Global Petrochemicals The Game has Changed: Shale Impact on Chemicals

Transcription

1 Global Petrochemicals The Game has Changed: Shale Impact on Chemicals Presented by: Dewey Johnson VP Market Research-IHS-Chemical 28 February, 2013 Moody Gardens Hotel Galveston, Texas Rapidly Changing Landscape for Chemicals in North America; Seizing the Raw Materials Opportunity

2 The Power of Adjacent Knowledge IHS Connects Critical Capabilities with High-Value Decisions Power & Utilities Government Transportation Healthcare Energy Oil & Gas Aerospace & Defense Electronics & Telecom Consumer & Retail IHS IHS Chemical Military & Security Automotive Financial Construction Metals & Mining Agriculture Shipping

3 Bringing Together Best-in-Class Brands to Deliver World-Leading Chemical Insights & Expertise IHS has brought together the strengths of CMAI, SRI Consulting, Chemical Week and Harriman to create the most comprehensive set of chemical information and insights in the world 100-year information supplier Authoritative chemical business news Information resource for high-level industry executives and professionals Chemical Week IHS Chemical CMAI Commercial + Strategic Market, planning & consulting advisory services Analytical & technical expertise Trusted authority on chlor-alkali, vinyl chloride, and bleaching chemicals Market and pricing data Harriman Chemsult SRI Consulting Technical + Specialties World s leading business research & forecasting service Provider of chemical process economics for the global chemical industry

4 Agenda Intro to IHS Economic Outlook Energy Drivers & Backdrop Chemicals Overview

5 Growth Projections Slow Acceleration Real GDP Growth: January 2013 Forecast United States Eurozone China India Brazil Russia World Europe Struggles U.S. maintains slow pace BRICs Improve 5

6 Slower Pace of Economic Recovery Global Economy was off the growth curve for seven quarters Pace of Expansion slowed to less than 3 percent per year (`12-`13) due to EU & confidence loss but is accelerating Taking much longer to regain trend line performance Trillions $60 $58 $56 $54 $52 $50 $48 $46 Quarterly Annualized Value Constant 2005 U.S. Dollars China Grows at about 7.9% per year and Global rates are close to 3.5% Peak Q Trough Q $ Back to Previous Peak Q Source: IHS Global Insight

7 Agenda Intro to IHS Economic Outlook Energy Drivers & Backdrop Chemicals Overview

8 US Crude Oil Market Analysis: Key messages Growing tight oil production impacting North American crude flows and pricing dynamics. North American crude oil systems and logistics will require significant transformation to deal with the challenges of new supply. Unprecedented build in pipeline, rail, and domestic shipping capacity. A key assumption in this outlook is that US policy prevents crude oil exports. USEC set to become key price setting market for domestic light sweet crude. Sweet crude pricing will entice light sour refiners to back out imports to USGC refining complex. 8

9 Tight oil supply changing the balance for the North American crude supply market NOTE: Tight oil outlook consistent with the forecast developed from IHS CERA MCS: North American Tight Oil 9

10 Petroleum Energy Supply and Demand Is Tracked by Petroleum Administration for Defense Districts (PADDs) Rocky Mountain West Coast (Ex. Lower 48) V IV North Central II East Central West Central I New England Central Atlantic West Coast (Lower 48) Lower Atlantic West Gulf III East Gulf 10

11 Tight oil supply growth leads to the wrong crude quality in the wrong place North American crude oil systems and logistics will require significant transformation to deal with the challenges of new supply Source: IHS CERA 11

12 Sweet crude overflow into high-cost transportation modes has resulted in significant price discounts * NOTE: Rail and Truck costs include tanker car rental, terminal loading and terminal unloading fees

13 Inland sweet crude will require movement to nontraditional outlets to balance supply Source: IHS CERA 13

14 There Are Numerous Shale Gas and Tight Oil Plays in the U.S. 14

15 Tight Gas Plays Are Also Contributing to the Rise in U.S. Gas/NGL Production 15

16 North America Energy Price Trends Dollars Per MMBtu Gas as a % of Crude, BTU Basis 60% 50% 40% 30% 20% 10% % Crude (WTI) Natural Gas Gas as % of Crude

17 Shale Gas Is Already a Major Portion of the Total U.S. Gas Supply And the Potential Resource Base is Very Large U.S. Natural Gas Production By Type, BCF/D Shale Gas & T ig ht Oil Ot her Sup p lies U.S. Lower 48 Potential Gas Resources, TCF 1,800 1,600 1,400 1,200 1,000 The U.S. gas market is demand-limited. LNG exports and retirement of coal-based power will influence supply. Sources: IHS CERA, PGC, EIA

18 Agenda Intro to IHS Economic Outlook Energy Drivers & Backdrop Chemicals Overview

19 A Perspective on the Future Chemical Sector Drivers and Trends? International Trade Pattern Changing? Profitability On a Cyclic Path?

