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NexantThinking

The ICIS Asian Butadiene and Derivatives Conference

October 1, 2014

Issues Impacting U.S. In Olefins and Derivatives

Prepared for:

2nd Annual Petrochemical Seminar

Houston, Texas

By William L. Tittle, Principal

http://www.platts.com/

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1

Nexant Overview

Nexant is a leading advisor to the energy and chemicals industry

Through Nexant’s global footprint we will provide you with valuable market insight

Nexant has offices in the major fuels and chemicals producing and consuming regions of the world.

Our international presence allows us to provide insight through our consultants’ local market

knowledge and our vast network of sector specialists.

Our History

Nexant has been advising clients in the

chemicals industry for over 40 years.

The company has completed over 3000 client

assignments in more than 100 countries.

Our People

Over 150 consultants in Consulting Division

worldwide.

Our consultants blend strategic consulting,

operational and technical expertise with deep

chemicals sector knowledge.

Nexant’s consultants are typically Chemical

Engineers, Economists and MBA graduates.

Many of our consultants have also spent

several years working in industry for energy &

chemicals producers.

Our Services and Products

Nexant provides corporate and private equity

clients with advice in the following areas:

– Strategic Planning

– Commercial analysis

– Transaction support: Due Diligence

– Technology assessment

– Independent expert

In addition, Nexant has proprietary technology

and commercial analysis (NexantThinkingTM)

which includes market dynamics and pricing

forecasts, capacity developments and

production cost economics

San Francisco New York

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London

Bahrain Shanghai

Bangkok

Frankfurt

Washington

Head office

Nexant’s main consulting offices

Other offices

Kuala Lumpur

Tokyo Seoul

Beijing

Singapore


Section Title Area

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2

Nexant Overview

Nexant business model is geared to end to end service of the complete energy and chemicalsvalue chain

UPSTREAM MIDSTREAM CHEMICALS DOWNSTREAM

Oil & Gas Service

- Sector Planning

- Shale Gas & Oil

- Coal

GREEN CHEMICALS RENEWABLE ENERGY

OIL AND GAS

Biomass

Gasification

Solar (Thermal & PV)

Wind Power

Clean Coal

CO2 Capture and Sequestration

Fuel Cells & Hydrogen

Geothermal

Syngas

Biopolymers

Olefins

Alcohols

Aromatics

Sourced from Biomass, Algae, Wastes, and Agricultural Sources

CHEMICALS AND CLEANTECH

Processing

LNG Liquefaction

LNG Shipping & Regasification

Oil & Gas Pipelines

- Gas Processing

- Gas Distribution

Petroleum Refining

Product Market Assessment

- Coal to Liquids

- Gas to Liquids

Gas & Naphtha Based Petrochemicals

Olefins & Aromatics

Polymers

Fertilizers

Specialty Chemicals

Advanced Materials

NEXANT CAPABILITY


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Ethylene Capacity-So Many Projects, So Much Uncertainty

Propylene-PDH Plants Rebuilds Supply Base Trends

Impact on C4s Supply

Threat from Renewables?

3

Agenda

Ethylene Capacity-So Many Projects, So Much Uncertainty

4


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5

The selection of new investments in commodity chemicals is driven by specific parameters

Commodity Chemicals Competitiveness Criteria

PARAMETER

Size Capture economies of scale

Location Access to low cost feedstocks /

Deficit markets / Market access

Technology Cost advantage /

Product differentiation

Integration Synergies with adjacent

facilities

KEY OBJECTIVES

Where is demand growth occurring? Where are the accessible low cost feedstocks?


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6

What are the Geographic and Feedstock trends ?

US Shale Gas / Oil Reserves

Increased oil & gas production, resulting in lower energy prices

Increased production of co-produced ethane and other NGLs

Improved competitive position, resulting in reinvestment in commodity products

Moderate demand growth, but export opportunities

Middle East Oil & Gas Reserves

Further utilization of ethane and other available NGLs, but likely higher feedstock prices for future plants

Investments in new refinery capacity with a focus on refinery / petchem integration

Declining competitive position off-set by mixed feeds, integration/scale and focus on higher value products

China Coal Reserves

High demand growth and desire to displace imports

Increase focus on coal to chemicals and PDH (via propane imports)

Investments in new refinery capacity with a focus on refinery/petchem integration

Variable competitive position depending on feedstock.

