Global Chemical Industry Outlook - Elite Conferences · Global Chemical Industry Outlook INDIAN Petrochem – 2019, Mumbai Sanjay Sharma, Vice President – Middle East & India [email protected]

© 2019 IHS Markit. All Rights Reserved

November 14, 2019 │Mumbai

Global Chemical Industry Outlook

INDIAN Petrochem – 2019, Mumbai

Sanjay Sharma, Vice President – Middle East & [email protected]

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2


Emerging Trends: Integration savior of oil markets

Expected changes in fuel mix:• Transportation fuel demand declines due

to fuel efficiency and electrical vehicles• Global base case oil demand plateaus by

late 2030s

Chemical demandgrowth and risks• Continues to grow

driven by risingstandard of living

• Some risks fromrecycling

Integration• Substantial strategic

drivers• New projects will be

large and complex

Feedstock mix• Naphtha re-asserts

its dominance asmarginal feedstocksupply

Oil companies push tobuild chemical portfolio• Opportunity or disruption

for chemical industry?• India and China in focus

with COTC and newRefinery/PetchemIntegrated projects

3


Agenda

Global Economy and Energy Outlook

Global Petrochemical Industry Outlook

Conclusions

4


Agenda



Conclusions

5


Global economic growth is slowing

6

• Global real GDP growth will slow from 3.2% in 2018 to 2.6% in 2019 and 2.5% in 2020. Inresponse to weaker growth, policymakers are providing more monetary and fiscal stimulus.

• Strong consumer finances and improved financial market conditions will support US real GDPgrowth near 2% through 2021.

• In Europe, exports and capital investment are decelerating sharply. Political risks, including thepath of Brexit and Italy’s governance, are adding to caution.

• China’s economic growth will continue to slow, as restraints from deleveraging and US traderestrictions are only partially offset by government stimulus.

• Downside risks include an escalation in the US-China war, new trade conflicts, hostilities in theMiddle East, a hard Brexit, and rising debt levels.


Global output and trade growth have slowed

7

2.742.96 2.98

2.75

3.393.20

2.60 2.51 2.66 2.76

0

1

2

3

4

5

6

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Perc

en

tch

an

ge

Real GDP Industrial production Real goods & services trade

Global real GDP, industrial production, and real exports

Source: IHS Markit © 2019 IHS Markit


Real GDP growth in major economies

8

Real GDP

Percent change 2017 2018 2019 2020 2021

World 3.4 3.2 2.6 2.5 2.7

United States 2.4 2.9 2.3 2.0 2.0

Canada 3.0 1.9 1.4 1.3 1.6

Eurozone 2.7 1.9 1.1 0.8 1.0

United Kingdom 1.8 1.4 1.2 0.5 0.8

China 6.7 6.6 6.2 5.7 5.6

Japan 1.9 0.8 0.9 0.3 0.6

India* 7.1 6.8 5.8 6.2 6.5

Brazil 1.1 1.1 0.9 1.4 1.5

Russia 1.7 2.2 1.1 1.5 2.0

* Fiscal years starting 1 AprilSource: IHS Markit © 2019 IHS Markit


The muted price response to attacks on Saudi oil facilities revealsweak market fundamentals

9

• On 14 September, Saudi Arabia’s prime crude oil processing complex in Abqaiq and the Khuraisoil field were hit by a drone and missile attack.

• Following an initial shock, prices retreated to pre-attack levels after Saudi Arabia announced thatcrude oil production would be restored quickly.

• Saudi Aramco aims to restore maximum sustainable production capacity of 12 million barrels/day(MMb/d) by end-November. We assume that full repairs to damaged infrastructure are notcompleted until the second half of 2020.

• Global liquids demand is projected to increase just 0.8 MMb/d in 2019 and 1.1 MMb/d in 2020,trailing supply growth and leaving the market in surplus.

• While US crude oil production gains will slow in response to weak prices.