20 Chemicals: Drivers and Trends 2020 Petrochemical investment is reignited by low cost feedstocks, reshaping global capacity and trade patterns. Significant advances continue in the use of methane (coal & gas) as a basic raw material that can be transformed into a broader range of petrochemicals. A deep end-market understanding of consumption incentives becomes more critical as international sourcing options expand throughout the chemical supply chain 20 20

21 Chemicals - Critical & Growing Key ingredients used to manufacture everything Chemical demand consistently expands at rates as much as two-times GDP Most growth is centered in Asia, but other fast growth economies are also expanding Chemicals Trade continues to accelerate around the globe 21

22 Chemicals More of the Story Production expansion mostly in the Middle East or China, but Shale Oil and Gas has placed the U.S. and Canada in a very favorable investment position Economics of energy-derived raw materials represent 60% or more of total Petrochemical production cost and drive capital and jobs decisions 22

23 Global Megatrends center around broad fundamental value creation drivers Demographic Rapid population in the developing world with increased ageing in the developed world shift demand profile Economic Standard of Living rises rapidly, merging developing country standards with that of the developed world and leading to rapid technology take-up Sustainability Growing populations and economies create needs for innovative solutions; market drivers will be likely supplemented by policy Sustainability Economic Demographic Create opportunities Rapid Growing Standard and population populations threats of Living growth for rises and chemical in producers economies rapidly, merging developing the developing create world needs with for innovative country standards with that increased solutions; ageing in market the New geographic & end-use drivers of the developed world and developed will markets be supplemented world (products, shift logistics & channels) leading by to rapid technology Minimum operational footprint demand policy initiatives profile take-up maximum resource efficiency (energy value creation & environmental excellence) Linkages to fast growth markets (BRICS), coupled with an expanded focus on the frontiers (e.g. Africa) 23

24 A Perspective on the Future Chemical Sector Drivers and Trends? International Trade Pattern Changing? Profitability On a Cyclic Path?

25 Demand Distribution Transformation Economic Expansion: Basic demand shift to fast growth emerging economies is evident Investment Decisions: Two Options: Produce in demand centers or leverage a clear cost advantage Tomorrow s Market: Sustainability includes a systematic addition of performance products 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Distribution of Global Demand Basic Chemicals and Plastics All Others W. Europe N. America Middle East Other Asia China Center of the Industry has shifted to Asia 11 25

26 Feedstock Costs are Key to Earnings and Drive Investment Siting Differences in cost position remain very substantial Condensates even favor U.S. vs. naphtha used elsewhere Margins remain very wide for ethane based or close-to-zero for oil based $1200 $1000 $800 $600 $400 $200 $0 Ethylene Cash Cost Comparison (35% of Globe) MDE Canada U.S Ethane U.S. Naphtha 2012 U.S. Dollars Per Metric Ton MDE LPG MDE Europe Asia Naphtha LPG Price NEA SEA Naphtha 19

27 High Oil Prices Mean Profits for Ethane Chain Incentives remain high regarding investment in Integration U.S. Ethane to PE producers enjoy the benefits of a very advantaged gas-oil price ratio Feedstock and ethylene margins support increase in net export activity U.S. Ethane to Polyethylene Chain Margin Distribution Cents Per Pound of Polyethylene Polyethylene Ethylene Ethane

28 Trade Connects Advantaged Hydrocarbons to High Growth Markets Naphtha cracking economics remain in place as the Global Price Maker Business Plans for new capacity will include a significant export presence Exports could represent 50% of future production methane & ethane cost position critical North America Net Exports Million Metric Tons Percent of Production Polypropylene Vinyls Polyethylene % 30% 25% 20% 15% 10% 5% 0%

29 Capital Build will Challenge Resource Availability North American Capital Spend Billions $14 $12 Other Chemicals Propylene Chain $10 Ethylene Chain $8 Chlorine Chain Methane Chain $6 $4 $2 $ Billions of Dollars required to fund chemical plant capital plans attributable to the shale gale IHS estimates $95B to be spent over this timeframe Generating job growth & CAPEX risk in construction to operations

30 A Perspective on the Future Chemical Sector Drivers and Trends? International Trade Pattern Changing? Profitability On a Cyclic Path? 30 30

31 Basic Chemicals & Plastics Profit Cycle $300 $250 $200 $150 $100 $50 $0 - $50 Global Earnings Before Interest and Taxes U.S. Dollars per Metric Ton Volume Weighted Basis North America Global Average West Europe Asia $300 $250 $200 $150 $100 $50 $0 - $50 - $ Significant Regional Differences - $100 3

32 Conclusions The Path to 2020 Geopolitical events become an even larger factor by underpinning oil prices and slowing economic growth - more volatility and slower pace of surplus absorption Global demand expands at a pace equal to about 4.4% per year driven by emerging consumers Middle East remains the largest source of global supply and its future investments continue to diversify the region s chemicals production portfolio, attracting more participants and creating more jobs New oil based (naphtha, etc.) facilities are still built where refinery integration and/or labor can be leveraged 35

33 Conclusions The Path to 2020 North America becomes a much larger participant in ethane-to-ethylene derivative trade (PE, MEG and PVC) - local demand growth remains modest (~2.0%) Commercialization of bio-based chemicals advances at an accelerating pace pushed by government incentives Coal based chemical production expands where this fuel source is logistically disadvantaged otherwise, coal will be used to offset oil consumption growth India s growing need for products to support expanding infrastructure requires a significantly larger global sourcing program including investment elsewhere 36

34 Nariman Behravesh Chief Economist IHS Stephen D. Pryor President ExxonMobil Chemical Company Susan Esserman Chair of the International Department; former Deputy US Trade Representative Steptoe & Johnson LLP Mark Eramo Chemical Industry Insights IHS Bill Sanderson Vice President, Downstream Research and Consulting - Energy Insight IHS Moayyed Al Qurtas Vice Chairman & CEO Tasnee Zbyszko Tabernacki Vice President, Economics & Country Risk IHS Charles T. Drevna President American Fuel & Petrochemical Manufacturers (AFPM) Gary Adams Chief Advisor, Chemical IHS Graeme Burnett Senior Vice President Refining & Chemicals Americas Total SA Richard Meserole Vice President of Operations and General Manager Fluor Arnaud Franco Senior Analyst Graphic Papers Pulp and Paper Products Council Dave Witte Senior Vice President & General Manager, Chemicals IHS José Luis Uriegas CEO Grupo IDESA Visit for complete agenda and to register.