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© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Mark Eramo
Vice President, Chemical Insights
Houston, TX USA
VMA Market Outlook Workshop
Session 9 - Petrochemicals
August 8- 9, 2013
San Diego, CA
Global Renaissance –
Challenges and Opportunities
State of the Global
Petrochemical Industry
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Consulting
Advisory
Consulting leveraging data, knowledge,
analytics & insights
Chemical
Insight Deep insights & knowledge that
leverage data, analysis and platforms
Technology &
Analytics
New delivery systems and analytics & tools
(internal & external)
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Information
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Converged solutions
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Leading integrated global information supplier and
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across the full breadth of IHS capabilities
The IHS Chemicals Business Line
Aligned to deliver a broad array of services
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
•Chemical Industry
Basics
• Impact of Energy
•Changing Demand
Trends
•Shift in New Capacity
•Trade Volumes are
Growing
•Profit Cycle is Mixed
Agenda: Challenges & Trends In Gas
Based Petrochemicals
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Supply Capacity is being
added or transformed –
Higher Cost units are closing down
Demand Recovery limited
to fast-growth centers, most
others see little or no increase
Earnings Energy cost in
control – extreme product cost
differences based on location, technology
Industry Continues to Evolve into a New World Order
Current State of the Global Industry
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• The Chemical Industry is a key
enabler of modern living: Medical,
Transportation, Construction,
Packaging, Food Processing, Water
Distribution, Fuel, etc…
• Investments driven by cost
advantage and/or proximity to
demand centers
• Demand growth accelerating in
the developing regions
• Strategy development requires
complete understanding of the
value-chain
Chemical Industry Building Blocks
Ethylene Propylene
Benzene Methanol
Chlorine
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ethylene, Propylene, Methanol
Expanding At A Rapid Pace
• Ethylene is the
largest of the basic
chemical building
blocks
• Ethylene, propylene
and methanol are
expanding at a rapid
pace…driven by
shale in North
America
• Benzene and chlorine
showing more
modest growth
0
25
50
75
100
125
150
175
200
225
2010 2015 2020
Benzene Chlorine Propylene
Methanol Ethylene
Basic Chemical Capacity, Million Metric Tons
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Natural
Gas
Crude
Oil
Hydrocarbon Feedstock Costs:
Key Driver In Chemicals Manufacturing
Naphtha
Gas Oil
Condensate
Propane
Ethane
Butane
Pygas Benzene
Toluene/Xylene
Heavy Aromatics
C5/C6 Non Aromatics
Fuel Oil
Ethylene
Unit
Gas Processing
Unit
REFORMER BTX Extraction
Raffinate FCC
Refinery
Steam
Reformer
Methanol
Synthesis
SynGas
Propylene
Ethylene
Butadiene Mixed Butylenes
Methane/Hydrogen
Benzene
Toluene
Xylene
Propylene
Methanol
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North America Energy Trends
Crude Oil versus Natural Gas
0%
20%
40%
60%
80%
100%
120%
0
2
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Crude (WTI) Natural Gas Gas as % of Crude
Gas as % of Crude Dollars Per Million Btu
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North America Energy Trends
Crude Oil versus Natural Gas
0%
20%
40%
60%
80%
100%
120%
0
2
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Crude (WTI) Natural Gas Gas as % of Crude
Gas as % of Crude Dollars Per Million Btu
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Tomorrow’s Energy Market Creates Opportunities
& Threats for Global Chemicals
•Opportunities
−Backward & forward
integration for those with
scale & capital
−Reversal of off-shoring,
especially for certain high-
value or logistically
challenged sectors
−Investment in infrastructure
to support growing inter-
regional shipments
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Tomorrow’s Energy Market Creates Opportunities
& Threats for Global Chemicals
•Threats
−High-cost supply
rationalization
−Commoditization of
specialty product grades
−Market entry by new and
competitive players
−Large regional variations
in both supply and
demand growth
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Petrochemical Value-Chain
From The Wellhead to Wal-Mart
Consumers Retail Consumer
Goods
Energy Derivatives Petrochemicals
