Energy and Petrochemical Outlook - Elite...

woodmac.com/chemicals Trusted Chemicals Intelligence

Ashish Chitalia, Principal Analyst, Polyolefins

Energy and Petrochemical Outlook The EPS transition

http://woodmac.com/chemicals

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woodmac.com/chemicals Energy and Petrochemical Outlook

Energy Outlook

Petrochemical Outlook

Sustainability in Plastics



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woodmac.com/chemicals

Global Energy Outlook



4


The Global Energy Transition (GET) Rapid technology advancements + convergence of multiple trends has already disrupted many businesses, and there are signals that the energy sector may be the next in line

1800-1

850

Biomass

1850 -

2005

Coal, Oil and Gas

Industrial Revolution I,II,III 2

005-2

050

Renewables

Industrial Revolution IV

Sustainability



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How fast is the Energy Transition?

A shift in both primary energy demand (cooking/heating, mobility and Industrial) and the role of renewables in the power sector

Source: Wood Mackenzie.Energy Market Services

Share of wind, solar power generation by

region: 2018 – inner circle; 2035 – outer circle

3%

6%

14%

1%

3%

8%

14%

13%

28% 13%

10%

27%

Africa Asia Pacific Europe

Middle East Other NA

6.5% (2018-2035)

Energy and Petrochemical Outlook

Demand index: global fossil fuel v. electricity

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025 2030 2035

Ind

ex

, 1

00

= 2

00

0

Coal Oil

Gas Electricity

A long future for hydrocarbons

remains visible



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What about oil? Near-term, the global demand grows ~1.2 million b/d

„Stable‟ growth belies wild swings in-country demand. Recession remains a key threat

Source: IEA MODS, EIA, government statistics, Wood Mackenzie

Global GDP outlook

0%

1%

2%

3%

4%

5%

6%

7%

8%

2014 2015 2016 2017 2018 2019 2020

An

nu

al

GD

P g

row

th

Global China India US Europe

overall softening in global growth

from 3.1% in 2018 to 2.7% in 2020,

although economies in commodity

producing regions strengthen

Global New demand by main geographic

markets for liquids (Crude + NGLs)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2014 2015 2016 2017 2018 2019 2020a

nn

ual c

han

ge

mil

lio

n b

/d

China Rest Asia US

Europe Other* Global

Asia


Source: Wood Mackenzie Macro Oil Services



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Global oil demand

Longer-term: Global liquids demand peaks at 110 million b/d in 2036 Fuel efficiency and increasing EV penetration cause the transportation fuel demand to peak in 2036

Source: Wood Mackenzie Macro Oils and Product Market Services

75

80

85

90

95

100

105

110

115

120

125

2000 2005 2010 2015 2020 2025 2030 2035 2040

Mill

ion

b/d

2000-2017

trend

Avg. annual

growth

Avg. annual

growth

2000-17 1.2 mbd 1.4%

2017-40 0.5 mbd 0.5%




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The global oil market is counting on the US to deliver

Source: Wood Mackenzie Macro Oils and Lower 48 (NAWAT)

Key country total liquids production capacity

growth/ decline, 2017 to 2025

-2 0 2 4 6

US

Iraq

Canada

Brazil

UAE

Iran

Kuwait

Libya

Guyana

Uganda

Nigeria

Russia

Qatar

Algeria

Colombia

UK

Indonesia

Angola

Venezuela

Mexico

China

Million b/d change

Growth 2017-2025 Decline 2017-2025

Max peak in period Min trough in period

-1 to -5 million b/d

-0.5 to -1 million b/d

>+2 million b/d

+1 to +2 million b/d

+0.5 to +1 million b/d

-0.1 to -0.5 million b/d

+0.1 to +0.5 million b/d

-0.1 to +0.1 million b/d

US Lower 48 crude and condensate production

0

2

4

6

8

10

12

14

Cru

de

oil

an

d fie

ld c

on

de

nsa

te

pro

du

ctio

n (

mill

ion

b/d

)

Other Eagle Ford

Bakken Niobrara

SCOOP-STACK-Cana Permian (incl. Conventional)

Reserves Growth




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Price pressure re-emerges as high-cost production is required to meet long-term oil demand forecast Brent price outlook (nominal)

54

97

111 112 109 99

44 54

73 73 70 76 80 84 80 79 79 83 87

92 97 101 110

118 128

135

0

20

40

60

80

100

120

140

160

2005 2010 2015 2020 2025 2030 2035

$/bbl

Brent Crude Oil Price (Nominal $/bbl)

• Heightened geopolitical tension,

• Concern over OPEC spare capacity

• Permian infrastructure constraints

keep prices elevated

• Demand flat with the GDP

Continued US production growth

• Increasing breakevens for US tight oil + non-OPEC production growth slows

• The need for more expensive conventional production to fill the supply gap

More supply from conventional

products (sanctioned during the run-

up from 2020-2023)

• Higher cost supply is required to

meet growing demand

• To replace significant

conventional and increasingly

unconventional declines.


