PEMEX PETROQUIMICA 2013 ANNUAL CONFERENCE PCI Xylenes & Polyester Doug Rightler
Discussion Points» MEG demand growth by region.» MEG supply - China is in control or is it?» Price drivers - the Chinese trader and speculation. Can there be effective forecasting?» Impact of shale gas and cheap ethane on US MEG production.» US PEO getting dangerously close to a major supply problem.
MEG Overview» The global MEG market continues to be spooked by uncertainties in demand and downstream markets, as well as economic woes around the world.» Demand growth in 2012 was forecast at 1.5 million tonnes came in at 1.0 million tonnes final. China on target nearly ROW did not deliver.» Initial demand forecast 2013 was also 1.5 million tonnes but GDP rates have been cut so forecast cut to 1.35 million tonnes. Likely result growth forecast of 1.1 to 1.2 million tonnes MEG.
MEG Overview» From late last year gambling mentality in China having huge impact on spot pricing in MEG => pricing in all regions affected (US??) as everyone looks to China spot.» MTO up and running no surprise was expected.» China is investing in MEG or trying too as it did in PTA => issue who will really build or not.» What is the threat from coal based MEG?
Million Tonnes Growth Rates World Fiber & PET MEG Growth 18 16 14 12 10 8 6 4 2 0 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 EGAF PET Fiber Fiber Rate PET Rate 35% 30% 25% 20% 15% 10% 5% 0% -5%
Million Tonnes Global EO Demand by End Use: 2001-17 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 Total Glycols Ethanolamines Ethoxylates Glycol Ethers Polyols PEGs Other/Inventory
Million Tonnes New EO 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2012 2013 2014 2015 2016 2017 China North America Middle East/Africa Other Asia
Million Tonnes New MEG 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2012 2013 2014 2015 2016 2017 China North America Middle East/Africa Other Asia
Million Tonnes World MEG Capacity vs Demand Increase 5 The missing years 3 1-1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Capacity Increase Demand Increase
Million Tonnes MEG Demand by Region 25 20 15 10 5 0 2011 2012 2013 2014 2015 2016 2017 North America South America Europe Middle East/Africa Asia
Million Tonnes MEG Production by Region 18 16 14 12 10 8 6 4 2 0 2011 2012 2013 2014 2015 2016 2017 North America South America Europe Middle East/Africa Asia
Million Tonnes Surpluses and Deficits of MEG 10 8 6 4 2 0-2 -4-6 -8-10 2011 2012 2013 2014 2015 2016 2017 NAFTA Latin America Europe MEA China Other Asia
MEG Production (Thousand Tonnes) Country 2012 2013 2014 2015 2016 2017 12vs 13 Saudi Arabia 6,250 6,232 5,994 6,452 6,486 6,466-19 China 2,976 4,607 5,864 6,799 8,306 8,328 1,631 Taiwan 1,941 2,073 2,428 2,402 2,253 1,789 132 USA 1,648 1,562 1,753 1,749 2,108 3,080-86 Canada 1,463 1,517 1,533 1,528 1,520 1,503 54 Kuwait 1,061 1,221 1,168 1,168 1,168 1,168 161 Korea 1,181 1,146 1,135 1,245 1,166 1,131-35 India 1,080 1,082 1,111 1,250 1,717 1,706 1 Singapore 800 777 747 723 687 670-23 Iran 763 757 747 776 772 731-7 Japan 646 690 664 631 625 497 43 Belgium 532 499 527 500 389 405-33 Russia 359 352 440 441 446 1,075-6 Thailand 350 341 340 340 339 334-9 Malaysia 366 320 346 342 345 342-46 Mexico 252 251 240 250 242 235-1 Germany 190 229 281 217 134 169 39 Indonesia 234 219 219 218 184 156-15 Brazil 182 125 111 95 155 457-56
MEG Demand (Thousand Tonnes) Country 2012 2013 2014 2015 2016 2017 12vs 13 China 11,140 11,690 12,429 13,157 14,128 14,931 550 USA 2,227 2,273 2,272 2,300 2,409 2,471 46 India 1,674 1,810 2,036 2,320 2,509 2,846 136 Korea 1,199 1,189 1,177 1,201 1,236 1,245-11 Taiwan 924 961 978 995 1,003 993 37 Indonesia 616 720 779 843 941 992 104 Thailand 435 485 502 511 526 538 50 Mexico 434 466 471 478 469 469 32 Japan 429 448 456 466 475 475 19 Germany 378 371 362 365 365 372-6 Russia 285 315 359 399 420 456 30 Pakistan 251 270 310 343 361 384 19 Turkey 197 265 342 368 383 407 68 Brazil 211 236 318 376 412 422 25