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Strong economic growth
supports basic chemical
demand growth via
consumer goods
• Modest growth in 2012
suggesting weak
consumer demand
• Emerging markets are
driving tomorrows
demand growth
• China dynamics are
changing, but remains
critical to most markets
Demand for Basic Chemicals Driven By
Durable/Non-durable Goods
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The Rise of the Emerging Market Consumer
Ratio of Domestic
Consumption to
Global GDP
0%
5%
10%
15%
20%
25%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
U.S. Western Europe BRIC
• The share of Global GDP
related to consumption is
converging in noted markets
• Emerging market’s share will
match that of U.S. & Europe
within the next 7 years
• Message to producers is
clear: do not ignore the
absolute size of U.S. and
European market, but for
rapid growth you need to
look to the emerging world
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
100
200
300
400
500
600
90 95 00 05 10 15 20
Asia and India Basic Chemical and Plastics Production Change (1990 Base)
Million Metric Tons
Production growth continues to be
supported by rapid growth in real demand…
0
100
200
300
400
500
600
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
West Europe Basic Chemicals and Plastics Production Change (1990 Base)
0
10
20
30
40
50
60
70
80
90 95 00 05 10 15 20
Million Metric Tons
Challenging economic conditions & threats
of imports continue to weaken outlook…
0
10
20
30
40
50
60
70
80
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North American Basic Chemicals and Plastics Production Change (1990 base)
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
90 95 00 05 10 15 20
Million Metric Tons
New capacity is necessary to return this
region to historical production levels…
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Cost of production is
closely tied to cost of
hydrocarbon feedstock's
• Location of advantaged
feedstock's play key role
in capital investment
decisions
• North America prepares
for a surge in capacity
• Asia and Middle East
continue to build as
planned
Capacity Expansions' Driven By Low Cost
Feedstock & Integration Strategy
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The Investment Impact On Chemicals In
North America Is Very Broad
• The competitive landscape
has changed for North
America
• Many product chains
directly effected
• Ripples through product
chains are becoming
evident
• Impact is transformational
for the US basic chemical
market
C1 Ethylene Ammonia Ethylene
Ammonium Nitrate Ethylene Glycol
Ammonium Sulfate Ethylene Oxide
Urea Polyethylene
Methanol
Propylene
Chlorine Propylene
Chlorine Polypropylene
EDC
PVC Other
VCM Butadiene
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
4
8
12
16
0
4
8
12
16
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
North America Spending On New Plants
Peaks Early But Is Sustainable
Capacity
Million MT
Capacity
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
4
8
12
16
0
4
8
12
16
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
North America Spending On New Plants
Peaks Early But Is Sustainable
*Spending only includes ISBL and
OSBL for new capacity
Spending
$ Billion Capacity
Million MT
Capacity
Spending
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
4
8
12
16
0
4
8
12
16
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
North America Spending On New Plants
Peaks Early But Is Sustainable
*Spending only includes ISBL and
OSBL for new capacity
Spending from 2013 to 2017 - $48 billion
Total spending 2018 to 2030 - $68 billion Spending
$ Billion Capacity
Million MT
Capacity
Spending
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
NorthAmerica
Europe Middle East Asia Pacific Others
1980 - 1990 1990 - 2000 2000 - 2010 2010 - 2020
Strong Growth In Asia While Building Once
Again in North America
Million Metric Tons, Ethylene
Regional Ethylene Capacity Growth
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0%
10%
20%
30%
40%
50%
1980 - 1990 1990 - 2000 2000 - 2010 2010 - 2020
North America Europe Middle East Asia Pacific Others
Percent of Total Capacity Growth
Regional Ethylene Capacity Growth
Strong Growth In Asia While Building Once
Again in North America
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Propylene supply will continue to require
“on-purpose” to meet demand growth
Propylene
• On-Purpose production
will continue to rise
− Technology related to region
and feedstock
• Steam cracker and FCC
supply trends also vary by
region
• Demand growth trending
towards ethylene (GDP)
