Shifting Dynamics Impacting Global Chemicals

Transcription

1 Shifting Dynamics Impacting Global Chemicals National Association of Chemical Industry () Dave Witte, SVP-IHS & GM-IHS Chemical 31 October, 2014 Mexico City, Mexico

2 Best-in-Class Brands Brought together to form the most comprehensive source for Economic, Energy and Chemical market research and expertise in the world. GLOBAL INSIGHT

3 IHS CHEMICAL Complex Challenges Breed New Opportunities The Chemical industry is undergoing rapid change. Unconventional feedstocks are changing the economic dynamics for chemicals while innovative technologies are enabling new applications and production paths that are impacting the competitive landscape and catalyzing new, sustainable solutions to global challenges. In this changing environment, Chemical companies and their suppliers need a complete understanding of the threats and opportunities before them. They need a partner who can help them thrive in this dynamic world. IHS Chemical is uniquely positioned to help you understand these increasing complexities

4 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A

5 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A

6 The World Economy: Recovery on Track After a slow start in the first half of 2014, global growth is accelerating; developed economies lead Growth has dramatically declined in some developing economies, productivity gains are needed to return economic momentum Primary risks are: Geopolitics (Russia & the Middle East) European recovery stagnates Financial crisis in China Further degradation of emerging economies Global GDP Growth to Strengthen in Percent change World Advanced countries Emerging markets

7 Fastest Real GDP Growth will be in Non- Japan Asia Real GDP Accelerates in all but Japan Japan s economy on a better but sluggish growth path; continued economic reform is needed Annual Percent Change China s economic growth is slowing - risks to extended low-growth are rising due to shadow-banking debt and misallocation of capital Diminishing headwinds and strong tailwinds support US growth Western Europe has turned the corner, but risks of deflation are rising with continuing risks from the Ukrainian/Russian conflict

8 North America Economic Cycles are Synchronize 6 Real GDP 4 Percent Change EE.UU. Canadá México 9

9 Why has Growth in Emerging Markets Slowed? Cyclical forces Structural forces Withdrawal of policy stimulus Credit tightening Excess capacity after investment booms Weak export markets Slower labor force growth Slower pace of globalization End of commodity price supercycle Lack of market reforms Real GDP Percent change China India Brazil Russia

10 Key Risks to the Global Economy Risk China hard landing Eurozone setback Energy price shock US recovery stalls Signposts Loan defaults by developers and local governments trigger a banking crisis and a credit squeeze. Real estate market bubbles burst. The government responds with limited fiscal stimulus. Banking problems intensify, leading to a credit crunch. Growth stalls and deflation sets in. High unemployment leads to social unrest. Conflicts in the Middle East and Africa lead to an oil supply disruption. Transportation is temporarily affected. Oil prices soar initially, until markets adapt. The Russia-Ukraine conflict cuts gas supplies to Europe. Businesses and households spend more cautiously. Recoveries in housing and auto markets relapse. 11

11 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A

12 Demand growth for oil products will fall over forecast period Peak Demand longer term Global refined product demand 2000 to Percentages are annual average growth rates for Diesel/gasoil 0.8% Gasoline 0.6% Millions of barrels per day Residual fuel oil 0.3% Other products 1.0% 5 Naphtha 1.0% Jet fuel 1.1% Source: IHS Energy 2014 IHS 13

13 Significant New Crude Needed to Offset Declining Fields to Even Meet Slowing Growth Million barrels per day 100 World crude and condensate production outlook Segregated Condensate FIP FUD FUA YTF Tight Oil 58 mmbd of new production needed by 2040 FIP = Fields in Production; FUD = Fields Under Development; FUA = Fields Under Appraisal; YTF = Yet to Find

14 Non-OPEC Declines Replaced by Higher Cost Frontier and Deep-water Discoveries BPD (Thousands) Non-Opec Crude and Condensate Production 60,000 50,000 40,000 30,000 20,000 10, Conventional oil volumes discovered by play type Billion barrels Onshore Ultra deep water (5000+ feet) Deep water (1000 to 5000 feet) Shallow water Segregated Condensate FIP FUD FUA YTF Tight Oil FIP = Fields in Production; FUD = Fields Under Development; FUA = Fields Under Appraisal; YTF = Yet to Find Economics of deepwater vary dramatically; several big discoveries are still marginal at $100 $110 oil

