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Global Trends in Aromatics and Derivatives Margins move upstream. Chuck Venezia and Andy Nicholson Argus DeWitt

APIC Pattaya, Thailand 15th May 2014


Sources of Aromatics

The Shale Gas Effect

Naphtha

Refining Industry Changes

The Paraxylene Problem

Benzene & derivatives

Conclusions

Agenda

Copyright © 2012 Argus Media Ltd. All rights reserved.


Global Aromatics Supply


Gasoline Pool

(Reformate)

87% Mixed

Xylenes

77% Toluene PX (MSTDP, MPX)

7% MX (Disp)

94%

41% Benzene

16% BZ (Disp, MSTDP, HDA)

57%


Numerous Impacts on Benzene Supply/Price


Reformate

HDA

TDP PX Isom

Coal

Pygas

Gasoline

Quality /

Feed Slate

Toluene BV

Benzene Demand

Toluene BV

Olefin

Demand/Feed

Slate

Coke/Steel

Demand

PX Demand


Regional Benzene Production Sources 2013


0

3000

6000

9000

12000

15000

USA W.Europe Asia excl China China MEA

kt

Coal

Toluenebased

Pygas

Reformer

The US Shale Oil & Gas Revolution Influence on Products: 1) LNG, LPG, Ethylene 2) Refining, Gasoline & Naphtha


-

200

400

600

800

1,000

1,200

1,400

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14

EAGLE FORD PRODUCTION Th B/d

-

200

400

600

800

1,000

1,200

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14

BAKKEN PRODUCTION Th B/d

US oil production is up 60% in 60 months as a result of

increased shale oil production


Source: EIA Data


US becomes a net product exporter


Source: EIA

-4

-3

-2

-1

0

1

2

3

4

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Net Exports of US Products Positive through 2013 US Total Petroleum Products (mm bbls/day)

US Product Exports

US Product Imports

Net Exports


Forecast Overall US NGL Supply Demand, ‘000b/d

• Includes LPG from refineries

• Exports could top 800kbl/day on average; over 1mm bl/d in summer

• With gasoline demand faltering, even more butane could be available


Source: EIA Data/Argus DeWitt


US adding LPG export capacity


• US now no. 1 exporter

• Announced projects will

result in almost 1.4

mmbl/day of capacity by

2016

• Utilization high in the

summer, but could hit low

70’s on average if all

projects are developed

Source: Industry Announcements and Argus DeWitt


In the USA, the abundance of shale gas has driven ethane prices away

from crude and towards their natural gas equivalent



US ethane competitive with ROW


0

200

400

600

800

1000

1200

1400

US E 25 cpg ME E $2 NG ME P 570/112 EU Naph Asian Naph

$/t

Estimated Ethylene Cash Costs, $/mt North Sea Dated Crude ~ $100/bbl

Net Feedstock Costs Variable Costs Fixed Costs


ROW ethylene expansions moderate near term

0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017/18

North America

0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017 2018

South America

0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017/18

Africa/Middle East

0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017 2018

South East Asia


-10000

-8000

-6000

-4000

-2000

02013 2014 2015 2016 2017

West Europe 0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017/18

East Europe

Ethylene Net Changes (kta)

0

2000

4000

6000

8000

10000

2013 2014 2015 2016 2017 2018

East Asia


The choice of feedstock has a significant impact on the

volume of products produced and their economics


TO

NS

PE

R T

ON

OF

ET

HY

LE

NE

PR

OD

UC

ED


• Ethylene produced from full range naphtha yields 12 times pygas and 8 times benzene volume per ton of ethylene yield.

• C2 production in 2005 was 0.6% greater than 2012

• Benzene from pygas was 45% higher (1 million tons) primarily due to shift in feedstocks

2005-2013 Total NPRA US benzene production from pygas

compared to total ethylene production


21000

21500

22000

22500

23000

23500

24000

24500

25000

25500

26000

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010 2011 2012 2013

C2 K

T

KT

The US Shale Oil & Gas Revolution Influence on Products: 1) LNG, LPG, Ethylene 2) Refining, Gasoline & Naphtha


US gasoline demand to continue to fall going forward


• Slow Economic Growth; Does not include exports • Renewable Fuel Standard-Target is 36 B gallons of ETOH by 2023(not achievable) • CAFÉ Standard with targets of 35.5 MPG by 2016 and 54.5 MPG by 2025 Source: EIA and DeWitt forecast


US Crude Distillation Capacity is expanding, and

utilization rates are high


• Valero and Marathon are adding distillation capacity to process more shale crudes


… and as a consequence of the quality of US Shale crudes,

much more naphtha is being produced


• Based on replacing 1.6mmbbls per day of Brent/Bonny with Eagle Ford and Bakken

• With forecast production growth of shale crudes (up to 4.0MM bbls per day by 2020)

Source: Argus DeWitt Est

What is Naphtha ?

