Post on 31-May-2020
Confidential. © 2018 IHS Markit®. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
International Petrochemical
Industry Forum13 September 2018 | Chengdu, China
Dave Witte
Senior Vice President at IHS Markit
and General Manager of Oil, Midstream, Downstream & Chemicals
Dave.witte@ihsmarkit.com
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Key Topics
The outlook for the economy
Refining dynamics – IMO & Mobility
Key chemical industry trends
Challenges and risks to the outlook
Agenda
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Global economic growth is expected to hold near its fastest pace since 2010; policy
mistakes are the biggest threat to growth
Real GDP
Percent change 2016 2017 2018 2019 2020
World 2.6 3.3 3.3 3.1 2.9
United States 1.5 2.3 3.0 2.7 1.7
Canada 1.4 3.0 2.2 2.3 2.2
Eurozone 1.8 2.5 2.0 1.7 1.5
United Kingdom 1.8 1.7 1.2 1.1 1.4
China 6.7 6.9 6.7 6.3 6.1
Japan 1.0 1.7 1.1 1.0 0.4
India* 7.1 6.7 7.1 7.3 7.2
Brazil -3.5 1.0 1.7 2.5 2.9
Russia -0.2 1.5 1.8 1.7 1.8* Fiscal years starting 1 April
Source: IHS Markit © 2018 IHS Markit
• Global outlook is brighter, but energy and
geopolitical risks are rising
• United States: Trade tensions ratchet up
amid strong economic momentum
• Europe: Growth is beginning to peak as
political risks increase
• Japan: The momentum through the end of
the year will remain solid
• China: The mild slowing trend is likely to
continue this year
• Bottom line: Global growth remains on a
good trajectory, but inflation risks and the
potential for policy mistakes (e.g. trade
wars) have risen
Confidential. © 2018 IHS Markit®. All Rights Reserved.
World real GDP growth slows significantly in the early years of full US-based
protectionism. Asia and NAFTA are the most affected regions.
-4%
-2%
0%
2%
4%
6%
00 02 04 06 08 10 12 14 16 18 20 22 24 26
Baseline
Protectionism
Real GDP - World - %change y/y
-0.4%
-0.6%
-0.7%
-0.8%
-0.8%
-1.4%
-1.5%
-2.5%
LATAM
MENA
AFR
EUR
EMU
NAFTA
WORLD
AP
Protectionism - Real GDP - Dec-20 - %deviation from
baseline
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Key Topics
The outlook for the economy
Refining dynamics – IMO & Mobility
Key chemical industry trends
Challenges and risks to the outlook
Agenda
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Mobility services, driverless technology, and electric cars are likely to disrupt the
driving model across all modes of transport
Selling oil-powered cars to consumers for personal use is challenged by
new mobility services and powertrain options
Human-operated
versus driverless cars
Personally-owned cars
versus mobility services
Gasoline / diesel versus
electric powertrains
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Driverless technology is disruptive for several reasons: Lowering the cost of
mobility via the car is among the most important
0.59 0.580.48
2.17
0.430.33
0.00
0.50
1.00
1.50
2.00
2.50
Human driver (ICE) Human driver (ICE) Human driver (EV) Human driver (ICE) Driverless (HEV) Driverless (EV)
Cost of mobility by car for U.S. market
Notes: BEV = battery electric vehicle. Hybrid = gasoline/electric with internal combustion engine. ICE = internal combustion engine.
Source: IHS Markit © 2018 IHS
Do
lla
r p
er
mil
e t
rave
led
,
Co
ns
tan
t 2
01
7 $
US
Personal owned car basis
No cost for driver.
12k mi per year.
Rivalry Scenario
Mobility as a service basis
Includes cost for driver/driverless kit.
60k mi per year.
Rivalry Scenario
Today 20402040 2040
2040
Today
Confidential. © 2018 IHS Markit®. All Rights Reserved.
In Autonomy, adoption of driverless cars and growth of mobility service companies
boost sales of EVs and lower the volume of new cars sold compared to Rivalry.
