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© 2013 Platts, McGraw Hill Financial. All rights reserved.
Kevin Allen
Managing Editor
Americas Petrochemicals and Biofuel...
2
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker b...
Crude to gas ratio and the feedstock advantage
3
NGLs and the impact at the steam cracker
4
• Traditional light naphtha fed steam
crackers produce significantly less
ethyl...
Robust margins spur investment in new capacities
5
New builds
Company Location MM mt/yr ETA
Aither Chemical/RMG TBD/USNE 0...
New ethylene capacities likely to be polymerized
Company Location MM mt/yr ETA
Formosa Plastics USA Texas (1) 0.3 (LDPE) 2...
Not all that glitters is gold…
7
So the US has a feedstock advantage, new ethylene and ethylene derivative capacities and ...
And then there is China…
• Finally there is China. If the
country’s economic growth
continues to lag at slightly
under 8%,...
9
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker b...
US propylene output: refinery versus cracker
10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000
2001
2002
2003
2004
2005
...
Overview of steam cracker production at the end of 2012
• The preference for lighter feed slates weighed
heavy to close ou...
US propylene production in billions/lbs
If these estimates are indeed accurate, then total US propylene supply from ethyle...
Tight supply supports high PGP prices, fosters volatility
Volatility spills downstream to spot polypropylene
US PP export prices not competitive globally
US polypropylene exports in metric tons: 2006-2012
16
1,564,342
1,998,633
1,530,651 1,600,054
1,231,368 1,195,139
1,083,80...
Higher PP prices open the door for HDPE substitutions
17
Anticipated additional propylene from cracker projects
77,936
91,831
165,402 169,481
252,492
392,577
0
50,000
100,000
150,...
Company Location Capacity (mt/year) ETA
Dow Chemical Freeport, TX 750,000 2015
Enterprise Mont Belvieu, TX 750,000 Q3, 201...
Anticipated North American PP consumption
7,758,000
7,940,000
8,133,000
8,338,000
8,553,000
7,200,000
7,700,000
8,200,000
...
21
• Total propylene output from steam
crackers in the US in 2012 was just under
4.4 million mt.
• Additional output from ...
22
• To meet anticipated
polypropylene demand in the
North America in 2015, monomer
supplies would need to be just
under 8...
23
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker ...
The shale boom and it’s impact on aromatics
24
The shift to lighter feed slates by US steam cracker operators has negative...
112,405
125,584
99,376
128,385
99,450
141,212
130,619
145,038
109,478
149,697
80,000
90,000
100,000
110,000
120,000
130,00...
Benzene prices strong, prone to volatility
26
Toluene and MX from crackers to experience similar fate
Blue = Anticipated toluene output
Red = Anticipated MX output
0
50...
This is bad news for aromatic derivatives
28
• Tighter supply has led to higher mixed xylene
prices which means higher par...
US mixed xylene and toluene blend values
29
Impact from shale not confined strictly to gas
• Aromatics production in the US has been constrained, not only by the shif...
US crude production versus imports
MBPD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
US Production
US Imports
MBPD
-
200
400
600
8...
Average API of crude input GC/NE refineries
32
Since 2007-08, we can see a shift toward lighter crudes with higher APIs. O...
Conclusion
• Vast reserves of shale gas have revived the US petrochemical industry and prompted
investment in new projects...
Thank you
Visit www.platts.com to register to see more of this
great petchems content & why not join the
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The changing dynamics and new challenges facing the North American petrochemical industry - Aromatics, Polymers & Olefins

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A comprehensive review of the developments in shale gas affecting the North American petrochemical markets

• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production.
• Most significant in propylene as constraints impact pricing and facilitate volatility. Spillover effect for derivative products.
• Pending supply increases. Will it be enough?
• The shale boom and its impact on aromatics
• Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET
• Increased crude from shale plays and impact on crude import/export balance
• Northeast refineries shift to lighter crudes, trend likely to continue going forward.

• Conclusion
• What does this mean for the US petrochemical landscape going forward?
• How will this impact/alter global petrochemical trade flows?

