On 27th May, ICIS hosted a free webinar on US shale gas, discussing how it has revitalized the US petrochemical sector, and triggered an unprecedented Project Boom. Key topics include: Macroeconomic outlook US cost advantage vs Europe and Asia US projects update – ethane crackers, PE, PDH, methanol Engineering & construction (E&C) challenge Capital spending (CAPEX) cycles Global reaction and impact http://www.icis.com/resources/

1. US shale gas, the project boom and
impact on global petrochemicals
Joseph Chang, Global Editor
ICIS Chemical Business
May 27, 2014

2. www.icis.com
ICIS
Prices
NewsAnalysis
Market intelligence
for the energy,
chemical and
fertilizer industries

3. www.icis.com
Agenda
• Macro outlook
• US cost advantage vs Europe, Asia
• US projects update – ethane crackers, PE, PDH, methanol
• Engineering & construction (E&C) challenge
• Capital spending (CAPX) cycles
• Global reaction and impact
• Conclusions

4. www.icis.com
Macro outlook 2014
• Macros were largely lining up for a positive 2014 – US economy picking
up momentum, Europe swinging to growth, China holding up.
• BUT concerns… some of the legs of the bull market are shaky!
• Leg 1: China. HSBC China Manufacturing PMI has been under 50 for 4
straight months, indicating contraction.
• Leg 2: Emerging markets GDP growth has slowed - Brazil, Thailand,
India, Indonesia, Turkey. Many have raised interest rates to defend
currencies/fight inflation. Also political unrest. That’s hitting near-term
growth.
• Leg 3: Shift away from easy monetary policy – US Fed taper, interest rate
hikes in emerging markets, China to curb credit in its shadow banking
sector. Yet ECB is poised to loosen.
• Positives remain – US and Europe leading the recovery.

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30
35
40
45
50
55
60
65 Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
US
Eurozone
China
Manufacturing PMI
Data to April 2014
Source: Institute for Supply Management, Markit, HSBC

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US shale boom and petrochemical cost advantage

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Main steam cracker feedstocks
• Naphtha derived from crude oil 
ethylene, propylene, aromatics, C4s
for butadiene (Europe, Asia)
• Ethane derived from natural gas 
ethylene only (Middle East, North
America)
• LPGs (propane, butane) derived from
natural gas  mainly ethylene and
propylene
Ethane
60%
LPG
22%
Naphtha
12%
Other
6%
North America steam cracker feedstock breakdown based
on ethylene demand, 2012
Source: ICIS supply and demand database

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US ethane advantage vs naphtha

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US contract ethylene margins at record highs

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US global ethylene cost advantage

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US polyethylene cost advantage

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LyondellBasell – US vs international 2013
“The US natural gas liquids advantage continues to evolve in a very positive way,
and we are executing our growth projects rapidly to take advantage of these
market opportunities. We believe olefins in North America will continue to benefit
from strong margins created by cost-advantaged NGLs.”
– LyondellBasell CEO Jim Gallogly
O&P Americas O&P Europe, Asia, Intl
Record EBITDA of $3.57bn EBITDA of $839m
Sales of $13.09bn Sales of $14.69bn
EBITDA margin = 27.3%
Q1 2014 = 21.8%
EBITDA margin = 5.7%
Q1 2014 = 9.4%

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US chemical prices track oil – NOT natural gas
R2 US IPEX, natgas = 2.9%
R2 US IPEX, crude oil = 85.9%

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US petrochemical project update

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New US ethane crackers based on shale gas
Company Capacity Downstream Location Start-up Status
Chevron Phillips 1.5m tonnes HDPE, LLDPE
Cedar Bayou,
Texas
Mid-late
2017
Under construction
ExxonMobil 1.5m tonnes PE Baytown, Texas Late 2016 Permits complete
Dow 1.5m tonnes
LDPE, other PE,
EPDM, elastomers,
LAO (JV)
Freeport, Texas 2017
Permitting,
construction expected
Q3 2014
Sasol 1.5m tonnes
LDPE, LLDPE, EO,
MEG, det alcohols
Lake Charles,
Louisiana
2017
Permitting; FID to
come in 2014
Formosa Plastics 1.0m tonnes LDPE, MEG
Point Comfort,
Texas
Q1 2017 Permitting
Formosa Plastics 1.2m tonnes NA Louisiana NA Feasibility stage
OxyChem/
Mexichem
544,000
tonnes
EDC, VCM Ingleside, Texas 2017
Permits complete;
construction mid-2014
Axiall/Lotte 1.0m tonnes MEG Louisiana 2018 Permitting
Shell World-scale PE, MEG
Monaca,
Pennsylvania
2019-
2020*
Feasibility stage
Odebrecht World-scale PE
Wood County,
West Virginia
NA Feasibility stage
Shintech
500,000
tonnes
NA US Gulf Coast NA
Feasibility, permit ting

