The detail and analysis may be more limited than that found in CEH Marketing Research Reports.

Updated information may be available from the following CEH Program services:

• SRIC Web Library—Available at www.sriconsulting.com.

• Manual of Current Indicators (MCI)—Updates of statistical data derived from published sources. Issued semiannually.

• The Economic Environment of the Chemical Industry (EECI)—Economic indicators that impact the chemical industry. Issued semiannually.

• CEH Inquiry Service—SRI Consulting researchers are available to answer your questions.

U.S.A.—Telephone: 650/384-4334 Fax: 650/330-1149 Zürich—Telephone: 4144/283-6333 Fax: 4144/283-6330 Tokyo—Telephone: 813/5202-7320 Fax: 813/5202-7333

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© 2011 by the Chemical Economics Handbook—SRI Consulting

The information provided in this publication has been obtained from a variety of sources, which SRI Consulting believes to be reliable. SRI Consulting makes no warranties as to the accuracy, completeness or correctness of the information in this publication. Consequently, SRI Consulting will not be liable for any technical inaccuracies, typographical errors or omissions contained in this publication. This publication is provided without warranties of any kind, either express or implied, including but not limited to, implied warranties of merchantability, fitness for a particular purpose, or non-infringement.

IN NO EVENT WILL SRI CONSULTING BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, OR THE LIKE) ARISING OUT OF THE USE OF THIS PUBLICATION, EVEN IF IT WAS NOTIFIED ABOUT THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IN SUCH STATES SRI CONSULTING’S LIABILITY IS LIMITED TO THE MAXIMUM EXTENT PERMITTED BY SUCH LAW.

Certain statements in this publication are projections or other forward-looking statements. Any such statements contained herein are based upon SRI Consulting’s current knowledge and assumptions about future events, including, without limitation, anticipated levels of global demand and supply, expected costs, trade patterns, and general economic, political, and marketing conditions. Although SRI Consulting believes that the expectations reflected in the forward-looking statements are reasonable, it cannot, and does not, guarantee, without limitation, future results, levels of activity, performance or achievements. Readers should verify through independent third-party sources any estimates, projections or other forward-looking statements or data contained herein before reaching any conclusions or making any investment decisions. SRI Consulting is not responsible for the Reader’s use of any information in this publication.

The absence of a specific trademark designation within this publication does not mean that proprietary rights may not exist in a particular name. No listing, description or designation in this publication is to be construed as affecting the scope, validity, or ownership of any trademark rights that may exist therein. SRI Consulting makes no warranties as to the accuracy of any such listing, description or designation, nor to the validity or ownership of any trademark.

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© 2011 by the Chemical Economics Handbook—SRI Consulting

TABLE OF CONTENTS

Summary ....................................................................................................................................................... 5

Introduction................................................................................................................................................... 6

Supply and Demand by Region .................................................................................................................... 7 World ........................................................................................................................................................ 7

Sources of Basic Petrochemicals .......................................................................................................... 7 Capacity ................................................................................................................................................ 7 Production........................................................................................................................................... 10

United States ........................................................................................................................................... 14 Sources of Basic Petrochemicals ........................................................................................................ 14

Coal-Derived Chemicals ................................................................................................................. 15 Crude Petroleum–Based Chemicals................................................................................................ 17 Natural Gas–Derived Chemicals..................................................................................................... 20 Natural Gas Liquids–Derived Chemicals........................................................................................ 20

Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 25 Methanol ......................................................................................................................................... 25 Olefins............................................................................................................................................. 25 Aromatics........................................................................................................................................ 27

Production........................................................................................................................................... 30 Consumption....................................................................................................................................... 31 Price .................................................................................................................................................... 32 Trade ................................................................................................................................................... 35

Latin America ......................................................................................................................................... 40 Sources of Basic Petrochemicals ........................................................................................................ 40 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 42

Methanol ......................................................................................................................................... 42 Olefins............................................................................................................................................. 42 Aromatics........................................................................................................................................ 44

Production........................................................................................................................................... 45 Consumption....................................................................................................................................... 45 Trade ................................................................................................................................................... 46

Western Europe....................................................................................................................................... 47 Sources of Basic Petrochemicals ........................................................................................................ 47 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 49

Methanol ......................................................................................................................................... 49 Olefins............................................................................................................................................. 49 Aromatics........................................................................................................................................ 51

Production........................................................................................................................................... 52 Consumption....................................................................................................................................... 53 Price .................................................................................................................................................... 53 Trade ................................................................................................................................................... 54

Middle East ............................................................................................................................................. 55 Sources of Basic Petrochemicals ........................................................................................................ 55 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 57

Methanol ......................................................................................................................................... 57 Olefins............................................................................................................................................. 57 Aromatics........................................................................................................................................ 58

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TABLE OF CONTENTS (continued)

Production........................................................................................................................................... 59 Consumption....................................................................................................................................... 60 Trade ................................................................................................................................................... 61

Japan ....................................................................................................................................................... 62 Sources of Basic Petrochemicals ........................................................................................................ 62 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 64

Methanol ......................................................................................................................................... 64 Olefins............................................................................................................................................. 64 Aromatics........................................................................................................................................ 65

Production........................................................................................................................................... 66 Consumption....................................................................................................................................... 67 Price .................................................................................................................................................... 68 Trade ................................................................................................................................................... 69

China ....................................................................................................................................................... 70 Sources of Basic Petrochemicals ........................................................................................................ 70 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 72

Methanol ......................................................................................................................................... 72 Olefins............................................................................................................................................. 72 Aromatics........................................................................................................................................ 74

Production........................................................................................................................................... 74 Consumption....................................................................................................................................... 75 Trade ................................................................................................................................................... 76

Bibliography ............................................................................................................................................... 77

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SUMMARY

The petrochemicals industry has been impacted by globalization and integration of the world economy. Mergers and acquisitions, joint ventures and other forms of partnership by major petrochemical companies have led to fewer producers of commodity petrochemicals with broader geographical reach. The following are additional factors influencing world petrochemicals:

• Product Integration—Most major petrochemical companies are integrated (forward to downstream derivatives and/or backward to raw materials) to improve margins and to secure raw material source. This has resulted in a number of petrochemical companies either divesting non-integrated plants, forming a partnership with another company to improve operating efficiency (including sales, marketing and distribution), or ceasing operations.

• Economies of Scale—World-scale petrochemical plants built during the past several years are substantially larger than those built over two decades ago. As a result, smaller, older, and less efficient units are being shut down, expanded or, in some cases, retrofitted to produce different chemical products.

• Price of Crude Oil—Crude oil prices have been on the rise since 2004 and traded for nearly $139 per barrel at their peak in mid-2008. Regional downstream markets and end-use applications are impacted significantly due to rising prices. As of February 2011, crude oil prices once again eclipsed $100 per barrel.

• Environment—Increasing concerns over fossil fuel supply and consumption with respect to their impact on health and the environment have led to the passing of legislation in Japan, the United States and Europe, which affects chemical and energy production and processing for the foreseeable future.

• Technology—Manufacturing processes introduced in recent years have resulted in raw material replacement, shifts in the ratio of coproduct(s) produced, and cost. This leads to a supply/demand imbalance particularly for smaller downstream petrochemical derivatives. In addition, growing environmental concerns and crude oil pricing has expedited the development and commercialization of renewably derived chemical products and technologies previously considered economically impractical.

• Regional Production—Prior to 1980, the United States, Western Europe and Japan accounted for 80% of primary petrochemical production in the world. In 2010, their share had declined to 43% as a result of new capacity in other parts of the world.

• Political Uncertainties—Situations in virtually all parts of the world—the Middle East, Asia, Eastern Europe, North and South America and Africa—have growing global implications for the supply and demand of petrochemicals and raw materials.

• Economic Growth and Demand—Overall expansion of the population and an increase in individual purchasing power has resulted in an increase in demand for finished goods and greater consumption of energy in China, India and Latin America.

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There are overlaps among these trends and impact varies by petrochemical product, country/region and magnitude. Detailed discussion of individual primary petrochemical feedstock, intermediates, derivatives and end-use market segments are available in other CEH reports. The various CEH marketing research reports and product reviews on each petrochemical provide in-depth coverage and a definitive source of market information for these chemicals.

INTRODUCTION

In the petrochemical industry, the organic chemicals with the largest production volume are methanol, ethylene, propylene, butadiene, benzene, toluene and xylenes. Ethylene, propylene and butadiene, along with butylenes, are collectively called olefins, which belong to a class of unsaturated aliphatic hydrocarbons having the general formula CnH2n. Olefins contain one or more double bonds, which make them chemically reactive. Benzene, toluene and xylenes are commonly referred to as aromatics, which are unsaturated cyclic hydrocarbons containing one or more rings. Olefins, aromatics and methanol are precursors to a variety of chemical products and are generally referred to as primary petrochemicals. Given the number of organic chemicals and the variety and multitude of ways by which they are converted to consumer and industrial products, this report will limit its discussion to these seven chemicals, their feedstock sources and their end uses. The regional focus of the report is the United States, Western Europe and Japan, as well as three of the fastest growing markets; China, Latin America and the Middle East. Some discussion of the demand for the seven petrochemicals is included, but it is only intended to provide some perspective on the size and general characteristics of the markets.

The following flowchart provides a simplified overview of the origins and uses of olefins, aromatics and methanol.

Petrochemical Feedstocks and Derivatives

Methane

Natural Gas Liquids Ethane Propane Butane Condensates

Refinery Off-Gases

Naphtha

Gas Oil

Methanol

EthylenePropyleneButadieneButylenes

BenzeneTolueneXylenes

NaturalGas

CrudePetroleum

Coal

Plastics and Resins

Fibers

Elastomers

Solvents

Surface-Active Agents

Surface Coatings

AgricultureBuilding and ConstructionElectrical/ElectronicsFurniture and FurnishingsCoatings/Adhesives/InksDyesApparelOther Consumer Products

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SUPPLY AND DEMAND BY REGION

WORLD

SOURCES OF BASIC PETROCHEMICALS

Fossil fuels—coal, crude oil or petroleum, natural gas liquids and natural gas—are the primary sources of basic petrochemicals. The most important use of fossil fuels is in the production of energy. In 2010, annual world energy production from fossil fuels, hydroelectric power and nuclear power amounted to 433 quadrillion British thermal units (Btus). Of this total, 67% or 290 quadrillion Btus came from crude oil, coal, natural gas and natural gas liquids. The fraction of fossil fuel energy equivalents diverted to primary petrochemical production was an estimated 17 quadrillion Btus or 5-7% of the total consumed. Although only a small subset of world energy demand, petrochemical prices are heavily influenced by fluctuations in the world energy market.

World Fossil Fuel Supply/Demand for Primary Petrochemicals—2010

World Fossil Fuel Input(290 quadrillion Btus)

Crude OilCoalNatural GasNatural Gas LiquidsRefinery Off-Gases

PrimaryPetrochemical

FeedstockChemical Sector

CrudePetroleum

Natural Gas Liquidsand

Refinery Off-Gases

Natural Gas

Coal

MethanolEthyleneButadieneBenzeneTolueneXylenes

12.4 Quadrillion Btus

3.1 Quadrillion Btus

1.4 Quadrillion Btus

0.3 Quadrillion Btus

Source: CEH estimates.

Primary EnergySector

CAPACITY

In 2010, annual world capacity to produce the seven primary petrochemicals amounted to 478 million metric tons. Ethylene was the largest in volume, followed by propylene and methanol. The following graph presents world capacity for the individual primary petrochemicals.

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0

50

100

150

Ethylene Propylene Benzene Xylenes Methanol Toluene Butadiene

World Capacity for Primary Petrochemicals—2010Millions of Metric Tons

The following graphs present capacity of the seven primary petrochemicals by region in 2010:

World Capacity of Primary Petrochemical Feedstocks as of January 2011

Methanol

LatinAmerica13.1%

Africa andMiddle East

21.8%

Europe10.6%

NorthAmerica

1.5%

Asia andOceania53.1%

Ethylene

LatinAmerica

4.9%

Africa andMiddle East

17.3%

Europe22.3%

North America22.7%

Asia andOceania32.9%

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World Capacity of Primary Petrochemical Feedstocks as of January 2011 (continued)

Propylene

LatinAmerica

4.8%Africa andMiddle East

9%

Europe22.8%

NorthAmerica22.0%

Asia andOceania41.4%

Butadiene

LatinAmerica

3.0%Africa andMiddle East

3.4%

Europe28.4%

NorthAmerica22.2% Asia and

Oceania43.0%

Benzene

LatinAmerica

3.6%Africa andMiddle East

7.4%

Europe24.7%

NorthAmerica18.9% Asia and

Oceania45.5%

Toluenea

LatinAmerica

4.2%Africa andMiddle East

6.9%

Europe14.4%

NorthAmerica21.7%

Asia andOceania52.9%

Xylenesb

LatinAmerica

1.7%

Africa andMiddle East

9.2%

Europe8.8%

NorthAmerica14.7%

Asia andOceania65.7%

a. There may be some double-counting of aromatics capacity because of inclusion of capacity for toluene that is hydrodealkylated to benzne.

b. Includes mixed xylenes streams or sums of individual isomers.

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PRODUCTION

The following table presents historical worldwide growth in the production of methanol, olefins and aromatics:

World Production of Primary Petrochemicals (millions of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Total

1985 18.1 5.6 43.9 14.6 22.6 9.3 10.4 124.51990 22.3 6.3 56.8 20.2 29.5 10.7 14.2 160.0

1995 25.3 7.2 70.1 23.4 39.5 12.1 18.1 195.71996 25.8 7.1 73.6 23.9 42.0 12.5 19.3 204.21997 27.7 7.5 78.1 26.0 46.4 14.5 22.1 222.31998 28.4 7.5 81.1 26.9 47.7 14.4 23.3 229.31999 30.3 7.8 86.8 28.1 50.2 14.9 25.3 243.4

2000 31.7 8.1 90.1 28.9 54.1 15.4 27.7 256.02001 31.2 7.9 90.5 29.3 55.3 14.5 27.7 256.42002 33.0 8.3 95.4 30.7 59.6 15.7 29.6 272.32003 34.5 8.9 98.7 32.2 62.4 17.0 31.9 285.52004 37.5 9.4 104.2 35.9 65.3 18.7 33.8 304.8

2005 37.5 9.5 105.6 36.7 66.7 18.8 35.2 310.02006 38.5 9.7 110.1 38.9 70.7 19.8 37.6 325.32007 40.9 10.1 114.7 40.6 73.7 20.6 40.1 340.72008 37.8 10.0 110.3 40.8 71.4 18.5 38.8 327.62009 37.4 9.2 113.4 43.4 71.3 19.7 41.4 335.8

2010 40.2 10.2 123.3 49.1 74.9 19.8 42.5 360.0 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

The world petrochemical industry has changed drastically in the last twenty to thirty years. The United States, Western Europe and Japan previously dominated production of primary petrochemicals, not only to supply their own domestic demand but also to export to other world markets. These areas accounted for over 80% of world primary petrochemical production prior to 1980. However, world-scale construction of petrochemical facilities in other parts of the world has been on the rise. Countries with vast reserves of crude oil and natural gas (e.g., Saudi Arabia and Canada) have constructed plants to add value to their resources. Since these countries generally have smaller domestic demand, a significant share of petrochemical production is earmarked for the export market. Other countries, such as Singapore, the Republic of Korea, and Taiwan, expanded capacity during the past two decades to support growing economies and for exports to other regions that have limited capacity. Still other countries were driven for self-sufficiency from rapidly growing populations (e.g., Thailand, Malaysia, Indonesia and China). The start-up of these plants have effectively diminished the number of export markets available to the United States, Western Europe and Japan as the volume of imports from developing regions increased. As a consequence, the petrochemical industries in the United States, Western Europe and Japan have experienced lower growth rates. In 2010, these three regions accounted for only 37% of world primary petrochemicals production.

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The following table and graphs depict the changing geographical production pattern for the primary petrochemicals in the United States, Western Europe and Japan in comparison to the rest of the world (ROW).