Source: Wood Mackenzie Macro oil services


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0%

20%

40%

60%

0

40

80

120

2000 2005 2010 2015 2020 2025 2030 2035

Che

mic

als

Mill

ion

Ba

rre

ls P

er

Day

Transport Petrochemicals

Res/Comm/Agri Electricity

Other Chemicals Proportion

Global Crude Oil Demand ABSOLUTE

The transport market is expected to hit the “peak” levels As transportation demand for crude oil peaks (efficiency, electric vehicles, consumer tastes), petrochemicals become a more important part of oil companies‟ strategies as a means to consume new oil production.

Source: Wood Mackenzie Refined Products Market Service

Global Crude Oil Demand GROWTH

-40%

-20%

0%

20%

40%

60%

80%

100%

-4

-2

0

2

4

6

8

10

00-05 05-10 10-15 15-20 20-25 25-30 30-35

Che

mic

als

Mill

ion

Ba

rre

ls P

er

Day

Transport Petrochemicals

Resid/Comm/Agric Electricity

Other Chemicals Proportion




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Global Petrochemical Outlook



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0

5

10

15

20

25

05 10 15 20 25

$/m

mb

tu

Europe Brent Crude Oil US Henry Hub Natural Gas

US Ethane China Naphtha

Europe Naphtha

-5

0

5

10

15

05 10 15 20 25M t

on

, N

ew

Eth

yle

ne

Cap

acity

North America West EuropeMiddle East Asia (Ex China)China Other

Energy & Feedstock Price Benchmarks

Higher crude oil prices relative to the natural gas/ethane will support more investments in North America A second and third wave are likely in North America, but Asia is aggressively planning investments after 2020.

Source: Wood Mackenzie Global Ethylene Supply/Demand Analytics Service

New Global Ethylene Investments

North America

Closes

Capacity

North

America

Adds 1st

Wave

North

America’s 2nd

Wave Cautious

Crude &

Natural

Gas Parity

Crude &

Natural

Gas

Separate

Gas still

Favored,

but closer




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Mid

dle

East

Eth

an

e

N. A

meri

ca E

than

e

N. A

meri

ca N

ap

hth

a+

Mid

dle

East

LP

G/N

ap

hth

a+

N A

meri

ca L

PG

Asia

LP

G-

W E

uro

pe L

PG

-

Rest

of

Wo

rld

Asia

Nap

hth

a+

Ch

ina C

TO

W E

uro

pe N

ap

hth

a+

Ch

ina M

TO

0

200

400

600

800

1,000

1,200

1,400

1,600

0 25,000 50,000 75,000 1,00,000 1,25,000

$/ton (

eth

yle

ne)

Thousand Tons

Ethylene (the bell-weather chemical): Improving cost competitiveness and regulations are driving the global investments to crack lighter feedstocks and to integrate with refinery

2017 Global Production Costs

Source: Wood Mackenzie Ethylene Asset Cost Tool Service

Refining the Ethylene Integration

(More Investments by oil

companies/refiners)

Cracking Lighter Feedstocks globally

(Ethane/LPG based investments)




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woodmac.com/chemicals 14

The ethylene “gold rush”! Ethylene investments planned from upstream through refiners to pure chemical players

Source: Wood Mackenzie


http://www.woodmac.com/

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6% 11%

31%

11%

Chemical value upgrade is the primary driver for close integration and optimisation of refining and petrochemicals (Crude to Chemicals)

Source: Wood Mackenzie Product Markets Service, PetroPlan, Wood Mackenzie Benzene/Para-xylene Services

1. Simulated using Petroplan basis of our WM understanding of Hengli‟s configuration

Increasing integration from crude to chemicals

Integrated refinery and petchem complex mass balance Product value contribution in 2020

Fuels only

100

Crude C4s Benzene Diesel/Jet fuel

Paraxylene Propylene

Ethylene

LPG

Naphtha

Gasoline Baseoils

Fuel oil

Sulphur

Fuel and losses

Traditional

100

Fuels & Aromatic

100

Fuels & Aromatic

& Olefins1

100

+42

Fuel and

product

contribution

to refinery

complex,

in percent

60% of value from

42% of products

0% 5%

14%

20%

3% 1%

+28

+15




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Whack-the-Mole in the petrochemical industry

Wwood Mackenzie Chemicals Services

North American Invests in Ethylene using

advantage feedstocks

Reduces the yield for “by-product” such

as propylene, butadiene, C5s and

aromatics

The capital costs increased

Invest in on-purpose propylene (PDH)

