Shale Gas: changing the US chemicals industry

Transcription

1 Shale Gas: changing the US chemicals industry Tom Gellrich TopLine Analy2cs October 11 th, 2016 U2ca Summit IV Canton Ohio 2015 TopLine Analy2cs. All rights reserved.

2 Shale Gas: changing global industries Tom Gellrich TopLine Analy2cs October 11 th, 2016 U2ca Summit IV Canton Ohio 2015 TopLine Analy2cs. All rights reserved.

3 1973 Energy Shock 3.2x Increase Source EIA

4 1979 Energy Shock 2.0x Increase Source EIA

5 Manufacturing 30%-

6 Shale Shock Marcellus Millions cup per day natural gas Source: EIA

7 Shale Shock 3.8x Decrease Source EIA Natural Gas

8 Manufacturing 30%+

9 North American Advantage Q $10.3 $11.4 $2.1 $4.1 $1.3 $3.0 $14.4 $6.1 Source: World bank Pink Sheet Average natural gas prices $/MBtu

10 ME Natural Gas Squeeze Kuwait looks for way out of a domesdc gas conundrum Interfax Energy Oct 7, 2014 Middle East natural gas internal consump2on rises Rapidly growing popula2ons Subsidized electricity & desaliniza2on water

11 Shale Revolu2on U.S. energy landscape is changing on the back of cheap natural gas from shale deposits, which is turning producers away from offshoring energy-intensive industries. The discovery of shale gas is perhaps the greatest development in the modern era. Shale gas is a huge and poten2ally long-term compe22ve advantage for U.S.-based companies Andrew Liveris CEO Dow Chemical Company Source: IHS CERA Week 2012 Houston Texas

12 Shale Gas drives the Chemical Industry Typical Shale gas 100% 80% Propane Ethane Chemical Feedstock 60% 40% 20% Methane Fuel 0% Source: Typical Shale Gas: Western Marcellus Shale Gas: Chesapeake Investor Presentation 2011

13 Global Chemical ShiP The feedstock cost for new crackers in [Saudi Arabia] will be around $6/ MBtu as there s not enough ethane availability this cost will be much higher than the US gas price, which is currently at $ /MBtu Jamal Malaikah, president and COO, Na2onal Petrochemical Industrial Co (NATPET), Apr 2013 The shale gas revolu2on ini2ated in the US is now reshaping not only the energy industry, but global economy and geopoli2cs as well. This could cause a great deal of discomfort to Asia s petrochemical sector. Yoshimitsu Kobayashi, chairman of the Japanese Petrochemical Industry Associa2on at APIC, May 2013 The shale gas revolu2on in the US has turned the global petrochemical industry inside out Basic petrochemicals can now be made in the United States for about half the cost as in Europe Tom Cropy, Ineos group director, ChemWeek Interview October 2013 The supply of low-priced products that are based on coal and shale gas will become a threat to the exis2ng petrochemical industry and will bring a significant change in its structure. Han-Hong Ban, chairman of the Korea Petrochemical Industry at APIC, May 2013

14 Chemical Industry U.S. Investments 2012 to 2022 $164 billion in capital investment 264 projects 70 million metric tons of chemicals 61% foreign investment Jobs: 738,000 permanent 316,000 temporary $301 billion increase economic output $106 billion increase in chemical shipments Source: American Chemistry Council March 2016

15 U.S. Chemical Construc2on Investment $ Billions Source: ACC analysis of Census Bureau data

16 Changes in Global Industry M&A: Axiall (Georgia Gulf + PPG Chlor-Alkali) JV: PPT Global Chem + Marubeni Corp Doubling down on investments: LyondellBasell Reloca2ng exis2ng plants to U.S.: US Methanol Middle East investment in U.S.: SABIC Commercializa2on of new technologies: PDH BDH European + Asian shutdowns: Total Carling Increased NA investments: Formosa Non Gulf Coast U.S. investment: Shell U.S. Ethane exports: Ineos U.S. Backward Integra2on: BASF

17 Ethylene Produc2on Ethane Feedstock Oil (naphtha) Feedstock Ethylene Butadiene Propylene Fuel Gas Ethylene Propylene Butadiene Fuel Gas Aroma2cs

18 Ethylene Economics Ethylene Cost US China Natural Gas costs $/MMBTU 2.6 Crude Oil costs $/BBL 54 Equivalent $/ton Ra2o for one ton ethylene Ethane Feedstock costs $/ton Catalyst + Other $/ton 2 2 By Product Credits $/ton U2li2es $/ton Direct Costs $/ton Total ethylene Cost $/ton Typical ethylene margin 2.50% Transfer price for ethylene $/ton Source: NYMEX Sep 2015 Source: NYMEX Feb 2 nd x Delta