World Production of Primary Petrochemicals by Major Region (percent)

Benzene Butadiene Ethylene Methanol

United States, Western Europe

and Japan

Rest of the

World

United States, Western Europe

and Japan

Rest ofthe

World

United States, Western Europe

and Japan

Rest of the

World

United States, Western Europe

and Japan

Rest ofthe

World

1980 72 28 68 32 78 22 58 42

1985 66 34 61 39 69 31 35 65

1990 66 34 65 35 66 34 30 70

1995 70 30 68 32 64 36 35 65

2000 63 37 64 36 58 42 27 73

2005 55 45 64 36 52 48 17 83

2010 44 56 48 52 41 59 6 94

Propylene Toluene Xylenes Total

United States, Western Europe

and Japan

Rest of the

World

United States, Western Europe

and Japan

Rest ofthe

World

United States, Western Europe

and Japan

Rest ofthe

World

United States, Western Europe

and Japan

Rest ofthe

World

1980 80 20 80 20 74 26 75 25

1985 74 26 57 43 65 35 64 36

1990 73 27 64 36 64 36 62 38

1995 72 28 65 35 61 39 63 37

2000 68 32 49 51 50 50 54 46

2005 57 43 52 48 41 59 49 51

2010 45 54 39 61 35 65 37 63 SOURCE: CEH estimates.

Of the seven feedstocks, only methanol is traded significantly on an interregional basis; however, there is significant interregional trade of certain feedstocks, such as acrylonitrile, ethylene dichloride, vinyl chloride monomer, styrene and end-use products such as polyethylene.

The following table presents the top five producing countries outside the United States, Western Europe and Japan for each of the seven feedstocks in terms of their 2010 production:

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Top Five Producing Countries of Primary Petrochemicals in Rest of the World—2010 (millions of metric tons)

Benzene

China 6.2 Korea, Republic of 4.4 Taiwan 1.5 Saudi Arabia 1.5 Commonwealth of Independent States (CIS) 1.3

Total 14.8

Percent of ROW Production 66%

Butadiene

China 1.9 Korea, Republic of 1.1 Commonwealth of Independent States (CIS) 0.6 Taiwan 0.6 Brazil 0.3

Total 4.5

Percent of ROW Production 85%

Ethylene

China 13.6 Saudi Arabia 10.9 Korea, Republic of 7.1 Canada 4.6 Taiwan 4.1

Total 40.3

Percent of ROW Production 55%

Methanol

China 15.5 Saudi Arabia 6.4 Caribbean 5.2 Commonwealth of Independent States (CIS) 3.2 Venezuela 1.5

Total 31.8

Percent of ROW Production 69%

Propylene

China 12.1 Korea, Republic of 5.7 Saudi Arabia 3.9 Taiwan 3.2 India 2.8

Total 27.7

Percent of ROW Production 67%

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Top Five Producing Countries of Primary Petrochemicals in Rest of the World—2010 (continued)

(millions of metric tons)

Toluene

Korea, Republic of 3.9 China 3.5 India 0.8 Thailand 0.7 Taiwan 0.6

Total 9.4

Percent of ROW Production 78%

Xylenes

China 8.1 Korea, Republic of 5.9 India 3.4 Thailand 2.4 Taiwan 2.3

Total 22.2

Percent of ROW Production 80% SOURCE: CEH estimates in conjunction with the World

Petrochemicals Program.

Global capacity rationalization of methanol was realized in the early 2000s following the start up of mega-scale plants in Latin America. By 2007, growing demand for formaldehyde, acetic acid and reformulated fuels, combined with the rapid development of low-cost coal–derived synthesis gas quickly transformed China into the world’s largest methanol market. New capacity in China and Saudi Arabia over the next several years will further solidify both countries as major production centers. The United States, Western Europe and Japan will remain net importers.

Fluctuations in world oil prices over the past several years and expanding petrochemical production in developing regions presented new challenges for primary petrochemical producers in industrialized regions. In the United States, shifts to less expensive and lighter steam cracking feedstock resulted in increased butadiene imports to meet domestic shortfalls. In Western Europe and Japan, where feedstock imports play a considerable role in olefin production, capacity rationalizations are anticipated as large-scale ethane-based ethylene capacity gradually coming on stream in the Middle East. In Latin America, China and Other Asia, continued cracking of heavy feedstocks provide additional feed for developing downstream markets as well as some export opportunities.

The fastest-developing petrochemical regions are the Middle East and China. With improving social and economic conditions in countries such as Argentina, Chile and Colombia, and considerable investments in energy and infrastructure in Brazil, Latin America is positioning itself for greater growth. Further descriptions of the petrochemical industry in China, the Middle East and Latin America are outlined in this report. Combined, these three regions represent 35-40% of the world’s production of the seven primary petrochemicals in 2010.

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Olefins, aromatics and methanol are essential precursors to a variety of plastics, fibers, elastomers and other intermediates that are further converted into a multitude of consumer and industrial products. Their status as commodity chemicals makes their markets, and hence their production, vulnerable to changes in the economy. The following graph presents the fluctuations in the chemical production cycle. These changes are often more pronounced than those in the economic cycle; however, as seen in the graph, with the changes in the industry over the past 30 years, the percent change in production of these products from year to year have drawn closer to that of world GDP. For additional information see the separate CEH reports.

-5

0

5

10

15

20

25

1975 1980 1985 1990 1995 2000 2005 2010 2015

World Petrochemical Feedstock Production vs. Real GDP a

Percent Change in Real GDP

Percent Change in Feedstock Production

Percent

a. Feedstocks data include methanol, ethylene, propylene, butadiene, benzene, toluene and xylenes.

SOURCES: (A) International Financial Statistics, International Monetary Fund (data for REAL GDP for 1975-1987).

(B) World Economic Outlook, World Economic & Financial Surveys, International Monetary Fund, (data for REAL GDP for 1988-2011).

(C) CEH estimates (all other data).

UNITED STATES

SOURCES OF BASIC PETROCHEMICALS

In 2010, over 50% of U.S. primary petrochemical production of 57.4 million metric tons came from distilled fractions of crude petroleum. Natural gas liquids were a substantial source, particularly for olefins; coal processing accounted for about 17% of methanol production, and less than 1% of aromatics production.

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Coal-Derived Chemicals

Before the rapid growth in petrochemicals consumption during the third quarter of the last century, coal was the major source of benzene in the United States. Until 1984, all coal-derived chemicals in the United States were by-products of coal carbonization; their potential supply is, therefore, largely a function of demand for coke by the iron and steel industry rather than the demand for each individual chemical. Although coal by-product benzene was the major source of benzene supply for the chemical industry until 1959, the petroleum industry has since been the major supplier of all aromatics, both for motor fuels and as chemical intermediates. Currently, less than 2% of all benzene produced in the United States is derived from coal.

Coal chemicals originate from the vapors evolved during high-temperature carbonization of coal to coke. Depending on the temperature at which these vapors are condensed, various crude fractions of hydro-carbons and oxygenated and nitrogenous organics are obtained.* The resulting crude hydrocarbon products are classified into two broad categories: coal tars, which consist primarily of fused-ring aromatic hydrocarbons (naphthalene, anthracene), tar acids (phenol, naphthols, cresols), tar bases (pyridine, picolines) and pitch; and light oils, which consist primarily of benzene and toluene, with smaller amounts of a large number of saturated and unsaturated compounds. Crude coal tars when distilled also yield small amounts of light-oil products; generally 1% or less by weight. Hundreds of individual chemical components, only a few of which are usually isolated as pure chemicals, constitute tars and light oils. Coke-oven gas, an additional product of coal carbonization, generally serves as fuel rather than as a source of chemicals.

Coke-oven operators burn large quantities of coal tar and some coke-oven light oil for fuel rather than processing them for chemical recovery. Also, these companies do not process all chemicals from coal to their final forms; tar distillers not associated with coke ovens process a substantial portion of coal tar, generally for the purpose of isolating road tar and binder pitch. Coke-oven operators typically sell over 50% of crude light oil, primarily to chemical and petroleum companies for aromatics recovery.

Aside from by-product recovery in coking operations, the most notable operations for obtaining chemicals from coal in the United States are Eastman Chemical Company’s production of acetic anhydride, acetic acid and methanol from coal-based synthesis gas and Dakota Gasification Company’s recovery of phenol from coal-based synthetic natural gas production. Total annual capacity of Dakota Gasification’s phenol facility is 16 thousand metric tons. The following flowchart illustrates the disposition of coal-derived chemicals in the United States in 2010.

* Some ammonia is also recovered as ammonium salts by washing the off-gases from carbonization with an

aqueous phase of sulfuric or phosphoric acid or milk of lime. About 25-35% of worldwide ammonia capacity is based on coke-oven gas and coal feedstocks.

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Coal

Total Production: 1,078 Million Metric TonsCoal Carbonized in Ovens Capable of Chemical Recovery: 20.9 Million Metric Tons

Coal CarbonizationCoke-Oven Products

Coal Gasification

Synthesis Gas

Light Oil AnhydrousAmmonia Coal Tar

Light Oil Sales

(primarily to petroleumoperations)

Coal Tar Sales

(primarily to tar operations)

Total Coal-BasedCapacity

544 Thousand Metric TonsAcetic Anhydride

255 Thousand Metric TonsAcetic Acid

195 Thousand Metric TonsMethanol

27 Thousand Metric TonsPhenol

Benzene

90-120 ThousandMetric Tons

Toluene

14-16 ThousandMetric Tons

Xylenes

3-5 ThousandMetric Tons

Naphthalene

67-74 ThousandMetric Tons

Coumarone-Indene Resins

na

Phenol

5-10 ThousandMetric Tons

OtherCreosote OilCresolsCresylic AcidPicolinesPyridinesXylenols

U.S. Production of Coal-Derived Chemicals—2010

SOURCES: (A) Quarterly Coal Report, U.S. Department of Energy, Energy Information Administration, 2010 (data for COAL, TOTAL PRODUCTION and COAL CARBONIZED IN OVENS CAPABLE OF CHEMICAL RECOVERY).

(C) CEH estimates (all other data).

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Crude Petroleum–Based Chemicals

Approximately 40-45% of the seven basic petrochemicals are synthesized or isolated from petroleum fractions in the United States. Although petroleum or crude oil is the source for the major portion of organic chemicals, petrochemical output represents only 5-8% of the crude oil input to refineries (excluding natural gas liquids and refinery off-gases).

Crude oils are characterized by API° gravity and sulfur content; refiners prefer low-sulfur light crudes (with high API°). Crude petroleum is composed of hundreds of compounds, which are often described as broad classes with similar physical or chemical characteristics. Paraffins are saturated hydrocarbons, branched and normal, with as many as sixty carbons. Saturated naphthenes or cycloparaffins contain at least one cyclic structure (e.g., cyclohexane or decalin). Aromatic constituents, such as toluene or naphthalene, consist of molecules with at least one unsaturated ring. Olefins, with at least one double bond, have been isolated in crude petroleum, but only in rare instances. Numerous compounds containing oxygen, nitrogen and sulfur are components of crude oil and must frequently be removed to ensure proper performance of catalysts and refinery facilities.

The first refinery step is crude distillation, a physical separation of components into given boiling ranges for desired end uses. However, demand for motor gasoline dominates production of refined products, thus necessitating chemical conversion of many naturally occurring compounds to higher-octane molecules. Processes involving bond formation and bond breaking of crude oil fractions have become integral refinery operations and these processes convert petroleum into streams high in the content of basic petrochemicals or their precursors. These processes can be classified into three general categories:

• Cracking processes, such as thermal cracking, catalytic cracking and hydrocracking, involving the breaking of larger, less-valuable molecules into smaller molecules

• Chemical rearrangement processes, involving conversion of a stream into molecules of greater value but of approximately the same molecular weight (such as converting methylcyclopentane to benzene) and including isomerization and catalytic reforming

• Molecule building, in which smaller molecules may be joined to produce heavier molecules in processes such as alkylation

Catalytic reforming is the primary source of aromatics in the refinery. Depending on the aromatic and naphthenic (aromatic precursor) content of the feedstock and the conditions of reforming, the basic aromatics—benzene, toluene and xylenes—may comprise between 40% and 60% of the volume of this refinery stream (reformate). Generally, toluene and xylenes constitute the major portion of the reformate’s aromatic content, with benzene constituting only 10-15% of the aromatic content (or about 5-10% of the total catalytic reformate). For additional information see the CEH Benzene, Toluene, Xylenes, and Petroleum Liquid Feedstocks—Naphtha and Gas Oil marketing research reports and the Crude Petroleum and Petroleum Products product review.

Refinery operations also yield sources of the C2-C4 olefins. Liquid fractions (naphtha and gas oil) from crude distillation units are cracked (broken into smaller fragments and dehydrogenated) into olefins units to yield ethylene and coproducts, including propylene, butylenes, butadiene and pyrolysis gasoline (which is another substantial source of aromatics). Large volumes of olefins are also obtained directly during refinery operations, especially from catalytic cracking and thermal processes. Although most C2 streams are used as refinery fuel, refiners can recover off-gas ethylene or, if the stream has a high content of saturates, they can ship it to an olefins cracker for fractionation. About 50% of the total supply of

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propylene and 80% of the total supply of butylenes are produced from petroleum fractions, but most of these compounds are consumed at the refineries through alkylation or polymerization for production of motor fuels. For additional information see the CEH Ethylene, Propylene, Butylenes, Butadiene, Gasoline Octane Improvers/Oxygenates, Petroleum Liquid Feedstocks—Naphtha and Gas Oil marketing research reports and the Crude Petroleum and Petroleum Products product review. Other compounds recovered from petroleum operations include higher-molecular-weight chemicals: saturated acyclic hydrocarbons such as hexanes, heptanes and small amounts of cyclohexane isolated from C6-C8 streams; normal paraffins (C10 and higher, which are converted to alkylbenzene and chlorinated paraffins); carbon black produced by partial oxidation of petroleum liquids and used primarily in rubber; petroleum resins and waxes; and naphthalene. The following chart presents the supply and disposition of crude petroleum and petroleum products in the United States.

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Crude Petroleum

Domestic Crude Production: 2,005 Million BarrelsTotal Gross Input to Refineries: 4,172 Million Barrels

Light Ends C2-C4Products Recovered

and/or Input toOlefins Plants

AromaticsRecovered

from Reforming

Ethylene

Propylene

Butadiene

21.1

8.1

Butylenes forMiscellaneous

Chemicals

Isobutylene - 3.1Other - 1.0

Benzene

3.5

Toluene

3.8

Xylenes

4.8

Cyclohexane1.2

Naphthalene0.07

Normal Paraffins(SC8)

0.75-0.82Carbon Black

2.4-2.8Hexanes0.35-0.50

Miscellaneous Chemical Products Isolated or Produced from Petroleum Streams

Naphtha and GasOil Input to

Olefins Plants

PyrolysisGasoline

Coproducts

C3-C4Coproducts

2.8

5.5

1.3a

1.3

neg

0.4

1.5

1.2

Dealkylation andDisproportionation

U.S. Production of Crude Petroleum–Derived Chemicals—2010(millions of metric tons)

0.4

a. Includes production from imported C4 hydrocarbons coproduced with ethylene from the cracking of naphtha and gas oil.

SOURCES: (A) Petroleum Supply Monthly, U.S. Department of Energy, Energy Information Administration (data for CRUDE PETROLEUM, DOMESTIC CRUDE PRODUCTION and TOTAL GROSS INPUT TO REFINERIES).

(B) CEH estimates (all other data).

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Natural Gas–Derived Chemicals

The most important chemical constituents of raw natural gas are low-molecular-weight saturated hydrocarbons in the C1-C4 range (methane through butanes), although further processing also isolates heavier hydrocarbons. Depending on the geological source, the composition varies widely. Wet natural gas, with high liquids content (C2 and higher hydrocarbons), is normally associated with crude petroleum fields, while drier gas occurs more often in gas wells. Some less-volatile components may condense under ambient conditions at the wellhead (field condensate), but most liquid fractions, especially C2-C4, are recovered by various refrigeration, absorption or cryogenic techniques at gas processing plants (natural gas liquids and plant condensate). The liquids can then be used as clean-burning fuels in energy markets or as petrochemical feedstocks, while pipeline companies transmit the remaining gas, which is predominantly methane, at contracted Btu levels for fuel use in residential and industrial markets.