Access to markets is key


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7

41 million tons of ethylene consumption growth is inline with GDP, with 46% of additions in Asia

Projected Ethylene Consumption Change by 2020

Ethylene Capacity Additions

Million Tons

Global capacity additions

of 53 million tons per

annum of ethylene.

This equates to between

35-45 new world scale

steam crackers

Share of Ethylene Capacity

Additions

232 153

182 206

2013 2017 2020

+29 +24

133

0

20

40

60

80

100

120

140

160

180

200

2013 2020

Mill

ion T

ons

174 +41

Asia 46%

ME & AF 22%

Americas 22%

Europe 10%

Over the period 2013-

2020 all major regions

are expected to increase

net ethylene capacity.

What are the feedstock

trends for ethylene?


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8

Ethylene production processes will vary by region depending on feedstock

Ethylene

Heavy Liquids (Naphtha, Gas

Oil)

NGL (ethane, LPG) Steam

Crackers

Coal / Natural Gas / Petcoke SynGas Methanol

MTO

Ethanol

Dimethyl Ether

Bio-ethanol

Sucrose-based biomass (sugarcane,

sugarbeets, sorghum)

Start-based biomass (wheat, corn, barley)

Ligno-cellulosic biomass

(wood, straw, grasses)

Bio-

Renewable

Routes

Methane

OCM*

*Siluria Technologies is latest proponent of OCM (Oxidative Coupling of Methane)


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IA: Moderate/high

FS: Ethane/NGLs

New activity driven by shale gas

NORTH AMERICA

IA: Low/decline

FS: Naphtha/Ethane

Selective investments in FSU/EE

Further rationalisation in the EU

EUROPE

IA: Low/moderate

FS: Mixed

Potential for ethane, naphtha and

bio based projects

SOUTH AMERICA

IA: Moderate/high

FS: Ethane/NGLs

Further utilisation of ethane & NGLs

Selective Refinery integrated projects

MIDDLE EAST & AFRICA

IA: High

FS: Naphtha/Coal

Refinery integrated projects with

further expansions in CTO/MTO

CHINA

IA: Moderate

FS: Naphtha

Refinery integrated projects in

selected markets by NOCs

SEA/INDIA

IA = INVESTMENT ACTIVITY

FS = FEEDSTOCK SLATE

9

Each region has its own feedstock position in terms of cost, type and accessibility. These present a host of opportunities and challenges for the industry. Majority of the investments are expected in China and Middle East

Ethylene Net Capacity Additions 2013-2020 (Million tons)

9

3

6

11

15

9


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10

Naphtha grows as a feedstock, but cracking production share is forecast to decline by around 5% through 2020 as a result of consumption of light feedstock in U.S. and ME as well as MTO investment in China

2013 2015 2020

Gas Oil Coal

2013 2015 2020

Naphtha

2012 2015 2020

Ethane

2013 2015 2020

Butane Propane

50% 47% 45% 42%

0%

25%

50%

75%

100%

2005 2013 2015 2020

Naphtha AGO Butane Propane Ethane Other

Global Ethylene Production Development by Feedstock Unit: Million tons per year of ethylene

+8

+4

+11

+18


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11

China is continuing its investment drive into coal based chemicals

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017

Mill

ion

Tons

Propylene Ethylene

CTO/CTP Operating Plants in China CTO/CTP Capacity

There could be up to 14 million tons of combined new coal-based ethylene and propylene capacity

by 2017 if current firm plants are completed on schedule

Key success factors relate to the mine mouth coal price and availability of water for the methanol

production

MTO based on imported methanol another option being pursued in China

Xinjiang

Qinghai

Tibet

Gansu

Sichuan

Yunnan

Hainan

Guangxi

Guizhou Fujian Hunan

Hubei

Henan

Jiangxi

Guangdong

Ningxia

Inner Mongolia

Heilongjiang

Jilin

Liaoyang

Hebei Tianjin

Zhejiang

Anhui

Jiangsu

Shandong Shanxi

Shaanxi

Beijing

Shenhua Coal

Chemical Project

Datang Power Shenhua Baotou

Coal Chemical

Zhongyuan

Petrochemical

Ningbo

Heyuan

Wison

(Nanjing)

