Shale Gas And Its Impact On Global Shipping Patterns. Leslie McCune Managing Director Chemical Management Resources Limited

Transcription

1 Shale Gas And Its Impact On Global Shipping Patterns Leslie McCune Managing Director Chemical Management Resources Limited Chemical & Product Tankers London 12 March 2014

2 Leslie McCune Founder, Managing Director lm@chemicalmanagement.co.uk

3 Short-term expertise for petrochemical and petrochemical supply chain projects focused on the Middle East Independent advice on Competitive intelligence Supply chain benchmarking Business development Strategy development Market feasibility Petrochemical training Partner selection Clients Consultancies/business advisors Producers Supply chain service providers Investors

4 Business Advisors Producers Supply Chain Providers

5 Changing weather.

6 Shale Gas And Its Impact On Global Shipping Patterns What is shale gas, what are its uses and how universal is it? What s the big deal? What are the implications? How could shale transform the petrochemical industry? What could be the impact on global shipping patterns?

7 Why? is Evergas having up to 6 gas carriers built for INEOS for a new transatlantic route? will the Chinese Academy of Science and US private equity interests need 2 Panamaxsize vessel s every week to deliver methanol from the Pacific North West to China? will ammonia shipments from the Middle East to the US fall dramatically? has ExxonMobil s LNG import terminal in the US been reversed into an export terminal? will US ethylene capacity grow by 33% in the next 5 years when demand grows 2% p.a.?

8 What Is Shale (Natural) Gas?

9 What Is Shale (Natural) Gas? Natural gas deposits trapped in very compressed, low-permeability shale rock formations that require hydraulic fracturing ( fracking ) to release them Shale gas reservoirs cannot be commercially developed by vertical drilling alone due to lack of natural flow Even with horizontal drilling, hydraulic fracturing is needed to produce commercial quantities

10 What Is Shale (Natural) Gas? ICIS June 25, 2012 Butane Propane + Butane = LPG 10

11 Remember Carbon Atoms Per Molecule Gas 1 Methane Light 2 Ethane 3 Propane 4 Butane 5 Pentane Heavy LPG Liquefied Petroleum Gas As a liquid, 1/270 th volume as a gas (LNG 1/600 th when chilled to C)

12 What Are Its Uses? 1. Power generation - locally or via LNG exports 2. Raw material for the petrochemicals i) Methane (no cracker needed) > Methanol > MTBE, Formaldehyde, Acetic Acid, Ethylene/Propylene (China), Fuel Ammonia > Fertilisers, Caprolactum/Nylon, Acrylo ii) Cracked NGL (Ethane, Butane, Propane) > Ethylene + Oxygen > Ethylene Oxide + Benzene > Styrene

13 A Cracker s 900 o C gas travels at 770 mph/1,250 km/hr

14 How Universal Is Shale Gas? 75% of assessed and technically recoverable reserves are outside the US

15 How Universal Is Shale Gas?

16 Shale Gas And Its Impact On Global Shipping Patterns What is shale gas, what are its uses and how universal is it? What s the big deal? What are the implications? How could shale transform the petrochemical industry? What could be the impact on global shipping patterns?

17 What s The Big Deal? Natural Gas Prices Disconnect From Oil (And Therefore Naphtha)

18 What s The Big Deal? Nuclear, Coal And Wind Projects Cancelled Source: US Energy Information Administration Exelon cancelled plans to expand two nuclear plants CMS Energy Corp cancelled a $2 billion coal plant. Not financially viable in a time of low natural gas prices linked to expanded shale gas supplies NextEra Energy Inc shelved plans for new US wind projects in 2013

19 North American Gas Production Transformation

20 Shale Gas And Its Impact On Global Shipping Patterns What is shale gas, what are its uses and how universal is it? What s the big deal? What are the implications? How could shale transform the petrochemical industry? What could be the impact on global shipping patterns?