Methane, which may constitute as much as 97 mole percent of dry natural gas at the wellhead, is also an important chemical feedstock. The largest-volume chemical derived from methane is ammonia, which is produced from synthesis gas. This intermediate mixture of hydrogen and carbon monoxide is generated from steam reforming of methane and further reacted with water to produce carbon dioxide and more hydrogen. Although the hydrogen is the essential starting material for ammonia production, the carbon dioxide may be marketed or, in the case of integrated nitrogen fertilizer plants, reacted with ammonia to produce urea. Natural gas also supplies energy for the steam reforming process; energy requirements may represent nearly 50% of the gas consumption for ammonia production.

While natural gas provides raw materials for nearly all ammonia production in the United States, liquid feeds such as naphtha are used to some extent in regions where natural gas is not abundant. In Japan and China, ammonia can be produced from gasified coal. For additional information see the CEH Ammonia marketing research report.

The second-largest methane derivative is methanol, which is also produced from synthesis gas; however, methanol production requires both the hydrogen and the carbon monoxide fractions from reforming methane. Because of the high hydrogen/carbon ratio in methane, steam reforming provides a stoichiometric excess of hydrogen for methanol; therefore, either excess hydrogen is burned as fuel or additional carbon dioxide, which is generally shipped from a nearby ammonia plant, is added to balance the requirements. Natural gas–based units currently represent 83% of methanol operating capacity in the United States; coal and heavy oil are the sources for the remaining 17%. For additional information see the CEH Methanol marketing research report.

Methane is also the raw material for a variety of other chemicals: acetylene, which is produced by partial oxidation of methane (acetylene is also derived from calcium carbide or as a by-product of ethylene production); oxo chemicals (C3-C15 aldehydes); carbon disulfide from methane and sulfur vapor; and hydrogen cyanide, which is produced from methane and ammonia.

For additional information see the CEH Natural Gas product review.

Natural Gas Liquids–Derived Chemicals

Although natural gas liquids (NGLs), the C2-C4 components of natural gas, account for a relatively small mole percent of the unprocessed gas, these hydrocarbons have traditionally provided a substantial portion of U.S. feedstocks for olefins. Ethylene crackers consume nearly all recovered ethane and propane designated for chemical uses. The major use for propane, however, is as a clean-burning fuel. Butanes for

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chemical uses are isolated primarily from natural gas, but far larger quantities derived from petroleum refinery operations are generally consumed in gasoline and fuel markets.

The NGL content of domestic natural gas can range from less than one mole percent to approximately 20 mole percent, although gas most commonly has a 5-10 mole percent liquids content. While the percentage of NGLs in natural gas varies widely among fields, a representative gas contains an approximate ethane/propane/butanes mole ratio of 4:2:1. Gas processing techniques such as absorption or compression historically have recovered a low percentage of ethane, while 95% of the heavier liquids are recovered easily. However, newer cryogenic techniques have raised the quantities of ethane recovered. This increased level of ethane recovery affects olefins production. The following table and graph presents the percentage relationships among recovered NGLs.

U.S. Production of C2-C4 NGLs

Total Weight Percent of Total (millions of

metric tons) Ethane Propane Butane

1980 33.7 26.1 42.7 31.2

1985 36.3 29.5 42.7 27.8

1990 34.4 30.2 40.8 29.0

1995 38.8 32.0 39.4 28.6

2000 41.2 34.7 37.5 27.8

2005 45.6 44.7 34.4 20.8

2010 45.5 48.1 32.7 19.2 SOURCES: (A) Energy Data Reports, Petroleum Statement, Annual, U.S.

Department of Energy, Energy Information Administration (data for 1980).

(B) Petroleum Supply Annual and Monthly, U.S. Department of Energy, Energy Information Administration, Office of Oil and Gas (all other data).

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0

10

20

30

40

50

60

1970 1975 1980 1985 1990 1995 2000 2005 2007 2010

U.S. Production of C2-C4 NGLs

EthanePropaneButane

Weight Percent

The principal chemical produced from NGLs is ethylene, with propylene and butadiene being important coproducts. The most chemically efficient feedstock for ethylene is ethane, since only small quantities of coproducts are formed. Cracking of heavier feedstocks (e.g., naphtha or gas oil) increases the percentages of coproduct propylene, butadiene and pyrolysis gasoline (a highly aromatic fraction that is not often recovered for chemical use when ethane is the feed). Cracking severity (temperature, pressure, etc.) and feedstock blend can modify ratios of products.

When steam cracking processes were first commercialized in the late 1950s and 1960s, U.S. ethylene producers built plants to utilize domestic NGLs, which were available from the large domestic reserves of natural gas. In the late 1960s and early 1970s, U.S. producers, concerned about possible declines in the domestic production of ethane and propane, designed plants to crack naphtha and gas oil. The use of such feedstocks increased production and the necessity to market coproducts—propylene, C4 hydrocarbons and pyrolysis gasoline. When crude oil prices went up in the early and late 1970s, NGLs again became the preferred feedstocks for ethylene plants. Many producers that had built naphtha- and gas-oil-based facilities modified their plants to accept a variety of hydrocarbon feedstocks. This flexibility allows manufacturers to take advantage of fluctuations in hydrocarbon prices and coproduct demands.

From 1970 through the 1990s, ethylene produced from NGLs accounted for about 75% of total ethylene production, fluctuating only slightly because of feedstock flexibility in olefin plants. The ratio between NGLs and heavy feedstocks, as well as among individual NGL chemical feedstocks, fluctuates yearly because of such factors as supply, price competition among feedstocks and demand from fuel and gasoline markets. Since the early 2000s, NGLs continued to provide an increased percentage of feedstock for the petrochemical industry, largely in demand of ethane for ethylene production. In 2010, 80-85% of total ethylene production in the United States was based on NGLs.

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Although chemical use of ethane and propane is essentially limited to olefins production, butanes (normal and iso) are precursors of a variety of chemicals.* Acetic acid and methyl ethyl ketone are produced via liquid-phase oxidation of n-butane and in the United States the route to maleic anhydride from butane has replaced processes based on benzene. n-Butane also serves as a “swing” feedstock for ethylene production, although the volumes used fluctuate considerably from year to year, depending on the price relationships among butane and other feedstocks.

Isobutane is consumed in the manufacture of gasoline blending components, gasoline alkylate and isobutylene for methyl tert-butyl ether (MTBE). Alkylate is produced when isobutane is reacted with an olefin, either propylene or butylenes. MTBE is produced from isobutylene, which can be obtained from various sources. Although isobutylene is primarily coproduced during ethylene manufacture or recovered from refinery operations, some companies have opted to manufacture it intentionally via isobutane dehydrogenation.

Isobutane also serves as a raw material for propylene oxide. In a process used by Lyondell Chemical and Huntsman Corporation, propylene reacts with isobutane to produce propylene oxide and t-butyl alcohol (TBA). TBA may be used as a solvent or dehydrated to isobutylene for MTBE or other chemical applications.

Demand for MTBE grew rapidly in the 1990s because of stricter gasoline emission requirements. Gasoline volatility regulations also backed out some butane from the gasoline pool and have made it more available for chemical feedstocks. Between 2003 and 2005, California, New Hampshire, New York, Connecticut and Maine eliminated the use of MTBE in gasoline due to growing environmental concerns. The U.S. Energy Policy Act of 2005 expedited declines in MTBE production as most refiners replaced MTBE with ethanol during the summer of 2006. For additional information see the CEH Butylenes, Butanes and Gasoline Octane Improvers/Oxygenates marketing research reports.

The following flowchart presents the disposition of natural gas–derived chemicals in the United States.

* Nitroparaffins (e.g., nitromethane, nitropropane) are produced using propane. Small volumes of chlorinated

solvents are synthesized from ethane and propane.

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Natural Gas

Marketed Production ofNatural Gas

(trillions of cubic feet)Wet 24.4Dry 21.5

FieldCondensate

Natural Gas Liquids

SynthesisGas

PlantCondensate

Ammonia8.0

Methane

Ethane17.9

(302 millionbarrels)

Propane16.6

(205 millionbarrels)

Butanes11.0

(121 millionbarrels)

Feedstocks toOlefins Plants

Ethane 19.3Propane 9.7n-Butanes 2.2

Feedstock toOlefins Plants

HydrogenCyanide

OxoChemicals Acetylene

CarbonDisulfide

Recovered NaturalBenzene and Aromaticsfrom Cracking Natural

Gas Liquids(small amounts)

Butanes forMiscellaneous

Chemicals

Ethylene

Propylene

Butadiene

15.9

neg

3.9

neg

1.1

neg

Productiona(628 million barrels)

Feedstockb(210.9 cubic feet)

Methanol0.9

MethaneFeedstockc

(25.3 cubic feet)

U.S. Production of Natural Gas–Derived Chemicals—2010(millions of metric tons)

a. Includes ethane, LPG (propane and butanes), isopentane, natural gasoline and plant condensates. b. Methane feedstocks for ammonia are based on the assumption that production of one metric ton of ammonia requires 25.8

thousand cubic feet of natural gas. This factor includes methane consumed for its hydrogen content plus the methane consumed for energy in the steam reforming process, which amounts to about 40-45% of the total.

c. Approximately 81% of U.S. methanol capacity in 2010 was based on natural gas feedstock. Methane consumption for methyl alcohol is calculated on the assumption that production of one metric ton of methanol requires 26.1 thousand cubic feet of natural gas.

SOURCES: (A) Natural Gas Monthly, January 2011, U.S. Department of Energy, Energy Information Administration (data for MARKETED PRODUCTION OF NATURAL GAS).

(B) Petroleum Supply Monthly, U.S. Department of Energy, Energy Information Administration (data for NATURAL GAS LIQUIDS PRODUCTION and ETHANE, PROPANE and BUTANES).

(C) NPRA Petrochemical Surveys, Fourth Quarter 2010, National Petroleum Refiners Association (data for FEEDSTOCKS TO OLEFINS PLANTS).

(D) CEH estimates (all other data).

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

The following sections analyze the supply of each basic petrochemical, its feedstocks and production methods.

Methanol

Originally, methanol was produced by combustive distillation of wood, hence the term wood alcohol; however, today methanol is produced primarily using natural gas feedstocks with smaller amounts derived from coal and petroleum sources.

The United States, which was a major supplier of methanol to the rest of the world up through the early 1980s, has become a major methanol importer. In 2010, imports accounted for approximately 88-93% of methanol demand in the United States. Future methanol capacity additions will continue to be built outside the United States in regions with inexpensive and abundant sources of natural gas.

Olefins

Olefins are important intermediates in the production of many large-volume chemicals, plastics and elastomers.

Ethylene crackers, more inclusively termed olefins plants, provide the largest volumes of petrochemicals for downstream activities. The traditional feedstocks in the United States for olefins, especially ethylene, have been NGLs. By 1978, however, petroleum liquids accounted for 57% of olefins production; newer U.S. crackers were designed almost exclusively for naphtha and gas oil. Because capital costs for heavy liquids plants surpass those based on natural gas liquids, economical operation mandates recovery and marketing of coproducts (e.g., propylene, butadiene, aromatics).

With continued expectations of declining NGL production during the late 1970s, the chemical industry predicted that the majority of ethylene would originate from petroleum liquid feedstocks. However, increased ethane recovery and relatively low NGL prices (especially in comparison to most other regions of the world) prompted ethylene producers to favor NGLs over petroleum fractions. Plants were built so that heavy liquids plants could also accept a moderate percentage of NGLs and, with some additional capital expense, increase flexibility. A number of grassroots ethylene plants built in recent years utilize “flexible” steam crackers, which can operate with a variety of feedstocks (ethane, propane, butane, ethane/propane mix, naphtha and gas oil). Feedstock selection depends on overall plant economics and downstream production requirements.

With the gradual increase in crude oil pricing, and the stabilization in natural gas prices in recent years due to increased shale gas production, many olefin producers have shifted to lighter feestock. In 2010, NGLs accounted for 80-85% of ethylene and 55-60% of overall olefins production.

Propylene is produced as an ethylene coproduct or from refinery operations. In the United States, more than half of demand for propylene is met by refinery operations. Demand for ethylene and propylene have grown steadily since commercial introduction.

Butadiene is produced as an ethylene coproduct or from the separation of imported C4 streams containing butadiene. With the shift to lighter ethylene feeds and the closure of a number of heavy-feed crackers

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during 2007-2009, available butadiene supplies have decreased leading to the evaluation of alternative sources of butadiene or an increase in imports. In general, the United States satisfies some of its requirements for butadiene through imports of C4 streams, historically from Western Europe. Increasing quantities of butadiene will be imported from Asia.

The following flowchart presents the supply of olefins by the various sources in the United States.

U.S. Supply of Olefins by Source—2010

Crude Petroleum AssociatedNatural Gas

NonassociatedNatural Gas

Natural Gas Liquidsa

Feedstocks toOlefins Plants

EthyleneTotal Volume24.0 MillionMetric Tons

PropyleneTotal Volume14.1 MillionMetric Tons

ButadieneTotal Volume

1.6 MillionMetric Tons

84%

92% Streams andOther Sources

a. Includes ethane, propane, butane and condensates. The C2-C4 feeds may be obtained from natural gas or petroleum sources.

52.5%

Sources: (A) NPRA Petrochemical Summary, Fourth Quarter 2010 (data for ETHYLENE, PROPYLENE and BUTADIENE).

(B) CEH estimates (all other data).

Metathesis ofEthylene and

Butylene

PropaneDehydrogenation

HeavyFeedstocks-Naphtha and

Gas Oil

12%

43.3%

Coproduct Streams

4.6% 2.6%

8%Imports of C4

RefineryOff-Gases

4%

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Aromatics

Nearly all major aromatics—benzene, toluene and xylenes (BTX)—are derived from petroleum-based feedstocks; coal-based feedstocks accounted for less than 2% of the total BTX aromatics recovered for chemical uses in 2010.

Catalytic reforming of crude oil fractions represents the primary source of petroleum-based aromatics and accounts for 72% of the total domestic supply of BTX. Pyrolysis gasoline, which is a by-product of ethylene manufacture, accounts for another 9-14% of the aromatics supplied. The quantity of aromatics available from this source is largely dependent on the feedstock chosen for ethylene manufacture. In addition to these sources, benzene may be produced on purpose by hydrodealkylation of toluene. Benzene is also produced by toluene disproportionation, although xylenes are the desired product in the reaction.

Catalytic reforming produces high-octane components for motor fuels. About 90% of the reformate is channeled to the gasoline pool and producers annually isolate only about 2.0-2.5 billion gallons of aromatics from reformate for chemical and solvent use.

The availability of petroleum-derived benzene, toluene and xylenes for chemical and solvent uses are influenced by gasoline demand and pricing as well as by catalytic reforming capacity. However, the impact will probably not be as great as in the past. In 1995, the 1990 amendments to the Clean Air Act mandated the sale of reformulated gasoline (RFG) in certain regions of the United States. RFG must contain no more than one volume percent benzene, no more than 25 volume percent aromatics and 2.0-2.7 weight percent oxygenates (e.g., MTBE). Again in 2007, the EPA finalized a rule (MSAT II) to reduce hazardous air pollutants from mobile sources that limited benzene content of gasoline and reduced toxic emissions from passenger vehicles and gas cans from 1 to 0.60 volume percent by 2011.

At first, there was speculation that the aromatics backed out of the gasoline pool could be diverted to the chemical market and would significantly upset the supply/demand balance if a demand existed. However, most aromatic producers isolate only the necessary amount required for chemical use, thereby preempting the balance through reduced reformer throughput and severity or by extracting aromatic precursors via distillation prior to reforming. Because of the flexibility of U.S. refineries to adjust aromatic levels in the gasoline pool, the impact of new and future regulations will most likely have little effect on chemical benzene production levels.

The following table represents BTX aromatics yields representative of typical industry performance:

Typical U.S. Yields of BTX Aromatics from Reforming(volume percent based on naphtha feed charge)

Benzene 3-7 Toluene 11-22 Xylenes 14-26

Total 28-55% SOURCE: CEH estimates.