The Vienna Alliance will continue balancing the market through 2020 as outputlosses from Iran and Venezuela will be compensated by US barrels

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

United States Russia Saudi Arabia

MM

b/d

Cumulative crude oil production change from October 2018 in the UnitedStates, Russia, and Saudi Arabia


Outlook

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Iran Venezuela

MM

b/d

Cumulative crude oil production change from October 2018 in Iran andVenezuela


Outlook

10


Rising US supply will restrain crude oil prices

11

0

25

50

75

100

125

150

2000 2004 2008 2012 2016 2020 2024 2028

Do

llars

/barr

el

Current US dollars 2018 US dollars

Price of Dated Brent crude oil



Agenda



Conclusions

12


Mobility &peak oil demand

Crude oilto chemicals – Disruption

or Opportunity

Chemicals demandgrowth/Plastics waste

challenge

Top three issues being discussed with clients today

13


Fuel economy standards – not EV penetration – have the biggestimpact on base-case demand

14

0

10,000

20,000

30,000

40,000

50,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

Global LDV gasoline and diesel demand

Source: IHS Markit© 2019 IHS Markit

Notes: This is an illustrative example of how much gasoline EVs displace vs improving fuel economy

“Rivalry without EVs” is calculated by assuming all global electric miles are instead driven by gasoline HEVs

Autonomy is an IHS alternative view of the energy future where transportation fuel, peaks in mid - 2020s and gradually declines through 2040 to 74% of 2017 levels-

30% reduction due tofuel economy gain

Oil demand assuming constant fuel economy and no EVs

Rivalry demand with no EVs

Rivalry 16% reduction due to EVs

Autonomy

Th

ou

san

db

/d


Substitution affects and circularity slow penetration – growth long-termmoves more toward GDP parity

15

-1.0

0.0

1.0

2.0

3.0

-10%

-5%

0%

5%

10%

15%

20%

2000 2005 2010 2015 2020 2025 2030 2035 2040

Petchem Demand Growth (YoY) GDP Growth GDP Elasticity (right axis)

Petchem vs GDP Growth Elasticity


Gro

wth

Perc

en

tag

e

Ela

sti

cit

y

Forecast


Challenges forPlastics

Sustainability

Plastics Demandrisk- “The Plastics

Paradox”- Thevalue-in-use versusother alternatives

ConsumerPerception ofplastics- “The

Social License toOperate”

Uncontrolled managementof plastics after initial use(land & ocean pollution,

biological food chain effects,etc.)

Poor Industrystructure-

fragmented,undeveloped viableeconomic systems

Inconsistent andineffective (non-

systemic) policies &regulations

Targets, ifestablished,often withoutfundamental

understanding

Economic systemsnot established to

enable viability

Circular ValueChain infrastructure

in earlydevelopment;

mismatch in scale,geographically

disperse

Collection-Uncontrolled

releases, developedsystems limited to

certain areas

Sorting &Processing- Lack of

robust, economicprocess

technologies

End-use- Qualitycontrol, risk

management

Lack of unbiaseddata to define the

problem andprogress to the

solution

A potential crisis for plastics – Is the social license to operate at risk ?

16


Ability to switch between products is critical as demand for transportation fueldecreases—flexibility is key

Gasoline

Kerosene

Diesel

Fuel Oil

Crude

Benzene

Toluene

PX / Mixed xylenes

Naphtha

PygasHydrogen

Raffinate

GasolineblendstocksFuel gasHydrogen

Crackednaphtha

Ethane

NGLs

Reformate

Crackedgases

EthylenePropyleneC4s

Recycle to

steam cracker

Aromatics complex

Refinery

Light endsrecovery

Steamcracker

Reformer FCC

17


From a financial standpoint, diversification and integration with refining lead tomore competitive and stable financials

0%

10%

20%

30%

40% Refining Petchem

Companies Included: ExxonMobil, BP, Shell, Chevron, P66

Historical ROCE – chemicals and refining

© 2019 IHS Markit

RO

CE

Source: IHS Markit

-30

-20

-10

0

10

20

30

40

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Fully Integrated Ethylene IntegratedParaxylene Integrated Non Integrated

2020: East-of-Suez refinery margin analysis


Cumulative crude capacity, thousand b/d

Ne

tC

as

hM

arg

ins

,$

/ba

rre

lo

fC

rud

e 1st 2ndQuartile

3rdQuartile

4thQuartile

Most refineries in the1st quartile are highly

integrated withpetrochemicals

18


COTC is a refinery configured to produce maximum Chemicals

Refining + Steam Cracking + PX Complex

Refining + Steam Cracking orRefining + PX Complex

Refining + BTX + Propylene

Refining

FULL

SINGLE

REFINING PLUS

REFINING

COTC• COTC represents “ultimate” integration by merging

refinery & petrochemical plants into one.• COTC elevates petrochemical production to

refinery scale.