21 What Are The Implications? In US Cheap energy, cheap methane, cheap ethane and cheap propane Energy: Forget US domestic coal industry? Average annual cost saving/us household is $926 ( ) Cheap US gas means cheap US coal.. keeping UK coal-fired power stations running flat out.. but shortening their life. while electricity from European gas is uncompetitive. forcing mothballing of gas-fired power stations... when nuclear plants are being re-commissioned. Can renewables make up the difference. in time? Investment Energy-intensive Austrian steelmaker Voestalpine building $700m plant in US Chemicals:..

22 Shale Gas And Its Impact On Global Shipping Patterns What is shale gas, what are its uses and how universal is it? What s the big deal? What are the implications? How could shale transform the petrochemical industry? What could be the impact on global shipping patterns?

23 How Could Shale Transform The Petrochemical Industry? Cracker Feed Choices GAS Feedstocks LIQUID Output/Yield 23

24 How Could Shale Transform The Petrochemical Industry? Cracker Feed Choices GAS Feedstocks LIQUID

25 How Could Shale Transform The Petrochemical Industry? Cracker Feed Choices GAS Feedstocks LIQUID

26 How Could Shale Transform The Petrochemical Industry? Cracker Feed Choices GAS Feedstocks LIQUID LPG

27 How Could Shale Transform The Petrochemical Industry? Which products benefit most from shale? Easily transportable products containing a high % of: - ethylene (from a cracker fed with ethane), or.. - methane (from natural gas, which is 85% methane)

28 Ethylene Derivatives Ethylene (C 2 ) 100% Polyethylene (PE) 26% + Benzene Ethyl Benzene 84% Ethylene Oxide (EO) 45% Ethylene Glycol 29% + Chlorine Ethylene Dichloride (EDC) Vinyl Acetate Monomer (VAM) LDPE 100% LLDPE 100% HDPE 100% Polyester + PTA Vinyl Chloride Monomer (VCM) Alpha Olefins Styrene Monomer (SM) Polyvinyl Chloride (PVC) Polystyrene (PS) Acrylonitrile Butadiene Styrene (ABS) Styrene Butadiene Rubber (SBR)

29 How Could Shale Transform The Petrochemical Industry? Which products benefit most from shale? Easily transportable products containing a high % of: - ethylene (from a cracker feed with ethane), or.. - methane (from natural gas, which is 85% methane) Specifically: - ethylene-rich polymers e.g. HDPE, LDPE, LLDPE, (PVC, Ethylene Glycol) - methanol (based on methane = 85% of natural gas) - fertilisers (based on ammonia from methane) Consumes 5% of world s natural gas but as crackers switch to ethane from naphtha, less butadiene and derivatives produced but how easy is it for crackers to switch from naphtha to gas?

30 How Has Shale Transformed The Petrochemical Industry? Shale gas advantage is a game-changer for North American companies

31 How Has Shale Transformed The Petrochemical Industry? 50 companies investing over $100 billion on 148 new chemical-related investments announced since 2010 with investment peaking in 2017

32 What Are The Implications? Chemicals: Once again, America s biggest export (more than agriculture, cars, aerospace) Jobs: 50,000 skilled petrochemical construction craft workers needed Exports: North American LNG exports? 14 export licenses waiting for approval by Dept of Energy. 6 licensed so far (Cheniere Energy, Cameron, etc). If all approved, equivalent of 43% of current production would be exported. Relocation Canada s Methanex spending $425m to move Chilean methanol units to US Investment

33 Shale Gas And Its Impact On Global Shipping Patterns What is shale gas, what are its uses and how universal is it? What s the big deal? What are the implications? How could shale transform the petrochemical industry? What could be the impact on global shipping patterns?