Another source of petroleum-based aromatics is pyrolysis gasoline, which is a coproduct of ethylene manufacturing, especially from petroleum liquid feeds such as naphtha and gas oil. The amount of each aromatic in the pyrolysis gasoline varies with feedstock composition and the design and operating

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conditions of the ethylene plant. Although no particular situation can accurately be described as typical concerning ethylene plants and their coproducts, the following table presents reasonable average yields of pyrolysis gasoline and BTX in the manufacture of ethylene:

Typical U.S. Yields of Pyrolysis Gasoline and BTX in the Manufacture of Ethylene (weight units)

Feedstock

Ethane Propane n-Butane Naphtha/Gas Oil

Ethylene 100 100 100 100 Pyrolysis Gasoline 0-2 12-18 15 60-85 Benzene neg-1 5-7 5-7 18-24 Toluene neg-1 1-2 2-4 15-20 Xylenes neg neg 1 9-11 SOURCE: CEH estimates based on J. J. F. Draaisma and A. Mol, “Is Steam Cracker

Flexibility Economical?” Hydrocarbon Processing, April 1977, pp. 149-155; and W. Tucker and M. A. Abrahams, “Economics of Petrochemical Output Changes,” Oil & Gas Journal, April 11, 1977, pp. 81 and 84.

The following diagram illustrates the production of benzene, toluene and xylenes by feedstock:

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Crude Petroleuma Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume6.3 Million

Metric Tons

a. Includes natural gas liquids.

Source: CEH estimates.

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

55.3%1.4%

RecoveredToluene

Total Volume4.3 Million

Metric Tons

0.3%

Styrene-By-Product

neg

Disproportionation

RecoveredXylenes

Total Volume6.1 Million

Metric Tons

PyrolysisGasoline

19.6%23.7%

98.6%

8.3%88.7% 2.7%

99.7%

0.6%78.6% 20.8%

100%

U.S. Supply of Aromatics for Chemical Use—2010

All basic aromatics are recovered from pyrolysis gasoline in appreciable quantities; however, xylenes are recovered in much lower quantities because of lower concentrations in the stream and the difficulty of economically separating the four products (o-, m- and p-xylene and ethylbenzene) in the C8 stream unless such a stream has sufficient volume to justify recovery.

Coal-based aromatics (primarily benzene) are obtained from the light oil that is a by-product of the carbonization of coal to coke. The chemical content of this light oil is recovered by both petroleum refiners that purchase the light oil and coke-oven operators. Other processors of coke by-products occasionally obtain small amounts of coal-based aromatics (e.g., benzene from coal tar by tar distillers). The availability of coke-oven light oil is solely a function of coke demand; however, the demand for aromatics can affect the degree to which light oil is used as a fuel versus being separated into chemical constituents. Tar distillers have not used coal tar as fuel for over the past 25 years.

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PRODUCTION

The total U.S. production volume for the seven primary petrochemicals totaled 57.4 million metric tons in 2010. Petrochemical production in the United States plateaued in the 2000s, slowing during economic downturns (2001, 2004 and 2009). Increases in lower cost imported methanol and reduced demand for MTBE in recent years have resulted in a 16.8% average annual decline in methanol production since 1997. During 2007-2010, production declines in both aromatics and olefins were largely influenced by the slowing economy and rising feedstock costs.

The following table represents the production volumes for the individual petrochemicals and the total volumes. For more detailed information on specific primary petrochemicals, see the individual CEH reports.

U.S. Production of Primary Petrochemicals (millions of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Total

1985 4.7 1.1 13.9 2.7 6.8 2.3 2.4 33.9

1990 6.3 1.4 17.1 4.0 8.8 2.8 2.6 43.0

1995 7.0 1.9 21.3 5.4 11.7 4.0 4.5 55.8 1996 7.2 2.0 22.3 5.6 12.0 4.0 4.6 57.7 1997 8.0 2.0 23.2 6.0 13.3 5.5 5.4 63.4 1998 8.0 2.0 26.6 5.9 13.5 4.4 5.1 65.5 1999 8.3 2.0 25.4 5.7 14.0 5.3 5.9 66.6

2000 8.4 2.0 25.7 4.2 15.6 4.9 6.0 66.8 2001 6.7 1.7 22.5 3.1 14.7 3.2 5.4 57.3 2002 7.3 1.9 23.6 3.0 15.3 3.8 6.1 61.0 2003 7.5 1.9 23.0 3.4 15.7 4.4 7.1 63.0 2004 7.9 2.0 25.2 2.7 16.5 5.3 7.1 66.7

2005 7.3 2.1 24.0 1.3 16.0 4.7 6.3 61.7 2006 7.2 2.1 25.0 1.1 16.4 5.0 5.9 62.7 2007 7.4 2.1 25.4 0.9 16.7 5.2 6.1 63.8 2008 6.3 2.0 22.5 0.7 14.8 4.6 5.4 56.3 2009 6.1 1.8 22.6 0.9 13.3 5.0 5.6 55.3

2010 6.3 1.7 24.0 0.8 14.1 4.3 6.1 57.4 SOURCE: CEH estimates.

The following table represents the yearly production values for each petrochemical and the yearly total values. Production values are based on average unit prices and represent gross estimates of total value.

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U.S. Production Values for Primary Petrochemicals (millions of dollars)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Totala

1985 2,083 744 4,667 389 2,272 851 920 11,926

1990 2,451 884 8,084 520 2,779 855 758 16,331

1995 1,906 882 13,160 813 5,911 970 1,485 25,127 1996 2,064 817 11,784 790 4,770 884 1,014 22,123 1997 1,923 990 14,308 1,302 6,227 1,447 1,546 27,743 1998 1,814 731 10,337 513 4,172 887 1,045 19,499 1999 1,989 660 13,860 721 4,481 1,344 1,355 24,410

2000 4,044 1,170 19,278 882 9,433 1,804 2,142 38,753 2001 2,102 768 11,161 599 5,282 987 1,658 22,557 2002 2,496 871 8,377 522 5,431 1,108 1,999 20,804 2003 3,804 1,269 10,800 850 6,715 1,810 3,347 28,595 2004 7,336 1,572 17,210 731 11,871 3,353 4,226 46,299

2005 6,034 2,242 22,648 368 14,127 3,151 5,460 54,030 2006 7,267 2,551 22,855 412 15,788 4,156 5,192 58,221 2007 7,922 2,659 23,969 381 18,055 4,524 5,441 62,951 2008 6,249 4,290 23,658 293 17,494 4,218 5,085 61,287 2009 4,576 1,767 13,553 209 11,221 3,421 3,939 38,686

2010 6,190 3,554 23,581 259 18,018 3,606 5,238 60,446 a. Totals may not equal the sums of the categories because of rounding.

SOURCE: CEH estimates.

For additional information on the relationship between feedstock and petrochemical prices, please refer to the PRICE section of this report.

CONSUMPTION

Because the chemical industry serves almost all manufacturing industries, primary petrochemicals have many end-use markets; polymers—including plastics, fibers and elastomers—dominate these markets. In 2010, these end uses accounted for about 70-75% of total U.S. primary petrochemical demand. The following table presents consumption of primary petrochemicals in the United States:

U.S. Consumption of Primary Petrochemicals—2010 (millions of metric tons)

Ethylene 23.9Propylene 14.3Benzene 7.5Methanol 5.8Xylenes 5.1Toluene 4.3Butadiene 1.9

Total 62.6 SOURCE: CEH estimates.

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U.S. consumption of primary petrochemicals totaled nearly 63 million metric tons in 2010, recovering 3-5% from recessionary lows during 2009. Olefins and aromatics accounted for 64% and 27% of total petrochemical demand, respectively.

Among individual petrochemicals, methanol has the most diversified market distribution, including solvents, textiles, plastics, and fertilizers. The largest outlet presently is in formaldehyde production which eclipsed MTBE, a gasoline octane enhancer, beginning in 2006. MTBE was phased-out of the gasoline pool because of environmental concerns by the end of 2008, declining from a high of 3.5 million metric tons in 1999 to the present level of less than 0.9 million metric tons. Most domestic MTBE production is exported for fuel use in Latin America and Asia.

Among the olefins, ethylene and propylene are consumed predominantly in the production of plastics and resins, which accounted for nearly two-thirds of annual ethylene demand and about half of annual propylene demand. In the case of butadiene, elastomer uses dominate, totaling 70% of annual demand.

The major market for aromatics is fuel; plastics, resins and fibers are the primary chemical uses. Important chemical appplications for benzene include plastics and resins and fibers. Toluene is used mainly as an octane-improving gasoline component and as a solvent. Xylenes, excluding fuel use, are consumed mainly by the plastics and fibers industries, which accounted for two-thirds of annual xylenes demand.

PRICE

The following table and graphs show historical prices for the seven primary petrochemicals. Prices are expressed as indexes to illustrate the fluctuations in prices adjusted for general economic inflation. For actual prices, refer to the individual CEH reports.

Normalized Deflated U.S. Price Indexes for Primary Petrochemicalsa (2005 = 100)

Benzene

Butadiene

Ethylene

Methanol

Propylene

Toluene

Xylenes

GDP Deflator

1985 171.8 667.7 601.3 175.2 529.8 67.4 138.0 61.6

1990 201.4 782.6 704.8 205.3 620.9 79.0 161.7 72.2

1995 227.3 883.5 795.6 231.8 700.9 89.2 182.6 81.5 1996 231.8 900.8 811.2 236.3 714.7 90.9 186.1 83.1 1997 236.0 917.1 825.9 240.6 727.6 92.6 189.5 84.6 1998 238.5 926.8 834.7 243.2 735.3 93.5 191.5 85.5 1999 242.1 940.9 847.3 246.9 746.5 95.0 194.4 86.8

2000 247.1 960.4 864.9 252.0 762.0 96.9 198.5 88.6 2001 252.7 982.1 884.4 257.7 779.2 99.1 202.9 90.6 2002 256.9 998.4 899.1 261.9 792.1 100.8 206.3 92.1 2003 262.5 1,020.0 918.6 267.6 809.3 102.9 210.8 94.1 2004 270.0 1,049.3 945.0 275.3 832.5 105.9 216.8 96.8

2005 278.9 1,084.0 976.2 284.4 860.0 109.4 224.0 100 2006 287.8 1,118.7 1,007.4 293.5 887.5 112.9 231.2 103.2 2007 296.5 1,152.3 1,037.7 302.3 914.2 116.3 238.1 106.3 2008 302.9 1,177.2 1,060.2 308.8 934.0 118.8 243.3 108.6 2009 305.7 1,188.1 1,069.9 311.7 942.6 119.9 245.5 109.6

2010 308.8 1,200.0 1,080.7 314.8 952.0 121.1 248.0 110.7

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a. Prices were adjusted for inflation by the GDP deflator as published by the International Monetary Fund.

SOURCES: (A) World Economic Outlook, International Monetary Fund (data for GDP DEFLATOR).

(B) CEH estimates (all other data).

Many variables affect the pricing of primary petrochemicals. Among these are the pricing and availability of raw materials, which are tied directly to the price for crude oil; the supply and demand balance for the individual petrochemicals; and government regulations in the form of either price controls or legislation, both of which contribute to increased capital and production costs.

The following table presents wellhead prices of crude oil and natural gas since 1980:

U.S. Crude Oil and Natural Gas Wellhead Prices

Refiner Acquisition Cost for Crude Oil (dollars per barrel)

Natural Gas Wellhead Pricea

(dollars per thousand cubic feet)

1985 26.75 2.51

1990 22.22 1.71

1995 17.23 1.59 1996 20.71 2.16 1997 19.04 2.32 1998 12.52 1.94 1999 17.51 2.17

2000 28.23 3.68 2001 21.99 4.00 2002 23.63 2.95 2003 27.87 4.98 2004 36.98 5.46

2005 50.24 7.33 2006 60.24 6.40 2007 67.93 6.25 2008 94.74 7.97 2009 59.27 3.67

2010 76.69 4.18 a. One thousand cubic feet of natural gas is equivalent to

approximately 1.03 million Btus.

SOURCE: CEH estimates.

The following table and graph present the historical trends for producer price indexes of crude oil, natural gas and some of the primary petrochemicals.

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U.S. Average Annual Producer Price Indexes for Raw Materials and Refining Productsa

Crude Petroleum (domestic)

Natural Gas (Wellhead)

Primary Petroleum Refining

Products

1985 na na na

1990 77.3 75.5 76.4

1995 55.6 62.6 59.0 1996 68.2 85.7 76.8 1997 62.6 95.5 79.1 1998 38.9 78.8 59 1999 54.7 85.7 70.2

2000 92.8 146.1 119.5 2001 75.4 161.5 118.7 2002 73.9 114.1 94.3 2003 90.3 191.6 137.1 2004 117.8 216.4 165

2005 163.4 298.4 228.2 2006 191.6 251.2 226.8 2007 209.8 248 232.9 2008 300.3 311.7 313.2 2009 176.1 145.3 166.3

2010 238.0 165.2 210.3 a. Basis is 1984 = 100 for all products.

SOURCE: Producer Price Indexes, U.S. Department of Labor, Bureau of Labor Statistics.

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0

50

100

150

200

250

300

350

1990 1995 2000 2005 2010

U.S. Average Annual Producer Price Indexes for Oil, Gas and Primary Petrochemicals

Crude Petroleum

Primary Petroleum Refining Products

Natural Gas

1984 = 100

The supply and pricing of hydrocarbon energy sources influence prices for U.S. petrochemicals; however, resistance to price increases by end users and derivative producers, coupled with competition from newly developed regions, skewed the relationship of hydrocarbon energy sources and some petrochemicals in certain years.

Another factor that affects petrochemical pricing is the balance between the supply and demand of petrochemicals. In times of overcapacity and sluggish demand, prices tend to weaken. In contrast, when demand is strong to the point of straining available supply, prices generally increase. The “break point” or critical level of capacity utilization (i.e., the point at which prices increase rapidly) varies from product to product. Business recessions dampen demand for petrochemicals because the major end markets such as construction and transportation are sensitive to economic cycles. In addition, demand for petrochemicals and derivatives are influenced in yearly cycles by seasonal demand. Operating problems and supply disruptions caused by natural disasters (force majeure) or human error, unscheduled maintenance, and accidents can also rapidly change the pricing structure. Inventory changes can also affect pricing. If users anticipate price increases or impending supply problems, they tend to stockpile products.

TRADE

The following table presents U.S. trade values for methanol:

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U.S. Trade in Methanol (millions of dollars)

Imports Exports Net Exports

1985 93.1 4.6 –88.5

1990 104.4 30.5 –73.9

1995 365.4 49.9 –315.5 1996 215.8 25.6 –190.2 1997 335.1 54.2 –280.9 1998 234.5 19.1 –215.4 1999 267.7 17.5 –250.2

2000 578.1 24.6 –553.5 2001 819.8 43.6 –776.2 2002 634.8 37.2 –597.6 2003 877.4 42.7 –834.7 2004 1,053.0 34.5 –1,018.5

2005 1,376.9 30.1 –1,346.8 2006 1,632.5 39.2 –1,593.3 2007 1,795.5 67.8 –1,727.7 2008 1,994.3 74.7 –1,919.6 2009 810.8 83.9 –726.4

2010 1,302.9 63.1 –1,239.8 SOURCE: U.S. Department of Commerce, Bureau of the Census.

The following table presents U.S. trade values for olefins:

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U.S. Trade in Olefins (millions of dollars)

Butadiene Ethylene Propylene

Imports

Exports

Net Exports

Imports

Exports

Net Exports

Imports

Exports

Net Exports

1985 201.6 52.2 –149.4 51.7 13.3 –38.4 34.0 30.0 –3.9

1990 93.8 0.5 –93.3 na 1.04 na 4.6 97.7 93.1

1995 73.1 1.0 –72.1 44.8 1.5 –43.3 95.0 82.6 –12.4 1996 55.5 0.9 –54.6 85.2a 36.6 –48.6 164.7a 110.9 –53.8 1997 79.7 8.6 –71.1 4.4 61.4 57.0 63.9 171.2 107.3 1998 68.7 9.7 –59.0 5.4 32.5 27.1 50.0 76.9 26.9 1999 52.2 11.6 –40.6 3.9 27.5 23.6 54.7 75.5 20.8

2000 61.6 26.0 –35.6 4.8 98.2 93.4 72.0 104.1 32.1 2001 41.6 2.6 –39.0 4.5 3.8 –0.7 36.5 42.0 5.5 2002 37.7 4.3 –33.4 2.4 23.3 20.9 63.1 147.7 84.6 2003 77.6 8.6 –68.9 4.2 12.8 8.6 85.8 96.0 10.2 2004 81.5 42.7 –38.8 5.2 128.9 123.7 125.5 165.7 40.2

2005 79.9 86.1 6.2 9.5 51.9 42.4 109.1 195.0 85.9 2006 107.9 83.9 –24.0 6.9 76.1 69.2 204.0 310.4 106.4 2007 171.1 131.8 –39.3 7.2 89.4 82.2 227.9 382.3 154.4 2008 161.6 138.4 –23.2 9.0 27.3 18.3 397.7 269.5 –128.2 2009 145.7 55.2 –90.5 5.1 41.2 36.1 180.7 185.5 4.8

2010 408.9 77.5 –331.4 7.8 79.3 71.5 455.8 203.0 –252.8 a. Imports as reported by the source are believed to be overstated.

