“Non-Conventional” and “Emerging” feed stocks for petrochemicals – Drivers, Options, Competitiveness of Selected Processes

Noor Jivraj Group Manager, Refining & Petrochemicals

Jacobs Consultancy Ltd., London noor.jivraj@jacobs.com

Petrochemicals Asia 2012 20-21 June 2012

Agenda

• Drivers for Alternatives to Refined Crude for petrochemicals manufacture

• Topical Alternative Feed Stocks – Shale Gas, Coal and Agricultural Feed Stocks

• Coal Chemicals – Methanol to Olefins via Synthesis Gas

• Coal Chemicals – Mono-Ethylene Glycol

• Coal Chemicals - Acetylene Based Chemicals - VCM for PVC –competitive economics and prospects

• Shale Gas – Reserve Judgment ??

• Conclusions

Drivers for Alternatives to Refined Crude for petrochemicals manufacture

Drivers that are changing the feedstock horizon

• Crude Oil demand has been growing much slower than petrochemicals demand

• Growing demand for lighter feed stocks C2,C3,C4 than aromatics – will continue as benzene demand slows further

• Mid East associated gas C2 and C3 allocation has peaked

• Emerging Economic powers have limited crude and gas reserves but large coal reserves (China, India)

• Shale Oil and Tar sands still have an uncertain future despite huge investments – extraction costs and environmental challenges not yet resolved

• Newer exploitation technologies have led to new possibilities in shale gas

Outlook: Crude Oil extraction peaks, petrochemicals demand grows

• Conventional Crude Oil extraction expected to start a downward trend later this decade

• Naphtha sources such as GTL cannot replenish growing demand

• Coal, Natural Gas, and “Bio” feed stocks will continue to gain prominence

Source: ExxonMobil Energy 2012 Outlook

Alternative Feed Stocks Possibilities - Coal and Agricultural feed stocks

China leads coal chemicals resurgence

Coal Chemicals emphasis (lead by China): • Coal to acetylene

based chemicals – VCM mainly

• Coal to olefins (CTO) – MTO, MTP Processes

• Coal to Mono-ethylene Glycol (MEG) and Ethanol

“Bio-feedstocks” petrochemicals now a reality and growing

• Ethanol feed stock based ethylene (sugar cane and molasses) : o “Green Polyethylene” – Ethylene fro Ethanol Dehydration - Braskem, Brazil –

200 kta plant came on-stream in 2010

o “Green PVC” – EDC from Ethanol Ethylene – TCI-Sanmar plans 185 kta bio-ethylene for its chlor-alkali integrated 400 kta PVC complex at Port Said, Egypt. Chemplast-Sanmar operates a 32 kta ethanol-ethylene plant in Tamil Nadu, India – 6 kta plant started more than 40 years ago

o Solvay considering 60kta ethylene unit in Brazil for PVC production. Other projects under development

o Braskem planning 30 kta plant for “green” Polypropylene (also ethanol based feedstock)

o Dow-Mitsui Brazil venture ( 350 kta green PE??) will get feedstock from Dow’s sugar cane investments

Green Plastics can command premiums of up to 10% on ecofriendly image

Global BioChem making major waves in Mono-Propylene Glycol (MPG) business

• Sorbitol feedstock (from Corn via starch breakdown) Mon-Propylene Glycol: – Global BioChem already has in excess of 400 kta MPG capacity

and is to add at least another 400 kta in the next 2-3 years – this in a 2.5 Million ton marketplace

– Global BioChem has shaken the dynamics of the MPG industry and will drive the profitability dynamics based on low cost feed stocks

• Not commonly appreciated is that Global Biochem’s process yield roughly 50% MPG, 25% MEG, and 25% 1,2-Butanediol and 2,3-Butanediol

Other Bio-based routes to petrochemicals are now being explored

• Polylactic Acid now a viable commercial proposition, largely for niche fibre applications – 130 kta plant operational in Nebraska, USA, and another similar plant planned for Thailand

• Numerous R&D programs for a wide range of bio-based petrochemicals including routes to propylene, butanol, acrylic acid, butadiene etc. - Not all of these will succeed

• Routes via succinic acid appear to be promising since the conversion of glucose to succinic acid by GM bacteria is reasonably selective

• Routes from succinic acid to BDO, adipic acid and caprolactam look promising

Coal Chemicals – Coal to Olefins via Synthesis Gas and Methanol

Coal to syngas and methanol is well proven process and widely practiced

More than 32% of China’s methanol production is already coal based

Methanol to Olefins (MTO) and Methanol to Propylene (MTP)