19


Aramco/Chevron Lummus Global (CLG)/CB&I new COTC technology

• Aramco signed a joint development agreement withCLG and CB&I to scale up and commercializeAramco’s Thermal Crude to Chemicals (TC2C™)technology

> Under the deal, 70-80% of crude intake will beconverted into chemicals

• New technology development is likely to includeemploying Siluria’s oxidative coupling technology tomaximize light olefin yields

• While Aramco’s new crude to chemicals technology isstill under development, PEP team has developed aconceptual design based on Aramco patents

Conceptual COTC Design based on Aramco patents only

API = 34

20


NOC’s like Aramco expanding their Petrochemical portfolio

Gwadar, Pakistan: To build a giant $10 bn oilrefinery and petrochemical complex at theBalochistani deep-sea port

Panjin, China: To build a $10 bn refining (0.3 mn b/d)and petchem complex (1 mmtpa ethylene); withshareholding: Aramco (35%), NORINCO (36%),Panjin (29%)

South Korea: To collaborate with S-Oil to develop a $6 bn downstream project; to be completed by 2024.Products: ethylene & basic chemicals; feedstock:naphtha & off-gas

India: Signed a MOU with RRPCL to jointly build anintegrated refinery (1.2 mn b/d) and petrochemicalscomplex (18 mmty) in India; expected cost around$44 bn

Yunan, China: Aramco is in talks with China’s CNPCfor purchase of minority equity stake in 260,000 b/dAnning refinery

Jubail, Saudi Arabia: To develop a $5 bnpetrochemical complex; in JV with Total

Riyadh, Saudi Arabia: Agreement to acquire 70%majority stake in SABIC from the Public InvestmentFund of Saudi Arabia

Cologne, Germany: Completed the acquisition ofremaining 50% stake in ARLANXEO, JV fromLANXESS, becoming full owner

South Africa: Considering to build a oil refinery andpetchem complex in South Africa as part of $10 bn ofinvestments in the country

Port Arthur, Texas, US: To build a cracker ($4.68 bn)& an aromatics complex ($1.95 bn) through MotivaEnterprises; expected to complete in Q4 2022

Yanbu, Saudi Arabia: To develop a $20 bn fullyintegrated COTC complex; in JV with SABIC

21


Sinopec: Most of the investments are targeted in China

Maoming, China: 250,000tons per year polystyreneplant to come online in 2019 in partnership withSABIC

Zhongke Guangdong, China: an integrated complexwith 200,000 b/d refinery and 800,000 tons per yearethylene unit is expected to be completed in mid-2020

Hubei, China: SK-Sinopec JV to buy 170,000 b/dWuhan refinery for $1.9 bn

To expand its ethylene capacity to 1.1 mn tons peryear by 2020

Nanjing, China: Sinopec Yangtzi Petrocemical (YPC)to build a 1 mn tons per year ethylene cracker inpartnership with BASF

Tianjin, China: JV with SABIC ; 260 ktons per yearpolycarbonate plant to be completed by the end of2020; estimated budget being $760 million

Shengli Oilfield, China: Signed a JV with Shell toexplore shale oil resources in Shangli oilfield

Zhanjiang, China: JV with Kuwait Petroleumexpected to commission the integrated complex by2020; constitutes an ethylene cracker along with PEand PP units

Calgary, Alberta, Canada: Plans to build a 167,000b/d refinery at an estimated cost of $8.5 bn withCanada based management company Teedrum

Tobolsk, Russia: Developing petrochemical complexin JV with SIBUR; expected to come online in 2020

Fujian, China: an alliance between Taiwaneseshareholders and Sinopec JV Fujian PetrochemicalCo. signed an agreement to build 600,000 mt/yethylbenzene/styrene monomer plant; expected tocome online in 2020

Tianjin, China: Plans to build 200 ktons per year PPplant co-located with existing PP plant; also plans toexpand propylene capacity to supply raw materails tothe new plant

Hainan, China: Started construction of 1mn tons peryear steam cracker and HDPE, LDPE and PP units in2019 through its subsidiary Hainan Petrochemical.