SOURCE: U.S. Department of Commerce, Bureau of the Census.

The following table presents U.S. trade values for aromatics:

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U.S. Trade in Aromatics (millions of dollars)

Benzene Toluene Xylenes

Imports

Exports

Net Exports

Imports

Exports

Net Exports

Imports

Exports

Net Exports

1985 187.4 16.9 –170.5 165.2 32.7 –132.5 74.2 45.8 –28.4

1990 61.4 125.0 63.7 49.3 99.3 50.0 13.5 51.8 38.3

1995 141.2 14.2 –127.0 56.4 75.6 19.2 112.6 153.4 40.8 1996 510.1a 7.5 –502.6 93.7 68.0 –25.7 292.1a 159.3 –132.8 1997 81.1 38.9 –42.2 29.6 51.4 21.8 120.3 432.6 312.3 1998 137.2 7.7 –129.5 24.8 18.2 –6.6 66.5 310.6 244.1 1999 145.8 7.3 –138.5 37.9 12.1 –25.8 24.6 352.3 327.7

2000 410.0a 4.9 –405.1 57.3 31.6 –25.7 40.9 581.3 540.4 2001 243.8 8.7 –235.1 107.4 41.3 –66.1 31.9 33.4 1.5 2002 247.9 2.5 –245.4 107.2 147.7 40.5 40.7 120.4 79.8 2003 300.0 47.3 –252.7 124.5 202.6 78.1 29.3 192.7 163.4 2004 768.7 39.6 –729.1 85.1 428.0 342.9 19.4 286.7 267.3

2005 1,038.1 21.2 –1,016.9 140.1 379.6 239.5 14.6 174.6 160.0 2006 1,271.5 27.7 –1,243.8 344.5 221.9 –122.6 30.8 370.3 339.5 2007 1,442.3 14.0 –1,429.2 348.7 205.0 –143.7 9.8 275.7 265.9 2008 1,309.0 49.0 –1,260.0 441.4 169.5 –271.9 33.8 202.6 168.8 2009 679.8 83.6 –596.2 136.2 112.7 –23.5 8.5 343.1 334.6

2010 1,145.6 134.2 –1,011.4 228.5 237.7 9.2 1.4 477.3 475.9 a. Imports as reported by the source are believed to be overstated.

SOURCES: (A) U.S. Department of Commerce, Bureau of the Census (data for 1985, 1990 and 1995-2003).

(B) World Trade Atlas, Global Trade Information Services, Inc. (data for 2004-2010).

U.S. Net Exports of Primary Petrochemicals (millions of dollars)

Methanol Olefins Aromatics

2003 –834.7 –50.2 –11.2 2004 –1,018.5 125.1 –118.9 2005 –1,346.8 134.5 –617.4 2006 –1,593.3 151.6 –1,026.9 2007 –1,727.7 197.3 –1,307.0 2008 –1,919.6 –133.1 –1,363.1 2009 –726.4 –49.6 –285.1 2010 –1,239.8 –512.7 –526.3 SOURCE: CEH estimates.

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-2,000

-1,800

-1,600

-1,400

-1,200

-1,000

-800

-600

2003 2004 2005 2006 2007 2008 2009 2010

U.S. Net Exports of MethanolMillions of Dollars

-600

-500

-400

-300

-200

-100

0

100

200

2003 2004 2005 2006 2007 2008 2009 2010

U.S. Net Exports of OlefinsMillions of Dollars

-1,500-1,400-1,300-1,200-1,100-1,000

-900-800-700-600-500-400-300-200-100

0100200300

2003 2004 2005 2006 2007 2008 2009 2010

U.S. Net Exports of AromaticsMillions of Dollars

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The United States has been a net importer of olefins, particularly butadiene, since the Bureau of the Census began collecting data on these chemicals. Short-term fluctuations in the trade pattern for petrochemicals over a period of time can be attributed to the value of the U.S. dollar in relation to other foreign currencies. A strong dollar tends to depress exports, while encouraging imports. Long-term, the U.S. trade pattern will continue to be influenced by the increasing globalization of the petrochemical industry. For example, the start-up of several world-scale methanol plants in countries with abundant natural gas feedstocks has shrunk the export market available to the United States. This factor has also affected the trade of olefins and aromatics, and even more importantly, their derivatives.

LATIN AMERICA

Latin America includes Argentina, Brazil, Chile, Colombia, Mexico and Venezuela, as well as contributing countries of the Caribbean (Trinidad and Tobago) and Central America.

SOURCES OF BASIC PETROCHEMICALS

Approximately 65-70% of the seven basic petrochemicals are synthesized or isolated from petroleum fractions in Latin America. Refineries historically produced considerable quantities of crude oil for exports and increased yields of naphtha for gasoline and chemical use. Increased flexibility in automobiles capable of operating on fuel ranging from full ethanol to 80% gasoline leaves a greater amount of naphtha available for steam cracking while gas oil is predominantly reserved for energy and fuel consumption. Natural gas and NGLs account for a large percentage of ethylene production but yield no coproduct propylene or butadiene. Only a negligible amount of coal is used for aromatics production.

Brazil is the world’s largest exporter and second-largest producer of ethanol. With a large and well developed agricultural base, rising demand for advanced biofuels in industrialized regions and crude oil prices sustained at levels above $80 per barrel, Brazil is emerging as the world’s first sustainable biofuels economy and ethanol a viable source for greater petrochemical production.

The following flowchart illustrates the disposition of crude petroleum and natural gas in the Latin American petrochemical industry.

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Natural Gas

MarketedProduction ofNatural Gas(205 billion

cubic meters)

NaturalGas

Liquids

Crude PetroleumDomestic Crude Production: 507.3 Million Metric Tons (3,607 million barrels)

Total Gross Input to Refineries: 342.9 Million Metric Tons (2,438 million barrels)

Light Ends C2-C5a

Products Recoveredand/or Input toOlefins Plants

Naphtha andGas Oil Input to

Olefins Plant

AromaticsRecovered

from Reforming

AmmoniaMethane

Feedstock(7.4 billion

cubicmeters)

MethylAlcoholMethane

Feedstock(8.0 billion

cubicmeters)

EthanePropaneButane

Ethylene

2.4

3.1b

0.1

Propylene

1.3

2.3

Butadiene

0.4

Butylenes

0.2

0.5

C3-C4Coproducts

Benzene

0.3

0.2

Toluene

0.4

Xylenes

0.3

0.1

Dealkylationand

Disproportionation

EthylAlcohol

Latin American Production of Petrochemicals by Source—2010(millions of metric tons)

a. Includes production from LPG.b. Includes mixed feedstocks.

Source: CEH estimates.

PyrolysisGasoline

Coproducts

0.8

0.3

0.2

ButaneDehydrogenation

neg

0.2

EthylbenzeneBy-Product

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

Methanol

The following table presents the production of methanol by type of feedstock:

Latin American Production of Methanol by Feedstock—2010

(percent)

Natural Gas >99 Acetylene Off-Gas <1

Total 100% SOURCE: CEH estimates.

Over 99% of the 8.1 million metric tons of methanol produced in Latin America in 2010 comes from natural gas–based synthesis gas. Commercially, all methanol is produced from synthesis gas (a mixture of carbon monoxide, carbon dioxide and hydrogen). Synthesis gas is usually made by steam reforming of natural gas, but other fuel sources such as naphtha, residual oil, refinery off-gases, coal and wood are used where plentiful natural gas supplies are not available or where special political/economic conditions exist. Most regionally produced methanol (Brazil, Chile, Trinidad and Tobago and Venezuela) comes from natural gas. Remaining methanol production is generated from by-product polyethylene terephthalate processes.

Methanol is an easy and economical material to store and ship and is, therefore, a major factor in world chemical trade. Countries with ample low-cost gas have built large-scale methanol capacity for export markets. Latin American methanol production in 2010 represented approximately 10-15% of global supply.

Olefins

The following diagram presents the availability of olefins from various feedstocks in Latin America in 2010.

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Natural Gas Liquids

Heavy Feedstock—Naphtha and Gas Oil

Ethane RefineryOff-Gases

Refinery OperationsCrude Petroleum Associated

Natural GasNonassociated

Natural Gas

Ethane/Propanea

EthyleneTotal Volume

5.817.1% 1.0% 37.0%

PropyleneTotal Volume

3.7

ButadieneTotal Volume

0.3

Refinery Streams63.2%

42.5%

36.8%

100%

Coproduct Streams

Latin American Supply of Olefins by Source—2010(millions of metric tons)

a. Includes production from propane and other mixed feedstock.b. Includes production from ethanol.

Source: CEH estimates.

1.7%b

By in large, Latin American ethylene steam cracker feedstock flexibility is limited, operating predominantly on naphtha, NGLs and ethane. All heavy feedstock for ethylene production (40-45% of total) is naphtha based. New capacity anticipated on stream in the next several years will likely incorporate greater flexibility in feeds. In 2010, Braskem began operation of the world’s largest bio-ethylene plant based on ethanol derived from sugarcane. The plant is located in Triunfo, Rio Grande de Sol, Brazil with an operating capacity of 200 thousand metric tons. Additional olefin capacity based on ethanol lined up over the next several years includes Braskem’s 50 thousand metric ton sugarcane to ethanol to polypropylene plant (in Triunfo, Paulinia or Maua), a 60 thousand metric ton ethanol to ethylene to PVC unit by Indupa Solvay and a proposed integrated PE complex producing various products by Dow.

Latin American propylene production from refinery streams accounted for 60-65% of the total in 2010. As in the United States, catalytic cracking is practiced to a greater extent yielding larger volumes of propylene. Coproduct ethylene streams make up the remainder. All butadiene production is derived from steam cracking operations.

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Aromatics

The following diagram illustrates the various sources of aromatics in Latin America in 2010:

Crude Petroleum(includes natural gas liquids)

Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume1.2

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

14.6%1.5%

RecoveredToluene

Total Volume0.7

neg

EthylbenzeneBy-Product

0%

Disproportionation

RecoveredXylenes

Total Volume0.6

98.5%

52.6% 45.7% 1.4%

42.5%> 99.7%

46.8% 13.2%

100%

62.6%

PyrolysisGasoline

40.0%

Latin American Supply of Aromatics for Chemical Use—2010(millions of metric tons)

Source: CEH estimates.

21.3%

Over 50% of Latin American aromatic production is derived from pyrolysis gasoline due in large to aromatic extraction capacity connected to existing naphtha-based steam crackers. Refinery streams yield the greatest percentage of the remainder.

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PRODUCTION

The following table presents production of the seven primary petrochemicals in Latin America:

Latin American Production of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Totala

1995 1,212 309 4,029 3,085 1,827 874 841 12,1771996 1,183 277 4,100 3,803 1,839 840 892 12,9341997 1,161 315 4,278 4,727 1,902 856 861 14,1001998 1,221 300 4,408 5,201 1,900 715 809 14,5541999 1,230 308 4,441 5,985 1,982 860 961 15,767

2000 1,236 316 4,655 6,891 2,279 753 684 16,8142001 1,075 305 4,683 7,391 2,364 766 615 17,1992002 1,141 332 4,524 7,536 2,559 689 546 17,3272003 1,206 313 4,561 7,775 2,617 729 635 17,8362004 1,315 330 4,806 8,654 2,724 816 847 19,492

2005 1,344 331 5,021 9,691 2,871 931 967 21,1562006 1,248 328 5,505 10,598 2,903 819 873 22,2742007 1,282 315 5,412 8,624 2,962 806 897 20,2982008 1,099 281 5,129 8,023 2,769 567 687 18,5552009 1,177 295 5,442 8,263 3,331 621 544 19,673

2010 1,176 353 5,573 8,145 3,544 707 575 20,073 a. Totals may not equal the sums of the categories because of rounding.

SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

Latin American petrochemical production reached a peak of 22.3 million metric tons in 2006 on the strength of methanol exports and growing ethylene demand. As the global economic downturn began to impact North American and Western European demand in 2007, Latin American primary petrochemical production declined on weakening export markets, but showed improvement by mid-2009. Primary petrochemical output will rise over the next several years from major developments, primarily in Brazil.

CONSUMPTION

The following table presents consumption of primary petrochemicals in Latin America:

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Latin American Consumption of Primary Petrochemicals—2010

(millions of metric tons)

Ethylene 5.6Propylene 3.7Methanol 1.8Benzene 0.9Toluene 0.7Xylenes 0.6Butadiene 0.5

Total 13.8 SOURCE: CEH estimates.

Latin American consumption of primary petrochemicals totaled 13.8 million metric tons in 2010, with olefins accounting for more than 70% of total demand.

TRADE

The following table presents trade in primary petrochemicals for Latin America:

Latin American Net Exports of Primary Petrochemicals (thousands of metric tons)

Methanol Ethylene Propylene Butadiene Benzene Toluene Xylenes

1995 639 109 –139 –114 174 17 –41 1996 1,042 116 –263 –119 260 4 –94 1997 2,963 29 –260 –108 264 –7 6 1998 3,778 2 –270 –74 311 –20 11 1999 4,466 28 –233 –124 376 8 –6

2000 5,293 88 –103 –154 281 –27 7 2001 5,819 99 –6 –125 178 21 –12 2002 6,094 129 –72 –146 215 23 –9 2003 5,929 122 –113 –143 315 39 10 2004 7,026 84 –138 –172 285 17 12

2005 8,274 168 –54 –171 428 58 –12 2006 9,198 100 –23 –141 244 52 11 2007 7,338 –66 –112 –175 288 25 12 2008 6,630 58 –204 –173 268 –11 –18 2009 6,980 28 –107 –79 240 –11 –12

2010 6,369 –23 –166 –120 272 5 –14 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

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Trade of methanol is the largest-volume petrochemical in Latin America, shipping primarily to North America, Western Europe and Asia. With increasing exports of methanol from the Middle East and China, methanol exports to Western Europe will shrink and may potentially lead to lower operating rates. Benzene, the second most widely exported product in Latin America, ships primarily intraregionally (from Mexico to Guatemala and Brazil to Argentina) and extraregionally to the United States. Latin America is a net importer of most other petrochemical products. Propylene exports from Brazil and Venezuela ship to the United States and Western Europe.

WESTERN EUROPE

SOURCES OF BASIC PETROCHEMICALS

Distilled fractions from crude petroleum are the principal feedstocks for Western European primary petrochemical production of an estimated 50 million metric tons. In comparison with that of the United States, the petrochemical industry in Western Europe is predominantly oil-based for two reasons. First, Western European reserves of natural gas are quite small and limited to Norway, the Netherlands and the United Kingdom. Petrochemical production based on natural gas did not become significant until the late 1970s following the development of the reserves in the North Sea and the availability of liquefied petroleum gases (LPGs) from the Middle East and eventually Africa. Second, demand for gasoline in Western Europe was fairly small in comparison with the United States so that there was more naphtha and gas oil available for petrochemical production.

Coal-based petrochemical production has been largely replaced by petroleum. Nevertheless, coal processing remains an important feedstock for aromatics and methanol in some countries.

The following flowchart illustrates the disposition of crude petroleum and natural gas in the Western European petrochemical industry.

