The impact of the shale revolution on petrochemical prices

Transcription

1 The impact of the shale revolution on petrochemical prices Kevin Allen Managing Editor Americas Petrochemicals APLA November 18, 2013 Cartagena, Colombia 2013 Platts, McGraw Hill Financial. All rights reserved.

2 NGL production continues to surge barrels/day sep-2005 ago-2006 jul-2007 jun-2008 may-2009 abr-2010 mar-2011 feb-2012 ene-2013 Ethane Propane Butane Pentanes plus The lighter part of the barrel, i.e. ethane and propane have continued to grow as a result of shale gas plays. This results in a more favorable crude to gas ratio and greater margins for those who choose to crack lighter. Source: EIA 2

3 Greater margins spur new projects and investments New builds Company Location MM mt/yr ETA Braskem/Idesa Veracruz, Mexico Aither Chemical/RMG TBD/USNE ExxonMobil Chemical Texas Formosa Plastics USA Texas ChevronPhillips Chemical Texas Dow Chemical Texas Sasol Louisiana Occidental/Mexichem Texas Shell Chemical Pennsylvania Odebrecht West Virginia NA NA Expansions Company Location MM mt/yr ETA BASF-Total Texas Dow Chemical (restart) Louisiana Westlake Chemical Louisiana Williams Louisiana Ineos Texas Westlake Chemical Kentucky BASF-Total Texas Westlake Chemical Louisiana LyondellBasell Texas (3) Dow Chemical TX/LA (2)

4 Time is money Those who complete projects earlier, i.e. brownfield/expansions, stand to benefit the most. Over time, stronger ethane demand will support higher prices. At the same time ethylene supply will increase pushing prices lower. Ultimately margins will shrink. EtilenoXXI appears to be ahead of the game in North America with an anticipated start date in PE units with a total capacity of 1,000 kt/yrexpected to be complete H2, In the US, CP Chem, Dow, ExxonMobil, Oxy/Mexichem, Formosa and Sasol appear most likely to be realized. 4

5 End result? US ethylene production to surge Alternate Case Base Case The base case assumes six new steam crackers to be built and on stream, adding 6.8 million mt/year ethylene. US ethylene production to grow by 30%. Using alternative case model, assuming 10 new cracker builds through US ethylene production to grow by 46%. 5

6 Polymerization: The logical progression Polyethylene producers in the US and Canada have announced nearly 6 million metric tons of new PE capacity. Another 1 million metric tons of capacity is expected to be added via Etileno XXI. Company Location MM mt/yr ETA Etileno XXI Mexico 1.0(LLDPE/HDPE) 2015 INEOS/Sasol Louisiana 0.42 (HDPE) 2015 Nova Chemicals Joffre, Canada 0.45 (LLDPE) 2015 Sasol Louisiana 0.42 (LDPE) 2016 LyondellBassell Texas 0.45 (LDPE/LLDPE) 2016 Formosa Plastics Texas 0.3 (LDPE) 2016 ExxonMobil Chemical Texas 1.3 (TBD) 2017 ChevronPhillips Chemical Texas 1.0 (HDPE/LDPE) 2017 Sasol Louisiana 0.45 (HDPE/LLDPE) Nova Chemicals Sarnia, Canada 0.50(TBD) TBD Shell Chemical Pennsylvania 1.5 (TBD) 2019 Odebrecht West Virginia TBD TBD 6

7 Shale gas revives US methanol production Company Location Capacity kt/yr Date SU expected OCI Beaumont Beaumont, TX (completed) Methanex(debottleneck) Medicine Hat, Alberta 90 Q (completed) LyondellBasell Channelview, TX 780 Q Methanex I (relocation) Geismar, LA 1000 H G2X Energy Pampa, TX 65 Q OCI Beaumont (debottleneck) Beaumont, TX 125 Q Celanese/Mitsui Clear Lake, TX 1300 Q Methanex II (relocation) Geismar, LA Valero St. Charles, LA 1600 Q South Louisiana Methanol St. James, LA 1800 Q Lake Charles CE/BP Lake Charles, LA

8 Other projects and expansions Westlake announced expansion of its 1.1 billion lbs/year PVC facility at Calvert City, Kentucky. The project is set to be complete in late 2014 and should add an additional 200 million lbs/year of new capacity. Shintechannounced in June that it would expand its vinylscapacities in Louisiana by The company will increase its caustic production by about 200,000 mt/year, VCM by 300,000 mt/year and PVC by 300,000 mt/year. Huntsman is slated to increase its ethylene oxydecapacity at Port Neches, Texas by Q2, The expansion will increase the companies current one billion lbs/year capacity by 25%. 8

9 Cracking lighter feeds not good for all products E/P mix as feedstock versus light naphtha reduces pygas output significantly.benzene and toluene yields curbed while MX virtually eliminated. Crude C4, butadiene and propylene also suffer. Cracking NGLs creates production imbalance. US to be long ethylene but likely to remain net short heavier products. Ethane Propane EP Mix Light Naphtha Ethylene Propylene Crude C4s Butadiene Pygas Benzene Toluene Xylene

10 Looking at it differently Focus on cracking lighter feeds increases ethylene output, but cuts output of aromatics and other raw materials Source: Platts 10

11 The example of benzene Ethane Propane Naphtha Total BZ produced Benzene production from ethane to increase slightly due to new cracker projects however producers preference for naphtha as a feedstock expected to continue to decline. 11

12 Option A: Producers go all in on light feeds? One option for producers is to go all in on ethane and try to capitalize on robust margins in the near term and focus on ethylene and ethylene derivatives. The danger here is that the cost advantage will be short lived as other regions begin to extract their own reserves. Polyethylene supply in the US will outstrip demand in the coming years and US sellers will look to Latin America as an outlet. Still they must compete with increased capacities from the Middle East and Asia. Additionally there is a significant shortage of skilled labor to build and operate these units with some firms estimating a shortage of 40,000-50,000 workers by Ultimately option A would likely lead to a more regionalized market in which ethylene and ethylene derivatives flow from the West while heavier products come from the east. 12

13 Option B: Shale crude and profitability cycles Focus on crude from shale plays. Production dynamics could shift by the end of this decade and the US could surpass Saudi Arabia as the worlds leading oil producer, pumping out an additional 3.8 million b/d of crude by 2020 from the Eagle Ford and Bakkenplays alone. Given that naphtha constitutes 15-30% of a barrel of crude depending on the weight, the US could see an extra 600,000 b/d of naphtha by 2020 and possibly as much as 1.2 million b/d. On a global scale, oil production in 2020 is expected to be over 96.5 million b/d. Light naphtha production, at that production level, could be almost 14.5 million b/d if converted. The petrochemical industry tends to follow a 7-8 year cycle of profitability, one hit a nadir in Should this trend continue, the next bottom would be about the same time that new cracker projects in the US are complete. A different approach for producers who have access to shale reserves might be to build a flexi-cracker and have the option to capitalize on high-priced heavier products when ethylene and derivatives bottom out. 13

14 And one completely unrelated slide 14

15 Thank you Kevin Allen Managing Editor Americas Petrochemicals Platts McGraw Hill Financial