Polymer Supply Issues. What to expect in North American Supply

Transcription

1 Polymer Supply Issues What to expect in North American Supply

2 Outside Backdrop Agenda - PE Asia Middle East Europe Other (Brazil, Mexico) Regional Supply Demand Specifically, likely trade balance? Pricing Drivers

3 Primary Agenda NA Expectations Near Term Supply Demand Shale Gas Feedstock availability Potential for export Impact Capital Program Potential for Exports or Imports Pricing Drivers Wrap-up with a look at major Issues

4 GLOBAL BACKDROP

5 Prior Thinking Middle East Tsunami of PE and ethylene Asia Heavy growth and import needs Europe uncompetitive and mature growth, expect a little rationalization & imports, but probably not much South America a nice potential market! North America unbelievable overnight change from famine to feast, too good HOW DOES THIS GET MESSED UP?

6 DeWitt s Methodology Collect SD Data from Companies, Associations, and Governments as needed Discuss issues, trends and events continuously Stay abreast on the subtleties of competitiveness Develop globally balanced Supply Demand balances each year based on analysis of data Discuss with commercial participants, generating and presenting our seasoned expectations Utilize public data as well as undisclosed data, as background, to develop forecasts However, companies do not disclose all of their derivative plans when they announce crackers!

7 Develop Macro Growth Scenario In 2012, the main problem is slowing in EU The US appears to be taking off a little Expect US will be in the 2.0 +/- Think China will rebound, very committed to the 7-8 percent GDP for job formation Concerns are negative press, high energy cost, and more Arab Spring Positives are Energy Mushroom and Jobs in energy and manufacturing

8 Global Ethylene Underpinnings 2011 had its ups and downs, 2012 a little better, Capacity growth slows Market peak continues to look like Capacity growth for is just beginning, could get delayed

9 KMT Y/Y Growth World PE Supply and Demand % % % % % % % LLDPE Prod HDPE Prod LDPE Prod Capacity Demand Y/Y Growth Stronger NA growth in 2011 offset by large inv swing in Asia Recovery in 2012 in Asia as capacity growth slows Business peak in

10 ME and Asian Projects Sanctions/Operability have stalled Iranian projects Other projects are just beginning, more are deferred by geopolitical events Major expansion occurs in Asia much more than in Middle East Large portion is MTO that will likely present some major challenges

11 Chinese Consumption Cap Exp IMP HDPE IMP L LLD Prod LDPE Prod LLDPE Prod HDPE Dem LD Dem HD Expect polymer growth to resume in China to 8-9 % levels Significant capacity growth but constrained some by competitive pressures Expect most imports to be sourced East of Suez

12 KMT Y/Y Growth Africa/Middle East PE Supply and Demand % % % % % % % LLDPE Prod HDPE Prod LDPE Prod Capacity Demand Y/Y Growth Capacity utilization has been limited mainly by operability With domestic consumption of ~ 9 mil tons, the remainder goes mainly to China Will need Iranian capacity to achieve this in

13 Other Areas South America is Growing nicely but tends to manage it markets regarding trade Limited Brazilian expansion will come in mid teens to later to utilize Presalt gas Limited export potential despite desires Western South America will add Cracker PE facilities with LNG but timing continues to slide Expect little out of Argentina, Venezuela Europe will see growth supplied by others, but may see some Shale gas potential about end decade via E&P or ethane imports

14 World Net PE Trade

15 Observations re Global Backdrop Despite worries and risk, Asia is keeping the ME pretty well balanced with its capabilities ME Capabilities are world scale BUT limited by people/material avail. and Geopol. Items Despite shale gas, ME economics are better than NA NA exports will be opportunistic

16 North America

17 US Ethylene PE Chain Margin, c/lb PEAvgMargin PECost Ethylene EthaneCashCost

18 Major Pricing Mechanism Observation and Premise Competitiveness driven by feedstocks ME remains best followed by US, Canada ME advantage not able to compete in NA with freight requirements and logistics costs Asia and Europe need naphtha cracking to meet demand, full replacement by ethane is beyond the scope of reality Hence, Asian pricing must support naphtha North American pricing will likely follow that of its incremental demand, ie export

19 Competitive Costs, USD/met Now Future Middle East USA Europe, Naph Asia, Naph September 2011 DeWitt Petrochemical Forum

20 KMT Y/Y Growth North America PE Supply and Demand % % 5% % % 2% % % LLDPE Prod HDPE Prod LDPE Prod Capacity Demand Y/Y Growth Demand includes Exp so flatten as dom grow offsets export Capacity is getting tight as we move forward due to delay of expansion Actually showing dem exceeding cap because we believe it will be built

21 Observations US expansion is very late after Shale Gas evolution erased thoughts or rationalization Reasonable probability of nearterm snugness What about all the announced expansions? Notice the S/U dates have been foggy? Companies are very short of development teams and unsure of permitting schedules Most people think in terms of 4-5 years!

