VMA MARKET OUTLOOK WORKSHOP / August 2017 … Presentation.pdf · Polymers & plastics ... 00 02 04 06 08 10 12 14 16 18 20 22 24 USGC Natural Gas Brent Crude ... • Unpredictable

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

VMA MARKET OUTLOOK WORKSHOP / August 2017


Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?

Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market ‐ Houston, TX [email protected]

Presented to:

VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA



Addressing strategic challenges with interconnected capabilities

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Resources

Financial

Consolidated Markets & Solutions

Transportation

© 2017 IHS Markit. All Rights Reserved.


VMA MARKET OUTLOOK WORKSHOP / August 2017 3

Best-in-Class Brand Names

Brought together to form the most comprehensive single source for global data & information, key industry events, market insights, analysis & forecasts, technology & analytical platforms, and consulting services

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Oil Markets / Midstream / Downstream / Chemicals



Core Segments within Energy & Natural Resources

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• Country E&P Terms and Above-Ground Risk

• Plays and Basins• Costs and Technology• Companies and

Transactions

UPSTREAM

• Global Gas• Coal• Power and Renewables• Regional Gas, Power

and Coal Markets

POWER, GAS, COAL& RENEWABLES

• Long-Term Planning & Scenarios • Climate Strategy

• Curated Content• Integrated Energy Events & CERAWeek

ENERGY-WIDE PERSPECTIVES

• Crude Oil Markets• Midstream Oil and

Natural Gas Liquids• Refining and Marketing• Company Strategies and

Performance

OIL MARKETS, MIDSTREAM, DOWNSTREAM & CHEMICAL

• Chemical Week and Market Daily Service

• Base Chemicals & Plastics

• Specialty Chemicals• Costs & Technology• Company Benchmarking

& Analytics

Our core capabilities serve our energy and chemical customers across the value chain through focused data and insight subscriptions as well as consulting.

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© 2017 IHS Markit


• Transportation• Consumer products• Packaging• Construction• Recreation• Industrial• Medical• Pharmaceutical• Personal care• Textiles• Electronics• Aerospace• Business equipment

OilGasCoalMineralsRenewables

Customers

Olefins AromaticsChlor-alkaliSyn-gasAg-chems

CommoditiesDifferentiated commoditiesTechnical specialties

Chemical industry value chain

Formulated products / performance materials

Natural resources

Chemicalintermediates

Base chemicals

CHEMICALS ENABLE MODERN LIVING

Polymers & plasticsEngineering resinsSynthetic fibersPaints and coatingsAdhesives/sealantsWater treatment Flame retardants….

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• Energy markets will see natural gas in North America significantly advantaged versus crude oil

• Global economy will grow at 2.5-3.0 % leading to annual demand growth of:

Ethylene ~ 5.5 to 6 million tons

Propylene ~ 4 to 4.5 million tons

Methanol ~ 3.5 to 4 million tons

• North America will remain an attractive region for base chemical and derivatives capital investments

• Investments continue in China and Middle East at a more moderate pace

Petrochemical Market OutlookAs global demand grows, North America will continue to attract new investments

Ethylene

PropyleneMethanol

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Energy fundamentals impact chemical industry investment decisions, short term demand growth

• Energy trends impact regional competitiveness, industry profitability, and ultimately drive investment decisions in the global petrochemical industry

• Advantaged investments in North America, Middle East and China see lower margins in low crude oil market

• IHS Markit Vice Chairman Daniel Yergin observes that there are two major forces currently operating on the global oil market, rebalancing and recalibration.

• The North American natural gas market is becoming more integrated, complex, and globally connected, subject to demand uncertainties in a currently oversupplied world market.

• Crude oil (energy) “at the extremes” impacts demand for chemicals and plastics. At the extremes, energy trends will both destroy and stimulate demand

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Combination of high crude prices and stable gas is attractive for North America chemical investments, based on natural gas and natural gas liquids

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USGC Natural Gas

Brent Crude

Global crude oil vs. USGC natural gas

Source: History: Argus (crude), Intelligence Press (gas); Forecast by IHS Markit Energy

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Lower longer case

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Demand growth for chemicals & plastics directly linked to global economic growth

• Basic chemicals and plastics represent the key building blocks for durable and non-durable consumer goods

• Multiple years of positive economic growth results in acceleration of base chemical demand growth

• Aligning capacity additions with demand growth is the balance producers are seeking

• Economic contractions/stimulus causing supply-chains to respond rapidly (inventor de-stock / re-stock).

