Monoethylene glycol: Analysing global markets Prepared by Kami Tang Pack Senior Consultant, Nexant E: ktangpack@nexant.com 13 th March 2018 Presented at ICIS PET Value Chain Conference, Amsterdam, 2018
Nexant advises clients across the energy and chemicals value chains 2
Agenda Understanding market trends: Analysis of recent factors affecting cost of MEG Is EO cost or PET demand more closely linked to MEG margins? MEG markets: Capacities and future production How will global supply affect Europe? Conclusions 3
Factors impacting cost of MEG
MEG is primarily consumed as a feedstock with co-monomer PTA, in the production of polyethylene terephthalate (PET) resin Polyester Value Chain para-xylene Ethylene Oxygen PTA DMT Ethylene Oxide PET Melt Phase MEG DEG & TEG Antifreeze etc. PU, Gas Processing PET Fibre PET Bottle Grade PET Film Textile and Industrial uses Beverage and Retail Packaging Retail Packaging and Electronics Ethanolamines, Ethoxylates etc. Surfactants, Pesticides 5
The production costs of a typical integrated EO/MEG plant are dominated by the ethylene feedstock costs Global MEG production by process Coal Based 7% EO hydration 93% MEG is mainly produced by hydration of ethylene oxide (EO). The hazardous nature of EO restricts storage and transportation. Most MEG producers are either backintegrated into EO or hold long term offtake agreements with an adjacent EO supply source. Process technology for production of MEG from coal, via an oxalate intermediate has also been proven, but as yet only commercialized in China. 6
China Naphtha Cracker China Coal to Olefins China Methanol to Olefins SE Asia Naphtha Cracker US Ethane Cracker W Europe Naphtha Cracker MEAST Ethane Cracker MEAST EP (50:50) Cracker Dollars per ton ethylene Feedstock values shaped regional competitiveness with ethane and coal extending cost advantage over naphtha Ethylene Regional Cost Competitiveness Q4 2017 1000 800 600 400 200 0-200 -400 Net Feedstock Utilities Fixed Costs Cash Cost 7
China Integrated Naphtha Cracker China Coal DMO SE Asia Integrated Naphtha Cracker US Integrated EP (80:20) Cracker W Europe Integrated Naphtha Cracker MEAST Integrated Ethane Cracker MEAST Integrated EP (50:50) Cracker Dollars per ton MEG Regional MEG cash cost follow ethylene trends MEG Regional Cost Competitiveness Q4 2017 1000 800 600 400 200-200 0-400 Net Feedstock Utilities Fixed Costs Cash Cost 8
MEG margin drivers
Cash margin $ per ton Brent Crude price, $ per bbl Coal-based MEG margins in China have lost advantage over naphtha in periods of low oil price 1200 1000 800 600 400 200 0-200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 130 110 90 70 50 30 10 China purchased ethylene China integrated ethylene China coal via DMO Brent crude 10
$ per ton Global PET Melt Phase OR, % MEG margins are largely driven by supply/ demand in PET markets 1000 800 600 400 200 0-200 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% China integrated ethylene PET MP Operating rate 11
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* US$/ton Profitability is now in the refinery and PX part of the chain value chain Polyester Chain Cash Margin Western Europe (Leader Plant) 2500 2000 1500 1000 500 0-500 PET Margin PTA Margin MEG Margin PX Margin Xylenes Margin Reformate Margin 12
New projects aiming to capture margin higher in the value chain New entrants into PTA such as the affiliates of the Rongsheng and Hengli groups demonstrated their ability to finance and execute capacity developments of unprecedented scale. Now applying these abilities to PX, investing tens of billions of dollars in new world-scale oil refineries, will aromatics capacity well beyond any previous projects anywhere in the world. 13
MEG Markets
MEG consumption growth soared to 7.4 percent in 2017 Regional MEG Demand, 2017-e (volume = 28.3 million tons) Western Europe 5% North America 9% Middle East 3% Asia Pacific 80% Regional MEG Demand Growth (percent Volume Growth) Africa Central Europe Middle East Asia Pacific Global Average South America Eastern Europe North America Western Europe -10 0 10 20 2016-2025 2000-2016 15
The concentration of the PET industry in Asia Pacific has supported high growth rates for MEG MEG Demand by Derivative, 2017-2025 (Million tons) 50000 40000 30000 20000 10000 3.9% 28.3 million 38.4 million PET Melt Phase Antifreeze MEG Demand Growth by Derivative (percent Volume Growth) PET Melt Phase Global Average Industrial Antifreeze 0 2017 2025-2 0 2 4 6 8 2017-2025 2000-2017 16
Chinese coal-based capacity growth slowed in 2017 but is set to revive over 2018-2020. Four new EO/MEG plants expected in the US Global MEG Capacity Additions by Region, 2015-2020 (Million tons) 3.0 2.0 1.0 0.0-1.0 2015 2016 2017 2018 2019 2020 North America South America Western Europe Central Europe Eastern Europe Middle East Africa Asia Pacific 17
Thousand tons Chinese fibre production growth reached the highest level for several years, causing a significant increase in operating rates for MEG China MEG Supply, Demand and Trade 30000 25000 20000 15000 10000 5000 100% 80% 60% 40% 20% 0 0% 2 000 2 005 2 010 2 015 2 020 2 025 2 030 Production Consumption Capacity Operating Rate Operating Rate, % 18
Thousand tons Decreased import requirement in China left more ME material available to ship to Europe in 2017 WE MEG Supply, Demand and Trade 2000 100% 1500 1000 500 80% 60% 40% 20% Operating Rate, % 0 0% 2 000 2 005 2 010 2 015 2 020 2 025 2 030 Production Consumption Capacity Operating Rate 19
Middle East exports to Asia are by far the largest volume Key Mono-Ethylene Glycol Grade Trade Flows (2017 and 2030 F) NA 2017 2030 WE 2017 2030 Asia SA 2017 2030 2017 2030 2017 2030 ME 2017 2030 20
Conclusions
Conclusions (1) Recent factors impacting cost of MEG Ethylene is the cost driver Oil price impacts relative regional competitiveness (2) MEG margins History has shown that MEG margins are influenced by PET supply demand dynamics vs feedstock cost (3) MEG Capacity development impact on Europe More capacity will exit in WE due to limited downstream investments A new plant is not impossible in the longer term, but does not currently appear likely 22
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