• DICP has commercialized its MTO technology at Shenhua Baotao, further plants are underway including an olefins cracking process to improve selectivity

• Shanghai Research’s S-MTO technology is now commercialized at Zhongyuan

• LURGI’s MTP process yields propylene, gasoline, ethylene and LPG – 2 plants operating with ~1 Million tons Propylene

• UOP’s HYDRO process has “tunable” C2:C3 ratio between 0.45:0.55 to 0.55:0.45 allowing customization to downstream derivatives – UOP’s first plant is due in 2013

Competitiveness – Cash Cost C-MTO Ethylene versus Naphtha Cracker in China

• For both the naphtha cracker and the C-MTO plant, by product credits are significant

• The cash cost of production of ethylene is lower for a coal to ethylene plant than a naphtha cracker o mainly due to the low cost of

coal compared with naphtha

o partly due to the high ratio of propylene co-product that MTO produces

Production Cash Cost for Ethylene ($/ton)

Thermal Coal to MTO Ethylene - Thermal

Coal @ $120/ton

Full Range Naphtha Cracker - Crude Oil

=$100/bbl

Location China Capacity: 400 kta Capacity 1100 kta

Raw Materials 142 644

Utilities 228 412

Fixed Costs 72 25

Total ($/ton) 441 1081

Coal Chemicals – Mono-Ethylene Glycol

Coal Route to MEG

• First patents by Ube in early 1980s • Fujian Institute of Research on the Structure of Matter and the Chinese Academy

of Sciences have developed the process over 30 years • First 200kta Coal to MEG plant commissioned at Tongliao, Mongolia by Jinmei

Chemicals • Ube (Japan) to license Coal-MEG technology to Qianxixian Qianxi Coal Chemical

(300 kta) • 2.75 Million tons Coal-MEG capacity announced !!!!

If Coal-MEG is truly successful product quality wise, it will change the industry dynamics

Competitiveness – Cash Cost Coal MEG versus Naphtha Cracker to Ethylene to MEG in China

• As most MEG production today is cracker integrated, the Cost of Production comparative versus Coal MEG is a naphtha cracker (1100 kta Ethylene, China) integrated 600 kta MEG plant

• Coal MEG is more competitive than cracker C2 MEG by about $150/ton cash cost per ton for a Crude Oil scenario of $100/bbl, and thermal coal price of $120/ton

Production Cash Cost for MEG ($/ton)

Thermal Coal to MEG - Thermal Coal @

$120/ton

Full Range Naphtha Cracker Ethylene to

MEG - Crude Oil =$100/bbl

Location China Capacity: 200 kta Capacity 600 kta

Raw Materials 265 710

Utilities 313 71

Fixed Costs 74 19

Total ($/ton) 653 800

Coal Chemicals - Acetylene Based Chemicals - VCM for PVC –competitive economics and prospects

Key Acetylene based petrochemicals

China accounts for 97% of the world’s acetylene demand More than 95% of China’s acetylene demand is for VCM

CHCH

H

Cl

CH2ClH

• Mercuric chloride catalyst

• Exothermic reaction and high selectivity

• Product purity and yields generally high

• VCM converted to PVC to produce film sheets, flooring and pasts etc

• Global VCM demand ~35 million tons per year with China now in excess of 10 Million Tons

Coal/Carbide/Acetylene Route to VCM

Acetylene VCM technology has mercury disposal, as well as acetylene safety issues

• Currently for one ton PVC produced in China 1.2 kg of HgCl 2 catalyst consumed on average (as 11% of HgCl 2

content)

• For 5.8 million tons of PVC produced in 2009, around 7000 tons of mercury catalyst used, comprising 770 tons of HgCl 2 and 570 tons of mercury were used

• Carbide-based PVC production consumes around 60％ of China’s total annual mercury use

• A new catalyst (gold dispersed on activated carbon) is now available as an alternative to mercury

Coal VCM plants tend to be relatively small and very numerous in China

• Acetylene VCM was the feedstock of choice in the early fifties – high energy costs and EHS issue lead to ethylene route becoming dominant

• Acetylene based VCM now accounts for just over 20% of the worlds total VCM demand – with China accounting for almost all of this

• More than 90% of VCM plants in China are acetylene based, but these plants contribute to less than 70% of the total PVC produced

• The average size of the Acetylene based VCM is around 110 kta versus 650 kta that today’s world scale via the ethylene route

• More than 80% of the acetylene based VCM capacity in China has been added since 2002

