How To Make A Profit From Aromatics

Transcription

1 The shale revolution and its impacts on aromatics supply, pricing and trade flows Kevin Allen Managing Editor Petrochemicals Platts Inaugural Petrochemical Seminar Houston, Texas September 25, Platts, McGraw Hill Financial. All rights reserved.

2 Agenda The shale revolution and its impact on aromatics production: Aromatics production at the refinery and the steam cracker. Benzene: Pricing and supply in 2013 and beyond. Styrene a safe bet to close out the year. Toluene: Pricing and supply in 2013 and beyond. Toluene, blending and chemical demand. Demand from chemicals contingent on xylenes, PTA and PET. Xylenes: Mixed xylenes pricing and supply in 2013 and beyond. US paraxylene: How Asian PX, PTA and PET will dictate the destiny of US xylenes. Conclusions and takeaways 2

3 Supply: Aromatics production up at the refinery 330, , , , , , , , , , , , , , , , , , , , , ,000 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 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 2013.

4 Aros production at the refinery: PADDS I and 3 280, , , , , , , , , ,000 80,000 60,000 40,000 20, , , , ,200 20,900 21,820 22,120 18,111 10,111 10, Aromatics production in PADD 3 (blue) has increased and is at a 4 year high at just over 209 kb/day while at the same time, production out of PADD I has declined sharply, down 44% between The declines in PADD I are due in part to increased processing of unconventional tight oil which has resulted in a shift in content, from a medium crude with an API value of in 2008 to a lighter crude, with an API value of in The closure of the Marcus Hook refinery in 2011 also hurt production taking some 19,000 b/d of BTX out of the market. 4

5 Increased naphtha production, higher reformer rates contribute to increased aromatics production 9,000 8,000 7,000 6,000 6,524 5,962 5,962 5,967 6,364 6,279 6,315 6,094 5,000 4,750 4,000 3,000 2,000 Jan-2005 May-2005 Sep-2005 Jan-2006 May-2006 Sep-2006 Jan-2007 May-2007 Sep-2007 Jan-2008 May-2008 Sep-2008 Jan-2009 May-2009 Sep-2009 Jan-2010 May-2010 Sep-2010 Jan-2011 May-2011 Sep-2011 Jan-2012 May-2012 Sep-2012 Jan-2013 May-2013 Refinery production of naphtha as a petrochemical feedstock (blue) increased at the end of 2012 and into 2013 and has been largely above the annual average (red) this year. As well, in 2012 and thus far into 2013, we ve seen a bump in processing volumes by catalytic reforming units. Average fresh feed inputs into catalytic reformers increased by 44,000 barrels/day from *Source: EIA 5

6 Yields at the steam cracker hit by shift to light feeds Aromatics production in the US has taken a hit as steam cracker operators shift to lighter feedslates. E/P mix as a feedstock versus light naphtha reduces pygas output by almost 85%. Toluene and xylene production are virtually eliminated altogether. Aromatics output at the cracker is estimated to grow by as much as 5% by 2020 as some 10 million mt of new steam cracker capacities are slated to come online. Ethane Propane EP Mix Butane Light Naphtha Gas Oil Ethylene Propylene Crude C4s Butadiene Raffinate Pygas Benzene Toluene Xylene

7 Why the recent interest in new cracker capacities? *Source: Platts 7

8 The impact of a rising crude to gas ratio A higher crude to gas ratio suggests operators should drill for oil in lieu of natural gas and makes NGL developments more commercially attractive. Higher ratios also encourage operators to place rigs in liquid rich areas of supply basins which contain both oil and gas. 70 Crude-to-Gas Ratio /29/2008 2/17/2009 4/7/2009 5/28/2009 7/16/2009 9/3/ /22/ /10/2009 2/1/2010 3/22/2010 5/11/2010 6/30/2010 8/18/ /6/ /24/2010 1/12/2011 3/2/2011 4/20/2011 6/10/2011 7/29/2011 9/16/ /4/ /23/2011 2/14/2012 4/3/2012 5/23/2012 7/11/2012 8/29/ /17/ /5/2012 1/25/2013 3/15/2013 5/6/2013 *Source: EIA 8

