State of the US Chemical Industry

Confidential. © 2019 IHS Markit®. All Rights Reserved.Confidential. © 2019 IHS Markit®. All Rights Reserved.

State of the US Chemical Industry Is the resurgence in growth sustainable?A look at the ramp up in US chemical industry capital investment as a

result of US Shale Oil & Gas

November 11-12, 2019

Houston, TX

Mark Eramo, Vice President – Global Business Development Oil Markets / Midstream / Downstream / Chemicals [email protected]

RICE GLOBAL E&C ANNUAL FORUM

mailto:[email protected]

Confidential. © 2019 IHS Markit®. All Rights Reserved.

Addressing strategic challenges

with interconnected capabilities

Resources

Financial

Consolidated Markets

Transportation

IHS Markit provides leaders from multiple

industries with the perspectives, analysis

and insights they need to make informed

business decisions that help them succeed

and stay ahead of their competition.

FINANCIAL

MARKETS

ECONOMICS &

COUNTRY RISK

ENGINEERING &

PRODUCT

DESIGN

OPERATIONAL

RISK

& REGULATORY

COMPLIANCE

DIGITAL & WEB

SOLUTIONS

MARITIME

& TRADE

AUTOMOTIVE

ENERGY

CHEMICAL

AGRI

22019 Rice Global E&C Annual Forum


State of the US Chemical Industry

AGENDA

• Industry fundamentals

> Consistent & Emerging Issues & Drivers

• Basic chemical outlook: Global & US

> Energy (crude oil) assumptions are

important

> Capital investments and trends in global

chemicals trade

> Industry cycle / Earnings outlook

• Top global issues

> Mobility, Refinery integration returns,

Plastics Waste, China

• Final Thoughts

3


Consumer

products

Transportation Packaging

Construction Recreation

Industrial Medical

Pharmaceutical Personal care

Textiles Electronics

Aerospace Business equipment

The Chemical Industry Enables Modern Living

Formulated

products /

performance

materials

Commodities

Differentiated

commodities

Technical

specialties

Chemical

intermediates

Olefins

Aromatics

Chlor-alkali

Others

Base

chemicals

Refined

products

& natural

gas liquids

NGLs

Naphtha

Fuel Oils

Gasoline

Diesel

Oil

Gas

Coal

Renewable

Natural

resources



Multi-billion dollar investment decisions rest on key market fundamentals

and emerging mega-trends

Basics: Unchanged over time

Building blocks for consumer goods

Economic growth drives demand

Low cost position endures & thrives

Market access & logistics are critical

Emerging trends: Continue evolving

Energy market fundamentals

Social license to operate

Technology & world scale

Use of digital technology


Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Energy outlook drives capital decisionsHigh global crude oil prices & low gas prices in North America drive gas based investments


7

0

3

7

10

13

17

20

23

0

20

40

60

80

100

120

140

2000 2005 2010 2015 2020 2025

USGC Natural Gas Crude Oil Brent

Global crude oil vs. USGC natural gas (2018 Constant $)

Source: IHS Markit © 2019 IHS Markit

$/

Barr

el, C

rude

$/

MM

BT

U,

Natu

ralG

as

Combination of high crude prices and stable natural gas is attractive for

North America gas-based chemical investments



Sustained higher crude oil pricing creates sustainable advantage for

ethane and propane feedstocks versus naphtha

8

0

5

10

15

20

25

2000 2005 2010 2015 2020 2025

Crude Oil Brent Henry Hub Gas USCG Ethane USCG Propane NEA Naphtha

Crude Oil - VS - Natural Gas & NGLs (2018 Constant $)


US

$ /

MM

BT

U



0

200

400

600

800

1000

1200

1400

2000 2005 2010 2015 2020 2025

Ethane in USGC* Ethane in Canada* WR Naphtha MaxC3 in Germany*

CTO in China** WR Naphtha MaxC2 in China*

Plant cash cost by feedstock and region; product Basis = *Ethylene, **Light Olefins

US

$ p

er

metr

ic ton

Energy scenario with higher crude oil pricing versus natural gas, provides for a

sustainable ethane cracking advantage in light olefins production



Capital investments seek a sustainable advantage

Chemical Investment “Drivers”

• Secure an energy & feedstock advantage.

• Leverage current technology and build

world-scale.

• Invest with proximity to local markets

and/or access to trade routes.

• Build to leverage an upstream and/or

downstream integrated position.