22 US Expansions Ethylene CAPACITY/ TOTAL PRODUCTION Westlake Lyondell debottlenecks Dow Deb restarts Ineos 115 Williams 270 BASF Total BFLP 200 CP Chem 1500 Dow 1200 Formosa 800 Shell Marcellus 1200 Possible US Incumbant 1200 Sasol 1200 Unnannounced Offshire entrant 1200 Lyondell JV? Oxy? New Capacity Cum Capacity Cap Utilization 91% 94% 94% 94% 96% 92% 85% 82% slip 1 year 94% 97% 96% 97% 99% 94% 88% DeWitt Petrochemical Forum

23 Other Actions of Note Canadian Development in Alberta Eastern Canada Capacity Rescued Mexican development more likely with the impact of reducing US exports to Mexico

24 Issues - Shale Gas Government regulation can slow it but gold rush development has already defined a massive expansion of NG and ethane supply Water is likely really not a concern re environment but may be a worry re supply Logistics are needed but don t seem to be a prob. Volume is massive and only gets better with all the LNG and NG demand developments LNG trucks, Power Generation, CNG autos LNG export will occur and possibly Ethane export Ethane supply will still likely be in significant surplus

25 Issue PE Supply Volume should be tighter near term but we think it will be adequate Export capability may be crimped by domestic demand in tight supply mode Longer term capacity could be long but history shows actual expansion never equals announcements!

26 Issue Cost & Profitability Pricing mechanism for PE looks to be a price taker version based on higher priced exports to Asia, already in place! Ethylene has a lot of the margin in it Ethane also is holding a lot of the margin PE Integrated versus non integrated effective net pricing may become a problem

27 Thank You!

28 Shale Gas a great story that can evolve elsewhere September 2011 DeWitt Petrochemical Forum

29 Reservoir Map in Progress September 2011 DeWitt Petrochemical Forum

30 NGL Transportation September 2011 DeWitt Petrochemical Forum

31 Gas Well Economics USD per MSCF 7 6 Normal Cost 5 4 Mkt Price 3 2 Net Cost 1 0 Marcellus Eagle Ford Fayetteville Bentek September 2011 DeWitt Petrochemical Forum

32 Gas Well Investment Returns 10+% BENTEKEK September 2011 DeWitt Petrochemical Forum

33 Global Interest is Growing Saskatchewan B.C. Quebec U.K. Poland Hungary France Austria India China Australia DeWitt Petrochemical Forum

34 Hydraulic Fracking used in 1,000,000 s of wells Worldwide Ground Water Shale September 2011 DeWitt Petrochemical Forum ExxonMobil 8/10/2011

35 The Equalizer LNG September 2011 DeWitt Petrochemical Forum

36 LNG Provides a Market Price Can raise US nat gas & ethane pricing Can raise ME ethane pricing Can compete with crude and cause lower demand and prices for naphtha Can reopen option to crack heavier feed (likely a long way off) September 2011 DeWitt Petrochemical Forum

37 Long Range Economics ~ 2020 Observations LNG today $ 10 Future price likely lower with more supply Stranded gas will move up in price Simple math calc LNG deepsea Gas Price $9 Transportation/Cooling $3 Netback to shipper $6 Ethane value cpg $ 0.55 Ethylene Cost per mt $600 September 2011 DeWitt Petrochemical Forum

38 Competitive Costs, USD/met Pot. Avail Eur. Middle East USA Europe, Naph Asia, Naph Now Future September 2011 DeWitt Petrochemical Forum

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40 US Ethylene Supply Demand % 95% % 85% % 75% % 65% % Prod Cap Op Rate

41 Capacity additions are slowing down, Iranian projects stalled by sanctions Next wave of additions are smaller in number and just starting projects Nearterm operations are limited more by operability