0
10
20
30
40
50
60
70
80
90
100
2000 2005 2010 2015 2020 2025 2030 2035 2040
RTW LV sales by powertrain: Rivalry
Source: IHS Markit © 2017 IHS Markit
Mil
lio
ns
per
year
0
10
20
30
40
50
60
70
80
90
100
2000 2005 2010 2015 2020 2025 2030 2035 2040
RTW LV sales by powertrain: Autonomy
Source: IHS Markit. FCEV = fuel cell electric vehicle © 2017 IHS Markit
Mil
lio
ns
per
year
DieselHEV
BEV
FCEVOther
Gasoline
PHEV
Gasoline
Diesel HEV
PHEV
BEV
Other
EVs 64% of new
sales in 2040
EVs 34% of new
sales in 2040
EVs = BEVs + PHEVs
FCEV = fuel cell electric vehicle. BEV = battery electric vehicle. PHEV = plug-in hybrid electric vehicle.
HEV = hybrid electric vehicle with gasoline ICE
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Next stage in the evolution of refinery &
petrochemical integration
• Higher fuel efficiency and increased use of EV’s
create a forecast for a declining growth rate in
the demand for refined products.
• Forecast is causing many refining companies to
re-think their petrochemical strategy.
• Options range from continued but growing
feedstock supply relationships to major direct
investments in the sector.
• Current assets being built in China and others in
the planning stages, seek to enter the
petrochemical market with significant scale.
000
300
600
900
1200
2010 2015 2020 2025 2030 2035 2040
Petrochemicals products Refined products
Index of base chemicals and refined products growth
Source: IHS Markit ©2018 IHS Markit
Petrochemicals and refined products markets, cumulative
Millio
n T
on
s
Petrochemicals forecasts to grow at a multiple above
GDP, as economies expand and urbanization increases.
Refined products growth is forecast to flatten by 2030.
Confidential. © 2018 IHS Markit®. All Rights Reserved.
-30
-20
-10
0
10
20
30
40
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
Fully Integrated Ethylene Integrated Paraxylene Integrated Non Integrated
2020: East-of-Suez refinery margin analysis
Source: IHS Markit © 2018
Cumulative crude capacity, thousand b/d
Net
Cash
Marg
ins,
1st 2nd
Quartile
3rd
Quartile4th
Quartile
From a financial standpoint, diversification and integration lead to more competitive
and stable financials
Most refineries in the
1st quartile are highly
integrated with
petrochemicals
0%
10%
20%
30%
40% Refining Petchem
Companies Included: ExxonMobil, BP, Shell, Chevron, P66
Historical ROCE – chemicals and refining
© 2017 IHS Markit
RO
CE
Source: IHS Markit
Confidential. © 2018 IHS Markit®. All Rights Reserved.
IMO bunker fuel quality rules
Confidential. © 2018 IHS Markit®. All Rights Reserved.
The global ship fleet will need to reduce bunker fuel S from 3.5% to 0.5%
beginning in 2020 - a major disruption to the “bottom” of oil markets
Switch to
compliant
low-
sulphur
bunker
fuel
Install exhaust gas
cleaning systems,
aka scrubbers
Switch to
liquefied
natural gas
Non-compliance,
sanctioned or
otherwise (Not a
true pathway)
Four
pathways
Confidential. © 2018 IHS Markit®. All Rights Reserved.
0
1,000
2,000
3,000
4,000
5,000
6,000
2000 2005 2010 2015 2020 2025 2030 2035 2040
Global bunker fuel demand
Source: IHS Markit © 2018 IHS Markit
Th
ou
san
d b
/d
IMO Bunker fuel rules will create a spike in gasoil demand…real issue is residual
disposal
Gasoil demand increases from
20% to 51% (+1.3 million b/d).
1. Scrubber uptake
2. More hybrid fuels
3. Gasoil market share falls to 23% by 2030
High Sulfur Residual Bunker
Gasoil BunkerLS Bunker
LNG Bunker
1. Hybrid fuel
2. LS Residual blends
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Our residue balance is in excess of around 200,000 b/d in 2020 assuming a large
price signal to optimize the global system
0
1
2
3
4
5Disposition
Creation
Global residue in bunker sector – 2014 to 2020
Source: IHS Markit © 2018 IHS Markit
Millio
n B
/D
Crude run &
bunker growth
Changes in conversion runs
Bunker market
Surplus
Confidential. © 2018 IHS Markit®. All Rights Reserved.