Chemical

North American Issues and Trends

12


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13

Even with a decline in gas rigs, the EIA Reference Case for both Tight Oil and Shale Gas Supply continues to be adjusted upward every year

EIA Shale Gas Production Forecast*

Last 3 Years (trillion cubic feet)

EIA Tight Oil Production Forecast*

Last 3 Years (million barrels per day)

Source: EIA, Nexant Analysis

* AEO (Annual Early Outlook) EIA Reference Case

Shale oil

peak in 2021

13

0

1

2

3

4

5

6

2009 2014 2019 2024P

rodu

ctio

n (m

illio

n ba

rrel

s pe

r da

y)

AEO 2012 AEO 2013 AEO 2014

0

2

4

6

8

10

12

14

16

18

2009 2014 2019 2024

Dry

Pro

duct

ion

(tril

lion

cubi

c fe

et)

AEO 2012 AEO 2013 AEO 2014


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200

400

600

800

1,000

1,200

1,400

1,600

2005.1 2007.1 2009.1 2011.1U

S D

olla

rs p

er T

on

Ethane E/P Naphtha

Many of the region’s existing crackers have undergone feedstock conversions and process optimization investments to maximize ethane cracking potential

Source: Nexant Source: Nexant

14

14

Ethylene cracking feedstock slate has shifted very quickly towards ethane, therefore improving product margins and production competitiveness versus heavier feedstock slates

U.S. Ethylene Feedstock Ratio

U.S. Ethylene Cash Cost of Production, $/ton

26%

45%

69% 76%

0%

20%

40%

60%

80%

100%

2005 2011 2015F 2020F

Wei

ght P

erce

nt

Ethane Propane Butanes Heavier than C4's


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1

5

Firm U.S. crackers match the low-end of ethane projections of 50 percent increase 2020 over 2012

0

5,000

10,000

15,000

20,000

25,000

New EthyleneCapacity

Low-endSupply

Forecast

High-endSupply

Forecast

Incr

emen

tal E

than

e V

olum

e,

Tho

usan

d To

ns p

er Y

ear

Company Location Capacity kt/yr

Chevron Phillips Cedar Bayou, TX 1,500

Dow Freeport, TX 1,500

ExxonMobil Baytown, TX 1,500

Formosa Plastics Point Comfort, TX 1,000

Ingleside Ethylene Ingleside, TX 544

Sasol Lake Charles, LA 1,500

Total 7,544


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1

6

There are enough crackers under study to occupy high-end ethane forecasts (Doubling by 2020)

0

5,000

10,000

15,000

20,000

25,000

NewEthyleneCapacity

Low-endSupply

Forecast

High-endSupply

Forecast

Incr

emen

tal E

than

e V

olum

e,

Tho

usan

d To

ns p

er Y

ear

Company Location Capacity kt/yr

Shell Pennsylvania 1,500

Braskem/

Odebrecht W Virginia 1,200

Axiall Lousiana 1,200

Indorama 1,300

Shin-Etsu USGC ~500

SABIC ~1,000

PTT Global Chemical ~1,000

Williams (Geismar II) Geismar, LA ~1,000

Others NA

Approximate Total 9,200

However, ethane exports may reach 6 million tons per year by 2020


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CP Chem, an early mover, saw estimated capital costs increase 20% from initial to final

estimates for its new ethane cracker and PE project

Shell cancelled its US GTL project when capital costs came in at twice the level of its

identical Pearl project

CHS suspended its North Dakota ammonia/urea project when capital costs came in at

twice its initial estimate

EPCs are currently unwilling to quote fixed price lump sum bids for major petrochemical

projects and creative approaches are being adopted to share risks between owners and

contractors

The result will likely be a slowing of project execution schedules in order to minimize capital

cost increases

Nexant estimates that with the anticipated rate of project implementation capital costs will

have increased 40-50% between 2012 and 2017

Capital costs are escalating rapidly due to the large number of U.S. petrochemical projects

Propylene –PDH Plants to Rebuild the Supply Base

18


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Propylene production from steam cracking is declining due to the preference for lighter feeds, leading to need for On-Purpose Propylene