15 Complexity and Cost Escalation Result in Declining Upstream Returns Upstream ROCE 30% Production-Weighted Average Upstream ROCE Brent $/barrel $120 25% 20%-25% Returns $100 20% 15%-20% Returns $80 15% 10% 5%-15% Returns 10-15% Returns $60 $40 5% $20 0% $0 Upstream Returns Brent Price Source: IHS Upstream Competition Service Notes: ROCE data include Anadarko, Apache, BG Group, BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Hess, Marathon Oil, Occidental, Repsol, Shell, Statoil, and TOTAL. Upstream ROCE defined as [Upstream Net Income / Upstream Year-End Net Capitalized Costs].

16 Short-term Weakness as US Production Offsets Substantial Production Outage Change in crude oil production since 2008 Million barrels per day Change since United States Canada Saudi Arabia Rest of the world Source: IHS Energy Note: Figures do not include OPEC condensate and OPEC/non-OPEC NGLs IHS 17

17 Production from Core Gulf OPEC Members Remains Elevated, while Libya s Supply Outages have Eased OPEC monthly crude oil production 17.0 Million barrels per day Production from Saudi Arabia, Kuwait and UAE Production from rest of OPEC 13.0 Source: IHS ene. 12 mar. 12 may. 12 jul. 12 sep. 12 nov. 12 ene. 13 mar. 13 may. 13 jul. 13 sep. 13 nov. 13 ene. 14 mar. 14 may. 14 jul IHS 18

18 Libyan production: Key variable that could push prices up or down Libyan crude oil production: Q 2014 Million barrels per day September 2014 production: 800,000 bd 0.0 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2014 Source: IHS Energy 2014 IHS

19 Brent Bottoms Q4, and then Recovers; but to lower Annual Average Levels; Considerable Uncertainty Dated Brent and other benchmark crude oil price outlook to 2016 Quarterly average $125 $120 $115 $110 $105 $100 $95 $90 $85 $80 $75 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Dated Brent LLS WTI Notes: LLS = Louisiana Light Sweet. WTI = West Texas Intermediate. Disclaimer: Historical oil price data are extracted or derived by IHS from Platts. All rights reserved. All liability for errors and omissions is hereby excluded by Platts and its sources. No representations or warranties are made by Platts or its sources concerning the data or any conclusions to be drawn from it. 3Q14 Outlook 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Source: IHS; Platts, 2014 by the McGraw-Hill Companies, Inc. (historical) 2014 IHS 19

20 Dated Brent Price Declines in the Near Term, but Rises in Real Terms Post-2020 Dated Brent price outlook Despite historic North America production, outages in North Africa and the Middle East region have supported international oil prices. Dollars per barrel Near-term, IHS forecasts real prices to fall below $100 per barrel in as non-opec growth continues Dated Brent, nominal Dated Brent, real 2012 $ After 2020, a slowing in costly non- OPEC supply growth, coupled with a rise in the call on OPEC, will require higher prices to signal development of marginal sources.

21 Gas Growth Driven by Power, LNG, P/L Export and Industrials; Strong Chemical Participation North American natural gas demand 105 U.S. Petrochemical gas demand growth 2.4 Bcf per day Bcf per day Residential Commercial Industrial Power Vehicles LNG Exports Mexico Exports Other Ammonia Methanol Olefins Chlor-Alkali Note: Each category includes derivatives. Gas total includes natural gas used for feedstock, utility, and steam. Firm capacity additions only.

