Mark Eramo, Vice-President IHS Markit Global Business Development, Chemicals [email protected]XLVIII Foro Nacional de la Industria Química Impact of Oil & Gas On Global Petrochemical Market Developments Presented By: October 27-28, 2016 Hyatt Regency - Mexico City, Mexico
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XLVIII Foro Nacional de la Industria Química · Global Business Development, Chemicals . [email protected] . XLVIII Foro Nacional de la Industria Química . Impact of Oil
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Mark Eramo, Vice-President IHS Markit Global Business Development, Chemicals [email protected]
XLVIII Foro Nacional de la Industria Química
Impact of Oil & Gas On Global Petrochemical Market Developments Presented By:
October 27-28, 2016 Hyatt Regency - Mexico City, Mexico
IHS and Markit are now IHS Markit IHS Markit thinks about the world in a unique way.
We call this The New Intelligence.
IHS Markit’s singular ability to look across complex industries, financial markets, and government actions that drive the global economy and provide our customers with insights, perspective and solutions for what really matters.
The Global Chemical Industry… … Enabling Modern Living
Automotive / transportation Consumer products Packaging Building / construction Recreation / sport Industrial Medical Pharmaceutical Personal care Textiles Electrical / electronics Aircraft / aerospace Business equipment
Plastics and engineering resins • Extruded films, pipe,
profiles, coatings, sheet, foams
• Blow-molded parts • Composites
Synthetic fibers Rubber products Paints and coatings Adhesives and sealants Lubricants Water treatment products Cleaning products Industrial chemicals Flame retardants
Commodities
Differentiated commodities
Technical specialties
Chemical Intermediates
Base Chemicals
Olefins (ethylene, propylene, butylene)
Aromatics (benzene,
toluene, xylenes)
Chlor-akali (chlorine, caustic
soda)
Others (ammonia, phosphorous)
CHEMICAL INDUSTRY VALUE CHAIN ENERGY & FEEDSTOCKS
Mining, drilling, refining,
gas processing
Oil Gas Coal Minerals Renewables
ENERGY & FEEDSTOCKS
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Moderador
Notas de la presentación
Basic energy sources, such as crude oil, natural gas, or coal, provide the essential BTU’s and the raw materials needed to produce higher-value chemicals and plastics, which represent key building blocks from which a wide variety of durable and non-durable consumer goods are manufactured. If you consider items we encounter every day such as the clothes we wear, construction materials used to build our homes, a variety of household goods, food and beverage packaging, and various modes of transportation; chemicals and plastics provide the fundamental building-blocks that enable todays modern living standards. Petrochemical demand is ultimately driven by the consumption of durable and non-durable goods by consumers around the world. The major chemical products that comprise the basic building blocks from which many consumer goods are derived include: ethylene, propylene, chlorine, benzene, paraxylene and methanol. Understanding the complex and changing dynamics within the petrochemical value chain is critical to understanding these markets and setting strategies that enable success in this very cyclical industry. From feedstock’s derived from an expanding list of energy sources, that are then fed into chemical production facilities, derivative units and sold to converters that make semi-finished and finished goods that are distributed to consumers via retail outlets; the underlying factors that lead to success are low cost, high levels of efficiency and continuous innovation of products and processes, effective go to market strategies that take into account a balance of domestic and international market needs.
Global Energy & Economic Fundamentals Impact Chemical Investment Decisions
• Crude oil price trends impact regional competitiveness and profitability for chemicals.
• Ethane/gas based investments in North America and coal-based assets in China, see lower margins in low crude oil market.
• Assumptions on economy and energy drive key decisions of location, feedstock, technology, scale, cost position, trade, etc.…
• Uncertainty results in delayed approvals; when combined with steady growth leads to tighter market conditions in certain markets
• Crude oil (energy) “at the extremes” impacts demand for chemicals and plastics. On the high end, it can “destroy” demand and on the low end it can stimulate demand.
Investment Decisions Must Evaluate Many Factors Beyond Energy & Economy
Investment Assumptions: • Global crude oil price scenarios • Global economic growth outlook • Geo-political considerations
• Iran sanctions • North American energy market • Current state of the profit cycle • China structural changes • Non-conventional technology • Sustainability • Levels of integration • Regional CAPEX differentials • Logistics investments
Investment Assumptions: • Global crude oil price scenarios • Global economic growth outlook • Geo-political considerations
• Iran sanctions • North American energy market • Current state of the profit cycle • China structural changes • Non-conventional technology • Sustainability • Levels of integration • Regional CAPEX differentials • Logistics investments
Basic chemicals expansions of 200 MM metric tons over two decades (2005 – 2025). Self-sufficiency in propylene 85+% by 2020; ethylene remains near 60%.