16. www.icis.com
More upcoming ethylene expansions
Company Capacity Location Start-up
INEOS 115,000 tonnes
Chocolate Bayou,
Texas
2014
Williams 273,000 tonnes Geismar, Louisiana Jun 2014
LyondellBasell 363,000 tonnes La Porte, Texas Summer 2014
Chevron Phillips
Chemical
91,000 tonnes Sweeny. Texas Fall 2014
Westlake Chemical 113,000 tonnes
Lake Charles,
Louisiana
Late 2015, early 2016
LyondellBasell 113,000 tonnes Channelview, Texas Early 2015
LyondellBasell 363,000 tonnes Corpus Christi, Texas End 2015
Huntsman 19,300 tonnes Port Neches, Texas NA

17. www.icis.com
US polyethylene (PE) expansions
Company Project Capacity Grades Location Start-up
LyondellBasell Debottleneck 100,000 tonnes Unspec US Q1 2014
Sasol/INEOS New unit 470,000 tonnes HDPE US End 2015
Sasol New unit 450,000 tonnes LLDPE
Lake Charles,
Louisiana
2016
Sasol New unit 420,000 tonnes LDPE
Lake Charles,
Louisiana
NA
ExxonMobil New units (2) 1.3m tonnes PE (premium)
Mont Belvieu,
Texas
Late 2016
LyondellBasell New unit 454,000 tonnes Unspec US Late 2016
Chevron
Phillips
New units (2) 1m tonnes
HDPE, LLDPE,
other
Sweeny, Texas 2017
Dow Chemical New units NA
PE (high-
value), LDPE
Freeport, Texas 2017
Formosa
Plastics
New unit 300,000 tonnes LDPE
Point Comfort,
Texas
2016
Shell New units NA Unspec
Monaca,
Pennsylvania
2019-2020*
Odebrecht New units (3) NA Unspec West Virginia NA

18. www.icis.com
US ethylene capacity could expand by 51%!
• 11 new crackers = 12.5m tonnes/year
 9 on US Gulf Coast, 2 in Northeast US
• Plus 8 expansions at existing facilities = 1.4m tonnes
• TOTAL of 13.9m tonnes of new capacity, or 51% of existing
capacity base, to 41.3m tonnes/year
• Even if only 7 US Gulf Coast crackers where capacities have
been announced are built, plus expansions = 37% capacity
increase
• US PE capacity could rise by 7.1m tonnes, or 47%, to 22.4m
tonnes/year
• But question of… by WHEN?
Assumption: world-scale cracker at 1.25m tonnes/year

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0
1000
2000
3000
4000
5000
6000
7000
8000
2014 2015 2016 2017 2018 2019 2020
AdditionalCapacity,‘000stonnes/yearTiming of announced US ethylene expansions
Assumptions: ExxonMobil by 2017 rather than late 2016 as stated, Shell by 2019, Shintech by
2019, Odebrecht and Formosa 2 by 2020

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Planned US capacity expansion vs past cycles
Ethylene capacity, % increase
Note: 1997-2002 excludes NOVA’s cracker in Joffre, Alberta, Canada
%

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Engineering & construction (E&C) challenge

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Strain on E&C resources
• “What we found at the completion of our analysis was
construction cost capital cost had gone up very, very dramatically
since the time that we built our [PDH] plant… The cost of building
a new plant, that very same plant as we had designed, was well in
excess of $1bn (vs 640m for first plant).” – PetroLogistics exec
chairman Nathan Ticach, Apr 2014
• “I think we’re going to be in a very difficult environment for new-
build projects.” – Methanex CEO John Floren, noting potential
US labor shortage of 30% in skilled trades, Jan 2014
• “It is clearly taxing the resource base to support that type of
growth, whether it is looking for skilled workforce or the capacity
of engineering companies, the capacity of critical equipment
suppliers… Work is taking longer to progress. We're certainly
seeing significant inflation in project costs.” – NOVA Chemicals
CEO Randy Woelfel, Dec 2013