9 And the correlated shift in rig counts 1,800 1,600 1,594 1,397 1,400 1,200 1, Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 OIL RIG COUNT GAS RIG COUNT Between , the North American gas rig count has fallen by roughly 71.5% while the oil rig count has risen nearly 500%. The narrowing of the gulf between the two and the intersection in 2011 also corresponds directly to a rising crude to gas ratio. The average WTI crude price in 2011 was $95/barrel, up from just under $62/barrel in Meanwhile, gas prices averaged $3.76/MMbtu in 2011, down from an average of $4.10/MMbtu the previous year. *Source: Baker Hughes 9

10 BENZENE 10

11 Lighter feeds hurt BZ, pygas yields at the cracker. From 2012 to 2013, benzene production at the cracker increased by 1.7%. Production in 2014 is expected to be flat to Long-term, pygas production from US steam crackers to shrink by near 14%, falling by as much as 400,000 mt/year by ,500,000 3,000,000 2,500,000 2,000,000 1,500,000 Pygas Benzene Benzene output from steam 1,000,000 crackers could decline by as much as 118,000 mt/year from ,

12 Benzene prices remain strong in 2013 Benzene prices have been strong thus far in 2013, never falling below the $4.00/gal level. Thus far the 2013 average has 442 cents/gal, The averages for the preceding years are: cents/gal cents/gal cents/gal cents/gal While prices seem high, benzene s value relative to crude is not. The historical average of the benzene ratio to Brent and WTI ratios is 1.97 and 1.98, respectively. Thus far in 2013, those respective ratios have been 1.72 and

13 US prices supported by imports from Korea in , , , ,000 80,000 60,000 40,000 20,000 56,681 50,307 74,151 24,017 69,457 40,570 75, SK exports 2012 China imports 2012 US imports 0 January February March April May June July 160, , , ,000 80,000 60,000 40,000 61,597 65,385 43,548 42,853 35,982 30,377 30, SK exports 2013 China imports 2013 US imports 20,000 0 January February March April May June July

14 BZ derivatives: US styrene margins positive in ,000 1,800 1,600 1,400 1,200 1, Production cost Margin Spot Sep-13 Aug-13 Jul-13 Jun-13 May- 13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Sep-12 Styrene margins flipped into positive territory this year when benzene corrected lower from record highs to close out Feedstock benzene fell from $5.25/gal in mid-december 2012 to as low as $4.00/gal in mid-july of this year. As well, spot ethylene values fell from as high as 66 cents/lb on March 14 to 55 cents/lb to start off September. 14

15 Styrene to stay tight, margins could improve COMPANY LOCATION KT/YR TIMING TSMC 1 Lin Yuan 180 TA 2-3 weeks Aug FCFC 2 Mailiao 350 TA Aug 26-31, days FCFC 1 Mailiao 250 TA Aug 26-31, days Tianjin Dagu Tianjin 500 TA 30 days in Q3 or Q4 Jiangsu Least Jiangsu 420 TA Oct or later 15 days Pars Assaluyeh 600 TA expected in Q3 Repsol Tarragona 450 TA Oct-Nov days Sibur Perm 135 TA August Six weeks Styrolution Texas City 453 TA November 65 days Cosmar Carville, LA 1,179 TA October Supply to stay tight till Q4 due to spate of plant turnarounds in Asia and US between August and October The inventory level of SM held by traders in East China fell to the lowest level so far this year, at around 43,000-44,000 mt on July 19. In contrast, 2012 average inventory level was 87,300 mt. Styrene turnarounds will likely curb benzene demand, lengthening supply and pushing prices lower. 15

16 TOLUENE 16

17 Toluene pricing and outlook Toluene prices have been mostly strong thus far and the 2013 average thus far has been $4.01/gal compared to the historical average of $3.08/gal from 2005-present. Gains in recent weeks stem from tight supply due to production issues at extraction units. Output from the cracker is expected to increase by roughly 4.9% from though should subsequently decline through From , production is expected to increase by 5.3%. *Source: Platts 440, , , , , , , , ,