Shell Chemical Appalachia, LLC

Pennsylvania Petrochemical Complex

Ethylene & Polyethylene



Benzene

Chlorine

Ethylene

Methanol

Paraxylene

Propylene PG 2019 base chemicals capacity over 660MMT

supplying over 500MMT in demand



Led by China, APAC is adding more than 50% of new capacity followed by North

America and Middle East as surplus capacity emerges in many value-chains

-10

0

10

20

30

40

2000 2005 2010 2015 2020 2025

Ethylene Propylene (PG/CG) Methanol

Chlorine Benzene Paraxylene

World Base Chemical Annual Capacity Growth by Market


Mil

lio

n M

etr

ic T

on

-10

0

10

20

30

40

2000 2005 2010 2015 2020 2025

China APAC (less China) North AmericaWest Europe Middle East South AmericaOthers

World Base Chemical Annual Capacity Growth by Region


Mil

lio

n M

etr

ic T

on



0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025

China Canada

United States Saudi Arabia

South Korea Iran

India

Total Base Chemical Capacity for select countries

Source: IHS Markit

Mil

lio

n M

etr

ic T

on

s

© 2019 IHS Markit

China and North America investment continues at rapid pace along with more

modest growth in other locations

Total base chemical capacity includes: ethylene, propylene (PG,CG), methanol, chlorine, benzene, paraxylene

13

0

10

20

30

40

50

2000 2005 2010 2015 2020 2025

Canada Saudi Arabia

South Korea Iran

India

Total Base Chemical Capacity for select countries

Source: IHS Markit

Mil

lio

n M

etr

ic T

on

s

© 2019 IHS Markit



US outlook for energy supports continued investmentsDomestic & foreign capital continues to flow into the US and Canada for chemicals and energy


Led by the Permian basin, US crude oil production approaches peak output by the

mid-2020’s; lower prices near term could slow production

0

2

4

6

8

10

12

14

16

18

2001 2004 2007 2010 2013 2016 2019 2022 2025

Mil

lio

n B

arr

els

pe

r D

ay

Permian

Eagle Ford

Bakken

STACK

SCOOP

Wattenberg

NiobraraFrac PlayGoM Shelf

GoM Deep

CaliforniaHeavy OilBarnett

Alaska

US Crude Oil Production by Play

Source: IHS Markit

0

20

40

60

80

100

120

2000 2005 2010 2015 2020 2025

Ma

rke

ted

Natu

ral G

as,

bcfd

Marketed gas - processed

Marketed gas - not processed

US Lower 48 Marketed Natural Gas Production

Source: IHS Markit



US NGL production nearly triples from 2010, with significant growth in ethane and

propane; exports required to balance the market

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2005 2010 2015 2020 2025

Mill

ion b

arr

els

per

day

of

NG

Ls

Ethane

Propane

n-Butane

isoButane

Natural Gasoline

US NGL Production

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2005 2010 2015 2020 2025

Mill

ion b

arr

els

per

day

of

eth

ane

Rejection

Exports

Ethylene crackers - flexible

Ethylene crackers - not flexible

US Ethane Demand Segments



Increase in US chemical industry capital investment as a result of US Shale Oil &

Gas started post-2010 following a series of closures in various markets

17

-4

-2

0

2

4

6

2000 2005 2010 2015 2020 2025 2030



United States basic chemical capacity annual growth(closure)


Mil

lio

n M

etr

ic T

on

0

25

50

75

100

125

2000 2005 2010 2015 2020 2025 2030



United States base chemical total capacity


Mil

lio

n M

etr

ic T

on


Confidential. © 2019 IHS Markit®. All rights reserved.

The net trade of most US gas based chemicals and intermediates are forecast to

increase over time based on competitive costs; exception is benzene

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Benzene EthyleneDichloride

Methanol MonoethyleneGlycol

Styrene Vinyl ChlorideMonomer

2010 2020 2029

US Net Trade - Select Chemicals


Mil

lio

n M

etr

ic T

on



The net trade of most US gas based plastics are forecast to increase over time

based on competitive costs and slow-growth in the domestic market

0

1

2

3

4

5

6

7

High Density PE Linear-low Density PE Low Density PE Polypropylene Polyvinyl Chloride

2010 2020 2029

US Net Trade - Select Plastics


Mil

lio

n M

etr

icT

on



Given slow growth in the domestic market, total exports of chemicals and plastics

from the US are forecast to approach 40 million metric tons

0

10

20

30

40

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Ethylene Ethylene Dichloride Methanol Monoethylene Glycol