22 Gas Prices Oscillate Around a $ /mmbtu HH Band with Adequate Payout July 2014 Henry Hub History and Forecast $ per MMBtu OUTLOOK Marginal Cost Range NYMEX-July 2014 Outlook-July 2014 Play Breakeven Prices, $/MMBTU Dry Gas Outlook With Liquids Credit Barnett Core Cotton Valley Horizontal Fayetteville Fayetteville Southwest Haynesville Tier One Jonah Marcellus NE PA Marcellus SW PA 2.54 (3.93) Marcellus WV East Marcellus WV West 6.76 (5.08) Pinedale Utica Dry Gas 4.52 (2.21) Utica Wet Gas (Volatile Oil) 4.89 (27.13) Woodford Anadarko Cana Woodford Arkoma Source: IHS Energy, SNL Financial, Intelligence Press Breakeven prices represent HH gas price needed to provide 10% return on capital

23 Shale & Tight Oil Accelerate U.S. NGL Production 4.0 US NGL Supply 3.5 MMBPD Nat. Gasoline 3.0 Isobutane Normal Butane Propane Ethane 0.5 Source: IHS Energy Source: IHS Energy

24 US Propane: Exports will be Required to Balance the Market Thousand bd 2,500 US Propane Demand 2,000 1,500 1, Res/Com Base Chemical-Ethylene Price Sensitive Chemical Chemical-Ref. Propylene Chemical-PDH Industrial Farm Other Exports Residential/commercial propane demand will not increase significantly and may decline as more natural gas is available. Base demand and price sensitive demand use as an ethylene plant feedstock are not expected to increase significantly because ethane will be preferred. Use of propane as feedstock for propane dehydrogenation (PDH) plants will increase as about six new plants are expected to be built. Exports are expected to rise in order to dispose of the surplus.

25 The US will Become the World s Largest LPG Exporter 80 Total LPG Exports by Selected Major Exporters Million Metric Tons Million Barrels Per Day Nigeria Algeria North Sea United States Qatar UAE Saudi Arabia

26 LPG Exports from the US Must be Directed to the World s Biggest Market Asia LPG Demand Other Asia is the largest LPG consuming region in the world and is still expanding. More imports will be needed. Million Tonnes per Year Middle East Latin America Europe Asia North America The Middle East is becoming a more significant LPG demand center due to rapid expansion of the petrochemical industry and continued growth in the res/com sector. The region will continue to export LPG. Europe will require increasing amounts of imported LPG due to falling production from the North Sea Source: IHS Energy

27 While the situation is still evolving, ethane exports will become a new feature of the NAM market Million Barrels per Day US Ethane Demand with Enterprise Exports* Exports Other PriceSensitive Base Chemical Million Metric Tons Per Year *Includes Enterprise but not Targa exports 28

28 Energy & NGL s Key Takeaways Supply Near-term supply from tight oil moderately pressures call on OPEC production. Uncertainties in global economy, geo-political supply and pace of marginal production US Natural gas production plentiful at relatively low prices Rapid growth in domestic NGL supply from shale. Requires exports through value chain to clear market and allow additional gas/oil production Sufficient supply to handle current wave of new US ethylene crackers (10 million metric tons) and PDH (US and China) Affordable ethane supply for an additional 10 million metric tons of ethylene capacity beyond Ethane still long until later this decade Propane begins to equilibrate with global pricing Demand Global demand for hydrocarbon will grow though mix shifts to more renewables and increase efficiency. US gas allows a new route to transportation products Methane limited by demand. Power conversions dominate landscape, but LNG and chemicals are meaningful

29 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A

30 News Demonstrates a Substantive Shift In Global Energy Dynamics

31 Feedstock Price Differential vs. Crude Oil Create Opportunities North American gas cost is Price Difference, $MMBtu fundamentally changed by Shale; 20.0 low-cost supply dominates for the foreseeable future 16.0 US Ethane infrastructure in place to supply new facilities, but incremental ethane cost structure begins to pull ethane prices higher later Coal prices dramatic decline nearly over, but high spreads to oil/naphtha remain these high differentials (or even higher) are needed to pay for CTO capital Brent - Nat Gas Brent - Coal Brent-ethane

32 Emerging Energy Framework Changing Global Competitive Dynamics Shale is expected to nearly halve USGC natural gas prices in 2015 vs levels while increased LNG has raised APAC Fuel, $/MMBTU Corresponding electricity prices also substantially reduce for U.S. industrial consumers Other regions see increases; in Germany legislation has dramatically increased energy costs U.S. China Germany Japan Electricity ( /kw-hr) U.S. China Germany Japan