IMO Bunker S spec change from 3.5% to 0.5% disruptive to refining AND chemicals
Source: IHS Markit
• Supports higher overall crude prices
• Increases production of straight run naphtha
• FCC runs reduced as LSFO redirected to meet
new bunker fuels
• Reduced production of RGP
• Increase gasoline cracks
• Reduces netback margins for exporting countries
• Increases needs for high octane blends
• Higher baseline value of aromatics
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Key Topics
The outlook for the economy
Refining dynamics – IMO & Mobility
Key chemical industry trends
Challenges and risks to the outlook
Agenda
Confidential. © 2018 IHS Markit®. All Rights Reserved.
• Steady global economic expansion driving
growth across most markets
• Oil volatility, reduced Chinese reinvestment and
a focus on M&A has constrained global build
• Extended up-cycle is one major Harvey-type
event away from triggering a ‘super-cycle’
• Wider oil to gas spreads support margins for N.
American and Middle East gas-based producers
• Primary near-term risks are economic and
policy related
• Watching developments on developing supply-
side risks post 2021
-$50
$0
$50
$100
$150
$200
91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Weighted Average EarningsChemical Industry Weighted average earnings, $/Ton
Source: IHS Markit © 2018 IHS Markit
EB
IT $
/ t
on
Chemical industry in a sustained and
unprecedented peak of earnings
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Base planning case show earnings to be elevated, stable, for extended period
across all regions
0
100
200
300
400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
World Africa_MidEast Americas Asia Europe
Regional Weighted Average Cash Earnings (US$ per metric ton)
Source: IHS Markit © 2018 IHS Markit
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Major trends shaping the future of the global chemical industry
STRUCTURAL CYCLICAL
Trend
Sustainability
Developing
world = center
of growth
Technological
change
Plateauing
fuels demandProtectionism
Capital vs
feedstocks
vs labor
optimization
Relative
feedstock
valuation
Cyclical pace
and nature of
investment
Influencing
mechanismRegulations,
public opinion
Demographics,
economic
development
Market
opportunity /
process risk
Policy, technology Policy
Demographics,
economic
efficiency
Energy markets,
policy
Chemical markets,
economic
Impact
Investment risk,
operating cost,
and demand
growth
Consumer
preferences,
market access
Investment risk,
Relative
competitiveness,
CAPEX/OPEX
Market
structure/disruptionInvestment risk
Supply chain
structure,
investment
location
Relative
competitivenessMargin volatility
Examples
• Plastics waste
• Pollution
• Circular
economy
• Size and growth
of OECD vs
non-OECD
• AI & IOT
• Siluria
• Coal-to-olefins
• Crude to
Chemicals
• Aramco/ADNOC
chemical
investment
• Anti-dumping
• Trade wars
• Non-tariff
barriers
• Ethane
fungibility
• US CAPEX
• MTO in Canada
to China
• Coal-to-oil &
Coal-to-gas
differentials
• Naphtha vs
LPG
• China provincial
• Refinery
integration
Confidential. © 2018 IHS Markit®. All Rights Reserved.Confidential. © 2018 IHS Markit®. All Rights Reserved.
Winning in chemical markets
requires long-term sustainable
competitive advantage
Chemical Investment “Drivers”
• Build to leverage an upstream, downstream or horizontally
integrated position
• Secure an energy & feedstock advantage
• Invest with proximity to local markets and/or access to
efficient and open supply chains
• Leverage current world-scale technology and efficiently
deploy capital cost
• A ‘friendly’, stable and predictable regulatory framework
BASF/Yara
Ammonia
Freeport, Texas
Photo courtesy of BASF
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Enabled by trade in finished goods, economic growth in emerging markets is the
key driver to petrochemical demand growth
-5%
10%
25%
40%
55%
70%
85%
0
20
40
60
80
100
120
Perc
en
tag
e,
%
Developed Countries
Developing Countries
Developing Countries as % of World Growth
World Demand Growth 1990-2040
So
urc
e: IH
S M
ark
it© 2018 IHS Markit
Millio
n M
etr
ic T
on
s
0
20
40
60
80
100
120
140
160
180
200
220
0 20000 40000 60000
GDP (Constant 2010 PPP $) per Capita
Dem
an
d p
er
Cap
ita (
KG
)
Developing
Developed
Per Capita Chemical Demand 1990-2040
2017
2.6
X
Great Recession
2040
1.5
X
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Rising crude oil prices will continue to favor U.S. gas-based producers
0
4
8
12
16
20
24
1995 2000 2005 2010 2015 2020
Crude Oil Brent Henry Hub Gas USCG Ethane
USCG Propane WEP Naphtha NEA Naphtha
Crude Oil - VS - Natural Gas & NGLs (Current $)
Source: IHS Markit © 2017 IHS Markit
US
$ / M
MB
TU
Confidential. © 2018 IHS Markit®. All Rights Reserved.