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Economic growth in advanced countries and emerging markets are key drivers to petrochemical demand

2014 2015 2016 2017 2018 2019

World 2.8 2.8 2.5 3.0 3.2 3.1USA 2.4 2.6 1.6 2.3 2.7 2.3

Canada 2.6 0.9 1.4 2.7 2.3 2.3

Eurozone 1.2 1.9 1.7 2.0 1.8 1.7

UK 3.1 2.2 1.8 1.4 1.0 1.2

China 7.3 6.9 6.7 6.6 6.3 6.1

Japan 0.2 1.2 1.0 1.3 1.0 0.7

India 6.9 7.7 7.0 7.3 7.4 7.6

Brazil 0.5 -3.8 -3.6 0.2 1.7 3.5

Russia 0.8 -2.8 -0.2 1.5 2.1 1.8

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World Advanced countries Emerging markets

Real GDP, Annual % Change

Source: IHS Markit © 2017 IHS Markit

Annual % Change in GDP

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Chemical demand growth (vs GDP) has been decelerating over time; forecast to continue

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Ethylene Propylene Methanol ParaxyleneBenzene Chlorine Weighted Average

Average global GDP elasticity, by market & time period

Source: IHS Markit

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Ethylene and propylene continue pattern of accelerating demand growth / strong capacity growth is needed

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Ethylene Propylene Methanol2016 Dmd GrowthAvg. Dmd Growth (2011-2015)Avg. Dmd Growth (2017-2021)

Demand growth: past / present / forecast (million metric tons)

Source: IHS Markit

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Ethylene Propylene Methanol2016 Cap. GrowthAvg. Cap. Growth (2011-2015)Avg. Cap. Growth (2017-2021)

Nameplate capacity growth: past / present / forecast (million metric tons)

Source: IHS Markit

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Growth in base chemicals dominated by ethylene, propylene and methanol; new capacity dominated by APAC

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EthylenePropylene (PG/CG)MethanolChlorineBenzeneParaxylene

World base chemical capacity by market (MM tons)

Source: IHS Markit

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ChinaAsia + India (less China)North AmericaEurope & AfricaMiddle EastSouth America

World base chemical capacity by region (MM tons)

© 2017 IHS Markit

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Other unknowns impact strategic investment decisions

• Energy risk in an OPEC / shale regime • Demand risk given China’s economic and

industrial pivot • Unpredictable capital and project EPC

performance• Climate policy post Paris Accords• Disruptive technologies (e.g. Siluria)• Country risk with geo-political unrest• Market access risk under protectionist

backlash

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Capital investments in chemicals are seeking a sustainable competitive advantage

Chemical Investment “Drivers”• Secure an energy & feedstock

advantage.• Leverage current technology and

build world-scale.• Invest with proximity to local

markets and/or access to trade routes.

• Build to leverage an upstream and/or downstream integrated position.

Braskem-Idesa Ethylene/PE PlantNanchital, Veracruz, MexicoStart-Up: June 2016

Photo courtesy of Braskem IDESA

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Beyond energy and economic growth, there are many other factors to consider:

Additional Investment Considerations:• Crude oil/energy price trends

• Global economic growth

• Geo-political considerations

• Govt. fiscal policy / currency strength

• Global energy markets

• State of industry profit cycle

• China structural changes

• Non-conventional technology

• Sustainability

• Levels of integration

• Regional CAPEX differentials

• Logistics investments

• Evolving Consumer Products

Braskem-Idesa Ethylene/PE PlantNanchital, Veracruz, MexicoStart-Up: June 2016

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BenzeneChlorineEthyleneMethanolParaxylenePropylene PG 470 MM metric tons of production in 2016

What are the best locations for future investments?

GLOBAL BASE CHEMICAL ASSETS BY LOCATION - 2016



Market uncertainty results in slowdown in new capacity additions; 2019 forecast to decline to 2012 levels

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Ethylene Propylene Methanol Chlorine Benzene Paraxylene

Annual Base Chemical Capacity Change By Market

© 2017 IHS MarkitSource: IHS Markit

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Driven by a number of major initiatives, China investment in base chemicals has accelerated since 2000 and will continue into the 2020’s

• Secure an energy & feedstock advantage

• Leverage current technology and build world-scale

• Invest with proximity to local markets and/or access to trade routes

• Build to leverage an upstream and/or downstream integrated position

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United States Canada

Mexico Saudi Arabia

Iran South Korea

Singapore China

India

Total base chemical capacity for select countries

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Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine

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Beyond China and the United States, since the early 90’s some countries have continued to invest in base chemicals while others have seen investments stall

• Saudi Arabia, Iran; leveraging low cost hydrocarbons to drive industrial development

• S.Korea, Singapore, India are driven by strong demand growth in APAC

• Mexico and Canada linked to strong demand via NAFTA, but limited by energy developments 0

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Canada Mexico

Saudi Arabia Iran

South Korea Singapore

India

Total base chemical capacity for select countries

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Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine

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Market uncertainty causing delayed project approvals, results in falling capital spending across global chemical markets by early 2020’s

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Aromatics Fibers Inorganics Olefins Plastics Syngas Products

Capital Spending by Product (2014 Constant$, billions)


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AFR CEP FSU ISC MDE NAM NEA SAM SEA WEP

Capital Spending by Region (2014 Constant$, billions)




Ammonia, along with ethylene, propylene (and related derivatives) make up the vast majority of new capital spending in the next wave of investments

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PROPYLENE OXIDEBUTADIENE

BENZENEETHYLENE OXIDE

CHLORINELLD POLYETHYLENE

LD POLYETHYLENEHD POLYETHYLENE

PARAXYLENEMONOETHYLENE GLYCOL

POLYPROPYLENETEREPHTHALIC ACID

METHANOLMIXED XYLENES

PROPYLENE (PG/CG)AMMONIA

ETHYLENE

Capital Spending (US$ billions) Capacity Additions (million tons)

Capacity additions (MM tons) and Capital spending (US$ billions) by chemical market: 2016 to 2025


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North America Low Cost Brings Back Base Chemical & Associated Derivative Investments

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Ethylene Propylene (PG/CG) Methanol Chlorine Benzene Paraxylene

North America - Base Chemical Total Capacity

Source: IHS Markit

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© 2017 IHS Markit

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North America ethylene capacity growth including firm and announced projects

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Company Location Timing Total Growth-000- metric tons

Dow Plaquemine, LA 1H-17 250

Equistar Corpus Christi, TX 1H-17 401

Oxy/Mexichem Ingleside, TX 1H-17 550

ChevronPhillips Cedar Bayou, TX 2H-17 1,500

Dow Freeport, TX 2H-17 1,500

ExxonMobil Baytown, TX 1H-18 1,500

Indorama Lake Charles,LA 2H-18 420

Formosa Point Comfort, TX 2H-18 1,150

Shin-Etsu Plaquemine, LA 1H-19 500

Sasol Lake Charles, LA 1H-19 1,550

LACC Lake Charles, LA 1H-20 1,000

Shell Monaca, PA 1H-22 1,500

Total additions 11,821

Company Location Total Growth-000- metric tons

Ascent / Braskem West Virginia 1,000

Badlands NGL 1 North Dakota 1,500

Badlands NGL 2 “Shangri-La” 1,000

ChevronPhillips 2 Cedar Bayou, TX 1,500

Formosa St James Parish, LA 1,000

Formosa LA 1,000

Hanwha TBA 1,000

Indorama LA or TX 1,500

PTTCG/Marubeni Shadyside, OH 1,000

Total additions 10,500

Firm Projects: 2017 - 2022 Announced Projects: 2022+



Chemical industry earnings forecasts to decline with new waves of capacity in the near term; Chlor-alkali market showing good recovery by 2020

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Aromatics Chlor Alkali Olefins Plastics Syn Gas

Global Cash Earnings Trends by Chemical Value-Chain


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Lower earnings in Americas and Middle East are offset by stronger earnings in Asia and Europe where new capacity discussions are also underway

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Regional Weighted Average Cash Earnings


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• Energy markets will see natural gas in North America advantaged versus crude oil (BTU basis)

• Two major forces in the global oil market, rebalancing and (cost) recalibration will play out in the near term

• Global economic fundamentals remain solid; uncertainty indicators have declined; US is strong; Europe is brighter; China remains resilient.

• Capital spending slowdown will create tight market conditions in olefins and chlor-alkali by end of the decade

• North America will remain an attractive region for petrochemical and related investments; investors to include both domestic and foreign companies

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Final Thoughts As You Plan Your Next Move In The Chemical Sector




Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?

Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market ‐ Houston, TX [email protected]

Presented to:

VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA

Thank You!

VMA MARKET OUTLOOK WORKSHOP / August 2017 … Presentation.pdf · Polymers & plastics ... 00 02 04 06 08 10 12 14 16 18 20 22 24 USGC Natural Gas Brent Crude ... • Unpredictable

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