Shale revolution & chemicals industry (ennovance capital)


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[ By Ennovance Capital - Chemicals, energy, water, healthcare and chemistry related industry focused private equity and other alternative assets investors ]

We believe that the Shale Revolution presents a once-in-a-lifetime opportunity unique to the United States that will have a profound impact on the chemicals industry. Nearly 100 projects announced as of Q1-2013, $72 billion in potential chemical industry capital investments, $67 billion in additional output by 2020 (with new & permanent federal, state, and local tax revenue of $14 billion from increased chemical industry output by 2020, according to ACC)!

The Shale Revolution will create 17,000 new high-paying and knowledge-intensive positions in the chemical industry, will result in a $32.8 billion increase in United States chemical production, will cause $16.2 billion in capital investments to build new petrochemical and derivatives capacity, and will lead to $132.4 billion in United States economic output related to increased chemical production and capital investment. The Energy Information Administration estimates that shale gas production will grow 113% from 2011 to 2040 and that its share of United States natural gas production will grow from 34% to 50%. The primary end market consumers during this period will be the electric power generation end market and the industrial end market.

The input cost advantage in North America that is being led by an increasing abundance of nat gas and helping both organic chemical producers through NGLs as well as the inorganics through lower energy costs (Middle East being the one exception), the North American chemicals landscape looks to be the most promising world-wide for years to come, justifying the heavy domestic investment that the industry is set to see. There is the potential for a raw material cost advantage of up to 60% for products in the ethane-ethylene value chain.

Key questions would remain in our ability to manage typical risks for a complex industry, such as environmental, regulatory, specialized credits and equity investment approach, proper tax treatments, infrastructure and access to realize the Shale gas driven potentials. What are your thoughts?

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Shale revolution & chemicals industry (ennovance capital)

  2. 2.      17,000 new high-paying jobs in the industry $32.8 billion increase in US chemical production $16.2 billion in capital investments to build new petrochemical and derivatives capacity $83.4 billion in US economic output related to increased chemical production $49.0 billion in US economic output related to US chemical industry capital investment
  3. 3. Source: Energy Information Administration
  4. 4. Source: Energy Information Administration
  5. 5.      55 gigawatt reduction in coal-generated electricity between 2010 and 2020 resulting from EPA regulations Between 2000 and 20011, natural gas use for electric power generation grew from 5 trillion cubic feet (Tcf) to 7 Tcf Natural gas share of electricity generation grew from 22% in 2009 to approximately 30% today Coal generation declined from 45% in 2009 to 35% today The Energy Information Administration estimates that roughly 9 Tcf will be used for electric power generation by 2025 Source: Energy Information Administration
  6. 6. Manufacturing Industry 2012 2015 2020 2025 Basic Organic Chemical 1.2% 4.9% 7.1% 9.5% Basic Inorganic Chemical 0.8% 2.4% 3.9% 4.8% Resins & Synthetic Material 1.7% 4.4% 6.0% 8.1% Agricultural Chemical 1.2% 3.0% 6.9% 7.7% Plastics & Rubber Products 1.5% 3.5% 4.1% 4.6% Pharmaceutical & Medicine 0.8% 2.5% 2.4% 2.0% Paints, Soaps, Toiletries & Misc. 1.8% 2.8% 3.4% 3.8% Paper 0.6% 2.8% 3.0% 3.4% Source: IHS Chemical
  7. 7. Sources: CMAI, TopLine , Alembic, PwC
  8. 8.    US becoming one of world’s lowest cost ammonium producers due to increased shale gas Production capacity in US rose from 60% in 2006 to 90% in 2013 New or expanded production facilities between 2016 and 2018 will produce 6 million metric tons of ammonia, and US presently imports 7 million metric tons of ammonia
  9. 9.  Fracking involves 99.5% water and sand and 0.5% chemicals per well    Typical well requires 2.5 million gallons of water, 1.5 million pounds of sand Types of chemicals include: acids, biocides, corrosion inhibitors, friction reducers, gelling agents, oxygen scavengers Chemicals used include: methanol, benzene, toluene, xylene, ethyl benzene, hydrogen fluoride, sulfuric acid, and hundreds of others
  10. 10.     Natural gas is used as a feedstock to make methanol China currently accounts for more than half of the global methanol demand and will double because of increased Chinese investment in methanol-to-olefins production US capacity is expected to rise from a low of 750,000 tons in 2007 to 7.6 million tons by 2017 because of increased shale production The US could become a net exporter when the new domestic capacity becomes active
  11. 11.    Ethane cracking leads to higher proportion of ethylene compared to propylene, butadiene, and heavier aromatics than naphtha-based cracking Domestic naphtha-based crackers are being converted to natural gas liquid crackers Projects directly synthesizing heavier derivatives now experiencing greater returns
  12. 12.        Thousands of new jobs, billions in increased production, capital investment, and production Cheaper energy costs US cost-advantages in ethylene production, reducing input costs for manufacturers Nitrogen fertilizer capacity increasing and production becoming domesticized Methanol export opportunity to China Fracking requires substantial water treatment Greater margins on heavier derivatives
  13. 13. Source: ACC
  14. 14. Source – ACC, ihs
  15. 15.  $20 B - in NEW federal, state, and local tax revenue during investment phase (2010-2020)  $14 B - in NEW, PERMANENT federal, state, and local tax revenue from increased chemical industry output (by 2020) Source: ACC
  16. 16.         Environmental and human risk Credit and equity investment cycle Unsophisticated participant in a complex industry (…gold rush) Technology improvement needs Regulatory framework Infrastructure Access …..
  17. 17.