Operations(PDH) and Environmental

Regulations(CTO/MTO) challenges

New Investments for cracking Heavy

Feedstock (oil companies)

Plastics Bans Mandates

Potential Over-Supply Situation




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Whack-the-Mole in the petrochemical industry

Wwood Mackenzie Chemicals Services

North American Invests in Ethylene using

advantage feedstocks

Reduces the yield for “by-product” such

as propylene, butadiene, C5s and

aromatics

Invest in on-purpose propylene (PDH)

New Investments for cracking Heavy

Feedstock (oil companies)

Plastics Bans Mandates

Potential Over-Supply Situation


Operations(PDH) and Environmental

Regulations(CTO/MTO) challenges

The capital costs increased



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Global Ethylene Market

Ethylene & Para-xylene: Operating Rates Global markets now “easily” absorbing North America wave of export-oriented ethylene & PE investments. With many investments planned in Asia post-2020, global utilisation rates will fall to lower levels.

Source: Wood Mackenzie Global Ethylene/xylenes Supply/Demand Analytics Service

78%

80%

82%

84%

86%

88%

90%

92%

94%

80

120

160

200

240

2014 2017 2020 2023

Op

era

ting R

ate

Mill

ion

To

ns

Production Capacity Operating Rate

Global para-xylene Markets

70%

75%

80%

85%

90%

95%

0

1

2

3

4

5

6

7

2014 2017 2020 2023

An

nu

al ch

an

ge

(M

t)

Demand Effective capacity

Utilisation rate (RHS)




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Propylene to see on-purpose production on the rise, Butadiene is expected

to be long post the start-up of naphtha-based steam crackers.

0%

20%

40%

-10

40

90

140

2005 2010 2015 2020 2025

Mill

ion tons

Others

Methanol-to-Olefins/Propylene

World propylene production by technology

-5%

0%

5%

10%

15%

2010 2015 2020 2025

Butadiene in CC4 GrowthButadiene Production GrowthGDP Growth Rate

GDP growth vs Butadiene supply growth


Source: Wood Mackenzie Global Propylene Supply-Demand Services & Butadiene supply-demand analytics


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Sustainability in Plastics



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Polyethylene Applications Global Ethylene Demand

Scenarios

Consumer Plastic Concerns

Polyethylene Demand Sustainability Solving improper plastic waste disposal has moved from minority view to a broader consumer desire, putting pressure on governments, brand owners, and consumers. Single-use plastic bans & recycling efforts are spreading with “full circular plastic economy” targets by 2030-2040


Source: Wood Mackenzie Global Ethylene & Polyethylene Supply/Demand Analytics Services

0%

25%

50%

75%

100%

HDPE LLDPE LDPE PP

Others (Durable/Multiple Use)

Single Use Industrial/Institutional/Agricultural

Single Use Consumer

0

100

200

300

400

05 10 15 20 25 30 35 40

Mill

ion T

ons

Optimistic (1.2 x GDP)

Wood Mackenzie Base Case

Pessimistic (Single-Use Recycle)



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Hypothetically, if 25% of the market is recycled, assets in China, Europe, Japan and India will need to optimise to the lower cost positions by integrating or cracking lighter. Many producers are working on finding a sustainable solution to the plastic waste challenges

0

200

400

600

800

1000

1200

1400

1600

1800

0 25000 50000 75000 100000 125000 150000 175000

Ca

sh

Co

st

of

Eth

yle

ne

($/t

on

)

Cumulative Ethylene Output (ktons)

2018 Global Supply Curve, Ethylene Basis

Brazil Canada Mexico United States Europe

Iran Qatar Russia & Caspian Saudi Arabia UAE

China India Japan Malaysia Singapore

South Korea Taiwan CTO MTO

Source: PCI Wood Mackenzie

25%


Source: Wood Mackenzie Polyethylene Asset Cost Tool Services



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Key Message

Increased protectionism, currency weakness, recession threat, trade wars and rising interest rates are making some investors cautions and are looking for de-risking options.

Change in the only constant

Major transition in the E.P.S

Oil price predicted to stay between $70-85/bbl in the next five years

Oil price is likely to increase as the unconventional plays in non-OPEC countries slows down

Light olefins are moving lighter; Heavy Aromatic are moving heavier

Petrochemicals to play a bigger role in the oil demand. The petrochemical producers are improving their cost position.

Demand structure is changing

Single-use plastics bans and recycling mandates on consumer plastic threaten 25% of the polyolefins demand.




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More opportunities for petchems in the renewables?

Q&A

?




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Energy and Petrochemical Outlook - Elite...

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