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Natural Gas

MarketedProduction ofNatural Gas(280 billion

cubic meters)

FieldCondensate

NaturalGas

Liquids

Crude PetroleumDomestic Crude Production: 175 Million Metric Tons (1,284 million barrels)

Total Gross Input to Refineries: 610 Million Metric Tons (4,471 million barrels)

Light Ends C2-C5a

Products Recoveredand/or Input toOlefins Plants

Naphtha andGas Oil Input to

Olefins Plant

AromaticsRecovered

from Reforming

AmmoniaMethane

Feedstock(12.0 billion

cubicmeters)

MethylAlcoholMethane

Feedstock(1.0 billion

cubicmeters)

EthanePropaneButane

Ethylene

12.8

7.2

Propylene

9.7

3.8

0.6

Butadiene

2.1

Butylenes

1.8b

2.5

C3-C4Coproducts

Benzenec

2.1

0.7

Toluenec

0.7

Xylenesc

2.4

0.2

Dealkylationand

Disproportionation

Western European Production of Petrochemicals by Source—2010(millions of metric tons)

a. Includes production from LPG.b. Includes production from peroxidation of propylene & isobutane and from other unspecified raw materials.c. Includes negligible amounts of production from coke oven light oil & coal tar.

PyrolysisGasoline

Coproducts

4.3

0.7

0.4

OtherChemicalsMethane

Feedstock(3.0 billion

cubic meters)

PropaneDehydrogenation

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

Methanol

The sources of synthesis gas consumed in the production of methanol in Western Europe are quite diversified in contrast with sources used in the United States. The following table presents the production breakdown for methanol by type of feedstock:

Western European Production of Methanol by Feedstock—2010

(percent)

Natural Gas 42 Coal 39 Acetylene Off-Gas 13 Othera 6

Total 100% a. Includes production from glycerin and other

unspecified raw materials.

SOURCE: CEH estimates.

Over 42% of the 1.8 million metric tons of methanol produced in Western Europe in 2010 came from natural gas–based synthesis gas. The remainder came from synthesis gas produced from coal, from off-gases produced in acetylene production and glycerin. Methanol is no longer regenerated during the production of polyethylene terephthalate. Only Germany, the Netherlands and Norway produce methanol in Western Europe. In the Netherlands and Norway methanol is produced from natural gas, while in Germany production is based on heavy fuel oil.

The consortium Biomethanol Chemie (BioMCN) acquired the formerly owned facility of Methanor in Delfzijl, Netherlands and restarted production in 2007. In 2010, one unit was converted to produce 200 thousand metric tons of biomethanol derived from crude glycerin in 2010. Conversion of the second natural gas unit has begun and will reach commercial scale (200 thousand metric tons) over the next couple of years. BioMCN is also evaluating construction of the world’s largest biomass refinery at this site which would supply the existing biomethanol plants with syngas to produce additional fuels and chemicals.

Olefins

The following diagram presents the availability of olefins from various feedstocks in Europe in 2010.

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Natural Gas Liquids

Heavy Feedstock—Naphtha and Gas Oil

LPG(Propane/Butane)

RefineryOff-Gases

Refinery OperationsCrude Petroleum Associated

Natural GasNonassociated

Natural Gas

Ethane/Propane

EthyleneTotal Volume

20.119.2% 4.6% 12.4%

PropyleneTotal Volume

14.3

ButadieneTotal Volume

2.1

PropaneDehydrogenation

RefineryStreams26.0%

63.8%

67.7%

100%

Coproduct Streams

Western European Supply of Olefins by Source—2010(millions of metric tons)

Source: CEH estimates.

Ethylene/ButyleneMetathesis

2.2% 4.1%

Western European olefin production began in the late 1950s and was based primarily on surplus naphtha available from refineries. Naphtha was the ideal feedstock because of its low value at that time and its high coproduct production of propylene and C4 hydrocarbons, which were not available from any other sources. However, surplus supplies of naphtha disappeared in the late 1960s and ethylene producers began using gas oil and imported naphtha. In the late 1970s, natural gas liquids became available from the North Sea and from the Middle East. Many Western European companies incorporated feedstock flexibility for propane and butane into their olefin units. A few newer plants based on ethane were built to take advantage of the increasing availability of these feedstocks, which became attractively priced as crude oil prices rose. By 1985, naphtha and gas oil accounted for 85% of the feedstock slate for Western European ethylene production, down from the 95% level of the 1960s. By the mid-2000s, the percentage declined to 65-70% as steam cracker flexibility diversified even further.

Use of heavy feedstocks in ethylene production yields 65-70% of Western European propylene production and all butadiene production derived from steam cracking operations. Western Europe traditionally has a very low percentage of refinery-based propylene in comparison with the United States because catalytic cracking is practiced to a lesser extent. This situation has changed slightly, however, because of increasing demand for gasoline in Western Europe. Since 1992, some propylene has also been produced from the dehydrogenation of propane (Borealis in Belgium and BASF Sonatrach in Spain) and more recently from metathesis of ethylene and butylenes (OMV in Germany).

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Demand for ethylene influences butadiene production levels. Historically, coproduct butadiene supply exceeded demand by a substantial margin and large volumes were exported to maintain plant loadings. The United States has been Western Europe’s largest export destination. Western European butadiene producers also have two options: cocracking of the C4 streams for ethylene production or hydrogenating the C4 streams either partially to butylenes or fully to butanes. Butadiene and C4 exports have decreased over the past decade because of greater usage of lighter steam cracker feeds and increases in domestic capacity for higher valued products.

Aromatics

The following diagram illustrates the various sources of aromatics in Western Europe in 2010.

Crude Petroleum(includes natural gas liquids)

Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume7.3

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

28.3% 4.8% 2.3%

RecoveredToluene

Total Volume1.4

0.4%

StyreneBy-Product

neg

Disproportionation

RecoveredXylenes

Total Volume3.0

97.7%

45.7% 1.7%

42.5% 99.6%

79.9% 6.6%

99.9%

64.9%

PyrolysisGasoline

52.2%

13.4%

Western European Supply of Aromatics for Chemical Use—2010(millions of metric tons)

a. Includes production from unspecified raw materials.

Source: CEH estimates.

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Western Europe has a larger percentage of its aromatics production originating from pyrolysis gasoline than the United States because of the predominant use of naphtha and gas oil in ethylene production. Nearly 60% of benzene production is from pyrolysis gasoline. Toluene and mixed xylenes are produced largely from catalytic reformate, which contains higher percentages of toluene and xylenes relative to benzene. Coal-derived processes accounted for less than 5% of the total aromatics produced in Western Europe in 2010.

PRODUCTION

The following table presents historical production of the seven primary petrochemicals in Western Europe:

Western European Production of Primary Petrochemicals (millions of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Totala

1980 4.1 1.5 11.1 2.6 5.6 1.8 1.5 28.4

1985 4.9 1.7 12.3 2.1 7.0 2.0 2.1 32.0

1990 5.6 1.9 14.4 1.9 8.6 2.2 2.6 37.2

1995 6.5 1.9 17.8 2.7 11.7 2.5 2.6 45.7 1996 6.4 1.9 18.2 2.8 12.0 2.5 2.8 46.6 1997 6.5 1.9 18.4 3.1 12.6 2.5 2.8 47.8 1998 6.7 2.0 18.9 3.5 12.9 2.5 3.0 49.5 1999 7.1 2.1 19.4 3.5 13.2 2.6 3.0 50.9

2000 7.3 2.1 19.5 3.6 13.6 2.5 3.2 51.8 2001 7.5 2.0 19.6 2.9 13.8 2.1 3.1 51.1 2002 7.8 2.0 20.2 3.0 15.4 2.2 3.4 53.9 2003 7.9 2.1 20.9 3.1 15.6 2.2 3.6 55.4 2004 8.5 2.2 21.5 2.5 15.6 2.1 3.6 56.1

2005 8.5 2.2 21.5 1.8 15.5 2.1 3.8 55.4 2006 8.3 2.2 21.3 2.0 15.6 2.0 3.8 55.2 2007 8.5 2.0 21.9 1.9 16.0 2.2 3.8 56.4 2008 7.6 1.8 20.8 2.2 14.9 1.4 3.4 51.9 2009 7.2 2.1 19.3 2.2 14.2 1.6 3.1 49.1

2010 7.3 2.1 20.1 1.8 14.3 1.4 3.0 49.9 a. Totals may not equal the sums of the categories because of rounding.

SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

Western European primary petrochemical production neared 50 million metric tons in 2010; a 12.9% drop from the peak level in 2007. Weakened markets during the global recession and an ever cautious recovery were largely to blame. Previously announced ethylene and methanol capacity additions in the Middle East coming on stream over the next several years could potentially limit Western European petrochemical production growth over the next several years.

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CONSUMPTION

The production of polymers accounted for over 60% of the total disposition of primary petrochemicals in Western Europe. Methanol has the most diversified market with demand for MTBE, tertiary-amyl methyl ether (TAME) and direct use of methanol as fuel, as well as myriad other uses.

Plastics dominate the markets for ethylene and propylene, while butadiene is predominantly for elastomers. The major market for aromatics is fuel, with plastics and fibers being the primary chemical uses. The following table presents consumption of primary petrochemicals in Western Europe:

Western European Consumption of Primary Petrochemicals—2010

(millions of metric tons)

Ethylene 20.1Propylene 14.3Benzene 7.8Methanol 6.4Xylenes 3.1Butadiene 1.9Toluene 1.4

Total 55.1 SOURCE: CEH estimates.

Western European consumption of primary petrochemicals peaked in 2007, totaling 62 million metric, but slipped to 55.1 million metric tons in 2010 as a result of the global economic recession. Olefins and aromatics account for 64% and 24% of total demand, respectively, in 2010.

PRICE

The following table presents European price indexes for olefins, aromatics and methanol:

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Normalized Deflated Western European Price Indexes for Primary Petrochemicalsa (2005 = 100)

Benzene

Butadiene

Ethylene

Methanol

Propylene

Toluene

Xylenes

German Wholesale

Price Index

1980 512.0 556.8 574.4 171.7 555.5 439.5 481.5 76.3

1985 599.2 651.6 672.4 200.9 650.2 514.4 563.5 89.3

1990 570.4 620.2 640.1 191.3 618.9 489.6 536.4 85.0

1995 597.9 650.2 681.5 200.5 648.7 513.2 562.2 89.1 1996 595.8 648.0 668.7 199.8 646.6 511.5 560.3 88.8 1997 607.3 660.4 681.5 203.6 658.9 521.3 571.1 90.5 1998 595.2 647.2 667.9 199.6 645.8 510.9 559.7 88.7 1999 589.8 641.4 661.9 197.8 640.0 506.3 554.6 87.9

2000 618.7 672.8 694.3 207.5 671.3 531.1 581.8 92.2 2001 628.7 683.7 705.6 210.8 682.2 539.7 591.2 93.7 2002 629.4 684.5 706.3 211.1 683.0 540.3 591.9 93.8 2003 633.4 688.8 710.8 212.4 687.3 543.7 595.7 94.4 2004 651.5 708.5 731.2 218.5 707.0 559.3 612.7 97.1

2005 671.0 729.7 753.0 225.0 728.1 576.0 631.0 100.0 2006 694.5 755.2 779.4 232.9 753.6 596.2 653.1 103.5 2007 718.6 781.5 806.5 241.0 779.8 616.9 675.8 107.1 2008 757.6 823.8 850.1 254.0 822.0 650.3 712.4 112.9 2009 704.6 766.2 790.7 236.3 764.5 604.8 662.6 105.0

2010 746.2 811.4 837.3 250.2 809.6 640.5 701.7 111.2 a. Averaged year price. Prices were deflated using the German wholesale price index.

SOURCE Federal Statistical Office, Destatis, Germany.

As in other developed countries, petrochemical prices in Western Europe are highly influenced by feedstock prices. European producers are at a slight disadvantage compared with U.S. producers because U.S. chemical producers still enjoy greater availability of relatively low-priced domestic NGLs and off-gases from refinery catalytic crackers. In contrast, European producers still depend primarily on crude oil–derived feedstocks for most of their petrochemical production.

TRADE

Western Europe has historically been a major net importer of methanol, olefins (except for butadiene) and aromatics. The following table presents trade in primary petrochemicals for Western Europe:

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Western European Net Imports of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes

1975 243 –120 91 97 –24 377 167

1980 115 –468 –29 537 75 394 434

1985 291 –382 269 2,004 244 144 39

1990 441 –451 360 2,925 502 49 198

1995 298 –314 386 3,027 –48 –77 337 1996 327 –346 144 3,097 172 –48 303 1997 475 –303 185 3,144 409 –140 343 1998 321 –299 185 3,015 655 –64 264 1999 366 –357 39 2,920 670 –17 –1

2000 236 –419 –211 3,023 894 –11 69 2001 224 –190 –257 3,773 342 –53 132 2002 293 –188 –302 3,929 382 –85 –38 2003 617 –199 –291 3,938 95 –167 16 2004 –492 325 288 –4,276 –425 96 –131

2005 –488 271 8 –4,436 –119 442 37 2006 –795 182 26 –5,418 –395 386 16 2007 –599 152 –153 –5,324 –177 450 90 2008 –1,064 96 –79 –4,893 –705 333 –22 2009 –441 163 –157 –4,284 14 263 –86

2010 –550 165 –81 –4,605 –26 50 –96 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

There is substantial petrochemical trade among the various countries in Western Europe. Methanol has been imported primarily from Chile, Russia, Libya and Saudi Arabia. Propylene imports originate from the United States, Libya, Brazil and Venezuela. Benzene is imported primarily from the Middle East, Hungary, Mexico and Brazil.

In recent years, Western Europe has become a net exporter of ethylene; however, lower-cost product from the Middle East coming on-stream within the next few years may reverse this trend. Butadiene is exported primarily to the United States, Mexico, South Africa, South America and India. Growing petrochemical production in Central and Eastern Europe has had only a small impact on Western Europe as supply largely serves domestic demand.

MIDDLE EAST

SOURCES OF BASIC PETROCHEMICALS

The following flowchart illustrates the disposition of the seven primary petrochemicals in the Middle East in 2010.

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Natural Gas

MarketedProduction ofNatural Gas(436 billion

cubic meters)

FieldCondensate

NaturalGas

Crude PetroleumDomestic Crude Production: 1,394 Million Metric Tons (9,836 million barrels)Total Gross Input to Refineries: 389 Million Metric Tons (2,847 million barrels)

Light Ends C2-C5a

Products Recoveredand/or Input toOlefins Plants

Naphtha andGas Oil Input to

Olefins Plant

AromaticsRecovered

from Reforming

AmmoniaMethane

Feedstock(10.1 billion

cubicmeters)

MethylAlcoholMethane

Feedstock(15.0 billion

cubicmeters)

EthanePropaneButane

Ethylene

0.9

18.3b

Propylene

2.9

0.6

1.7

Butadiene

0.2

Butylenes

0.8

2.4

C3-C4Coproducts

Benzene

0.9

0.2

Toluene

0.5

Xylenes

2.5

0.2

Dealkylationand

Disproportionation

Middle Eastern Production of Petrochemicals by Source—2010(millions of metric tons)

a. Includes production from LPG.b. Includes production from mixed feedstocks.c. Includes production from ethylene and butylene metathesis and deep catalytic cracking of vacuum gas oil.d. Includes Cyclar process via LPG and other unspecified raw materials.

Source: CEH estimates.

PyrolysisGasoline

Coproducts

0.7

0.1

0.07

PropaneDehydrogenation

0.2d

Liquidsa

Dehydrogenationand

Oligomerization

1.1Otherc

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Large reserves of crude petroleum and natural gas provide the basis for the Middle East’s bourgeoning petrochemical industry. Middle Eastern steam crackers produce the least expensive ethylene in the world largely due to an abundance of ethane-rich natural gas, low domestic demand and advantaged natural gas pricing that is, unlike domestic crude oil, not tied to the export energy/fuel markets. Despite rising natural gas prices from increased domestic energy demand, the Middle East will retain its economic advantage with most of the world. Continued exploration and development of nonassociated natural gas fields and investments in gas-to-liquids technologies will further improve the region’s petrochemical position.

With growing refinery and steam cracking capacity, catalytic reformate and pyrolysis gasoline provide much of the feed for aromatic supply in the Middle East. Unlike other regions, however, smaller quantities of toluene and xylenes are produced as a result of differing petroleum composition and a lack of existing extraction capacity. Both catalytic reforming and steam cracking pyrolysis gasoline yield high-octane components for motor fuels in which aromatics are extracted before the streams are forwarded to the gasoline pool. The amount of xylenes and toluene returned to the gasoline pool to improve octane values will likewise affect overall petrochemical supply.

SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

Methanol

The following table presents the production breakdown for methanol by type of feedstock:

Middle Eastern Production of Methanol by Feedstock—2010

(percent)

Natural Gas 99.5 Othera 0.5

Total 100% a. Methanol recovered from production of DMT-

based polyester fibers and naphtha-derived synthesis gasoline.

SOURCE: CEH estimates.

Nearly all of the estimated 14.2 million metric tons of methanol produced in the Middle East in 2010 originated from natural gas–based synthesis gas. Saudi Arabia is the region’s largest producer with over 48% of total capacity. Additional mega-plant capacity in Oman, Qatar and Iran may soon propel production over 15 million metric tons.

Olefins

The following diagram presents the availability of olefins from various feedstocks in the Middle East in 2010.

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Natural Gas LiquidsHeavy Feedstock—Naphtha and Gas Oil

EthaneRefinery

Off-Gases

Refinery OperationsCrude Petroleum Associated

Natural GasNonassociated

Natural Gas

Ethane/Propanea

EthyleneTotal Volume

19.235.3% 4.9% 59.8%

PropyleneTotal Volume

6.3

ButadieneTotal Volume

0.2

PropaneDehydrogenation

RefineryStreams21.7%

5.4%

neg

46.1%

100%

Coproduct Streams

Middle Eastern Supply of Olefins by Source—2010(millions of metric tons)

a. Includes production from field condensate and other mixed feedstock.

Source: CEH estimates.

Metathesis ofEthylene and

Butylenes

26.8%

Approximately 70-75% of ethylene production in the Middle East was derived from natural gas. Ethane continues to be the most widely used with increasing amounts produced from NGLs and mixed feeds. Ethylene from petroleum naphtha, refinery off-gases and natural gas field condensate provide the remainder.

Because of the extensive use of lighter feeds in ethylene production, the Middle East produces lower volumes of coproduct propylene and butadiene. Propane dehydrogenation economics for proplyene production are positive given the abundance of NGLs and are most likely to increase over the next several years. Although refinery propylene production remains low due to a lack of FCC capacity and a lower demand for gasoline, deep catalytic cracking of vacuum gas oil provides an additional supply from refineries. Despite low quantities, approximately 100% of butadiene supply is extracted from the mixed C4 stream from coproduct ethylene production.

Aromatics

The following diagram illustrates the various sources of aromatics in the Middle East in 2010.

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Crude Petroleum(includes natural gas liquids)

Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume2.7

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

7.2% neg

RecoveredToluene

Total Volume0.9

Disproportionation

RecoveredXylenes

Total Volume2.9

99.9%

52.7% 34.3%

42.5%100%

84.9% 7.0%

100%

25.2%

PyrolysisGasoline

13.0%

2.5%

Middle Eastern Supply of Aromatics for Chemical Use—2010(millions of metric tons)

a. Production via Cyclar process.

Source: CEH estimates.

LPG

30.8%

UnspecifiedRaw Materials

1.8% 34.9%

5.6%a

Worldscale crackers designed to capitalize on the region’s reserves, produce more than 70% of aromatics from catalytic reformate and pyrolysis gasoline. Toluene is selectively catalytically disproportionated to form benzene and by-product xylenes using ExxonMobil’s licensed MSTDP process. In Saudi Arabia, the Arabian Industrial Fibers Company (IBN Rushd) produces aromatics via BP/UOP’s Cyclar process in which propane and butanes are reformed. This process is most profitable in countries such as Saudi Arabia with an abundance of low-cost LPG or other locations where crude oil is in short supply. IBN Rushd plans to idle this unit once new capacity is completed in the next couple of years.

PRODUCTION

The following table presents production of the seven primary petrochemicals in the Middle East:

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Middle Eastern Production of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Total

1990 419 8 3,059 1,915 257 305 230 6,193

1995 575 130 4,194 2,982 688 409 318 9,296 1996 745 150 4,226 3,064 845 532 508 10,070 1997 919 170 4,804 2,880 868 533 534 10,708 1998 887 179 5,311 3,478 1,050 492 591 11,988 1999 944 182 5,776 4,255 1,079 518 528 13,282

2000 1,404 219 5,851 5,154 1,230 721 785 15,364 2001 1,414 199 6,101 5,498 1,659 536 668 16,075 2002 1,663 214 7,023 5,613 1,791 850 821 17,975 2003 1,804 208 8,136 6,432 1,812 1,035 740 20,167 2004 1,970 200 9,117 6,633 2,008 1,000 1,037 21,965

2005 1,719 179 10,940 7,671 2,318 905 1,197 24,929 2006 1,728 218 11,471 8,203 2,722 895 1,386 26,623 2007 1,603 173 12,258 9,307 2,991 768 1,559 28,659 2008 1,904 185 13,413 10,629 4,317 684 2,084 33,216 2009 1,963 204 16,492 12,951 5,502 641 2,075 39,828

2010 2,734 242 19,220 14,198 6,336 918 2,929 46,577 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

Investments in crude oil and natural gas continues to drive expansion of the petrochemical industry in the Middle East. Since 1995, production of the seven primary petrochemicals has increased at an average rate of 11.3% per year. Completion of projects in benzene, propylene and xylenes in the last few years saw production growth rates exceed 20% annually. All primary petrochemical production is anticipated to increase over the next several years.

CONSUMPTION

The following table presents 2010 consumption of primary petrochemicals in the Middle East:

Middle Eastern Consumption of Primary Petrochemicals—2010

(millions of metric tons)

Ethylene 18.3 Propylene 5.7 Methanol 2.9 Xylenes 2.9 Benzene 2.5 Toluene 1.0 Butadiene 0.07

Total 33.4 SOURCE: CEH estimates.

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Middle Eastern consumption was an estimated 33 million metric tons in 2010, of which ethylene alone accounted for 55% of the total. More than two-thirds of ethylene capacity is integrated forward into polyethylene and ethylene glycol, among other monomers and resins. Propylene is polymerized for domestic and export markets. Over 75% of the benzene produced is consumed in ethylbenzene for styrene production.

TRADE

The following table presents net exports of primary petrochemicals in the Middle East:

Middle Eastern Net Exports of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes

1990 93 –37 325 1,574 24 –13 26

1995 142 47 220 2,047 43 –79 –7 1996 332 53 129 2,060 104 –5 38 1997 410 77 151 1,726 132 –17 57 1998 375 84 239 2,174 142 13 143 1999 370 93 410 2,779 114 –24 76

2000 496 124 290 3,812 226 –4 13 2001 287 108 465 4,133 245 –9 –2 2002 429 120 465 3,883 279 –11 –21 2003 603 119 388 4,515 97 –59 –82 2004 582 106 374 4,584 144 –56 –17

2005 361 86 372 4,741 254 –69 17 2006 369 133 194 5,381 272 –36 –56 2007 309 95 626 6,380 253 –51 –49 2008 468 117 1,104 7,609 688 –62 –43 2009 139 138 1,274 9,755 517 –36 –36

2010 251 172 940 11,265 629 –68 7 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

With continued focus on exports, overall net export petrochemical trade will remain positive. In 2006 the Middle East became the largest exporter of methanol in the world, eclipsing that of Latin America. Beginning in 2008, both ethylene and propylene exports jumped considerably (year over year) following start up of anticipated capacity. Exports of benzene, ethylene and derivatives will continue to saturate world markets in growing quantities, while expansions in xylenes will gradually meet and exceed domestic demand.

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JAPAN

SOURCES OF BASIC PETROCHEMICALS

Japan lacks adequate domestic supplies of crude oil and natural gas for the magnitude and diversity of its petrochemical industry, and has historically imported most of its crude oil and natural gas requirements. Since the early 1970s, following the first Arab crude oil embargo, Japan has progressively added diversity to its energy and petrochemical feedstock slate. It also has developed and completed several significant overseas investments that have resulted in the importation of chemical intermediates (principally, ethylene dichloride and ethylene glycol from North America, and ethylene glycol from Saudi Arabia). Nevertheless, the Japanese petrochemical industry remains predominantly oil-based and more specifically, naphtha-based. Japan remains a large net exporter of most petrochemical intermediates and finished products. The only major product in which Japan maintains a sizable position as a net importer is methanol, as demand in ethylene dichloride has weakened.

The following chart illustrates the sources of the seven primary petrochemicals produced in Japan in 2010.

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Products Recoveredand/or Input toOlefins Plants

Naphtha andGas Oil Input

to OlefinsPlant

AromaticsRecovered

from Reforming

Ammonia Coal Tar

Ammonia

Light Oil

Light Ends C2-C4

Crude PetroleumDomestic Production (0.3 million metric tons) (2 million barrels)

Net Input to Refineries (204.5 million metric tons) (1,498 million barrels)

Ethylene

6.5

--

Propylene

4.2

1.3

Butadiene

1.0

0.6

0.3

Butylenes

PyrolysisGasoline

Coproducts

Benzene

2.6

1.2

0.3

Toluene

1.0

0.5

neg

Xylenes

5.5

0.2

neg

Anthracene

Naphthalene

CreosoteOil

Pitch

Natural GasImported

CoalImported

CoproductsC3-C4

Japanese Production of Petrochemicals by Source—2010(millions of metric tons)

Source: CEH estimates.

Dealkylation andDisproportionation

0.3

0.2

0.2EthyleneOligomerization

0.4Ethylene &ButylenesMetathesis

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

Methanol

Imports of less-expensive methanol from countries with far cheaper natural gas have led to the shutdown of methanol capacity in Japan. Methanol is supplied from imports, primarily from Chile, Indonesia, Iran, Malaysia, New Zealand and Saudi Arabia, mostly under long-term contracts.

Olefins

In Japan, the main feedstock for ethylene is naphtha, which has accounted for over 90% of ethylene production since 1980. In recent years declines in domestic ethylene demand has resulted in some capacity rationalizations. In addition to reductions, integration or unified management of naphtha cracking operations allow companies to benefit from feedstock procurement and joint infrastructure and energy use. Additionally, butane, LPG and natural gas, which are often purchased as supplementary feedstock, will continue to be used on a price basis.

Prior to the late 1990s, about 75% of the propylene production in Japan was derived from ethylene co-product streams. Despite some slight capacity increases in recent years, coproduct streams now account for less than 65% of the total. The remainder is recovered from refinery operations and ethylene/butylene metathesis.

Butadiene is supplied exclusively as an ethylene coproduct. The following diagram presents the availability of olefins from various feedstocks in 2010.

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Heavy Feedstock—Naphtha and Gas Oil

Imported LPG(Propane/Butane)

Refinery OperationsCrude Petroleum Imported

Natural Gas

EthyleneTotal Volume

6.86.9%

PropyleneTotal Volume

5.8

ButadieneTotal Volume

1.0

Metathesis ofEthylene and

Butylenes

RefineryStreams21.9%

6.8%

93.1%

71.3%

100%

Coproduct Streams

Japanese Supply of Olefins by Source—2010(millions of metric tons)

Source: CEH estimates.

Aromatics

The Japanese supply of aromatics originates from petroleum and coal. In Japan, many coke producers do not own distillation facilities to produce benzene, toluene and xylenes. These companies sell light oil primarily to petrochemical producers for refining. Operational rationalizations between some aromatics and steel manufacturers through the formation of joint ventures, provide backward integration of light oils and improve overall market competitiveness. The following diagram illustrates the various sources of aromatics in 2010.

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Crude Petroleum(includes natural gas liquids)

Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume4.4

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

58.8% 6.2%6.8%

RecoveredToluene

Total Volume1.6

4.7%

0.3%

Disproportionation

RecoveredXylenes

Total Volume6.0

93.2%

61.8%

42.5% 95.3%

92.4% 3.2%

99.7%

28.2%

PyrolysisGasoline

4.1%

Japanese Supply of Aromatics for Chemical Use—2010(millions of metric tons)

Source: CEH estimates.

33.4%

Approximately 59% of benzene, 62% of toluene and 92% of mixed xylenes are derived from catalytic reformate. Greater amounts of toluene and xylenes are collected due to higher percentages of both relative to benzene in the reformate stream. Coal-derived processes accounted for less than 4% of total aromatics production in 2010.

PRODUCTION

The following table presents production of the seven primary petrochemicals in Japan:

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Japanese Production of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Total

1985 2,281 639 4,227 254 3,057 829 1,530 12,817

1990 3,012 827 5,810 84 4,214 1,116 2,658 17,721 1991 3,285 847 6,142 77 4,431 1,151 2,926 18,859 1992 3,527 851 6,103 23 4,536 1,181 3,214 19,435 1993 3,502 809 5,773 58 4,271 1,220 3,467 19,100 1994 3,775 856 6,125 43 4,435 1,245 3,632 20,111

1995 4,206 1,028 6,840 75 4,986 1,408 4,164 22,707 1996 4,177 1,051 7,036 78 5,160 1,370 4,004 22,876 1997a 4,502 1,052 7,416 -- 5,512 1,419 4,634 24,535 1998 4,203 977 7,076 -- 5,178 1,350 4,340 23,124 1999 4,459 1,035 7,687 -- 5,638 1,488 4,641 24,948

2000 4,265 1,082 7,450 -- 5,539 1,416 4,644 24,396 2001 4,261 976 7,361 -- 5,342 1,423 4,798 24,161 2002 4,313 1,000 7,152 -- 5,543 1,548 4,929 24,485 2003 4,551 1,051 7,367 -- 5,814 1,583 4,980 25,346 2004 4,758 1,040 7,636 -- 5,914 1,634 5,387 26,369

2005 4,980 1,040 7,618 -- 6,195 1,691 5,570 27,094 2006 4,874 1,002 7,604 -- 6,296 1,633 5,745 27,154 2007 5,245 1,024 7,723 -- 6,417 1,637 6,041 28,087 2008 4,581 953 6,852 -- 5,798 1,435 5,698 25,317 2009 4,259 871 6,947 -- 5,655 1,415 5,628 24,775

2010 4,400 981 6,671 -- 5,838 1,585 5,946 25,421 a. Japan ceased methanol production in 1997 because of less-expensive imported material.

SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

Between 1997 and 2007, production of the seven primary petrochemicals grew at an average rate of 1.4% per year. With the onset of the global recession, petrochemical output declined 11.8% from 2007 to 2009, with olefins suffering the greatest with declines of 5.6% annually. Production began to improve in late 2009 as demand in export markets increased.

CONSUMPTION

The following table presents consumption of primary petrochemicals in Japan in 2010:

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Japanese Consumption of Primary Petrochemicals—2010

(millions of metric tons)

Ethylene 6.3Propylene 5.1Xylenes 5.0Benzene 4.1Methanol 1.8Toluene 1.3Butadiene 1.0

Total 24.6 SOURCE: CEH estimates.

Similar to much of the rest of the world, the dominant application for primary petrochemicals in Japan is polymers, including plastics, fibers and elastomers. Japanese consumption totaled approximately 24.6 million metric tons in 2010.

PRICE

The following table presents the normalized deflated historical pricing for methanol, olefins and aromatics in Japan:

Normalized Japanese Corporate Goods Price Indexes for Primary Petrochemicals (2005 = 100)

Benzene

Butadiene

Ethylene

Methanol

Propylene

Toluene

Xylenes

Corporate Goods

Price Indexa

1985 82.0 156.6 112.3 36.8 116.1 128.4 105.0 116.7

1990 77.9 148.7 106.6 34.9 110.2 121.9 99.7 110.8

1995 74.9 142.9 102.5 33.5 106.0 117.2 95.9 106.5 1996 73.7 140.6 100.8 33.0 104.3 115.3 94.3 104.8 1997 74.1 141.4 101.4 33.2 104.9 115.9 94.9 105.4 1998 73.0 139.4 100.0 32.7 103.4 114.3 93.5 103.9 1999 71.9 137.3 98.4 32.2 101.8 112.5 92.1 102.3

2000 72.0 137.4 98.5 32.3 101.9 112.6 92.2 102.4 2001 70.3 134.2 96.2 31.5 99.5 110.0 90.0 100.0 2002 68.9 131.5 94.3 30.9 97.5 107.8 88.2 98.0 2003 68.3 130.3 93.4 30.6 96.6 106.8 87.4 97.1 2004 69.2 132.1 94.7 31.0 97.9 108.2 88.6 98.4

2005 70.3 134.2 96.2 31.5 99.5 110.0 90.0 100.0 2006 71.8 137.2 98.3 32.2 101.7 112.4 92.0 102.2 2007 73.1 139.6 100.0 32.8 103.5 114.4 93.6 104.0 2008 76.4 145.9 104.6 34.2 108.2 119.6 97.8 108.7 2009 72.4 138.2 99.1 32.4 102.5 113.3 92.7 103.0

2010 72.3 138.0 98.9 32.4 102.3 113.1 92.5 102.8

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a. The bank of Japan revised the 1995 based Wholesale Price Index into the 2000 based Corporate Goods Price Index.