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The changing dynamics and new challenges facing the North American petrochemical industry - Aromatics, Polymers & Olefins

  1. 1. © 2013 Platts, McGraw Hill Financial. All rights reserved. Kevin Allen Managing Editor Americas Petrochemicals and Biofuels - Platts May 15, 2013 Houston, Texas The changing dynamics & new challenges facing the North American petrochemical industry Visit www.platts.com to register to see more of this great petchems content & why not join the Platts Petrochemical group on LinkedIn to receive the latest updates
  2. 2. 2 Agenda • The benefits and detriments of the shale gas revolution • Feedstock advantage spurs investment in new cracker builds and expansions • New polyethylene capacities and exports to Latin America • Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production. • Most significant in propylene as constraints impact pricing and facilitate volatility. Spillover effect for derivative products. • Pending supply increases. Will it be enough? • The shale boom and its impact on aromatics • Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET • Increased crude from shale plays and impact on crude import/export balance • Northeast refineries shift to lighter crudes, trend likely to continue going forward. • Conclusion • What does this mean for the US petrochemical landscape going forward? • How will this impact/alter global petrochemical trade flows?
  3. 3. Crude to gas ratio and the feedstock advantage 3
  4. 4. NGLs and the impact at the steam cracker 4 • Traditional light naphtha fed steam crackers produce significantly less ethylene however have a higher yield of propylene and C4s. For instance, light naphtha would give an ethylene yield of near 35% but would give a propylene yield of near 16% while offering up a C4 and butadiene yield of 9 and 5%, respectively. • Pygas output cut significantly with ethane, propane and E/P mix feeds, down from 19% with naphtha to 2-7% depending on mix. • Switching to NGLs, specifically ethane and propane, increases ethylene output to between 66-78% but cuts propylene and C4 output virtually in half.
  5. 5. Robust margins spur investment in new capacities 5 New builds Company Location MM mt/yr ETA Aither Chemical/RMG TBD/USNE 0.20-0.30 2016 ExxonMobil Chemical Texas 1.5 2016 Formosa Plastics CUSA Texas 0.8 2016 ChevronPhillips Chemical Texas 1.5 2017 Dow Chemical Texas 1.5 2017 Sasol Louisiana 1.5 2017 Occidental/Mexichem Texas 0.55 2017 Shell Chemical Pennsylvania 1-1.50 2017 Expansions Company Location MM mt/yr ETA BASF-Total Texas 0.06 2012 Dow Chemical (restart) Louisiana 0.40 2012 Westlake Chemical Louisiana 0.11 2013 Williams Louisiana 0.23 2013 Ineos Texas 0.12 2013 Westlake Chemical Kentucky 0.08 2014 BASF-Total Texas 0.10 2014 Westlake Chemical Louisiana 0.11 2015 LyondellBasell Texas (3) 0.83 2014-16 Dow Chemical TX/LA (2) 0.40 2014-16
  6. 6. New ethylene capacities likely to be polymerized Company Location MM mt/yr ETA Formosa Plastics USA Texas (1) 0.3 (LDPE) 2016 ExxonMobil Chemical Texas (2) 1.3 (TBD) 2017 ChevronPhillips Chemical Texas (2) 1.0 (TBD) 2017 NOVA Chemicals Joffre, Canada 1.0 (LLDPE) 2017 NOVA Chemicals Sarnia, Canada World scale 2017 Dow Chemical USG TBD 2017 Shell Chemical Pennsylvania 1.0 (TBD) 2017 New polyethylene projects announced: • At least 5.5 million metric tons of new PE capacity announced as a result of lower production costs. • Latin America is likely the target destination for US PE producers given higher prices and shorter delivery time. The region boasts a population of near 600 million people with a bourgeoning middle class in places like Mexico and Brazil. • Additionally Latin America has seen strong economic growth with countries such as Panama, Peru and Chile posting GDP growth in 2012 of 10.5, 6.2 and 5.5% respectively. • Growth expected to continue as the United Nations' Economic Commission for Latin America and the Caribbean (ECLAC) predicts the region's economy will expand by 4% in 2013.
  7. 7. Not all that glitters is gold… 7 So the US has a feedstock advantage, new ethylene and ethylene derivative capacities and an outlet for this material in Latin America. What is the problem? • US producers would have to alter their current strategy. • Margins destined to shrink over time as new steam crackers increase ethane demand and push prices higher. • US ethylene and PE prices yet to see benefit of cheap ethane. • Producers must consider the 6.5 million metric tons of additional capacities in Asia and the Middle East slated to come online by 2015. • Protectionism. Brazil increased its import tariff on US PE from 14% to 20% in 2012. Additionally Braskem is aggressively working to expand its market share with projects in Mexico, Venezuela, and Peru.
  8. 8. And then there is China… • Finally there is China. If the country’s economic growth continues to lag at slightly under 8%, buy interest will wane and we could see re- exports targeting places like Peru and Chile • As well, there have been a number of coal to olefins announcements in China. If all are realized and run at full rates, we could see an additional 12.5 million metric tons of olefins capacity come online 8 *Nexant
  9. 9. 9 Agenda • The benefits and detriments of the shale gas revolution • Feedstock advantage spurs investment in new cracker builds and expansions • New polyethylene capacities and exports to Latin America • Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production. • Propylene and heavy products hit hard • Production constraints due to NGL shift impact propylene pricing and facilitate volatility. Spillover effect for derivative products. • Pending propylene supply increases. Will it be enough?