Million Tonnes World MEG Balance 45 90% 40 89% 35 88% 30 87% 25 86% 85% 20 84% 15 83% 10 82% 5 81% 0 80% 2011 2012 2013 2014 2015 2016 2017 MEG Capacity MEG Production MEG Consumption EO Utilisation Rate» MEG consumption expected to rebound following poor 2012.» Supply just barely keeps pace with demand but the DMO is now critical.» Middle East not until 2017 or later.» EO utilization rates have to hit near max every year through 2015.» Next wave of surplus projected for 2016 with maximum surplus 2017-18.» U.S. and China lead the way
Million Tonnes Million Tonnes China MEG Production Surges Ahead 16 14 12 10 8 6 4 2 0 2011 2012 2013 2014 2015 2016 2017 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Inventory (RHS) Production Imports Demand
000 Tonnes MEG Sourcing based on Raw Materials 40,000 35,000 30,000 More DMO plants or MTO plants would put pressure on the producers: but not advantaged feedstocks. 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 Advantaged Napthta Ethanol MTO DMO Others
China DMO production Possible Outcome 2013 2014 2015 2016 2017 Capacity 1,232.8 1,932.8 2,990.0 3,198.2 3,190.0 Base Case Production 453.4 923.0 1,595.0 1,806.0 1,806.0 Base Case Rate 36.8% 47.8% 53.3% 56.5% 56.6% at 80% 986 1,546 2,392 2,559 2,552 inc prodn at 80% 533 623 797 753 746 cum inc production 533 1,156 1,953 2,706 3,452
000 Tonnes China DMO MEG impact on China inventory if it works at 80% vs 50% base case 2,800 2,300 1,800 1,300 800 300 2011 2012 2013 2014 2015 2016 2017 inv demand adj inv with DMO at 80%
Million Tonnes What About The Sleeper Projects? 7 6 5 4 3 2 1 0 2015 2016 2017
Million Tonnes # new China plants The Nightmare! China does to MEG what they did to polyester and PTA 40 35 30 25 23 25 20 15 20 15 10 5 0 12 10 10 9 8 5 5 3 2 0 2013 2014 2015 2016 2017 2018 2019 2020 cum world demand cum world supply # of new China MEG
$/tonne Comparative Cash Cost Economics: Integrated EO from Cash Cost C2 1,600 1,400 1,200 Brent at $120 Naphtha - Asia & Europe Green EO in India and Taiwan from ethanol near $1650/tonne cash cost 1,000 800 600 U.S./Mexico ethane Canada China DMO,MTO integrated to coal 400 200 Middle East 0
Regional Ethylene ($ tonne) del 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asia spot Europe cnt U.S. cnt
$/Tonne Asia MEG Volatility 1,600 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 C2 Margin MEG Margin Integrated Cost Spot Price
Million Tonnes $/Tonne World & China MEG Inventory 3.0 2.5 1.35 MMT demand increase in 2013 1,400 1,200 2.0 1.5 1.0 0.5 0.0 2009 2010 2011 2012 2013 Projected Inventory MEG demand China MEG Inv Asia Spot Price 1,000 800 600 400 200 0
AMERICAS
New Americas Investments Polyester Industry (units kt)» Petroquimica Suape, Brazil 540 polymer late 2013» Indorama Decatur, Alabama 500 polymer 2016» M&G, Corpus Christie, Tx 1000 polymer late 2016» Ineos, LaPorte, TX 700 MEG Q3 2016» Sasol, Lk. Charles, La, 300,240 EO/MEG 2017» MEGlobal 600 MEG 2017» M& G, Corpus Christie, TX 1200 PTA late 2016» Petroquimica Suape, Brazil 700 PTA Q1 2013
000 Tonnes Americas Polyester Production 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 USA Mexico Brazil Argentina Canada
North America MEG issues» MEGlobal expands Fort Saskatchewan in Q2 2013 by substantial amount.» Shell to add a 200,000 tonnes EO reactor to allow max 375,000 tonnes MEG production at Geismar in 2015. Now estimated to be 170,000 tonnes.» Huntsman has moved the 115,000 tonnes used EO reactor from PDGlycol site to its location for feed to PEO and MEG.» How much PEO is Ineos planning to use which would limit MEG?» Up to four other EO/MEG plants soon appear, other than Shell and Ineos.» US will become net exporter putting MEG prices at a minimum of Asia spot less freight, but low cost ethylene makes this a good strategy.» Still just a handful of very big buyers: DAK, M&G, Indorama, Old World, Prestone - so competition remains keen.