But CAPEX advantages costs favor APAC investmentDrives capacity additions in regions with an advantage capital cost structure.
Can China maintain this level of advantage in the longer run? This would/could change supply location & trade.
Construction Location Factors (2017)
USGC
1.00
NAM (ex UGGC)
1.03 - 1.16
SAM
0.91 - 1.15
CEP
0.75-0.82
WEP
0.99-1.04
FSU
1.05 - 1.25
AFR
0.90 - 0.95
MDE
0.75 - 1.19
China
0.68 to 0.53?
NEA (ex. China)
0.82 – 0.95
SEA
0.85 - 1.10
Should location factors re-equilibrate? Could change Western economics on assets at some point.
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Key Topics
The outlook for the economy
Refining dynamics – IMO & Mobility
Key chemical industry trends
Challenges and risks to the outlook
Agenda
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Sustainability focus turns to plastics with
major media attention
• The most critical issue that will influence the industry
during the decade of the 2020’s.
• Local communities exploring bans on single-use
plastic applications as the issue of plastics waste in
the oceans has become an international media
issue: CNN, Economist, National Geographic's, BBC
• United Nations “World Environmental Day” had
plastics waste as a central theme.
• The solutions will come from a cooperative,
approach that brings all the stakeholders together to
solve this very complex issue.
• A slowdown (versus history) in growth for
commodity plastics demand must now be
considered in long term forecasting.
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Chemical companies can contribute to sustainability goals in many ways
FeedstocksChemicals & Monomers Polymers
Polymer Processing
Polymer Consumer Products
Chemical/
Biological
Recycle Physical
Recycle
Energy Recycle
Other uses
(Road, Steel,
Cement)
Leakage to
Environment
Renewable
Degradable
Least
environmental
Impact
Design &
Production
- Energy efficiency
- Less Emissions
- Less water and
solid wastes
Responsible Care
- Plant security
- Process safety
- Product safety
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Conclusions
• Global economies remain strong, but trade-
related policies increase uncertainty
• Base case projects strong and stable
earnings across most value chains and regions
• Variability of demand growth, market access,
capital costs and feedstock costs creates risks
and challenges to investment
• Policy and regulatory dynamics add
additional complexity
• Strategies must consider a variety of
potential scenarios and outcomes
Confidential. © 2018 IHS Markit®. All Rights Reserved.
Thank you
IHS Markit Customer Care
CustomerCare@ihsmarkit.com
Americas: +1 800 IHS CARE (+1 800 447 2273)
Europe, Middle East, and Africa: +44 (0) 1344 328 300
Asia and the Pacific Rim: +604 291 3600
Disclaimer
The information contained in this presentation is confidential. Any unauthorized use, disclosure, reproduction, or dissemination, in full or in part, in any media or by any means, without the prior written permission of IHS Markit Ltd. or any of its aff iliates ("IHS Markit") is
strictly prohibited. IHS Markit owns all IHS Markit logos and trade names contained in this presentation that are subject to license. Opinions, statements, estimates, and projections in this presentation (including other media) are solely those of the individual author(s) at the
time of writing and do not necessarily reflect the opinions of IHS Markit. Neither IHS Markit nor the author(s) has any obligation to update this presentation in the event that any content, opinion, statement, estimate, or projection (collectively, "information") changes or
subsequently becomes inaccurate. IHS Markit makes no warranty, expressed or implied, as to the accuracy, completeness, or timeliness of any information in this presentation, and shall not in any way be liable to any recipient for any inaccuracies or omissions. Without
limiting the foregoing, IHS Markit shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with
any information provided, or any course of action determined, by it or any third party, whether or not based on any information provided. The inclusion of a link to an external website by IHS Markit should not be understood to be an endorsement of that website or the site's
owners (or their products/services). IHS Markit is not responsible for either the content or output of external websites. Copyright © 2018, IHS Markit®. All rights reserved and all intellectual property rights are retained by IHS Markit.
29