  10. 10. US propylene output: refinery versus cracker 10 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Refinery Cracker • Between the years of 2000 and 2011, the percentage of propylene coming off the steam cracker fell by roughly 40%. In 2011, propylene yields off steam crackers were roughly 34%. • During that same period, the percent of propylene off of refineries grew by over 30% and accounted for near 65% of propylene production in 2011. Source: Chemical Market Resources
  11. 11. Overview of steam cracker production at the end of 2012 • The preference for lighter feed slates weighed heavy to close out 2012 . • Propylene output from steam crackers in December shrank 7.3% from the previous month, to 28.53 million lbs/day while the P/E (propylene/ethylene) ratio sank to 19.62%. • The B/E (butadiene/ethylene) ratio has also seen sharp declines in recent years, falling from near 8.25% in 2005 to close out 2012 at 5.50%, a decrease of approximately 35%. • Output of propylene and butadiene from steam crackers seems unlikely to improve going forward as the use of naphtha as a feed continued to decline, estimated at 6.5% in December, down from 13% in 2011 and 23.8% in 2008. Source: Hodson Report
  12. 12. US propylene production in billions/lbs If these estimates are indeed accurate, then total US propylene supply from ethylene crackers in 2012 would be just under 4.4 million mt. 15.2 14.7 12.8 10.8 11.4 10.8 9.7 6.00 8.00 10.00 12.00 14.00 16.00 18.00 2006 2007 2008 2009 2010 2011 2012
  13. 13. Tight supply supports high PGP prices, fosters volatility
  14. 14. Volatility spills downstream to spot polypropylene
  15. 15. US PP export prices not competitive globally
  16. 16. US polypropylene exports in metric tons: 2006-2012 16 1,564,342 1,998,633 1,530,651 1,600,054 1,231,368 1,195,139 1,083,800 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 2006 2007 2008 2009 2010 2011 2012 Source: ITC
  17. 17. Higher PP prices open the door for HDPE substitutions 17
  18. 18. Anticipated additional propylene from cracker projects 77,936 91,831 165,402 169,481 252,492 392,577 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2012 2013 2014 2015 2016 2017 *based on 100% ethane feedstock when applicable Metric Tons
  19. 19. Company Location Capacity (mt/year) ETA Dow Chemical Freeport, TX 750,000 2015 Enterprise Mont Belvieu, TX 750,000 Q3, 2015 C3 Petrochemicals Alvin, TX 1,200,000 H2, 2015 Formosa Point Comfort, TX 600,000 2016 Williams Redwater, Alberta 500,000 2016 *Dow Chemical TBD TBD 2018 *Enterprise Mont Belvieu, TX TBD TBD *Under Study PDH units to provide lion’s share of new supply • PDH announcements continue to increase with several companies announcing new capacities with at least two projects under study. Total increase in production expected at 3.8 million mt/year by 2016, assuming all projects a realized.
  20. 20. Anticipated North American PP consumption 7,758,000 7,940,000 8,133,000 8,338,000 8,553,000 7,200,000 7,700,000 8,200,000 8,700,000 2011 2012 2013 2014 2015 Source: Townsend Solutions Metric Tons
  21. 21. 21 • Total propylene output from steam crackers in the US in 2012 was just under 4.4 million mt. • Additional output from new steam cracker projects expected to be about 392,500 mt. • If all on purpose PDH units, not currently under study but including Williams Alberta unit, come to fruition, propylene supply in the US will increase 3.8 million mt. 4,400,000 + 392,500 + 3,800,000 -------------- 8,592,500 mt Expected capacity increase from crackers and PDH units • This raises the question: Is 8.592 million mt of new propylene capacity enough?
  22. 22. 22 • To meet anticipated polypropylene demand in the North America in 2015, monomer supplies would need to be just under 8.725 million mt. • Factor in continued growth in PP consumption at 2.5% per year and North American demand for propylene in 2016 would be 8,942,161 mt. • In 2017, presuming consumption levels in the region hold steady, total propylene demand needed for PP would be just under 9.165 million mt. C3 from crackers will not meet expected PP demand (Total US production - 2017) 8,592,500 – (PP demand in 2017) 9,165,720 -------------- (573,220)
  23. 23. 23 Agenda • The benefits and detriments of the shale gas revolution • Feedstock advantage spurs investment in new cracker builds and expansions • New polyethylene capacities and exports to Latin America • Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production. • Propylene and heavy products hit hard • Production constraints due to NGL shift impact propylene pricing and facilitate volatility. Spillover effect for derivative products. • Pending propylene supply increases. Will it be enough? • The shale boom and its impact on aromatics • Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET • Increased crude from shale plays and impact on crude import/export balance • Northeast refineries shift to lighter crudes, trend likely to continue going forward.
