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© 2013 Platts, McGraw Hill Financial. All rights reserved. Life after shale gas: A race for marketshare Prema Viswanathan, Associate Editorial Director,

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Presentation on theme: "© 2013 Platts, McGraw Hill Financial. All rights reserved. Life after shale gas: A race for marketshare Prema Viswanathan, Associate Editorial Director,"— Presentation transcript:

1 © 2013 Platts, McGraw Hill Financial. All rights reserved. Life after shale gas: A race for marketshare Prema Viswanathan, Associate Editorial Director, Petrochemicals, Platts IPF, Tehran, 7-8 June 2014

2 2 Introducing Platts Platts is a commodity information and data provider founded by Warren Platt over 100 years ago, and owned by McGraw Hill Financial, a leading provider of ratings, benchmarks and analytics. Price ReportingAssessments Market ReportsBreaking News $!

3 3 Becoming a Global Leader – Office Locations Boston, MA New York, NY Washington, DC Hightstown, NJ Pittsburgh, PA Denver, CO Houston, TX São Paulo, BR Buenos Aires, AR London, UK Lausanne, CH Moscow, RU Dubai, UAE Shanghai, CN Hong Kong, CN Beijing, CN Tokyo, JP Singapore Melbourne, AUS Close to 1,000 staff around the world

4 4 4 The purpose of a transparent methodology Increases confidence in price benchmarks Encourages responsible behaviour Simplifies participation in the price discovery process Establishes high quality information for decision- making

5 5 5 Platts Market On Close (MOC) is not an Average Market on close assessment Average Time

6 6 Heards system propels market interface PX: Bid July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX:Jun/Jul bid heard at $13/mt CFR TND, Asia origin (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Offer Any July at $1,238/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Offer Any July at $1,240/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Jul bid heard at $1,215/mt CFR TND, Asia origin, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX:Jun/Jul bid heard at $13/mt CFR TND, Asia origin (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Offer Any July at $1,238/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Offer Any July at $1,240/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Jul bid heard at $1,215/mt CFR TND, Asia origin, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX:Jun/Jul bid heard at $13/mt CFR TND, Asia origin (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Offer Any July at $1,238/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) after MOC peg PX: Offer Any July at $1,240/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days, valid for 5 min (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,220/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) after morning peg PX: Jul bid heard at $1,215/mt CFR TND, Asia origin, T/T 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,210/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jun offer heard at $1,238/mt CFR Ningbo, Asia origin, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jul bid heard at $1,220/mt CFR Ningbo/Dalian/Jiangyin, Asia origin(exluding India/China/ME and Iran), L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX : 1h June offer at 1236 cfr NB, asia, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,210/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jun offer heard at $1,238/mt CFR Ningbo, Asia origin, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jul bid heard at $1,220/mt CFR Ningbo/Dalian/Jiangyin, Asia origin(exluding India/China/ME and Iran), L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX : 1h June offer at 1236 cfr NB, asia, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: Bid 1H July at $1,210/mt, CFR nb/tw/dl, Asia origin, origin excluding all ME, India and China, L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jun offer heard at $1,238/mt CFR Ningbo, Asia origin, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H1 Jul bid heard at $1,220/mt CFR Ningbo/Dalian/Jiangyin, Asia origin(exluding India/China/ME and Iran), L/C 30 days (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX: H2 Jun bid heard at $1,225/mt CFR TND, Asia origin, 5kt (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) PX : 1h June offer at 1236 cfr NB, asia, if form e, +1.75% return (for details contact Michelle Kim at or ; yahoo IM: platts_asia_px) May 21, 2014

7 7 Agenda US shale boom and impact on aromatics Production shifts to Middle East, Asia Middle East shift away from light feeds China’s opportunities & challenges India’s unmet potential Conclusion

8 8 Chemical companies profit from growth 8 Despite narrowing margins the global chemical industry accounts for $3 trillion Stocks of US chemical companies (eg. Dow Chemical) have been doing well Dow Chemical (NYSE:DOW) Historical Stock Chart 1 Year : From Apr 2013 to Apr 2014

9 9 US projects capitalise on ethane surplus 9

10 10 Ethane use to grow for next decade 10 Source: Platts Ethane consumption in US crackers has climbed from 41% of total feedstock in 2005 to 58% of total feedstock in 2013 Ethane is expected to account for 76% of US cracker feedstock by 2024 – Cut in propane use is necessitating PDH development – Aromatics output at the cracker has diminished, contributing to a tighter benzene market

11 11 Cheap ethane driving the boom 11 Source: Platts

12 12 US cracker margins – never better 12 Source: Platts Since early 2011, margins for US ethane and E/P Mix have climbed from $500/mt to $1,000/mt Naphtha margins, though, fluctuate from negative to $500/mt

13 13 Greenfields: Producers are “all-in” 13 Source: Company announcements, Platts CompanyLocation,000 mt/yrETA Formosa Plastics CUSATexas ExxonMobil ChemicalTexas 1, Chevron Phillips ChemicalTexas 1, Dow ChemicalTexas 1, SasolLouisiana 1, Occidental/MexichemTexas Appalachian ResinW. Virginia Aither Chemical/RMGW. Virginia Odebrecht (Braskem)W. Virginia 1,000-1, AxiallLouisiana1, Shin-Etsu (Shintech)Louisiana1, Shell ChemicalPennsylvania 1,000-1,