23. www.icis.com
US E&C cost cycle and peak craft labor demand
Peak Craft Labor Demand
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
2017E
2018E
Downstream Construction Index,
y/y chg.
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Stifel Nicolaus
Heavy crude refinery
upgrade cycle
Ethylene and LNG cycleHeavy crude refinery
upgrade cycle

24. www.icis.com
But not just new crackers in the US…
• 8 new PDH plants, BASF’s new MTP plant (methane-to-
propylene) – largest single-plant investment ever
• 10 new methanol plants in the US
• 8 major new fertilizer (ammonia, urea) plants
• 1 new major GTL (gas-to-liquids) facility by Sasol –
massive $15bn investment
• 5 LNG export projects (non-FTA)
• Also natgas for power generation, new process for steel
production, locomotive engines, municipal bus fleets,
garbage trucks, some consumer vehicles (Ford F-150)
• ALL will be major consumers of natural gas

25. www.icis.com
On-purpose propylene plants – mostly PDH
Company Capacity Location Start-up
Enterprise (PDH) 750,000 Texas, US Q3 2015
Ascend Performance
Materials (PDH)
1,000,000+
Chocolate Bayou,
Texas
Q4 2015
Dow Chemical (PDH) 750,000 Freeport, Texas, US 2015
Williams (PDH) 500,000 Alberta, Canada Q2 2016
Formosa Plastics
(PDH)
658,000
Point Comfort,
Texas, US
2016
REXtac (PDH) 300,000 Odessa, Texas Mid-2016
Dow Chemical (PDH) New plant US 2018
PetroLogistics (PDH)
Expansion
(marginal gain)
Houston, Texas Jan 2015
Enterprise (PDH) New plant Texas, US NA
BASF (MTP) New plant US Gulf Coast 2019

26. www.icis.com
BASF methane-to-propylene (MTP) in the US
• BASF’s largest single-plant investment
• US Gulf Coast location, worldscale at ‘000s kt/year
• Conversion of Port Arthur JV cracker in 2014 to use more
ethane feed vs naphtha results in less propylene
• New MTP plant would fulfill much, if not all, of BASF’s
propylene needs in North America
• Under study but start-up targeted for 2019
1st of its kind based on ‘new technology’

27. www.icis.com
US MTP vs PDH economics

28. www.icis.com
Planned US methanol projects
Company Capacity Location Start-up
Methanex 1m tonnes Geismar, Louisiana End 2014
Celanese, Mitsui 1.4m tonnes Clear Lake, Texas Q3 2015
Methanex 1m tonnes Geismar, Louisiana Early 2016
OCI North America 1.75m tonnes Beaumont, Texas 2016
Valero 1.6m tonnes
St Charles Refinery,
Norco, Louisiana
2016
South Louisiana
Methanol
1.8m tonnes
Port of South
Louisiana
Jan 2017
Northwest Innovation
Works (BP, China)
1.6m tonnes
Columbia River,
Clatskanie, Oregon
Q1 2018
Northwest Innovation
Works (BP, China)
1.6m tonnes
Columbia River,
Kalama, Washington
Q1 2018
Lake Charles Clean
Energy
1m tonnes
Lake Charles,
Louisiana
NA
G2X Energy NA
Lake Charles,
Louisiana
Q1 2017

29. www.icis.com
New MLP structure for US petrochemical assets
• IRS ruling allows for olefins, methanol assets to be put into
Master Limited Partnerships (MLPs)
• Tax-free distributions to unitholders can make this asset
class more valuable
• Westlake Chemical Partners LP files for IPO – 1st of what
could be many chemical MLPs
• Includes 3 crackers, ethylene pipeline
• Westlake stock price up 20% in a week after filing
Makes these plants even more attractive to build

30. www.icis.com
US ethane export terminals – emerging threat
• Enterprise Products to build up to 240,000 bbl/day ethane export
facility on US Gulf Coast by Q3 2016.
• Signing supply contracts – INEOS confirmed
• Dwarfs Sunoco Logistics’ planned ethane export facility in Marcus
Hook, Pennsylvania of estimated 20-30,000 bbl/day – start-up 2015
• Enterprise ethane export capacity = 3 world-scale crackers
• Enterprise expects US ethane surplus to grow from 300,000 bbl/day
now to 700,000 bbl/day by 2020, even after new crackers
• Confirms US long position in ethane… but don’t take comfort in that!
Global petrochemical players to draw on US NGLs