Broad term covering among the lightest and most volatile fractions of the liquid

hydrocarbons in petroleum.

Naphtha is a colorless to reddish-brown volatile aromatic liquid, very similar to

gasoline.

Naphtha is used primarily as refinery feedstock to produce high octane gasoline via catalytic

reforming in refinery

Also used in the bitumen mining industry as a diluent.

Feedstock for the petrochemical industry for producing olefins in steam crackers.

Feedstock for the chemical industry for solvent applications.


Crude oil quality comparison


NSD Bonny Lt WTI Eagle Ford BakkenAPI Gravity 37.9 35 40 45 42

Sulfur Wt% 0.45 0.15 0.33 0.4 0.2

Yields Vol%

Light Ends 4.1 1.7 1.5 3.8 3.5

C5-165 C Naphtha 25.3 22.2 29.8 40.1 35.7

Jet 165-235 C 12.4 15.8 14.9 12.6 13

Diesel 235-360 C 25.6 37.4 23.5 17.1 17.8

VGO-360-540 C 23 18.3 22.8 21.2 24.8

Resid 540+ C 9.6 4.6 7.5 5.2 5.2

Total 100 100 100 100 100

C5-165 C Naptha Vol%

Napthenes 39 51 38 21 23

Aromatics 15 12 12 11 13

N+A 54 62 50 32 36

Crude Comparison Table


US Exports of C5+ and naphtha are rising rapidly


• C5+ condensate going to Canada as diluent for heavy crude production

• More cargoes are leaving the USGC headed to customers in Asia

• Forecast for 2022 depicts our view as more light crude is produced

Source: EIA and Argus DeWitt forecast


• Combined, these countries

imported more than 1.0

mmbl/d in 2013

• Suppliers

• Middle East

• Europe

• US

• Japan should see falling

demand, as petrochemical

market is consolidating

• Taiwan could also face

pressure in the future

Asia demand for naphtha, selected countries



The US has sought to manage this naphtha length by

increasing its exports of gasoline



Fluid Catalytic Cracking versus Hydrocracking


Source: Argus DeWitt and Industry Data

• In the 1990’s, FCC was

refinery “workhorse”

• FCC produces largest

percentage of refinery

gasoline

• Also the largest contributor

to gasoline sulfur

• The dynamics are

changing…..


US FCC and Hydrocracking estimated margins


• Hydrocracker margins are vastly superior to FCC margins

• US refiners are already planning to rationalize some FCC capacity

• With low cost natural gas, hydrogen is relatively cheap

Source: Argus DeWitt internal models


Conclusions


• US energy production continues to grow; crude

production rises over 1.0 mmbl/d in 2013

• US NGL surplus will continue to expand; likely that LPG

export capacity will operate at 70% by 2016

• US naphtha surplus will grow, but there are several

options for disposition

• Refiners continue to look for ways to produce more

diesel at the expense of gasoline; long term trends

could affect petrochemicals

Europe and the Middle East


• Europe imports diesel, but

• Exports account for approximately 30% of gasoline production

• Europe’s refineries are ageing and few are world-scale

• Europe’s export markets are under threat from more competitive US refineries and from new capacity in India and the Middle East

• The IEA estimates that Europe needs to shed a further 1mn b/day refining capacity

The Refining Imbalance in Europe


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

‘000t

Source: Eurostat

WE Gasoline Exports

USA

S. America

N.America

N. Africa

MEAG

East Med

Africa

C. Europe

E. Europe

S. Asia

E.Asia


EU Refining Capacity Closures since 2009


Year Company Location Capacity Comments

2009 Petroplus Teesside, UK 117 Permanent Closure

2009 ConocoPhillips Wilhelmshaven, Germany 260 Now Hestya Energy; not operational

2010 Arpechim Romania 65 Permanent Closure

2010 Total Dunkirk, France 141 Permanent Closure

2010 Petroplus Reichstett, France 78 Permanent Closure

2011 Tamoil Cremona, Italy 101 Permanent Closure

2011 LBI Berre, France 82 Permanent Closure

2012 Total/ERG Rome, Italy 86 Permanent Closure

2012 Petroplus Coryton, UK 220 Permanent Closure

2012 Petroplus Petit-Couronne, France 162 Closed - staff laid off from April 2013

2013 Shell Harburg 100 Permanent Closure from March

2013 MOL Mantova 69 Conversion to logistics' hub Jan from 2014

total 1550


Refinery Location Country Operator Crude Distillation Capacity (kbpd) Projected Start-up