19 Drama2c Cost ShiP Ethylene Old Normal: Middle East half the cost of the rest of the world New Normal: Middle East and NA at parity Rest of the world at >2x cost Middle East N America China W Europe NW Asia

20 Polyethylene Economics Polyethylene Cost US China Natural Gas costs $/MMBTU 2.6 Crude Oil costs $/BBL 54 Ethylene cost $/ton Ra2o for one ton of HDPE Ethylene cost $/ton U2li2es $/ton Direct Cost $/ton Other Costs $/ton Total Costs $/ton Typical polyethylene margin 3.00% PotenDal HDPE selling price $/ton Source: NYMEX Sep x Delta

21 Chemical Industry Drives the Next Wave Shale Gas Ammonia Methane Methanol Ethane Ethylene Propane Propylene N-Butylene Butane Isobutylene Source: PwC and TopLine Analy2cs Product Categories Market Sectors Fer2lizers Apparel and Accessories Adhesives / Sealants Beverages and Tobacco Products Alkyd Resins Chemicals >98% Solvents Computer and Electronics Corrosion Inhibitors Fabricated Metal Products Tex2les Food and Kindred Products Inks, Adhesives Leather and Allied Products Shampoos, Detergents, Soaps Machinery, Except Electrical Paints Nonmetalic Mineral Products Coa2ngs Paper Pipes, Hoses, Wire Coa2ng Petroleum and Coal Products Coolant, An2freeze Pharmaceu2cals Films, Packaging, Boples Plas2cs and Rubber Products Paint Remover Primary Metal Manufacturing Plas2cs Printed Maper and Related Products Tires and Rubber Tex2le and Fabrics Lubricant Addi2ves Tex2le Mill Products Solvent, Industrial Cleaners Transporta2on Equipment Wood Products

22 Where are the chemicals going? Asian Middle Class

23 U.S. is the Land of Opportunity Highly profitable due to Shale Gas Unique mul2 decades advantage Low poli2cal risk Chemical industry acceptance High manufacturing produc2vity Growing labor pool Compe22on

24 Chemical Industry Manufacturing Jobs Full 2me permanent jobs Average salary for operator $60k + benefits Jobs con2nue year aper year Very difficult to off-shore Skilled posi2ons high tech Community focused

25 Appalachian Basin Avoid transporta2on costs Local raw materials from Shale Gas Local customer demand Avoid the Gulf Coast boplenecks Land to expand Rail and to lesser extent road infrastructure EPA non-apainment area

26 Appalachian Basin Shell broke the ice Valida2on of loca2on Demonstrate value to the public Local community support Build out of eco system Suppliers and Labor pool Voca2onal and 2 year degree programs Upgrade of road, rail and barge infrastructure Next project will be much easier

27 Basin Storage Hub Key enabling infrastructure Reduces risk for new chemical plants Makes regional investments possible Public private partnership $10 Billion mega project Key driver behind success of U.S. Gulf Coast

28 Déjà vu? Appalachian Storage Hub poten2al reaches from Shell facility to announced PTT/Braskem sites. It covers same geographical distances as the Texas Louisiana Storage Hub with key storage point area in the salt domes of Mont Belvieu Texas.

29 Investment Pause Unprecedented U.S. Chemical Investment Is it real? Will condi2ons con2nue? Acceptance of new norm Crude Oil at $50 barrel Natural Gas in U.S. at $3 with rest of world 2-3x Demand on supply chain raises cost by 30% Mega projects are s2ll: Bet the company Bet your career

30 Next Wave Methane Ammonia Methanol Polyethylene EDC EPDM Shale Gas Ethane Propane Ethylene Propylene Ethanol Alpha Olefins Vinyl Acetate Ethylene Glycol Ethanolamine Ethyl Oxylates Butane N-Butylene Isobutylene Glycol Ether Chloro Ethanes Polyvinyl Chloride Source: PwC and TopLine Analy2cs

31 Next Wave Methane Ammonia Methanol 40% Imported 50% Imported Shale Gas Ethane Propane Ethylene Propylene Butane N-Butylene Isobutylene Source: PwC and TopLine Analy2cs

32 Shale Gas Conclusions The NA Shale Gas revolu2on has caused a Global Chemical Industry revolu2on Chemicals and manufactured products can be produced cheaper in NA Implica2ons are disrup2ve and offer opportunity New normal, unconven2onal thinking is required Leaders lead, is your organiza2on mobilized?

33 Ques2ons? TopLine Analy2cs We assist companies in addressing the challenges and opportuni2es to compete in the changing landscape brought on by the shale gas revolu2on Tom Gellrich