18 Toluene: a view from the refiner Toluene, like most aromatics, garners little attention in the refinery process as reformer feedstock fraction is a relatively small part of crude oil. In the catalytic reforming process, toluene makeup is heavily impacted by the naphtha makeup and the operating conditions of the reactor. If the naphtha feed has a high content of precursors such as methyl cyclohexane or dimetyl cyclopentane, toluene yields are generally higher (but this also translates into less benzene). Though it has a relatively high RON, the question for refiners isn t necessarily one of production but whether or not to extract from reformate. Put more succinctly, the focus is on the profitability of toluene as a gasoline blendstock or a feedstock for chemical production. 18

19 Toluene, blending and the driving season Spread Spot Tol BV+UNL Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Stronger spot toluene values in 2013 have diminished its appeal as an octane booster and it was most attractive for blenders during the traditional driving season i.e. the months of May, June and July. 19

20 Toluene as a feedstock for chemical production MSTDP TDP HDA MSTDP units, which use toluene to produce benzene, mixed xylene and paraxylene, have been the most profitable in 2013 while TDP margins followed. Margins for both peaked early in the year on the back of strong benzene and mixed xylene prices. Despite strong benzene prices this year, HDA units have not been profitable, due in part to robust toluene prices.

21 Outlook for toluene Steady supply in the near term. US toluene supply in 2014 is expected to be largely flat to Demand will continue to be driven by both blend demand from gasoline and feedstock use for chemical production. Chemical demand for toluene will be driven by paraxylene and PET, markets which could be oversupplied in the next 3-5 years. Blend demand will be influenced by a variety of factors including unconventional tight oil reserves, processing capacity, utilization rates, GDP, etc. 21

22 MIXED AND PARAXYLENES 22

23 Mixed xylene pricing and outlook Spot prices have fallen off some this year however remain relatively strong with the 2013 average at near 417 cents/gal. This historical average from current is closer to cents/gal. Mixed xylene production from the cracker, after falling 33% from , is expected to grow 2.1% from Production will dip slightly from and is expected to remain largely flat going forward into , , , ,000 50,000 *Source: Platts

24 Mixed xylenes: A view from the refiner Like toluene, mixed xylenes receive little attention in the refinery and their importance to the refiner is tied to their use as an octane booster. Given their lower RVP value, demand from blenders is seasonal and coincides with the driving season in the US. Mixed xylenes are produced via catalytic reforming however an increasing volume is produced through disproportionation or via TDP and MSTDP units. Again, from a refiner s point of view, the pressing question isn t necessarily production but rather the value of mixed xylene as an octane booster, particularly compared to toluene and ethanol. The majority of demand for mixed xylenes comes from the chemical segment where it is used as a feedstock for paraxylene or as a commercial solvent. 24

25 Roadblocks ahead for xylenes, derivatives Mixed and paraxylene markets in the US are likely to remain hostage to PX and PTA market developments in Asia. Asia isomer-mx market size US/Asia MX 25% 800,000 mt/year US is a net exporter of xylenes with Asia soaking up much of the material (as much as 800kt/year) to feed demand for PX and ultimately PTA in the region. Xylene demand has been most pronounced in China however new and expected new capacities will curb demand as Asia will flip into a net long position on PX and PTA between Asia capacity 75% 2,400,000 mt/year

26 Paraxylene: Costs, margins and outlook Margin Spot US PX PX Prod Cost /30/2011 1/30/2012 2/29/2012 3/31/2012 4/30/2012 5/31/2012 6/30/2012 7/31/2012 8/31/2012 9/30/ /31/ /30/ /31/2012 1/31/2013 2/28/2013 3/31/2013 4/30/2013 5/31/2013 6/30/2013 7/31/2013 8/31/2013 Paraxylene prices in the US have been driven largely by Asian PX values, PTA and ultimately PET. Margins have been mostly positive in 2013 however both mixed xylenes and paraxylene will face significant hurdles in the near future.