31. www.icis.com
Capital spending cycles

32. www.icis.com
US chemical industry CAPX
$0
$10
$20
$30
$40
$50
$60
$70
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
$bn
Source: American Chemistry Council

33. www.icis.com
CAPX vs depreciation
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Dow DuPont Eastman LyondellBasell/Lyondell
NOTE: Above 0 = % CAPX higher than depr, below 0 = % CAPX below depr, Bars
shown are capped at +100% and -100%
Downcycle and
aftermath
Recovery
Financial crisis
Recovery
Strong spending
post 1994-95 peak

34. www.icis.com
Global reaction
and impact

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US shale gas ripple effect
• China - Sinopec halts Qingdao LPG cracker project, 2 other
naphtha cracker projects reportedly at risk (3-4m tonnes/year
of capacity)
• China to import US propane for PDH plants, and US methanol
for MTO (methanol-to-olefins)
• Closures accelerate in Europe – crackers, PE plants
• Europe to import US ethane for some crackers – INEOS in
Rafnes, Norway and Grangemouth, UK; others considering
• Latin America projects on hold, questionable if they will ever
get built – Braskem’s Comperj in Brazil, Ecopetrol’s Cartagena
cracker project in Colombia
Closures, delays, adapting feedstock strategy

36. www.icis.com
Europe cracker closures
Company Location Capacity Shutdown
Total Antwerp, Belgium (NC1) 250,000 tonnes 2013
Versalis Priolo, Italy (1 of 2 lines) 470,000 tonnes Aug-Sep 2013
INEOS Grangemouth, UK (G4) 320,000 tonnes Q1 2014
Total Carling, France 320,000 tonnes H2 2015
Repsol Puertollano, Spain
155,000 tonnes
(reduction)
2015

37. www.icis.com
Europe polyethylene (PE) plant closures
Company Grade Location Capacity Shutdown
Versalis LLDPE Priolo, Italy
150,000
tonnes
Sept 2013
LyondellBasell HDPE
Wesseling,
Germany
100,000
tonnes
Q3 2013
Eni LDPE Gela, Italy
150,000
tonnes
End 2013*
Total HDPE
Antwerp,
Belgium
70,000 tonnes End 2014
Borealis HDPE
Burghausen,
Germany
175,000
tonnes
End 2014
Repsol HDPE
Puertollano,
Spain
90,000 tonnes 2015
* No formal confirmation from company

38. www.icis.com
Preparing for the flood of US imports
• Brenntag builds storage hubs at key European
locations
• “We expect substantially bigger flows of products to arrive
from the US by the end of 2015 and into 2016 when their
projects come onstream. By then the US will play an even
bigger role.” – Brenntag Europe CEO Karsten
Beckmann, Dec 2013

39. www.icis.com
Asia perspective from APIC (May 2014)
• New world order: The global energy and feedstock map
has changed with the advantage in the US and Middle East
• Asia players want a piece of the US shale gas advantage
• Imports of US ethane for petrochemical production
• Building crackers and downstream in the US
• Acquisitions of advantaged US assets
• What can compete with US and Middle East gas? China
coal-to-olefins (CTO)… possibly
‘Transformation, a map redrawn’

40. www.icis.com
Where does CTO and MTO fit on the cost curve?

41. www.icis.com
Conclusions
• US footprint in global petrochemicals and derivatives to grow
substantially. Up to 11 new crackers, 10 methanol plants, 9
on-purpose propylene facilities, plus downstream. Already 177
projects and $112bn in investment planned (ACC).
• Much of new production targeted for export
• Europe and Asia in particular will adapt investment models
• BUT huge challenges in US E&C resources and capital costs
• AND increasing demand draws on US natural gas (including
from Europe and Asia) – don’t count on low prices forever
• Risk of overcapacity – US build-out is the ‘stuff cycles are
made of’. Another risk is a big decline in crude oil prices.
Dramatic changes ahead!

42. www.icis.com
Thank you!
ICIS Chemical Business
Joseph Chang, Global Editor
joseph.chang@icis.com
www.icis-subs.com
+1 212 791 4224
ICIS Consulting
Karl Bartholomew (Americas)
karl.bartholomew@icis.com
+1 713 525 2605
Mike Perkins (Europe, Middle East, Africa)
Mike.perkins@icis.com
+44 (0)20 8652 8125
Ee Foong Ewe (Asia)
Eefoong.ewe@icis.com
+65 6780 4322

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