High Density PE Linear-low Density PE Low Density PE PET Bottle Resin

Polypropylene Polystyrene Polyvinyl Chloride PG/CG Propylene

Styrene Vinyl Chloride Monomer

US total exports - select chemicals and plastics


Mil

lio

n M

etr

icT

on



Net equivalent trade shows divergent trends on

ethylene and propylene investment strategies


-5

0

5

10

15

20

2000 2005 2010 2015 2020 2025 2030

Ethylene Vinyls StyrenicsPolyethylene Glycol OthersNet Equiv Trade

USA Ethylene Net Equivalent Trade


Mil

lio

n M

etr

ic T

on

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000 2005 2010 2015 2020 2025 2030

Propylene Acrylonitrile Polypropylene

Others Net Equiv Trade

USA Propylene Net Equivalent Trade


Mil

lio

n M

etr

ic T

on

Low cost ethane and propane support US investments with targeted sales into

export markets / domestic growth cannot support new capacity additions

2019 Rice Global E&C Annual Forum 22


Ethylene net equivalent trade analysis suggests “build low-cost and ship to high

demand growth, while propylene trends show a “build-in-place” strategy

(15)

(10)

(5)

-

5

10

15

2000 2005 2010 2015 2020 2025 2030

North America South America West Europe Middle East

Indian Sub. Northeast Asia Southeast Asia Others

World Propylene Net Equivalent Trade


Mil

lio

n M

etr

ic T

on

(50)

(40)

(30)

(20)

(10)

-

10

20

30

40

50

2000 2005 2010 2015 2020 2025 2030

North America South America West Europe Middle East

Indian Sub. Northeast Asia Southeast Asia Others

World Ethylene Net Equivalent Trade


Mil

lio

n M

etr

ic T

on



Surge in new capacity and slowing demand growth

driving the next down-cycle for petrochemical earnings


Strong headwinds and surge in build-cycle will soften outlook for ethylene and

propylene; chlor-alkali strengthens, and paraxylene faces significant over-supply

70.0

75.0

80.0

85.0

90.0

95.0

2000 2005 2010 2015 2020 2025

Ethylene (Steam Cracker) Propylene Chlor-alkali Paraxylene

World Capacity Utilization for select markets


Perc

enta

ge



0

100

200

300

400

500

Ja

n-1

7

Mar-

17

Ma

y-1

7

Jul-17

Sep-1

7

No

v-1

7

Ja

n-1

8

Mar-

18

Ma

y-1

8

Jul-18

Sep-1

8

No

v-1

8

Ja

n-1

9

Mar-

19

Ma

y-1

9

Jul-19

Sep-1

9

No

v-1

9

Ja

n-2

0

Mar-

20

Ma

y-2

0

Jul-20

Global Basic Chemicals & Plastics monthly cash earnings

© 2019 IHS MarkitSource: IHS Markit

US

$ B

illi

on

0

50

100

150

200

Jan-1

7

Mar-

17

Ma

y-1

7

Jul-17

Sep-1

7

Nov-1

7

Jan-1

8

Mar-

18

May-1

8

Jul-18

Sep-1

8

Nov-1

8

Jan-1

9

Mar-

19

May-1

9

Jul-19

Sep

-19

No

v-1

9

Jan-2

0

Mar-

20

May-2

0

Jul-20

Africa_MidEast Asia

Europe Americas

Regional Cash Earnings by month, base chems & plastics

© 2019 IHS MarkitSource: IHS MarkitU

S$

Billio

n

Global base chemicals and derivatives earnings trend is lower in 2019 due to

slower demand combined with new supply; greatest impact felt in Asia markets



Impact

on energy

transformation

by mobility

Crude to

chemicals

and refinery

integration

Impact of

plastics waste

on demand

Light vs

heavy

feedstocks

Global

impact on

petrochemicals

by China

MEGA-TRENDS IMPACTING THE 2020S


Efficiency gains create peak oil demand despite underlying growth in GDP,

population, transportation demand and petrochemical feedstock growth

40

50

60

70

80

90

100

110

120

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

20

35

20

40

20

45

20

50

World oil (total liquids) demand by scenario

Note: Liquids include refined products, NGLs, biofuels, and other miscellaneous liquids. The 2017 outlooks went to 2040 only. The 2018 outlooks extend to 2050.