14 14 Brownfield projects: Good barometers 14 Source: Company announcements, Platts CompanyLocation+,000 mt/yrETA BASF-TotalTexas Dow Chemical (restart)Louisiana Westlake ChemicalLouisiana WilliamsLouisiana BASF-TotalTexas Westlake ChemicalKentucky IneosTexas Westlake ChemicalLouisiana LyondellBasellTexas (3) Dow ChemicalTX/LA (2)

15 15 The abundance of ethane Is encouraging investment Ethane demand will struggle to keep pace with supply growth Short balance in 2018 indicates ethane needs to flow from the Williston to supply crackers in the Gulf Coast Source: Bentek Market Call: North American NGLs

16 16 But investments based on imported ethane may not be cost-effective Plant Specs Plant size (million mt)1 Operating Rate95% Ethane feedstock requirement (b/d) 50, Total feedstock (b/year) 17,337, Source: Platts Petrochemical Analytics Capital Requirements Ship Capacity (bbls)250,000 Total deliveries needed Vessels needed for total deliveries 12 Vessel cost $ 85,000, Total vessel outlay $ 1,020,000, Per year contract volume (bbl) 17,337, Per year contracted outlay $ 86,940, Total contract outlay (20-years) $ 1,738,800, Anticipated Plant Cost $ 3,500,000, Total plant capital cost $ 6,258,800,000.00

17 17 Regional PE net trade overview 17 Source: Platts Petrochemical Analytics

18 18 Propylene squeezed at the cracker

19 19 Propylene will see a much larger impact 19 During the next decade, propylene produced by US crackers will fall 30% to 3.5 million metric tons in 2023 – down from just below 5 million metric tons in 2013 Such a drop is forcing industry to adopt on-purpose processes

20 20 Shale gas will yield less aromatics

21 21 US shift to light feeds expected to sink aromatics output Source: Platts Petrochemical Analytics Pygas to decrease 40% Crude C4 to decrease 20% Propylene to decrease 20% 69% growth in ethane based output 32% decrease in naphtha based output

22 22 Middle East adds petchem capacity Source: GPCA

23 23 Gas shortage to intensify in Middle East In billion cubic meters Source: Booz & Co Depleting supply of ethane in the GCC has forced producers to look at refinery-petchem integration and production of aromatics Government push towards job creation has also led to downstream expansion and diversification into aromatics

24 24 24 Middle East opts for aromatics, adds value Source: GPCA Aromatics productCapacity in MT/year Benzene3,655,000 Styrene3,295,000 Toluene2,035,000 Paraxylene3,618,000 Mixed Xylenes4,533,000 Source: Platts

25 25 Iran is the wild card which could bolster Middle East advantage Source: UN Comtrade, Platts Petrochemical Analytics Iranian PE exports prior to sanctions Iran exports continue despite sanctions China is now Iran’s No1 trading partner Major exporter of PE and methanol to China

26 26 Asia leads in chemicals capacity growth US, Europe. Japan have been the major production hubs in the past But Asia and the Middle East are fast catching up RegionCountryGrowth : North America25% Latin America33% Western Europe24% Emerging Europe35% Africa, Middle East40% Asia-Pacific46% China66% India59% South Korea35% Japan22% Source: American Chemistry Council (ACC)

27 27 Chemical production in China seen rising 8.5% in 2015 versus 8.8% in 2014, 8.5% in 2013: ACC China moving towards self- sufficiency, new methanol-to- aromatics and coal-to-benzene projects to help boost competitiveness But China expected to continue importing petchems, including aromatics in the next decade China: Opportunities

28 28 China’s shale gas ambitions China targeting shale gas output of 6.5 billion cubic meters/year by 2015, 60 billion-100 billion cu m/year by 2020 China’s shale gas output in 2013 was just 200 million cu m, according to the Ministry of Land and Resources Sinopec, CNPC leading the way By 2015, 110 new wells likely at Changning-Weiyuan

29 29 New CTO/MTO projects 29

30 30 CTO/MTO could flood global PE market 30 CTO and MTO projects in China could add up to 10 million mt of new PE capacity in the country by 2020 – nearly equal to China’s forecast demand growth.

31 31 China’s coal advantage 31 While coal CFR China has averaged just over $7/MMBtu, naphtha has averaged just over $20/MMBtu and JKM or spot LNG price just over $18/MMBtu. So a ratio of 1:2.8:2.6. Source: Platts

32 32 India: Unfulfilled Potential New optimism with business- friendly government at the helm, promise to prioritise infrastructure projects IMF said in April that India’s GDP is set to grow 5.4% in FY , and 6.4% in Forecast based on strengthening global growth, improving export competitiveness, recently approved projects, stabilising currency

33 33 India’s petchems imports to increase Source: 12 th Five Year Plan report, Government of India Inflation, policy delays, regulatory logjam, high interest rates curbing growth But low per capita consumption an opportunity for petchem players

34 34 Global oil markets: Stable on the surface 34 Source: Platts Dated Brent assessments

35 35 Petchems don’t always track crude Petchem markets are increasingly driven by supply-demand factors Source: Platts

36 36 Conclusion US petchem industry set to revive on shale gas boom But US will be short of aromatics, may need to import more Europe set for consolidation on uncompetitive feedstocks Middle East diversifying from gas based petchems to liquids, may meet the US shortfall China growth moderates, but imports to continue despite move towards self-sufficiency India’s growth story yet to unfurl, but demand set to improve

37 Thank you!


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