SOURCES: (A) Bank of Japan (data for CORPORATE GOODS PRICE INDEX).

(B) CEH estimates (all other data).

Until recently, all Japanese producers practiced retroactive pricing of primary petrochemicals. Japanese companies are grouped into petrochemical centers. Each center includes a steam cracker and derivative units. Companies that belong to a given petrochemical center are closely tied to one another and have verbal agreements about purchasing products. The alliance encourages the companies to work closely with each other and financial gains and losses are shared throughout a given petrochemical center. Currently, some companies are said to use formulas to determine naphtha and olefin pricing while a number of petrochemical centers have eliminated the pricing formula and allowed petrochemical prices to respond directly to changes in naphtha input prices as well as downstream output prices.

TRADE

The following table presents net exports of primary petrochemicals in Japan:

Japanese Net Exports of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes

1985 169 –32 15 –1,039 2 154 72

1990 14 –5 –26 –1,646 114 51 –144

1995 66 85 260 –1,964 198 –55 47 1996 29 74 170 –1,853 72 –13 127 1997 209 58 140 –2,100 206 –204 171 1998 244 59 99 –2,040 314 –153 142 1999 168 57 336 –2,000 495 –30 199

2000 150 57 180 –2,000 372 –110 183 2001 85 112 256 –1,996 413 –32 456 2002 198 75 194 –1,999 357 57 484 2003 108 63 232 –1,962 289 24 388 2004 101 47 248 –1,977 343 –52 482

2005 116 48 185 –2,040 359 92 421 2006 31 8 221 –1,929 499 218 626 2007 107 26 228 –2,042 487 255 996 2008 341 –27 55 –1,888 425 218 995 2009 –41 112 588 –1,500 812 339 882

2010 251 7 400 –1,807 722 286 910 SOURCE: CEH estimates based on data from the World Petrochemicals Program, SRI Consulting.

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Japan remains a net exporter of petrochemical products. Methanol, Japan’s largest primary petrochemical import, is principally sourced from Saudi Arabia. Ethylene trade tends to be relatively small because of the expense of transporting a highly volatile liquid (except for pipelined product); however, trade in ethylene and its derivatives from Japan is substantial and will remain so over the next several years. Exports of propylene and xylenes primarily to Asia have also shown considerable increases. New capacity in the Middle East and China will place greater pressure on Japanese export markets.

CHINA

SOURCES OF BASIC PETROCHEMICALS

China’s petrochemical industry has rapidly developed since 1990, supported by strong economic growth, increasing demand for many downstream products and a goal to become fully independent for its petrochemical and energy needs. Following governmental restructuring of the chemical industry in 1998, China’s petroleum and natural gas exploration, production, refining and petrochemical enterprises were structured under two major organizations; the Chinese Petrochemical Corporation (Sinopec) and the China National Petroleum Company (CNPC). Further restructuring in 2000 resulted in two major petrochemical subsidiaries; China Petroleum and Chemical Corporation and PetroChina Company Limited. Both organizations, being backward integrated through their parent companies, are supplied raw material for all petrochemical production.

The following flowchart illustrates the disposition of the seven primary petrochemicals in 2010.

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Products Recoveredand/or Input toOlefins Plants

Naphtha andGas Oil Input

to OlefinsPlant

AromaticsRecovered

from Reforming

Ammonia/Methanol

Coal Tar

Ammonia(12.0 billion

cubicmeters)

Methanol(3.0 billion

cubicmeters)

Light Oil

Light Ends C2-C4

Crude PetroleumDomestic Production (195 million metric tons) (1,427 million barrels)Net Input to Refineries (350 million metric tons) (2,564 million barrels)

Ethylene

11.9

2.1

Propylene

6.5

3.0

Butadiene

1.4

1.2

0.9

Butylenes

PyrolysisGasoline

Coproducts

Benzene

2.2

2.5

0.7

Toluene

2.2

1.2

neg

Xylenes

6.4

0.7

0.9

Anthracene

Napthalene

CreosoteOil

Pitch

Natural GasDomestic Production

(77.2 billioncubic meters)

Coal(2,933 millionmetric tons)

CoproductsC3-C4

Chinese Production of Petrochemicals by Source—2010(millions of metric tons)

Dealkylation andDisproportionation

0.9

0.3

2.4

Othera

Otherb

neg

a. Includes production via ethanol and coal to olefins technology. b. Includes production via ethylene and butylenes metathesis deep catalytic cracking of gas oil and mixed input from superflex

and coal to olefins technology.

Source: CEH estimates

Approximately 88-93% of the combined production of the seven basic petrochemicals is derived from petroleum. Naphtha and gas oil are the main feedstocks for both olefin and aromatic production. Coke-oven light oil derived from coal provides smaller portions of aromatics while natural gas, LPG and propane/butanes are used as a supplementary feed for ethylene production.

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China’s natural gas industry is not as developed as its petroleum refining or coal industries due to a lack of infrastructure to deliver quality gas to production centers. Coal currently fuels approximately 70-75% of the country’s power output and with the development of coal-to-methane technologies, has given rise to increasing petrochemical capacity. In light of rapid progression in coal, China faces the difficult task of sustaining growth while minimizing the impact to the environment. In light of this, the Chinese government will continue to accelerate the development of the country’s natural gas reserves to improve infrastructure for natural gas use in both the energy and petrochemical sectors.

SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK

Methanol

There are over 150 producers of methanol in China, many of which with capacities below 20 thousand metric tons. The sources of synthesis gas consumed in the production of methanol in China are quite diversified in contrast with sources used in the United States or even Western Europe. The following table presents the production breakdown for methanol by type of feedstock:

Chinese Production of Methanol by Feedstock—2010

(percent)

Coal 76.4 Natural Gas 20.9 Acetylene Off-Gas 1.9 Crude Oil 0.3 Othera 0.5

Total 100% a. Methanol from distillation of fuel-grade

methanol and other unspecified raw materials.

SOURCE: CEH estimates.

Over 76% of the 15.5 million metric tons of methanol produced in China in 2010 came from coal-based synthesis gas from integrated methanol/ammonia plants. The remainder came from synthesis gas produced from natural gas, crude oil and from off-gases produced in acetylene production. Minor amounts of methanol are also derived from distillation and other unspecified raw materials.

Olefins

The following diagram presents the availability of olefins from various feedstocks in 2010.

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Heavy Feedstock—Naphtha and Gas Oil

LPG(Propane/Butane)

RefineryOff-Gases

Refinery OperationsCrude Petroleum Associated

Natural Gas

EthyleneTotal Volume

13.610.2% 1.1%

PropyleneTotal Volume

11.9

ButadieneTotal Volume

1.9

Methathesis ofEthylene and

Butylenes

RefineryStreams32.8%

1.2%

86.9%

54.3%

100%

Coproduct Streams

Chinese Supply of Olefins by Source—2010(millions of metric tons)

9.6% 2.1%

1.0%

Otherb

0.7%

a

Ethanol

Coal

a. Includes production via deep catalytic cracking of vacuum gas oil. b. Includes production via propane dehydrogenation and superflex technologies.

Source: CEH estimates.

Prior to the 1970s, China’s petrochemical industry was isolated from the rest of the world, and its development was largely based on domestic technology. Because China’s crude oil is highly paraffinic, naphtha availability was limited and gas oil became the predominant feedstock for ethylene manufacture. With the opening of China’s industry to the world, naphtha became available through imports, eventually leading to the domestic use of naphtha for ethylene production.

Currently, both naphtha and gas oil are used for ethylene manufacture, providing 87-92% of the ethylene produced in China. Many steam crackers can use mixed feedstock including significant percentages of propane/butanes, LPG and natural gas. As in other regions, supplementary feeds are used mostly on a price basis. Additional capacity from coal- and ethanol-derived steam crackers began operation in 2009 and 2010.

Because of the extensive use of heavy feedstocks in ethylene production, more than 45% of Chinese propylene and all butadiene production are derived from steam cracking operations. An additional 30-35% of total propylene production is derived from refinery operations. The remainder is obtained from various sources including metathesis, propane dehydrogenation and deep catalytic cracking of vacuum gas oil.

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Aromatics

The following diagram illustrates the various sources of aromatics in China.

Crude Petroleum(includes natural gas liquids)

Coal(coke-oven light oil)

CatalyticReforming

RecoveredBenzene

Total Volume6.2

Dealkylation orDisproportionation

Coke-OvenOperations

PetroleumRefineries

34.4% 14.5%11.0%

RecoveredToluene

Total Volume3.5

2.0%

0.2%

Disproportionation

RecoveredXylenes

Total Volume8.1

89.0%

63.7%

42.5% 98.0%

79.5% 11.5%

99.8%

40.0%

PyrolysisGasoline

34.3%

8.8%

Chinese Supply of Aromatics for Chemical Use—2010(millions of metric tons)

Source: CEH estimates.

In China, as in the United States, catalytic reformate is the most dominant aromatic feed source. Quantities of toluene and xylenes are recovered in much higher quantities due to heavier feed. Pyrolysis gas accounted for 25% of total aromatic feedstock and contained the largest concentration of benzene at 40%. Coal-based aromatics are obtained from coke-oven light oils recovered by both petroleum refiners and coke-oven operators.

PRODUCTION

The following table presents production of the seven primary petrochemicals in China. See the separate CEH reports for historical and additional information.

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Chinese Production of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes Total

1990 672 258 1,571 640 890 181 558 4,7701991 745 272 1,761 760 1,360 188 582 5,6681992 819 315 2,003 871 1,214 221 643 6,0861993 848 438 2,035 927 1,554 322 1,068 7,1921994 892 458 2,138 1,255 1,707 388 1,210 8,048

1995 1,018 478 2,440 1,469 2,087 273 1,200 8,9651996 1,150 410 3,045 1,412 2,596 679 1,385 10,6771997 1,145 471 3,516 1,621 3,009 800 1,674 12,2361998 1,318 467 3,772 1,766 3,484 851 1,933 13,5911999 1,535 534 4,346 1,814 4,058 1,063 1,982 15,332

2000 1,848 591 4,695 1,950 4,862 1,240 2,158 17,3442001 1,988 645 4,790 2,065 4,988 1,323 2,567 18,3662002 2,131 736 5,414 2,189 5,231 1,485 2,380 19,5662003 2,408 859 6,120 3,070 5,254 1,500 2,699 21,9102004 2,556 892 6,384 4,400 6,598 1,592 3,216 25,638

2005 3,047 1,018 7,436 5,527 8,098 1,730 3,589 30,4982006 3,773 1,268 9,378 8,750 9,612 2,226 4,629 39,6362007 4,419 1,392 10,423 11,360 10,060 2,594 4,550 44,7982008 4,557 1,434 10,001 11,150 10,093 2,950 5,263 45,4482009 4,858 1,440 10,787 11,340 10,494 3,224 5,864 48,007

2010 6,248 1,869 13,560 15,500 11,951 3,485 8,131 60,744 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

Between 2000 and 2010, production of the seven primary petrochemicals grew at an average rate of 13.4% per year. During this period, methanol experienced the greatest growth at over 23% annually, while aromatic and olefin production grew at 13% and 10.4% per year, respectively. Output for all petrochemicals will rise with completion of new projects through to 2014.

CONSUMPTION

The following table presents 2010 consumption of primary petrochemicals in China:

Chinese Consumption of Primary Petrochemicals—2010(millions of metric tons)

Methanol 20.7Ethylene 14.3Propylene 13.5Xylenes 8.8Benzene 6.3Toluene 4.5Butadiene 2.0

Total 70.1 SOURCE: CEH estimates.

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© 2011 by the Chemical Economics Handbook—SRI Consulting

The most dominant application for primary petrochemicals in China is polymers, including plastics and fibers. Chinese consumption totaled 70.1 million metric tons in 2010, of which olefins accounted for nearly 52% of total consumption. Methanol in China is consumed largely in the production of acetic acid, formaldehyde, MTBE and for direct fuel and solvent use. Additional use includes developing methanol to olefin technologies.

TRADE

The following table presents net exports of primary petrochemicals in China:

Chinese Net Exports of Primary Petrochemicals (thousands of metric tons)

Benzene Butadiene Ethylene Methanol Propylene Toluene Xylenes

1990 71 –24 0 –14 0 –159 –73 1991 29 0 0 –71 0 –179 –126 1992 34 –8 –1 –160 –10 –172 –101 1993 58 –17 –1 –155 –11 –141 41 1994 62 –37 –2 –42 –45 –211 84

1995 –10 –77 –12 –134 –48 –366 –20 1996 115 –41 39 –74 –40 –310 –119 1997 –3 –17 35 –235 –12 –388 –188 1998 –15 –29 –32 –663 –68 –409 –132 1999 43 –82 –37 –1,374 –96 –561 –94

2000 14 –80 –89 –1,379 –163 –618 –90 2001 –23 –137 –74 –1,725 –271 –780 –64 2002 48 –86 –80 –1,899 –295 –912 –157 2003 99 –124 –15 –1,293 –226 –1,005 –326 2004 –39 –192 –66 –1,322 –213 –840 –445

2005 –239 –135 –64 –1,306 –176 –817 –359 2006 –108 –76 9 –946 –345 –578 –452 2007 –193 –100 –358 –282 –726 –457 –1,021 2008 –259 –128 –707 –1,086 –917 –283 –717 2009 –344 –277 –957 –5,271 –1,548 –786 –797

2010 –90 –124 –781 –5,165 –1,524 –988 –657 SOURCE: CEH estimates in conjunction with the World Petrochemicals Program, SRI

Consulting.

Despite continued capacity expansion in all primary petrochemicals, China will continue to depend upon imports to meet domestic demand over the next sveral years. China’s economy, albeit no longer experiencing double-digit growth, and pursuit of self-dependence will continue to drive demand for finished goods. Investments in world-scale refineries and derivative plant capacity over the next few years will affect trade levels for petrochemicals and raw materials alike.

Page 77: Petrochemical Industry Overview

April 2011 PETROCHEMICAL INDUSTRY OVERVIEW Petrochemicals—GeneralPage 77

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© 2011 by the Chemical Economics Handbook—SRI Consulting

BIBLIOGRAPHY

Chemical Economics Handbook—The following CEH marketing research reports and product reviews contain additional information that is pertinent to the subject of this marketing research report:

Acetylene Ammonia Benzene Butadiene Butanes Butylenes Coal and Coke Products Crude Petroleum and Petroleum Products Ethane Ethylene Gasoline Octane Improvers/Oxygenates Methanol Naphthalene Natural Gas Natural Gas Liquids Petroleum Liquid Feedstocks—Naphtha and Gas Oil Propane Propylene Toluene Xylenes

Process Economics Program—The Process Economics Program has issued individual reports on methanol, olefins, aromatics and most of the major derivatives. Each report contains detailed information on the manufacturing processes, process design and process economics of the subject chemical. Address inquiries concerning this information to the Process Economics Program, SRI Consulting, Menlo Park, California 94025.

World Petrochemicals Program—Additional worldwide supply/demand data on methanol, olefins, aromatics and their derivatives are published by the World Petrochemicals Program. Address inquiries concerning this information to the World Petrochemicals Program, SRI Consulting, Menlo Park, California 94025.

China Report: Chemical Product Trends—This report gives specific information on supply/demand, pricing, market characteristics and end-use patterns for chemicals and petrochemicals used in China. The ethylene information in this report was utilized in the China section of this CEH report. Address inquiries concerning this information to the China Report, SRI Consulting, Menlo Park, California 94025.