Al Jubail SATORP Saudi Arabia Aramco / Total 400 2013

Yanbu "Red Sea" Saudi Arabia Aramco / Sinopec 400 2014

Ruwais UAE Takreer (ADNOC) 400 2014

Rabigh Saudi Arabia Aramco 400 2016

Ras Tanura Saudi Arabia Aramco 550 2016

Ras Laffan expansion Qatar Qatar Petroleum 146 2016

Fujairah UAE IPIC 200 2016

Duqm Oman Oman Oil/IPIC 230 2017

Jazan Saudi Arabia Aramco 400 2017

Al Zour Kuwait KNPC 615 2018

Arabian Gulf & Red Sea Refining Expansions (excl. Iran)



Refinery Location

Operator Crude Distillation Capacity (kbpd)

PX (ktpa) Bz (ktpa) PX s/u

Yanbu Aramco / ExxonMobil

400 350 140 2013

Al Jubail SATORP Aramco / Total

400 700 140 2014 Q1

Yanbu "Red Sea"

Aramco / Sinopec

400 700 140 2014 S2

Rabigh Aramco 400 1300 170 2016

Jazan Aramco 400 700 270 2017

Ras Tanura Aramco 550 1100 200 2018

Totals 2550 4850 1060

Saudi Arabia Refinery and Aromatics’ Projects


Asia The Source of Demand Growth but Over-investment can kill Downstream Profits


• Growth Rates for PX have

been almost double those for

Benzene for 30 years

• There is no reason to think

this will change

• Benzene Pricing has always

reflected its Status as a co-

or byproduct – volatile and

often weak

Paraxylene and Benzene Growth rates


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2008 2009 2010 2011 2012 2013 2014 2015

World Paraxylene & Benzene Demand

PX Bz


Benzene & Paraxylene Pricing (Quarterly Averages)


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800Benzene FOB Korea Paraxylene FOB Korea


Paraxylene & Naphtha Daily Pricing


0

200

400

600

800

1,000

1,200

1,400

1,600

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

$/t

Differential PX cfr China Naphtha c+f Japan


Expected Global Paraxylene Capacity Additions



PX Projects 4Q 2013 – 1Q 2014 add 4,150 kta (9%)


Country Location Company Timing Expect

Start-Up Volume

(KTA)

China Zhangzhou Tenglong Aromatics (Dragon) Phase I 4Q 2013 October 800

Indonesia Indonesia Restart of TPPI by Pertamina 4Q 2013 Nov-13 600

China Hainan Sinopec Hainan Petrochemical 1Q 2014 Jan-14 600

China Sichuan PetroChina Sichuan 1Q 2014 Feb-14 650

China Qingdao Lidong 1Q 2014 Feb-14 800

Saudi Arabia Al Jubail Aramco Total (SATORP) 1Q 2014 Mar-14 700


PX Projects 2Q 2014 add 3,100 kta (7%)



Start-Up Volume

(KTA)

China Zhangzhou Tenglong Aromatics (Dragon) Phase II 2Q 2014 Apr-14 800

Korea Daesan Samsung Total 2Q 2014 May-14 1000

Korea Incheon SK Global Chemicals 2Q 2014 Jun-14 1300


PX Projects 3Q/4Q 2014 add 3,640 kta (8%)



Start-Up Volume

(KTA)

Algeria Skikda Sonatrach 3Q 2014 Jul-14 220

India Mangalore OMPL (Same as MPRL ?) 3Q 2014 Jul-14 920

Korea Ulsan SK Energy- JX Nippon 3Q 2014 Jul-14 1000

Singapore Singapore Jurong Aromatics 1 3Q 2014 Jul-14 800 Saudi Arabia Yanbu Aramco Sinopec 3Q 2014 700


2010 2011 2012 2013 2014E 2015E 2016E 2017E

China 15475 20155 30955 32955 45105 53205 55905 57905

Korea 6480 6680 6780 6780 6780 6780 6780 6780

Taiwan 5390 5390 5390 5390 5390 6890 6890 6890

India 3755 3755 3755 3755 4855 7075 8075 8075

Thailand 2690 2690 2690 2690 2690 2690 2690 2690

Indonesia 1960 1460 1460 1960 1960 1960 1960 1960

Other SE Asian regions (Malaysia and Pakistan) 1150 1150 1150 1150 1150 1150 1150 1150

