ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO DERIVATIVES PETROCHEMICAL SUB-SECTOR

Transcription

1 ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO DERIVATIVES PETROCHEMICAL SUB-SECTOR 19th Annual Stakeholder Event Alberta's Industrial Heartland Association

2 Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include: Market specific studies Geopolitical analyses Commodity reports (crude oil, electricity and natural gas) In addition, CERI hosts an annual Petrochemicals Conference, and Energy Forum.

3 Canadian Energy Research Institute CERI receives financial support from its core funders which include Natural Resources Canada, Alberta Energy and the Canadian Association of Petroleum Producers. In addition, the institute benefits from funds provided by donors which include: Alberta s Industrial Heartland Chemistry Industry Association of Canada Government of Saskatchewan Ivey Foundation University of Calgary CERI also receives in-kind support from the following contributors: Alberta Energy Regulator Advisian Worley Parsons Group Petroleum Services Association of Canada Lithuanian Energy Institute Deloitte Canada Ltd.

4 Presentation Outline NATURAL GAS MARKET OUTLOOK PETROCHEMICAL INDUSTRY METHANE-DERIVED PRODUCTS ECONOMIC AND ENVIRONMENTAL ANALYSIS ECONOMIC IMPACTS CONCLUSIONS

5 Natural Gas supply and demand forecasts Canadian natural gas production forecast Industrial use, oil sands, power generation, LNG, chemicals and petrochemicals production mmcfd Pipeline Exports LNG Exports Supply Demand

6 Global Petrochemical Outlook Petrochemicals markets and emerging trends Source: IHS Chemical 2016

7 North America Petrochemical Outlook Low cost feedstock advantage leading to investments in chemicals and derivatives

8 Methanol Outlook Methanol demand is forecast to grow at 4% globally compound annual growth rate (CAGR) Source: Argus 2017

9 METHANE DERIVATIVES & EMERGING TECHNOLOGIES Acetic Acid Formaldehyde Methyl tert-butyl ether (MTBE) Credit potential? Hydrogen (H 2 ) Dimethyl ether (DME) Methylamine Methane (CH 4 ) CO 2 Synthesis Gas (Syngas) Methanol (MeOH) Methanol to Olefins (MTO) Methanol to Propylene (MTP) Methanol to Gasoline (MTG) METHYL METHACRYLATE (MMA) Natural Gas (N.G) Ammonia Urea Natural Liquified gas Petroleum liquids Gas (NGLs) (LPG) Fischer-Tropsch Process

10 Economic Assessment 1. Assessment of 9 technologies: Methanol, Hydrogen, MTP, MTO, MTG, Ammonia, Urea, Formaldehyde and Fischer Tropsch Gasoline 2. Key Assumptions 3. Life Cycle Costs (LCC): NPV of CAPEX (ISBL- inside battery limits and OSBL Outside Battery Limits), Natural Gas costs, taxes, etc. 4. Jurisdictional competitiveness comparison: AB, ON, USGC 5. Discounted NPV and Internal Rate of Return (IRR) 6. Direct and indirect economic impacts: GDP, Employment 7. Scenarios: Tax incentives

11 Provincial CO 2 Tax Assumptions Canada ($/t-co 2 ): 20 (2019), 30 (2020), 40 (2021), 50 (2022->) Alberta ($/t-co 2 ): 30 (2019), 30 (2020), 40 (2021), 50 (2022->) Ontario: Mid-range CO 2 Price Forecast (ICF Study for ON Energy Board)

12 Price Assumptions Derivative prices are kept constant Where available 2016 are used Natural Gas Price Assumption USGC AIH Sarnia Average 2016 Prices Natural Gas (US$/ MMBTU) Henry, AECO and Dawn Hubs Prices

13 Results: IRR for 9 Methane Derivatives Methanol, FTS and Hydrogen meet the 10% expected rate of return The economics is sensitive to natural gas and product prices Applying the new US Corporate Tax Code improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively. For methanol, this is a benefit of US$ 39 Million on NPV bases

14 Methanol NPV Jurisdictional Comparison Gone

15 Hydrogen NPV Jurisdictional Comparison Gone Higher Exemption limit

16 MTO NPV Jurisdictional Comparison Gone

17 Now 12%-14% Methanol: Life Cycle Costs Make-up

18 Methanol: Corporate Tax Rebates Scenarios Provincial Tax Rebate Could Increase IRR by: 1.1% in AB 0.9% in ON 18% 17% 16% 15% MeOH Corporate Tax Rebate Could Increase IRR by: 2.3% in AB 2% in ON IRR% 14% 13% 12% 11% 10% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Scenario I Scenario II AIH Sarnia

19 Economic Impacts Input-Output Modeling Results for a Methanol Plant in AB and ON Direct and indirect impacts on GDP at provincial and federal levels Changed due to US tax change Significant economic impacts at provincial and national levels compared to the total capital invested (TCI)

20 Concluding Remarks New capacity for ethylene, propylene and methanol followed energy and demand growth dynamics Results show that some opportunities exists for methane derivatives sub-sector in Alberta. This is driven principally by 10-15% low feedstock prices, OPEX and corporate taxes. CO 2 taxes based on the Carbon Competitive Incentive (Output- Based Allocation) seems to sustain economic competitiveness against the USGC. However, the new US Tax Code will likely make USGC the most competitive jurisdiction. For example, it improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively.

21 Thank You for Your Time CANADIAN ENERGY RESEARCH UPCOMING STUDIES: An Economic Assessment of Electricity Generating Options Economic Impacts and Market Challenges for the Methane to Derivatives Petrochemical Sub-Sector UPCOMING CONFERENCE: Petrochemical Conference: June , Kananaskis, AB Allan Fogwill President & CEO