19

Propylene Feedstocks and Value Chain

Steam cracker

Polymer / Chemical Grade

Propylene Refinery Grade Propylene Splitter

Refinery FCCU

Oxo -

alcohols Acrylonitrile Polypropylene Acrylic Acid

Propylene

Oxide Isopropanol Cumene

Propane

Dehydrogenation Metathesis MTO/MTP

On - Purpose Propylene (OPP) By - Product Propylene


Section Title Area

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Source: Nexant

Available propylene is increasing in the Middle East, due to increased LPG cracking and propane dehydrogenation projects

In the US, the impact of shale gas has resulted in a move towards using lighter feedstocks in steam crackers, reducing propylene availability

0%

50%

100%

NorthAmerica

WesternEurope

Middle East Asia Pacific

Steam Cracker Refinery PDH MTO/MTP Others

0

25

50

NorthAmerica

WesternEurope

Middle East Asia Pacific

Mill

ion

Tons

Steam Cracker Refinery PDH MTO/MTP Others

20

Steam cracking and refinery sources currently account for the majority of propylene supply. On-purpose production on a global absolute volume basis is still relatively modest

Relative Capacity By Source – Propylene

(Percentage Volume Basis, 2013)

Capacity by Source – Propylene

(Absolute Volume Basis, 2012)

Source: Nexant


Section Title Area

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Global Propylene Capacity Development by Feedstock

Source: Nexant

Global Propylene Capacity

Development:

(million tons per year):

PDH (in N America, China, E Europe and Middle East) and MTO/MTP (in China) impacting recent global propylene market tightness

62% 58% 55% 50%

33% 34%

33%

30%

0%

25%

50%

75%

100%

2007 2010 2013 2016

Cracker Refinery Metathesis PDH Other

Incremental supply from co-product sources continuing to be

insufficient to balance propylene demand growth…

2010 2013 2016

Cracker:

2010 2013 2016

Refinery:

2010 2013 2016

On-Purpose: PDH, MTP/MTO & Other:

+3.1

+1.6

+11

Significant amount of OPP

capacity being added

Going forward, a greater need for on-purpose production (OPP) capacity is emerging to meet future propylene demand requirements


Section Title Area

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30 percent of global propylene supply will be produced from on-purpose sources by 2025

Global Propylene Production by Process

(thousand tons)

Overview

Propylene production from

steam cracking is declining in

some areas due to the

preference for lighter feeds.

PDH has been through a

phase of major expansion in

the Middle East, but the focus

is now moving to China and

the United States.

Methanol-based

developments are so far all in

China, and mainly based on

coal/methanol. Projects are

now being developed in gas-

advantaged regions such as

Central Asia and the United

States (BASF).

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2000 2005 2010 2015 2020 2025

Steam Cracking Refinery FCC/DCC Metathesis

PDH Methanol Conversion

22


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23

MTO and PDH will constitute 45 percent of Chinese propylene capacity by 2018

China Propylene Capacity, (thousand tons)

Source: Nexant Analysis, OICA

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Steam Cracking Refinery PDH Methanol Conversion


Section Title Area

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2.0

0.7

3.8

3.0

4.7

4.7

1.8

3.9

4

4.1

4.8

5

0 2 4 6

Others

Acrylonitrile

Propylene Oxide

Cumene

Polypropylene

Acrylic Acid

2013-2020 2000-2013

24

Global propylene consumption is forecast to grow at an average annual growth rate of 4.8% to 2020

Global Propylene Consumption by Derivative,

2013-e

Global Propylene Consumption Growth by

Derivative (percent Volume Growth, 2000-2013)

Poly-propylene

63%

Propylene Oxide

8%

Acrylonitrile 7%

Cumene 5%

Acrylic Acid 4%

Isopropanol 1%

Others 12%

Source: Nexant Analysis

As the predominant propylene derivative, polypropylene dictates the global growth outlook


Section Title Area

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The import requirement of propylene derivatives tripled between 2000-12

Massive new capacity has been started up / is under construction / is in planning in China

Source: Nexant Source: Nexant

25

In China, a rising deficit in propylene derivatives over the past decade has spurred massive new investments in production capacity

Imports of Propylene Derivatives In China,

(ton of each product)

Incremental Propylene Derivatives Capacity in

China, (base year = 2012, ton of each product)