Plans to expand Yangpu refinery from 8 mn tons peryear to 13 mn tons per year.

22


Crude to Chemicals scale is unprecedent…………………….

3.0 3.6 4.2 4.8

1.92.3

2.73.0

0.9

1.1

1.3

1.4

0123456789

10

50% 60% 70% 80%

Mil

lio

nM

etr

icTo

ns/Y

ear

Conversion Rate

Ethylene Propylene C4'sSource: IHS Markit © 2019 IHS Markit

COTC Output at Different Crude Conversion Rates

Feed: 20 Million Metric Tons/Year or 0.4 mmbpd Crude Oil

Base Case

23


Hengli’s Refinery-PX complex product yields

Mta= million tons per year

Hengli Refinery –PX Complex

Hydrogen

Methanol(for MTBE)Coal Gasification

Hydrogen, HeatResidueGasification

Yields in Mta

• PX 4.34

• Benzene 0.97

• Naphtha 1.63

• Gasoline 4.61

• Diesel 4.61

• Kerosene 3.74

• LPG 0.65

• PP 0.44

• Lube 0.54

• Acetic Acid 0.35

• Heavy Aromatics 0.13

• Sulfur 0.52

Total Chemicals = 8.4 Mta(42% Conversion)

Source: PEP based on company announcements

12 Mta Saudi heavy6 Mta Saudi medium2 Mta Marlim

Avg. API= 27.62S= 2.26%

24


China PX capacity finally overwhelms demand 2019 - 2020

25

70%

75%

80%

85%

90%

95%

100%

-5

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Op

era

tin

gR

ate

Mil

lio

nM

etr

icTo

ns

Demand Growth China NEA ex China SEAISC Americas Europe Middle East AfricaGlobal Excess Capacity Operating Rate


Paraxylene demand growth vs. capacity growth


Ethylene capacity growth surpasses demand growth 2020-2021

26

60%

65%

70%

75%

80%

85%

90%

95%

100%

-5

0

5

10

15

20

25

30

35

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Op

era

tin

gR

ate

Mil

lio

nM

etr

icTo

ns

Demand Growth China NEA ex China SEAISC Americas Europe Middle East AfricaGlobal Excess Capacity Operating Rate


Ethylene demand growth vs. capacity growth


Agenda



Conclusions

27


Feedstock advantage & domestic demand remains two important drivers forregional capacity additions but capital efficiency now is equally critical…….

28

(5)

----

5

10

15

20

25

30

95 97 99 01 03 05 07 09 11 13 15 17 19 21 23

Mill

ion

Metr

icTons

North America South America West Europe Middle East Indian Subcontinent Northeast Asia Southeast Asia

Annual Capacity Change- Total Basic Chemicals (Ethylene, Propylene, Butadiene & Methanol)

Low Energy Price NAM Gas Price Rise Crude Price Hits $100Crude Price Collapse



Strategic implications and opportunities

• Global economic growth is slowing

• Rising US supply will restrain crude oil prices

• Country strategies driving investment decisions

• Industry structure will change as COTC scale is unprecedented

• High capital investment makes sense for China and India with low Capex

• Companies with technology portfolio and access to markets/channels have opportunity topartner with super majors and become part of COTC club

29

Market can only handle few of these complexes, expect to see lower operating rates

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Global Chemical Industry Outlook - Elite Conferences · Global Chemical Industry Outlook INDIAN Petrochem – 2019, Mumbai Sanjay Sharma, Vice President – Middle East & India [email protected]