North America: An Attractive Place For Chemicals Investments Once Again
• Low cost energy and natural gas liquids provide sustainable advantage.
• Advantaged feedstock will enable an additional wave beyond 2020, assuming crude oil price recovery (near $80/bbl) and low natural gas pricing (near $4/MM BTU).
• Domestic and International companies seek to invest; leveraging the low-cost opportunities. New entrants to create increased competition in domestic markets
• Logistics & port infrastructure investment needed to support higher level of exports.
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Moderador
Notas de la presentación
As economic growth slows down and future growth is forecast to grow at moderate “new normal” rate, the demand for various commodities, including chemicals, will also grow at a more moderate rate. In the meantime, large amount of capacity brought on-stream during boom time has now become supply glut. The excess supply is particularly severe in ammonia, PTA, acidic acid, PVC/caustic, phenol, caprolactam, and etc. Different from foreign multi-national companies, Chinese companies are likely to focus on short-term gain often at the expense of long-term growth or even survival. This is partially due to local business culture, and more importantly due to unpredictability of long-term business risk. The risk mainly comes from policy insistency and lack of IP protection. Frequent IP infringement leads to Chinese company’s reluctance in investing in technology and development for the long-term. Currently, the central government has a major task to restructure the industry, and take the industry back to health and sustainable growth. In the meantime, however, it also needs to balance economic growth, employment and ultimately social stability. This will be a challenging task.
Energy At The Extremes Has Catalyzed A “New Era” In Light Olefins Production
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• For decades, light olefins supply based on refinery & naphtha cracker integrated sites
• Ethane crackers emerged where ethane was advantaged; USGC, Mexico, Alberta, Middle East; other areas where liquids rich gas was “trapped”.
• Propylene was a byproduct of refining and heavy or flexible steam cracking.
• Today light olefins are being made on purpose via a variety of technologies beyond refining and steam cracking: PDH, CTO/P, MTO/P, Metathesis, GTO/P, OCM
Propylene
Ethylene
PDH = Propane Dehydro CTO = Coal to Olefins CTP = Coal to Propylene MTO = Methanol to Olefins MTP = Methanol to Propylene GTO = Natural gas to Olefins GTP = Natural gas to Propylene OCM = Oxidative Coupling of methane
start up timing of all “first wave” US ethylene units. Pushed out and/or removed some additions in China (MTO/CTO)
• Build-cycle Disruption: under investing in new capacity during 2020-21 period, supporting margin “up-cycle” .
• Effective Global Operating Rates: expected to be high over the next 5 years assuming steady economic growth, current new-build profile, unplanned outages.
• Naphtha crackers: required to balance demand; increasing cash cost combined with need for more naphtha cracking will push ethylene prices higher.
Propylene Requires On-Purpose Investment: margins for incremental supply will have to support new investments On-Purpose Technology Will Vary: dependent on regional feedstock advantage - PDH in U.S., Middle East, and Asia along with coal to olefins in China; Chinese PDH units based on propane imports that compete into fuels market. MTP is high cost. Build phase is delayed: investment in North American on-purpose propylene production delayed as questions over energy and the economy persist; “GTP under study”. Regional imbalance causes price volatility: overcapacity in propylene will cause major price shifts regionally but balance out over time. US monomer balance is long, derivatives are tighter. Low prices stimulate demand: propylene demand growth is seeing strength due to ample low cost supplies.
Regional Propylene Equivalent Trade Flow Reduction In China Net Imports Result In Global Rebalancing
2011
North America
South America
West Europe
Middle East
Northeast Asia
Southeast Asia
2016
Others*
2021
*Others: Africa, Indian Sub., CIS & Baltic, Central Europe
1,720 890
1,950
-367 -465 -701
1,142 748
-404
-1,432
-2,413
-4,008
2,366
3,813 3,681 -3,062 -2,262
-156
-305 -228 -231
Moderador
Notas de la presentación
Trend continues for exporters and importers. Exports, grow out existing export regions as exporters continue to invest in more ethylene and derivative capacity driven by low cost feed Import, grow into existing import regions as importers move further down the continuum of standard of living development and the appetite grows for petrochemicals but the region does not have the feed or industrial development history to make new assets become viable.