Source: IHS Markit, International Energy Agency (IEA)

Mill

ion b

arr

els

per

day

Rivalry

History Autonomy

© 2019 IHS Markit



Progression of refining & petrochemical operations integration

Recovery

aromatics &

FCC olefins

Pre-1990s

<15%

Yield of chemicals / barrel of crude oil processed

Steam cracker site

integration plus

commodity derivatives

1990 – 2000s

~15-25%

Increase scale of

chemical integration &

derivatives complexity

2010 – 2020

~25-40%

Simple

recovery

Forward

integration

Chemicals

emphasis

Development of

COTC technology

2020+

~40-80%

COTC



Heavy feedstocks (naphtha’s) needed to meet incremental ethylene production

during the 2020’s

0

5

10

15

20

25

30

Ethane LPG Naphtha/Gas Oil MTO/CTO

1990/00 2000/10 2010/20 2020/30

Global ethylene production by feedstock - 10 year increments

Mill

ion M

etr

ic T

ons



The Plastics Waste ChallengeA strong headwind or an opportunity? The industry mobilizes to take on both.


• Reduces feedstock and investment in monomers/polymers

• Reduces feedstock and investment in monomers

• Reduces feedstocks

• Reduces energy needs

• No change in Feed

Progression to a circular economy – Polymers remain for global de-Carbonization

Leakage to

Environment

FeedstocksChemicals & Monomers

PolymersPolymer

Processing

Consumer Products / Packaging

Physical Recycle

Energy Recovery

Other uses(Road, Steel, Cement)

Chemical/

Biological

Recycle

Oil, Gas, Coal Demand GrowsPrime + recycle



• Economy transition to high-value manufacturing and

services.

• Stricter environmental protection policies and new

fuel efficiency standards.

• Balance of chemical company ownership between

central government and the private sector.

• Value-chain integration; self-sufficiency objectives;

specialty chemical development.

• Technology development & conventional/non-

conventional capacity

• Significant capital cost and capital execution

advantage over the USGC.

• International trade ambitions – One Belt/One Road;

establish RMB as recognized trading currency

• Chinese outbound M&A remains very active

China’s chemical industry has

substantial size and global impact

Significant changes are underway that

require close monitoring and analysis

0

50

100

150

200

250

300

1990 1995 2000 2005 2010 2015 2020 2025

Ethylene Propylene (PG/CG)

Methanol Chlorine

Benzene Paraxylene

China – Base Chemical Total Capacity

Source: IHS Markit @ 2019 IHS Markit

Mill

ion M

etr

ic T

ons



Final thoughts• US shale oil & gas developments have fueled the

recent surge in petrochemical investments

> Low cash cost is key driver despite high CAPEX

> Plentiful supply of US oil and gas will enable

continued investments in chemicals

• Industry cycles continue, as 2019 earnings have

slowed; the outlook has become more cautious with

a slowing economy and wave of new capacity

• Assess forecast risks and opportunities

> Plastics sustainability risk assessment is essential

to long term planning

> Understand the return to refinery-petchem

integration in Asia, India, Saudi Arabia

> Evolving role of China in base chemicals

34


IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

Disclaimer

The information contained in this presentation is confidential. Any unauthorized use, disclosure, reproduction, or dissemination, in full or in part, in any media or by any means, without the prior written permission of IHS Markit Ltd. or any of its aff iliates ("IHS Markit") is

strictly prohibited. IHS Markit owns all IHS Markit logos and trade names contained in this presentation that are subject to license. Opinions, statements, estimates, and projections in this presentation (including other media) are solely those of the individual author(s) at the

time of writing and do not necessarily reflect the opinions of IHS Markit. Neither IHS Markit nor the author(s) has any obligation to update this presentation in the event that any content, opinion, statement, estimate, or projection (collectively, "information") changes or

subsequently becomes inaccurate. IHS Markit makes no warranty, expressed or implied, as to the accuracy, completeness, or timeliness of any information in this presentation, and shall not in any way be liable to any recipient for any inaccuracies or omissions. Without

limiting the foregoing, IHS Markit shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with

any information provided, or any course of action determined, by it or any third party, whether or not based on any information provided. The inclusion of a link to an external website by IHS Markit should not be understood to be an endorsement of that website or the site's

owners (or their products/services). IHS Markit is not responsible for either the content or output of external websites. Copyright © 2019, IHS Markit®. All rights reserved and all intellectual property rights are retained by IHS Markit.

Documents

State of the US Chemical Industry