34 What Could Be The Impact On Global Shipping Patterns? Potential impact on: - Routes - Trade flow direction (same route, head haul reversed) - Volumes - Timing But shipping patterns continually change. Therefore, need to identify the structural changes that will impact trade and shipping patterns, even without shale:

35 What Could Be The Impact On Global Shipping Patterns? Potential impact on: - Routes - Trade flow direction (same route, head haul reversed) - Volumes - Timing But shipping patterns continually change. Therefore, need to identify the structural changes that will impact trade and shipping patterns, even without shale: Examples - Demand patterns Shift to, and within, Asia - Elimination of trade barriers Trade blocs - Currency fluctuations $,,,. - Infrastructure development Ports, rail, etc - Re-shoring Back to US - Technology development Coal-to-chemicals in China - Political changes Iran, China, Argentina,. - Changing regional competitiveness Oil and naphtha price - Where is it easy to trade? IMF s Ease of Doing Business study - Legislative changes REACH, MTBE, - Demographics drive demand - Environmental regulations Carbon emissions, sulphur content - Energy costs Long-term driver of plastics processing Follow the money - look at where global petrochemical investments are made and deduce how flows may change

36 What Could Be The Impact On Global Shipping Patterns?

37 What Could Be The Impact On Global Shipping Patterns?

38 Global Sea Movements Others Veg Oils Organics Inorganics

39 Global Sea Movements Others Veg Oils >225 million tonnes Organics Sulphuric Caustic Phosphoric Hydrochloric Aqueous Ammonia

40 So Will Shipments Of Ammonia From the Middle East To The US Reduce? Chemical firms in N.America will have access to shale gas-based methane feedstock and essential fertiliser nutrients like nitrogen and sulphur. Will Middle East fertiliser producers - where ammonia capacity in 2013 was 12 mt and 15 mt urea - lose ground in an important export market? Henry Hub natural gas prices fell from $12.69/mmBtu in June 2008 to $3.83/mmBtu in June At such competitive prices, N.America is boosting its own ammonia (and urea) output capacities - 25 new projects announced, adding 10 mtpa of urea capacity. But GCC producers and exporters not out of the game. Not all announced ammonia facilities will come online. Gas prices in N.America have begun to increase after unconventional gas plays produced lower yields than expected and interest in LNG export projects is rising. If more N.American natural gas is diverted for export, it is unlikely that prices will remain competitive for domestic N.American fertiliser production. Middle East exports would then will continue. L. McCune, 2014

41 Global Sea Movements Others Veg Oils >225 million tonnes Organics Sulphuric Caustic Phosphoric Hydrochloric Aqueous Ammonia

42 Sea Movements Organic Chemicals Others Methanol Acetic EDC Toluene 110 million tonnes Xylene Ethanol Benzene MTBE Styrene MEG

43 Sea Movements Organic Chemicals Others Methanol Acetic EDC Toluene 110 million tonnes Xylene Ethanol Benzene MTBE Styrene MEG

44 Impact Of Low-Cost, Shale-Based Ethylene On Styrene In The US? Styrene = Ethylene + Benzene US has low cost ethylene but the switch from liquid naphtha to shale-based ethane gas as cracker feedstock has reduced production of benzene (which comes from naphtha) Impact: 1. US benzene prices will increase 2. Imports of benzene from naphtha-based crackers in Asia will increase 3. US will then use low-cost ethylene and imported benzene to produce styrene for export back to Asia to be made into PS, polystyrene (Styrene for PS accounts for 50% of global styrene demand)

45 The Big Questions? Will US shale gas be more of a regional phenomenon with US exports increasing only to Latin America? Will shale have no impact outside the Americas for the rest of the decade?. or will new supply chains and global shale developments create new shipping needs? Either way, navigate the uncertainty by being informed

46 Why? is Evergas having up to 6 gas carriers built for INEOS for a new transatlantic route? will the Chinese Academy of Science and US private equity interests need 2 Panamaxsize vessel s every week to deliver methanol from the Pacific North West to China? will ammonia shipments from the Middle East to the US fall dramatically? has ExxonMobil s LNG import terminal in the US been reversed into an export terminal? will US ethylene capacity grow by 33% in the next 5 years when demand grows 2% p.a.?

47 Thank you.. Leslie McCune Chemical Management Resources Limited