33 Emerging Energy Framework Changing Global Competitive Dynamics Ammonia Cash Cost $/Metric Ton IHS analytics show that USbased C1 and C2 value chains benefit beyond the savings on power and fuel costs N. America China W. Europe N. Asia (ex China) Ethylene Cash Cost $/Metric Ton Non-U.S. Ammonia costs increase from 2008 levels for all regions and ethylene costs decline dramatically for the U.S. relative to others N. America China W. Europe N. Asia (ex China) China shows improvement in C2 production costs due to MTO

34 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A

35 China Leads Global Chemical Demand Growth & Manufacturing since Joining WTO 100% China Share of Global Manufacturing Rest of World United States China Demand Growth, KTA 120 China's Share of Global Chemical Growth ROW Growth China Growth China Share China Share 175% 90% 80% 70% 60% % 125% 100% 50% 40% 30% 20% 10% % 50% 25% 0% 0% %

36 Recent Headlines Suggest Off-shoring Trend is Slowing or Reversing

37 Optimum Supply Chain Structure Depends on More than Labor Input Cost Shipping costs higher costs from higher oil and new fuel regulations Quality response and impacts from time difference, culture, labor turnover, concern over IP Risks longer supply chains increase risk from natural or manmade disaster or currency changes Capital increased working capital from longer supply chains

38 Supply Chain Intensity (SCI) Drives Future Siting Decisions for Manufacturing Off-shoring Shift to low-cost locale distant from end market Near-shoring Shift to medium-cost locale co-regional or proximate to end market On(re)-shoring Return local supply & services to the domestic market Low SCI Small Impact of Delays Low Shipping Cost vs. Value High Labor Input Quality Insensitive Supply Chain Intensity High SCI Complex Rapid Life-cycle High Shipping Cost vs Value Quality Imperative Apparel Glycol, Polyester, Nylon Footwear- PU, EVA, SBS Furniture PU, (Outdoor - PP, HDPE) Appliances PP, ABS, Nylon, PU, PS, PC Electronics ABS, PC, PBT, POM, Nylon Autos & - PP. PU, PBR, Nylon, PC, ABS Assemblies Aerospace Carbon Fiber, Epoxy, PEEK

39 China Remains a Strong Off-shore Location; but Other Off-shore Centers Emerging Wages, US$ per hour (Line) 35 Comparative Labor & Productivity Mexico China United States Mfr. Productivity Index (Bar) Source: IHS Global Insight

40 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 Re-shoring Opportunity is Greatest for Auto, Electronics & Appliance Sectors Import Value, Thous. $ Bubble Size = Domestic Production U.S. Re-shoring Opportunities Electronics $250MM Autos & Assemblies $650MM $150,000 $100,000 $50,000 $0 Apparel & Footwear $9.5MM Appliances $68MM Fabrics Furniture $62MM $52MM Supply Chain Intensity Source: IHS Global Insight

41 Mexico already growing finished good imports to the U.S. Growth of exports from Mexico to the U.S. for highvalue sectors has shown steady growth in value Headlines suggest this trend will continue with autos leading the way Mexican Imports to United States Additional productivity gains are required to continue to improve competitiveness Computers, Office, Communications, and Professional Equipment Machinery and Electrical Equipment Transportation Equipment and Parts

42 Manufacturing Repatriation will Proceed; but at a Measured Rate On-shoring occurring but at a much slower pace than the offshoring associated when China joined WTO Expect on-shoring shifts to be incremental as global demand outgrows existing manufacturing base Off-shoring still optimum for some end-use sectors; and not just to China

43 Mexico can Benefit from the Re-shoring Potential Focus on products that will be in demand as re-shoring and nearshoring builds momentum Focus on activities that drive productivity and costs out of the chain (physical integration, infrastructure, regulatory framework) Don t forget the Mexican market it will grow as the economy is restructured and additional benefit from the U.S. shale tailwinds

44 Conclusions Energy dynamics continue to reshape the landscape and relative regional and feed-type competitivity These changes impact beyond the chemical industry and will impinge on relative value-chain manufacturing decisions. Mexico stands to gain in the short-term from its proximity to the U.S.; both directly as shale gas exports and indirectly from economic growth

45 Agenda Economic Outlook Energy & Feedstocks Overview High level Industry/Regional Trends & Outlook Trends in Manufacturing Q&A