0

10

20

30

2016 2020

Mill

ion

Tons

per

Yea

r

PP PO Acrylonitrile

Phenol Acrylic acid Isopropanol

0

4

8

2000 2006 2012

Mill

ion

Tons

per

Yea

r

PP PO Acrylonitrile

Phenol Acrylic acid Isopropanol


Section Title Area

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26

One of the key factors determining profitability of U.S. PDH investments will be competitiveness versus MTP in China

Propylene Cost Plus Return, $ per MT, 2017

<Insert date using ‘Insert – Header & Footer’> <Insert job number using 'Insert - Header & Footer'>

However, equally important will be the competitiveness of U.S. PDH with the many coastal China PDH plants being built

0

500

1,000

1,500

2,000

US PDH China MTP Imported MeOH at COP

Cos

t + 1

0% R

OC

E


Section Title Area

Slide Title Area







Despite relatively weak performance in recent years, Nexant’s forecast assumes propylene

consumption will return to growth rates well above GDP, before again descending towards GDP rates

– The majority of new demand is in Asia, with polypropylene and China the primary drivers

– Short of a severe demand downturn, China is likely to remain an importer of propylene and

derivatives

Propylene feedstock slates are set to transform, as a greater need for on-purpose capacity is required

to meet future demand requirements

– Despite projected higher global operating rates, relative propylene output from steam cracking will

decrease further as a result of the ongoing shift towards lighter feeds.

– The U.S. is set to fill its propylene supply gap through several PDH plants in the US, and at least one

in Canada; in addition BASF announced a methane to propylene unit

– In Western Europe, increased imports of ethane and LPG, and the closure of some older steam

crackers, will reduce propylene supply

– Chinese propylene capacity is set to surge as a result of numerous MTO/MTP and PDH

developments; yet China is projected to continue to import both propylene and most derivatives

A large propylene price premium over ethylene is not sustainable in the long term, due both to inter-

polymer competition in PP as well as rising on-purpose production

27

Summary: On-Purpose Propylene will be increasingly required

Impact on U.S. Butadiene Supply

28


Section Title Area

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Butane/butene dehydrogenation is an alternative route for butadiene production

C4 Stream

Refinery FCCU Dehydrogenation

Butane / Butene

Dehydrogenation

Styrene Butadiene Rubber,

Polybutadiene Rubber,

Styrene Butadiene Latex ,

ABS, HMDA, SBCs,

Nitrile Rubber,

Etc.

Butadiene Derivatives Mixed Butanes Mixed Butenes Butene-1

N-butane

Derivatives,

Acetic Acid,

gasoline,

Etc.

Butan-2-ol,

Higher Oxo-

Alcohols,

Etc.

LLDPE

comononer.

HDPE

comonomer,

Etc.

High Purity:

Butyl

rubber

etc.

Contained:

MTBE

ETBE

Etc.

29

Butadiene Isobutylene


Section Title Area

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30

Why naphtha supplies are important for the butadiene industry

Co-Products from Ethylene Plants

(per ton ethylene)

Butadiene Yield per Ton Ethylene

(by feedstock)

Butadiene supply is highly dependent on feedslate type. Majority of butadiene supply is from heavy feed cracker (e.g., naphtha, gas oil)

Except for the USA, where C4s are aggregated and processed, butadiene component from light feed cracker is typically co-crack recycled as the quantity is small and insufficient for commercial scale butadiene

Methanol-to-olefins plant does not produce butadiene but butylenes

0.0

0.5

1.0

1.5

2.0

2.5

MTO Ethane Propane n-Butane Naphtha

Pro

duct

per

Ton

Eth

ylen

e

Ethylene Propylene Butadiene BTX

0%

5%

10%

15%

20%

MTO Ethane Propane n-Butane Naphtha

BD

Pro

duct

ion

per

Ton

Eth

ylen

e


Section Title Area

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31

Global butadiene consumption is forecast to grow at an average annual growth rate of 3.2% to 2020 driven mainly by automotive sector

Global Butadiene Demand by Application (2013) Global Butadiene Demand Growth by

Application (%AAGR)

Total Demand = 10.5 Million tons

Butadiene industry is driven by demand growth from BR, SBR (for tires) and ABS

Demand into HMDA (hexamethylene diamine) for nylon 6,6 production is driven by use of nylon tyre cord and resin for injection molded components