  24. 24. The shale boom and it’s impact on aromatics 24 The shift to lighter feed slates by US steam cracker operators has negatively impacted aromatics output at the cracker. From 2011-2012 we can see a sharp reduction in benzene production from steam crackers in where volumes declined by over 17.5%. 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 2011 2012 2013 2014 2015 2016 2017 Metric Tons
  25. 25. 112,405 125,584 99,376 128,385 99,450 141,212 130,619 145,038 109,478 149,697 80,000 90,000 100,000 110,000 120,000 130,000 140,000 150,000 160,000 170,000 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Sep 2012 Nov 2012 Oct 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Benzene exports from South Korea (in metric tons)
  26. 26. Benzene prices strong, prone to volatility 26
  27. 27. Toluene and MX from crackers to experience similar fate Blue = Anticipated toluene output Red = Anticipated MX output 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2011 2012 2013 2014 2015 2016 2017
  28. 28. This is bad news for aromatic derivatives 28 • Tighter supply has led to higher mixed xylene prices which means higher paraxylene prices. • Paraxylene is a feedstock for PTA, which then is a feedstock for PET. The end use for PET in North America is from bottled beverages though PET fiber constitutes a larger chunk of demand in Asia. • Higher mixed and paraxylene prices also make US exports less attractive to buyers in Asia, which is significant as demand for xylenes in the region is expected to be strong amid a surge of new PTA production. • China alone is expected to see 10.9 million mt of capacity come online by the first half of this year. Asian PTA capacity is expected to increase by near 19 million mt by 2015.
  29. 29. US mixed xylene and toluene blend values 29
  30. 30. Impact from shale not confined strictly to gas • Aromatics production in the US has been constrained, not only by the shift to lighter feeds at the cracker, but also at the refinery due to increased production of unconventional tight oil. • Crude from the Eagle Ford play is set to surge in the coming years with production slated to increase more than three-fold between 2012-2020. • Prior to the shale boom, refiners were utilizing crude which had an estimated 40% naphthene and aromatic cut. The naphthene and aromatic cut from unconventional tight oil is estimated at near 35%. • The reduction of aromatics as a result of shale plays is difficult to quantify though as many US refiners cannot run straight Eagle Ford crude and are most likely to blend with heavier crudes. • Trend shows that refiners in the Northeast and Gulf Coast are utilizing lighter crudes with a higher API. 30
  31. 31. US crude production versus imports MBPD 0.00 2.00 4.00 6.00 8.00 10.00 12.00 US Production US Imports MBPD - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
  32. 32. Average API of crude input GC/NE refineries 32 Since 2007-08, we can see a shift toward lighter crudes with higher APIs. Of particular interest here is the input into refineries in the Northeast, which have seen a shift from medium crudes in 2008 to lighter crudes in 2012. Similar movement can be seen in the US Gulf inputs below, though not as pronounced. 27.83 29.7 30.95 32.93 22 24 26 28 30 32 34 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
  33. 33. Conclusion • Vast reserves of shale gas have revived the US petrochemical industry and prompted investment in new projects. • Brownfield projects most likely to benefit from cost advantage while those who come late to the game will see margins crunched as demand for ethane pushes costs higher. • New ethylene capacities likely to be polymerized and global trade flows will shift as US demand will not keep pace. US sellers will likely target Latin America, the Caribbean and to a lesser extent Europe and Africa however increased PE capacities globally, shrinking prices/margins due to increased PE supply, and protectionism in Latin America could prove to be problematic. • Propylene and derivatives will continue to take a beating as a result of the shift to lighter feed slates at the cracker. Even with new production from planned PDH units, propylene supply from crackers will be insufficient to meet PP demand. • US aromatics production negatively impacted by shale gas and crudes with benzene likely to be hardest hit. • Processing unconventional tight oil likely to continue as companies such as Phillips 66, FHR and Marathon invest in Eagle Ford projects and look to increase capacity to process Eagle Ford crude. 33
  34. 34. Thank you Visit www.platts.com to register to see more of this great petchems content & why not join the Platts Petrochemical group on LinkedIn to receive the latest updates Kevin Allen Managing Editor – Americas Petrochemicals kevin_allen@platts.com

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