New EO MEG U.S. (kt)» Ineos 550 EO, 700 MEG PEO? Q3 2016» Sasol 300 EO, 100-150 PEO, 180-240 MEG 2017» MEGlobal 450 EO, 600 MEG 2017» Formosa 640 EO, 800 MEG 2017?» Shell 540 EO, 750 MEG no PEO 2020» Other 592 EO 740 MEG 2017-18?» Alpek? Indorama? Mitsubishi? Westlake? Aither Chem? Ethanol to EO?
Billion Pounds U.S. Ethylene new max capacity and max use for EO 40 35 30 25 20 15 10 5 0 2013 2017 2020 Ethylene C2 for EO
Million Tonnes US MEG Balance 4.0 92% 3.5 91% 3.0 90% 2.5 89% 2.0 88% 1.5 87% 1.0 0.5 86% 0.0 85% 2011 2012 2013 2014 2015 2016 2017 MEG Capacity MEG Production MEG Consumption EO Utilisation Rate» MEG turnarounds are significant in 2013, especially first half of the year.» Imports may increase from Canada as some Saudi Arabia imports appear to be redirecting to South America.» EO for EODs continues to grow, taking EO from MEG.» Ineos still planning new 750,000 tonnes plant by Q3 2016.» Shell Northeast, maybe 2020.» At least three other real prospects for new MEG plants in US by 2017.» Mitsubishi Corp MEG, in Trinidad.» Shell and Huntsman add crude EO capacity in 2014-15 to use existing MEG capacity.
Million Tonnes U.S. MEG Production vs Demand 3.5 MEGlobal 3.0 2.5 Huntsman Shell Ineos 2.0 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2015 2016 2017 Production Demand
Million Tonnes U.S. Crude EO Production 5.0 4.5 4.0 Huntsman Ineos Shell Sasol MEGlobal 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2012 2013 2014 2015 2016 2017 2018 2019
000 Tonnes US PEO Merchant Sellers 1,000 900 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 2016 2017 Demand Effective Capacity
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 U.S. EO vs MEG margin ($/Tonne) 700 600 500 400 300 200 100 0-100 MEG EO
ene-11 mar-11 may-11 jul-11 sep-11 nov-11 ene-12 mar-12 may-12 jul-12 sep-12 nov-12 ene-13 mar-13 $/Tonne Regional PEO pricing vs PEO value as MEG 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Ethylene Oxide Prices (incl Freight) 2011-2013 West Europe United States Far East (China) China EO as MEG
Conclusions» World is in balance for EO and MEG through 2015.» Expect surplus EO and MEG to start in 2016 with lower prices with stable oil values.» Oil sets the cost curve floor for Asia and Europe while the US will have a huge advantage using abundant ethane from growing shale gas supply.» US will have lowest EO derivative costs and scale and is in perfect position to dominate global growth for commodity type EODs, i.e. alcohol ethoxylates, ethanolamines, ethers.» Specialty ethoxylates to remain regional supply to meet regional demand.» U.S. PEO merchant EO values rising to match MEG margins and supply should be a concern until new capacity arrives.