Japan 1075 910 910 910 910 910 910 910

Middle East 1050 1050 1050 1050 1400 1400 1400 1400

Asia Total 39025 43240 54140 56640 70240 82060 85760 87760

Asia PTA Capacity Expansions



PTA Operating Rates Asia


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2010 2011 2012 2013 2014E 2015E 2016E 2017E

kt/yr

PTA capacity, kt/yr PTA production, kt PTA operation rate, %


PTA Operating Rates China


0%

20%

40%

60%

80%

100%

120%

0

10000

20000

30000

40000

50000

60000

70000

2010 2011 2012 2013 2014E 2015E 2016E 2017E

kt/yr

PTA capacity, kt/yr PTA production, kt PTA operation rate, %


China Terephthalic Acid & Paraxylene net Trade


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2009 2010 2011 2012 2013 Q1 2014

kt/yr Paraxylene net Imports

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2009 2010 2011 2012 2013 Q1 2014

kt/yr

Terephthalic Acid net Imports


MX and PX Margins & Pricing


600

800

1,000

1,200

1,400

1,600

1,800

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

$/t

PX Spot Prices Monthly Averages

North America West Europe

FOB Korea 600

800

1,000

1,200

1,400

1,600

1,800

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

$/t

MX & Naphtha Spot Prices Monthly Averages

North America West Europe

FOB Korea Naphtha Japan


• Ramping up since 2008

• 2012 Hovensa S/D

• US producers working on

ways to increase production

• More investment coming?

• Globally, only about 30-35%

of mixed xylenes produced

are recovered for petchems

• By 2020, this needs to rise

to closer to 60% to meet

demand

• Data from US Customs

Xylene Exports from US; Asia Demand


US MX Exports, ‘000t/yr

0

200

400

600

800

1000

1200

1400

1600

2007 2008 2009 2010 2011 2012 2013

KT N Am S Am Asia WE EE MEA


PX, MX, and Toluene Outlook 2014


• PX from Naphtha will be challenged with PX to N averaging $300/ton for 2014 based on prior historical low levels (2009 – 2010), due to overcapacity and softness in downstream polyester chain.

• MX prices will lag blend values in the US during the summer by 30 to 40 c/USG and may see more severe lag due to PX

• MX to PX production economics will be challenged with margins averaging $150 /ton for 2014. (see prior historical lows 2009-2010)

• Toluene prices may be 30 c/USG below summer blend value and may see pressure from toluene imports until 3Q and 4Q


0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

‘000t

Benzene Demand Mixed Xylenes Demand

Global MX & Benzene Demand



• Chinese benzene imports

rose in 2013

• Korean producers gained

pricing power in 2013

• New sources of benzene

are linked to paraxylene

Benzene Prices and Asian Developments


0

20

40

60

80

100

120

140

0

200

400

600

800

1000

1200

1400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$/t Regional Spot Benzene Prices - Annual Averages

Differential US - Korea CIF ARA

FOB Korea FOB USGC


Top 10 Benzene Producing and Consuming Countries

Top 10 Benzene Producing Countries

2013 2017

China 7625 10317

United States 5667 5713

S Korea 4356 4841

Japan 4183 3939

Netherlands 1931 1960

Germany 1811 1706

Saudi Arabia 1580 2213

Taiwan 1431 1559

Thailand 1230 1215

India 1200 1650


Top 10 Benzene Consuming Countries

2013 2017

China 8481 11380

United States 7181 7405

Japan 3558 3476

S Korea 3176 3823

Taiwan 2000 2121

Netherlands 1970 1832

Saudi Arabia 1943 2385

Germany 1699 1701

Singapore 1215 1245

Russia 1083 1141


Caprolactam Capacity Growth


Americas 21%

W.Europe 25%

CEE 15%

China 12%

Other Asia 27%

Jan 2012 4.8 million tonnes

Americas 14%

W.Europe 17%

CEE 11%

China 40%

Other Asia 18%

2016 6.84 million tonnes


Premium of Caprolactam to Benzene Feedstock (Taiwan)


0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013

$/t


% Demand

Growth

‘13-’12 ‘14-’13 5-

yr

10-

yr

World 3.3 2.1 2.5 2.5

United

States

7.8 1.5 1.7 0.6

Europe -4.5 0.4 -1.2 -0.8

Middle East 5.9 3.5 3.4 3.3

China 5.3 4.7 4.3 4.1

Global Styrene Supply & Demand-Base Case

60%

65%

70%

75%

80%

85%

90%

95%

0

5000

10000

15000

20000

25000

30000

35000

40000

% O

epra

ting R

ate

(N

am

epla

te)

