Changing refinery economics and its impact on aromatics production

Transcription

1 Changing refinery economics and its impact on aromatics production Shahrin Ismaiyatim, Editorial Director, Petrochemicals Analysis September Platts, McGraw Hill Financial. All rights reserved.

2 Agenda Evolving feedstock options and shifting competitiveness Fluctuating oil & gas prices causing the switch from naphtha to ethane can this be sustained? NGL and LPG as feedstock options for aromatics Who are the winners and losers? 2

3 Shale gas puts US back on petchems map Source: Platts Petrochemical Analytics

4 Strong ethane margins promotes US projects Source: Platts

5 US aromatics production up at the refinery 330, , , , , , , , , , , , , , , , , , , , , , US aromatics production has reached levels not seen since 2006, up almost 15% since 2010 to reach over kb/day according to EIA estimates. Output in 2014 is expected to be flat to Source: EIA

6 US BTX output at refinery: PADDS I vs PADD 3 PADD 3 aromatics production at a 4 year high Production from PADD 1 declined sharply, down 44% between due to increased processing of unconventional tight oil\ Shift in content from medium crude API in 2008 to a lighter crude API value in 2012 Source: EIA 6

7 Lighter feed good for some, bad for others Focus on cracking lighter feeds increases ethylene output, but cuts output of aromatics and other raw materials Source: Platts 7

8 What does this mean for US pygas, BTX? Base case assumption: 6 new steamcracker additions 35 mil mt ethylene by 2023 Pygas yield to rise by 6% from 2013 to 2023 Benzene yield to rise 8% from 2013 to 2023 Toluene yield to rise 4% from 2013 to 2023 MX yield to fall -2% from 2013 to 2023 Source: Platts Petrochemical Analytics

9 US benzene yield from LPGs fairly attractive Base case assumption: 6 new steamcracker additions 35 mil mt ethylene by 2023 Benzene yield expected to rise 17% from 2013 to 2023 or 89,000 mt Total benzene from LPGs expected to reach slightly over 600,000 mt/year by 2023 Source: Platts Petrochemical Analytics

10 Naphtha, refinery contribute 50% of benzene Benzene yield from naphtha nearly 2 X more than ethane Overall, benzene yield from naphtha, natural gasoline and gasoil = nearly half of US output Source: Platts Petrochemical Analytics

11 How will toluene, MX fare using LPG feedstock? Toluene in numbers: 2013 expected at 147,000 mt 2023 expected at 125,000 mt 15% decline or minus 22,000 mt Mixed xylene in numbers: 2013 expected at 6,000 mt 2023 expected at 3,500 41% decline or minus 2,400 mt Source: Platts Petrochemical Analytics

12 Increased naphtha output, higher reformer rates Naphtha output from refinery (blue) increased at the end of 2012 Largely above the annual average (red) this year Rise in processing volumes by catalytic reforming units thus far in 2013 Average fresh feed inputs into catalytic reformers increased by 44,000 barrels/day from Source: EIA 12

13 Toluene production remain dependent on refinery Source: Platts Petrochemical Analytics

14 Outlook for toluene Steady supply in the near term US toluene supply in 2014 expected to be largely flat to 2013 Demand continue to be driven by blending into gasoline and feedstock use for chemical production Blend demand will be influenced by a variety of factors including unconventional tight oil reserves, processing capacity, utilization rates, GDP, etc. Chemical demand for feedstock will be driven by PX and PET, markets which could be oversupplied in the next 3-5 years 14

15 US MX is the biggest loser except via naphtha Mixed xylene production from the cracker, after falling 33% from , is expected to grow a paltry 2.1% from Production expected to dip slightly from Going forward into 2023, production expected to remain largely flat Source: Platts Petrochemical Analytics

16 What this means for Asian aromatics Tighter supply has led to higher MX prices, and higher paraxylene prices PX is a feedstock for PTA, which along with MEG, are the feedstocks for PET. North American PET demand for bottled beverages; Asia PET demand for fiber Higher MX and PX prices make US exports less attractive to Asia, which is facing significant demand amid a surge of new Chinese PTA production China alone is expected to see 10.9 million mt of PTA capacity come online by the first half of this year. Asian PTA capacity is expected to increase by near 19 million mt by Volatility further exacerbated as PTA producers began to cut rates at the end of 2012 on weak derivative demand. 16

17 Tight oil impacts aromatic prices US aromatics production also constrained by refineries focus on unconventional oil Crude from the Eagle Ford set to increase more than three-fold between Before shale, US refiners utilized crude oil with about 40% naphthene and aromatic cut Naphthene and aromatic cut from unconventional oil estimated at 35%. The reduction of aromatics as a result of shale plays is difficult to fully quantify Trend shows that refiners in the Northeast and Gulf Coast are utilizing lighter crudes with a higher API. 17

18 Outlook: Iso-MX Supply to remain tight Asia structurally short of MX Around 800,000 mt to 1 million mt/year of MX supplied by the US Shale gas boom in the US worsens Asian MX market US/Asia isomer-mx arbitrage has shut since Nov until now due to rising US MX prices Rising term contract prices up $4-10/mt premium FOB Korea GS Caltex offer at $10/mt premium in 2013, compared to $5-6/mt in 2012 SK Global Chemical offer at $6-9/mt premium Asia isomer-mx market size US/Asia MX 25% 800,000 mt/year CFR Taiwan: Formosa buys at about discount $3-4/mt (2013), discount $24-28/mt (2012) Asia capacity 75% 2,400,000 mt/year 18

19 Conclusion more famine than feast Pygas production from US steam crackers could fall by as much as 120,000 mt/year by 2023 from 2011 Benzene output from steam crackers could decline by as much as 400,000 mt/year by 2023 from 2011 This is on top of pre-existing constraints by refiners in the US and Caribbean in recent years, such as: Sunoco s closure of its Marcus Hook refinery at the end of 2011, taking an estimated 19,000 b/d of benzene, toluene and xylenes out of the market HOVENSA shuttering its St. Croix refinery which had an estimated production capacity of 5,800 b/d of toluene, 4,500 b/d of benzene, and 4,000 b/d of mixed xylenes This is bad news for countries such as the US which are net short benzene and are forced to import between kt/month depending on fundamentals.

20 Conclusion other takeaway points Toluene demand, production and pricing will remain a function of blend demand from gasoline and profitability as a feedstock for chemical production The xylenes chain will remain victim to overcapacity in the Asian PX, PTA and PET markets and taking it a step further, could depend on the macroeconomic performance of developing nations. Future aromatics production in the US will be a function of refineries ability to increase processing capacity of unconventional tight oils. US refiners Marathon, FHR, Phillips 66, Citgo, and Valero have been amongst producers who are investing in operations in an effort to capitalize on unconventional tight oil and US Atlantic Coast refiners begin to shift to Bakken crudes and eschew imports. 20

21 Conclusion other takeaway points 2 The shale revolution remain a key point in petrochemical production as crude production continues to increase. Crude production grew almost 2 million b/d between Output from Eagle Ford (graph below) expected to triple between If Bakken output is as expected, US oil production could increase by almost 4 million b/d by Increase in crude production likely to push naphtha prices lower ,200 2,000 1,800 1,600 1,400 1,200 1, Jan 2013 Canada United States Saudi Arabia Linear (United States)

22 Conclusion other takeaway points 3 Shale gas is not strictly a US phenomenon, and it s only a matter of time before the cost advantage dissipates as other countries begin to develop their own shale plays Petrochemical prices continue to track crude prices, and this could restrict or boost margins from naphtha 22

23 Thank You!