27 China s pending wave of new PTA capacity COMPANY LOCATION CAPACITY (KT/YR) STARTUP Xianglu Xiamen 4,500 Q Hengli Dalian 2,000 Q Jiangsu Honggang Lianyungang 1,500 Q Hanbang Jiangyin 1,500 Q Sanfangxiang Phase 2 Jiangyin 1,500 Q BP Zhuhai Phase 3 Zhuhai 1,500 Q Yisheng Ningbo 1500 Q Chengda Sichuan 1,000 Q Sinopec Yizheng Yizheng 2,000 Q Shaoxing Yuandong Shaoxing 2,000 Q TOTAL 19,000 Total PX requirement for : million mt 27

28 Feedstock gone wild: PX projects in Asia and the MidEast COMPANY LOCATION CAPACITY (KT/YR) START UP HC Petrochem Daesan 800 Jan-13 Dragon Aromatics Fujian 1600 Q PetroChina Sichuan 650 Q Sinopec Hainan Hainan 700 Q SATORP (Aramco/Total) Jubail 700 Q ONGC Mangalore Mangalore 920 Q Ulsan Aromatics Ulsan 1,000 Q Jurong Aromatics Singapore 800 Q Samsung Total Daesan 1,000 Q Sinopec/Khazakstan Atyrau 550 Q Shell/Taiyo/GS Caltex Yeosu 1,000 Q SK Innovation Incheon 1,300 Q Yasref (Aramco/Sinopec) Yanbu 700 Q Zhejiang Hengyi Brunei 1, Petro Rabigh II Rabigh 1,350 Q Saudi Aramco Ras Tanura 1,200 Q Nghi Son Refinery (Idemitsu/Kuwait) Nghi Son 480 Q Adnoc Ruwais (Abu Dhabi) 1600 Q Saudi Aramco Jazan 700 Q Qatar Petroleum Ras Laffan Total PX start up from : 21 million mt, enough for 31.8 million mt of new PTA 28

29 The impact of new PX and PTA capacities in Asia? As a result of new production in the region, domestic PTA prices in China are decoupling from imports. Lower PTA values will impact margins which in turn will force producers to run at lower rates and will curb PX demand in the process. In addition to weaker PX demand from the PTA segment, increased PX supply from new capacities will pressure prices lower globally. All of this will negatively impact US MX and PX demand and pricing as arbitrage opportunities close.

30 The drivers for PX and PTA growth going forward? China, PET and textile sales PX is a feedstock for PTA, which along with MEG, are the feedstocks for PET. North American PET demand stems from the bottled beverage segment while in Asia PET demand is driven by fiber. The outlook for PET is contingent on textile sales and the current outlook is a bearish one. Textile sales bearish in China, cotton prices too high, huge clothing inventory: Even if all of China s clothing industry comes to a halt for 1 year, there ll still be enough clothes to house every Chinese for 3 years China National Garment Association 30

31 CONCLUSION & TAKEAWAYS 31

32 Conclusion and takeaway points Though aromatics production has increased at the refinery, output has been significantly curbed by the shift to lighter feedslates at the cracker. 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 macro-economic performance of developing nations. Future aromatics production in the US will, in part, be a function of refineries ability to increase processing capacity of unconventional tight oils. Crude from shale plays has a lighter N+2A cut i.e. a lower aromatic content and refineries currently must blend heavier and lighter crudes or run at reduced rates. 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. 32

33 Conclusion and takeaway points continued The shale revolution will remain a key factor in petrochemicals as crude production continues to increase. Crude production grew almost 2 million b/d between Output from Eagle Ford (graph below) is expected to triple by between and if Bakken output is as expected, US crude production could increase by almost 4 million b/d by Jan 2013 Canada United States Saudi Arabia Linear (United States) 7.0 Considering that naphtha constitutes between 15-30% of a barrel of crude, depending on the weight, the US could theoretically see an additional 600,000 b/d of naphtha production by 2020 and likely more than that. Additional supply could push prices lower and make naphtha a more appealing feedstock. 2,200 2,000 1,800 1,600 1,400 1,200 1,

34 Conclusion and takeaway points continued Petrochemical prices have historically traced movements in crude and there is little reason to suspect this to change, particularly given anticipated increases in production going forward. Petrochemical Index/Brent correlation coefficient =.8578 Petrochemical Index/WTI correlation coefficient =

35 Thank You! Kevin Allen Managing Editor Americas Petrochemicals