Capacit

y,

Dem

and k

T

Capacity Demand

Operating Rate 90% Op. Rate



2016 2017 2018 2019 2020 2021 2022

Brazil 250 250 250 250 250 250

China 600 600 1400 1400 2000 2000 2000

Cumulative Speculative Capacity – Base Case



% Demand

Growth

‘13-’12 ‘14-’13 5-

yr

10-

yr

United

States

7.8 1.5 1.7 0.6

United States Styrene Supply & Demand

70%

75%

80%

85%

90%

95%

100%

0

1000

2000

3000

4000

5000

6000

% O

epra

ting R

ate

(N

am

epla

te)

Capacit

y,

Dem

and,

Net

Export

kT

Capacity Demand

Net Export (Import) Operating Rate

90% Op. Rate


• Export volumes grow, as USA becomes incremental supplier to the world

• Advantaged energy, logistics and later olefins will provide competitive edge for EB/SM units

• ORs approach 95% in 2015, then ease as new capacity started in other regions


• North America

◦ 2008 Sterling Texas City,

TX (771 KTA)

◦ 2009 Dow Freeport, TX

(640 KTA)

Styrene Facility Closures

• Western Europe

◦ 2009 Total Carling, FR

(350 KTA)

◦ 2009 Styron Terneuzen,

NL (550 KTA)

◦ 2012 Ineos Styrenics Marl,

Germany (350 KTA)

• Asia

◦ May, 2015 Nihon Oxirane,

Japan (440 KTA)

◦ Asahi 350 KT announced

2/26



2012-2013 US Monthly Styrene Exports by Region of

Arrival


-

50

100

150

200

Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13

KT N Am S Am Asia WE MEA


• More than 40% of US styrene is now exported

• POSM rates high in Europe, but EB/SM under pressure

• Forward balances will depend on new builds and

capacity utilization in China

• Pricing in 2015 and beyond will depend on the rate at

which plants are commissioned

• Further rationalization in Asia, Europe?

Styrene Outlook



% Demand

Growth

‘13-’12 ‘14-’13 5-

yr

10-

yr

China 5.3 6.3 4.2 4.3

China Styrene Supply & Demand

65%

70%

75%

80%

85%

90%

95%

0

2000

4000

6000

8000

10000

12000

14000

% O

epra

ting R

ate

(N

am

epla

te)

Capacit

y,

Dem

and,

Net

Export

kT

Capacity Demand


90% Op. Rate


• Domestic product AAGI is 6.4%/yr. through 2022 while demand grows at only 4.3%/yr. for same period.

• Rates may be constrained by feedstock supplies and availability of imports.


% Demand

Growth

‘13-’12 ‘14-’13 5-

yr

10-

yr

South Korea 4.1 -0.4 1.4 0.4

South Korea Styrene Supply & Demand

65%

70%

75%

80%

85%

90%

95%

100%

105%

0

500

1000

1500

2000

2500

3000

3500

4000

% O

epra

ting R

ate

(N

am

epla

te)

Capacit

y,

Dem

and,

Net

Export

kT

Capacity Demand


90% Op. Rate


• Better demand due to exports and restocking

• High energy cost affects competitiveness

• New capacity in 2014 (restart at SK) and in 2015 (Samsung Total)

• Rationalization?


• US Imports of Benzene, and Exports of Styrene expected to Increase

• Future of China Benzene Trade Balance?

• New Benzene Supplies of Mid East, India, and Northeast Asia

• How much byproduct benzene will come out of new PX capacity?

• Little new styrene capacity: how will styrene demand growth be met?

• Over-investment in Derivative Capacity can kill Competitive Advantage

Benzene & Styrene Key Issues



• Don’t be carried away by short term developments:

• Strong Paraxylene Growth will over time tighten Mixed Xylenes Markets

• Increased Extraction of MX for PX (>60% of global MX production after 2020)

will increase the Value of Toluene for Gasoline

• High Toluene Values will support both Benzene and Xylenes Prices through

Disproportionation Economics

• Pricing for Mixed Xylenes will move above Benzene; the margin between MX

& PX will stay squeezed

• Tightening Feedstock Availability, particularly Heavy Naphtha, will restrict

new Construction

• Aromatics Extraction will be profitable for those with Access to Competitive

Feedstock

Final Thoughts


Any questions?


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Documents

Energy and commodity price benchmarking and market insights · Global Trends in Aromatics and Derivatives Margins move upstream. Chuck Venezia and Andy Nicholson ... US E 25 cpg ME