Coking Coal price determines Acetylene VCM competitiveness

• Competitiveness of Acetylene VCM versus Chlor-Alkali integrated and balanced Oxy-EDC VCM is very dependent on the price of coking coal

• A coking coal price of $120/ton makes Acetylene VCM very competitive

• Raw materials dominates Cash Cost of Production of Acetylene VCM even more than ethylene based VCM

Production Cash CostCoal Carbide

Acetylene VCM Coking Coal @

$240/ton

Coal Carbide Acetylene VCM Coking Coal @

$120/ton

Balanced Oxy-EDC Chlor-Alkali

Integrated VCM Crude Oil =$100/bbl

Location China Capacity: 150 kta Capacity 150 kta Capacity 600 kta

Raw Materials 883 732 756

Utilities 59 59 79

Fixed Costs 28 28 46

Total ($/ton) 970 819 881

Shale Gas – Reserve Judgment ??

Where is the shale gas? Is it economical long term?

North American shale gas finds have been well publicized but the phenomenon is global, with significant reserves in China, South America, and North and South Africa

Where is the shale gas? Is it economical long term?

• Most recent “technically exploitable” shale gas statistics indicate biggest possibilities for shale gas long term are away from the US

• Will China, Mexico, Argentina, South Africa, Canada etc. also be successful in building shale gas based petrochemicals industry?

Source: Financial Times Shale Gas Special Supplement, April 2012

Shale Gas extraction requires breaking through shale by “fracking”

• Hydraulic “Fracking” requires a slurry of water, sand, silica, gels and surfactants and pressurized gases used to break through shale rock at high pressures

Shale Gas – some unanswered questions on economics and sustainability

• How big are the commercially exploitable reserves ?

• What are the depletion rates of the reserves – very little data to support the various proposed depletion models

• At current US gas price ($2-2.5/mmBtu) only wet shale gas wells are economic – with the liquids credit justifying operation

• Shell recently announced that it was using a medium term US gas forecast of $4 to $6/mmBtu

• Shale Gas will have truly arrived when a major commits to a world scale cracker in the shale gas reserve belt – e.g. Marcellus Field in Pennsylvania

2011 2012

Technically Exploitable Shale Gas reserves (EIA estimate)

827 482 trillion cubic feet

Marcellus Field Reserves (EIA)

410 141 trillion cubic feet

Marcellus Field Reserves (US Geological Survey)

84 trillion cubic feet

Available Gas per Marcellus well (EIA)

3.5 2 billion cubic feet

• EIA will be revising its figures later in 2012

Conclusions

Conclusions

• “Peak-Oil” and abundance of alternative feed stocks in emerging economies driving diversifying from naphtha as choice for petrochemicals building blocks production

• Agricultural feed stock leading to “green” PE, PVC and MPG

• Bio-based succinic acid is a potential future key intermediate chemical

• Coal feedstock already dominates VCM production in China – these producers will broaden out into other products – BDO is attractive in the near term

• MTO and MTP processes, integrated into natural gas or coal are now a commercial proposition

• Coal based MEG has the potential to significantly change the source of supply for this product

• Shale Gas has been widely publicized as a competitiveness game changer – however there are a lot of unanswered questions regarding reserves, depletion and long term economic viability

Shanghai Office 6F South Tower B, China Diamond Exchange Center 1701 Century Avenue, Pudong New District Shanghai 200122, PRC +86 21 5081 8811 x 607 (phone) +86 21 5081 6006 (fax) Beijing Office B-1523, Nanxincang Business Tower No.22 Dongsishitiao Dongcheng District Beijing, 100007, PRC +86.10.64096636 (phone) Canada Office: 400S, 8500 Macleod Trail S Box 5244, Station A Calgary, AB T2H 2NZ, Canada +1 403 255 1421 (fax) +1 403 258 6411 (phone)

United Kingdom Office: Tower Bridge Court, 226 Tower Bridge Road, London, SE1 2UP, UK +44 20 7403 3330 (phone) +44 20 7089 7750 (fax) Netherlands Office: Plesmanlaan 100, 2332 CB Leiden P.O. Box 141, 2300 AC Leiden, The Netherlands +31 71 582 7111 (phone) +31 71 582 7050 (fax) Houston Office: 5995 Rogerdale Road, Houston, Texas 77072, USA +1 832 351 7800 (phone) +1 832 351 7887 (fax) Chicago Office: 525 West Monroe, 13th Floor, Chicago, Illinois 60661, USA +1 312 612 6035 (fax)