woodmac.comTrusted Intelligence

Johnny Stewart, Principal Analyst, February 2019

Investment and challenges in the petrochemical and refining sectors IEA-IEF-OPEC Symposium

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Global demand by region

Demand growth slowing, transitioning west to east, end-use changing

Europe and NA lead the decline in global demand, petrochemical feedstock use grows

Global demand by product

0

5

10

15

20

25

30

35

40

45

50

2000 2005 2010 2015 2020 2025 2030 2035 2040

mill

ion

b/d

North America Europe AsiaRussia/Casp Latin America Middle EastAfrica

Source: Wood Mackenzie

Avg. annual growth

2000-17 1.2 mbd 1.4%

2017-40 0.5 mbd 0.5%

-

5

10

15

20

25

30

35

2000 2005 2010 2015 2020 2025 2030 2035 2040

mill

ion

b/d

Gasoline Diesel/GasoilFuel Oil Jet/Other KeroseneEthane&LPG&Naphtha

IMO shifts fuel oil demand to distillate

Source: Wood Mackenzie

Petrochemical feedstocks

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Global refining capacity versus demand

Refining capacity additions start to outpace global demand growth

Greenfield integrated complexes are highly competitive, pressuring weaker sites

Hengli, China, integrated complex

Aromatics

CrackerRefinery

75.5%

76.0%

76.5%

77.0%

77.5%

78.0%

78.5%

79.0%

79.5%

80.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2015 2020 2025

mill

ion

b/d

Capacity & non-refinery supply

Demand

Average utilisation (right-hand axis)

Source: Wood Mackenzie, Product Markets Service

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Middle East NOCs are evolving through the value chain

Margin ‘leak’ a thing of the past, exposure to different segments insulates from volatility

Producer? Refiner? Petro-chemicals?

Gas? Shipper? Trader? Retailer?

Domestic International

BAPCO

K-Companies

Oman Oil

Saudi Aramco

NIOC

Iraq Ministry of Oil

ADNOC

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Customer base is changing, relationships have to evolve

Key changes to heavy crude trade (2025 minus 2017), kb/d

Europe

US Middle East

Africa

Asia

Latin America

Canada oil sands to Asia increases after Trans Mountain Expansion (TMX) is completed

Canada +780

To Asia

Mexico

-620

New supply from Johan Sverdup project. Majority of the volumes will be processed domestically, with some exported to Asia

Steep declines in Angola and Mexico. Offset by new heavy supply from Canada, Europe and the Middle East

To Asia

-600

+250

-385

+1545

Heavy crude demand increases due to upgrading projects, sources of supply change

Exports = domestic supply – domestic demand

Trade increaseTrade decrease

Exports increase,500 kb/d

Exports decrease, 500 kb/d

Source: Wood Mackenzie

Latin America’s sharp heavy crude production declines force cut back of exports to the US and Asia

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China All Supply Balance

Opportunities are very rarely uniform, molecule placement is key

Ethylene derivative import requirement slowing as capacity additions complete

China Ethylene balance

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2015 2020 2025 2030

kt

Capacity Derivative consumption Self-suff ic iency

Source: Wood Mackenzie

-1,500

-1,000

-500

0

500

1,000

1,500

LPG Naphtha Gasoline Jet/OtherKerosene

Diesel/Gasoil Fuel Oil

Bal

ance

s (K

BD

)

2010 2015 2020 2025 2030Surplus

DeficitHistory: IEA Energy Statistics, Forecast:Wood Mackenzie

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Conclusions

• Global demand continues to grow but at a slower pace

• Greenfield integrated sites are more resilient through utilisation downturn

• Participation along the entire value chain protects against different business cycles

• There is no one-size-fit-all-option; need a holistic approach across your business

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Johnny StewartPrincipal Analyst EMEARC, Dubai, UAE

Biography Connect with Johnny

Johnny Stewart is a core member of Wood Mackenzie’s Downstream, Midstream and Chemicals Research team and is responsible for developing and delivering research content to clients.

Johnny has worked in Wood Mackenzie’s research division for nine years and is responsible for analysing refinery supply, infrastructure and investments across the Middle East, Europe and Africa.

Johnny compiles Wood Mackenzie’s long and short term view on all products supply/demand balances in the Middle East and is responsible for individual refinery asset benchmarking and analysis in the region.

Prior to joining Wood Mackenzie, Johnny achieved an Honours Degree in Mechanical Engineering with Management from The University of Edinburgh, Scotland. +971 56 814 4090

+971 4 376 5361

john.stewart@woodmac.com

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