Other demand includes nitrile rubber and styrene block co-polymers (SBCs)

AAGR (%)

'13-'20

2.0

7.4

0.6

3.9

4.1

3.0

3.2

-5 0 5 10

Global

BR

SBR

ABS

SBL

HMDA

Others

2013-2020 2000-2013

Butadiene Rubber

SB Rubber ABS

SB Latex

HMDA

Others


Section Title Area

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In North America, after a decade of plant closures, new tire factories may lead to additional domestic rubber demand

Source: Michelin / LMC

North American PC Replacement Tire Capacity, (Millions of tires)

However, existing plants may also shut-down; but worst case, it appears that rubber demand decline

(especially for premium grades) may finally flatten

277

194

226

0

50

100

150

200

250

300

2002 2012 2018

2012-2018 Projections:

+16% PC tire units

PC

Announcements:

Michelin

Bridgestone

Continental

Kumho

Toyo

Pirelli

~30%

Units

~12%

tonnage

14 plant closures

The Story of North American

Industrial Capacity

After a rational phase,

North American

manufacturers are actively

investing in premium and

growing segments

Other Announcements:

Michelin (TB & OTR)

Bridgestone (TB & OTR)

Continental (TB)

Yokohama (TB)

Mitas (AG)


Section Title Area

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33

Asia will continue to be the focus of global development for butadiene, as well as derivatives

Asia Pacific

Europe

North America

South America

ME / AF

Total Demand = 10.5 Million tons

Global Butadiene Demand Growth by Region

0 5 10 15

Global

Asia Pacific

Europe

North America

South America

ME / AF 2013 2020

AAGR (%)

'13-'20

10.7

5.8

-0.1

1.3

4.5

3.2

Global Butadiene Demand by Region (2013)

+2.6

million

Additional annual butadiene demand growth over the next 7 years is around 2.6 million tons per year of which around 80 percent will be in Asia, especially China

Is butadiene supply from steam crackers sufficient for incremental butadiene demand ?

Con

sum

ptio

n (M

illio

n To

ns)


Section Title Area

Slide Title Area







Nexant’s Global Butadiene Supply – Demand – Trade - Pricing Model

Shale gas

availability and

pricing

Naphtha

availability and

pricing

Ethylene Demand

growth – New &

Refurbished

Crackers C4s Supply

Butadiene

C2-C4

Hydrogenation

Ethylene

Feedstock Model

Cracker C4 Analysis

Coal to Olefins

CTO/MTO

Butadiene Supply

On-

purpose

Butadiene

C4

On-Purpose BD

Analysis

BD

Demand &

Substitution

Analysis

Butadiene

Derivatives

Demand

Substitutes for

BD Derivatives

Demand

BD

Butadiene

Exports/Imports

Demand Drivers

Regional GDP

Growth

Oil Price Scenario

Vehicle Sales

Tire Chemistry

Replacement tire

cycle

Miles driven

Recession Echo

Effect

Appliances

Electronics

Trade Dynamics

Echo recovery

BD Price

Butadiene Demand

C4

C4?

Refinery and Bio

C4 Source

34


Section Title Area

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35

A gradual feedstock slate transition in the ethylene sector will be driving down the portion of butadiene supply from steam crackers

Global Butadiene: Ethylene Production Ratio

5%

6%

7%

8%

9%

10%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000 2005 2010 2015 2020

% B

D/E

thyl

ene

Pro

duct

ion

Tho

usan

d To

ns o

f But

adie

ne p

er Y

ear

Butadiene Production from Extraction % BD/E


Section Title Area

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36

Over the period 2013-2020, additional around 2.6 million tons per year of butadiene production is required to meet global demand

Ethylene Demand Growth

Butadiene Demand Growth

Additional 2.6 mmta of butadiene demand is equivalent to almost 20 mmta of liquid cracker feed, while ethylene production of naphtha feed crackers are expected to increase by only 11 mmta

The remainder of ethylene growth is from ethane (18 mmta); coal (8 mmta); propane & butane (4 mmta) which yield little (or no) butadiene

0

50

100

150

200

2013 2020

Mill

ion

Tons

per

Yea

r

41 Million

3.9% AAGR

0

5

10

15

2013 2020M

illio

n To

ns p

er Y

ear

2.6 Million

3.2% AAGR


Section Title Area

Slide Title Area







37

Where can missing butadiene supply come from?