due to higher price relative
to ethylene
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0
10
20
30
40
50
60
70
80
90
90 92 94 96 98 00 02 04 06 08 10 12Steam Cracker Refineries Propane Dehydro
Metathesis HS FCC Methanol-to-Olefins
Others On-Purpose Share
Production, Million Metric Tons Share of Total, Percent
On-Purpose Propylene Required To Meet
Growth In The Future
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Building On-purpose Propylene
Around The World
0
5
10
15
20
25
30
35
40
00 02 04 06 08 10 12 14 16
Middle East United States China Others
Propylene Capacity, Million Metric Tons
On-Purpose Propylene Technologies
Propane Dehydrogenation
Metathesis
High-severity FCC (refinery)
Methanol-to-Olefins (MTO)
Methanol-to-Propylene (MTP)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• North America returns as a
competitive supplier with
increasing capacity
• Accelerating demand growth in
developing regions outpace
capacity growth requiring
increasing imports
• Assume low cost Middle East
and North America suppliers
grow market share
• Naphtha based export countries
in Asia lose market share
Investment In Capacity Away From Demand
Centers Will Drive Exports Higher
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
•Shale development has enabled the North
American producer to become one of the lowest
cost producers in the world
•Combined with the Middle East, 40%+ of the
global ethylene capacity is now cost advantaged
Development of Two Low-Cost
Ethylene Production Regions
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
00 05 10 15 20 25
0
40
80
120
160
200
240
0%
10%
20%
30%
40%
50%
60%
Year
% Exported, 2020
Total Trade
Tomorrow’s Global Chemical Market is
more Globally Interconnected
% 2020 Production
Exported
• Trade will continue to
accelerate, connecting
resource-rich geographies
with high growth markets
• Supply-chain expertise
and well-crafted go-to-
market strategies will
increase in importance
• Pressure on high-cost
producers servicing high-
growth markets will be
especially intense
Total Trade,
MM Tons
Total Trade and 2020 Exports, Basic Chemicals
& Plastics
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
126
252
378
504
630
756
0.0
2.0
4.0
6.0
8.0
10.0
12.0
90 95 00 05 10 15 20
Others
Polyethylene
Vinyls
Thousand BPD, Equivalent Ethane Million Metric Tons, Ethylene
North America Ethylene Equivalent Net Exports
Driven By Low Cost Ethane
Ethylene Equivalent Net Exports By Derivative
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Overall market recovery
delayed on slower demand
and acceleration of capacity
• “Gas-based” producers see
steady high margins and no
“downturn”
• Market fundamentals suggest
high-cost producer margins
will struggle
• Capacity additions likely to be
moderated versus current
forecast
Profit Cycle Dynamics Vary By
Feedstock & Region
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
-$50
-$25
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Global Base Chemicals & Plastics
Weighted Average EBIT
Dollars Per Metric Ton
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
0
110
220
331
441
551
661
772
882
0
5
10
15
20
25
30
35
40
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
US Ethane to PE Chain Margin W.Europe Naphtha to PE Chain Margin
Cents Per Pound, Polyethylene Dollars Per Ton
U.S. & West Europe
Integrated Polyethylene Cash Margins
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Conclusions:
• Improving economic
fundamentals are expected to
enhance pace of demand
growth prospects
• Economic Megatrends shift
demand to developing world at
an ever-increasing pace
• Unconventional feedstocks
play a larger role in shaping
the global industry
• High-cost supply reacts to
more competitive pressure by
stepping up rationalization
Which challenges and trends deliver success?
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Supply & demand dislocation
increases need for sound
supply-chain strategies
• New competitors slowly emerge
as markets expand west in
China in distinct products
• Unconventional resource
owners enter the stage for
certain product offerings
• Level of success defined by
right cost for the right product
for the right market strategies
Conclusions:
Which challenges and trends deliver success?
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Mark Eramo
Vice President, Chemical Insights
Houston, TX USA
VMA Market Outlook Workshop
Session 9 - Petrochemicals
August 8- 9, 2013
San Diego, CA
Global Renaissance –
Challenges and Opportunities
State of the Global
Petrochemical Industry
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