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Olefins Feedstock Demand… If You Build It, Will It Come?. Singapore. Shanghai. Houston. New York. London. Düsseldorf. Dubai. Prepared for: Gas Processors Association October 2008. Mike Kelly Consultant – Light Olefins mkelly@cmaiglobal.com. Trends in Light Olefins.
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Olefins Feedstock Demand… If You Build It, Will It Come? Singapore Shanghai Houston New York London Düsseldorf Dubai Prepared for: Gas Processors Association October 2008 Mike Kelly Consultant – Light Olefins mkelly@cmaiglobal.com
Trends in Light Olefins • Olefins Value Chain • Current Conditions • Near Term Strategic Issues: • Shifting Energy and Regional Competition • Capacity Overbuild • Olefins Profitability • Wrap Up
Retail Sector Consumers Durable / Non-Durable Energy Olefins Production Derivatives Olefins Supply-Chain Dynamics
Crude Oil Ethylene Propylene Methane/Hydrogen Refinery Crude C4 • Butadiene • Mixed Butylenes Naphtha Gas Oil Ethane Ethylene Unit Pygas • Benzene • Toluene/Xylene • Heavy Aromatics • C5/C6 Non Aromatics Propane Butanes Gas Separation Unit Field Condensates Fuel Oil Natural Gas Energy Feedstocks Petrochemicals Olefins Flow Diagram
Propylene Has Multiple Sources Alkylation Unit High Octane Alkylate Gasoline Refinery FCC Unit Isobutane Gas Oil Refinery Grade 60% purity Non-Chemical Cumene, Oligomers, Isopropanol Chemical Purification Splitter Polymer Grade (99.5%) Chemical Grade (93%) Propane Cracker Naphtha/NGL On Purpose Propane Dehydrogenation (PDH) Propane On Purpose Ethylene/Butylene Metathesis
United States Monthly Ethylene Net Equivalent Trade
North America Energy Price Trends Source: Purvin & Gertz
High Energy Means Distinct Advantage Middle East Dollars Per Metric Ton 2050 2008 110 (~18) 9.4 2003 31 (~5) 5.5 1850 WTI Crude Oil, $/Bbl ($/MMBtu) USGC Natural Gas, $/MMBtu 2008 1650 1450 NE Asia / W. Europe 1250 N. America 1050 850 Middle East 650 2003 450 N. America 250 NE Asia / W. Europe 50 0 20 40 60 80 100 120 140 160 Cumulative Ethylene Capacity (Million Metric Tons)
Middle East & Asia Dominate Current Wave Of New Capacity • Middle East adding major portion of new additions, driven by incentives for industrial development • Asia additions driven by higher self-sufficiency and industrial development • India, South America, Africa, all adding capacity driven by industrial development • Limited to no new capacity in North America and Europe Yanpet Ethylene – Saudi Arabia
World Ethylene Capacity Growth Trends Million Metric Tons 60 50 40 30 20 10 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Japan Korea China Taiwan Singapore Thailand India Other Asia North America Middle East
The Immediate Threat... Nine Million Tons By Mid-2009 Capacity Add., MMT 1H '09 Q4 '08 Q3 '08 1H '08
United States Ethylene Net Equivalent Trade
United States Ethylene Demand Forecast
United States Ethylene Feedstock Consumption
The Olefins Business Cycle Continues… U.S. Integrated Olefins/PolyOlefins Cash Margins Dollars Per Metric Ton 800 700 600 500 400 300 200 100 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Conclusions • Volatile energy markets continue to challenge producer economics • Oversupply due to acceleration in new olefins capacity and slowing demand growth • Olefins markets transitioning from peak to trough cycle conditions…trough margins most severe for naphtha crackers • NGL consumption in US market depends on Gas-to-Crude ratio and investment in light feed capability
Will It Come? • Forecast assumes capacity build-up will result in lower U.S. steam cracker operating rates • Current energy dynamics have supported max light feed cracking…we’ve seen the peak • Increased NGL consumption by U.S. steam crackers is not expected to come without investment in light feed capability • Empty Field of Dreams
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