Butadiene

Mixed C4s Extraction Process

Butane

Butenes

Dehydrogenation

Process

Dehydrogenation

Process

Bio-mass

Bio-ethanol

Bio-butanol

Butanediol


Section Title Area

Slide Title Area







Asia added 1 million tons of new capacity in 2014, of which a large share is dehydrogenation

38

Asia Butadiene Capacity Addition, Thousand tons

0

200

400

600

800

1,000

1,200

2011 2012 2013 2014 2015 2016 2017

Dehydrogenation Extractive Distillation

Several new steam crackers in Asia with 1.6 million tons of new butadiene capacity by 2015

Butene dehydrogenation technology is being developed at twelve new plants in China with total capacity of around 1.2 million tons per year. Two plants are already operational

On-purpose capacity is likely to be used as ‘top up’ capacity during periods of tight supply/demand


Section Title Area

Slide Title Area







39

On-purpose butadiene production will be required to fulfill total butadiene demand

Global Butadiene Capacity, (by process)

China Butadiene Capacity, (by process)

China will represent 40% of global butadiene capacity in 2020

On-purpose butadiene production will concentrate in China, where demand growth is outpacing butadiene supply growth and (eventually) in the U.S., where butadiene supply is also short

0%

2%

4%

6%

8%

10%

12%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000 2003 2006 2009 2012 2015 2018D

ehyd

roge

natio

n P

ortio

n

Tho

usan

d To

ns p

er Y

ear

ExtractionDehydrogenation

0

1,000

2,000

3,000

4,000

5,000

6,000

2005 2010 2013 2020 Est.

Tho

usan

d To

ns p

er Y

ear

Dehydrogenation Extractive Distillation


Section Title Area

Slide Title Area







0

500

1,000

1,500

2,000

2,500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2004 2008 2012

But

adie

ne a

nd N

apht

ha P

rice

Gap

US

Dol

lars

per

Ton

Naphtha Butadiene BD-N Gap

40

Value of ethylene has been in line with naphtha price while butadiene has been increasing with extreme volatility to a higher value

Asia Butadiene and Ethylene Prices Asia Butadiene and Naphtha Prices

Butadiene/Ethylene

Price Trend

Historically, butadiene cost a small premium over ethylene price

As a result of heavy capacity addition of ethylene crackers in Middle East since 2008 and the effect of shale gas, butadiene supplies have tightened, the price level has increased, and the ratio of butadiene to ethylene prices stepped up with the record high in 2011

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2004 2008 2012

BD

/Eth

ylen

e P

rice

US

Dol

lars

per

Ton

Ethylene Butadiene BD/Ethylene


Section Title Area

Slide Title Area







Butadiene is difficult to store and degrades with time, so normally it is converted to a derivative, sold

and converted, or destroyed. As a result, butadiene prices have become increasingly volatile as the

supply demand balance for mixed C4 has tightened

Echo Recession for tires: Synthetic rubber demand is extremely volatile, as today’s demand for rubber

depends on sale of both new vehicles and sales of replacement tires for vehicles that were sold during

the recession and earlier. Consequently, 2012 was a poor year for rubber demand and 2013 was even

worse

Echo Recovery: It is likely that synthetic rubber demand for replacement tire will improve in the short-

term, as 2014 will be four years after a large increase in new vehicle sales (post recession in 2010) in

America and Western Europe and five years after a 45 percent increase in new vehicle production in

China (2009)

Butadiene consumption: Expected to grow by 2.6 million tons per year by 2020 with specific focus in

China, which will account for 60 percent of incremental demand

Butadiene supply: Naphtha crackers should supply around 2 mmta by 2020 based on 11 mmta

additional naphtha-based ethylene production. Therefore, naphtha will remain the primary source of

butadiene production

Butadiene’s intrinsic properties and position as a by-product of ethylene production creates a lot of interesting market dynamics


Section Title Area

Slide Title Area







New byproduct BD supplies postpones the necessity for OPBD (until the next price spike!)

New European BD Supplies: Several European steam cracker operators that until recently exported

mixed C4, or destroyed their C4/butadiene through hydrogenation, have announced plans for almost

500 000 tons of butadiene extraction capacity by 2016

– New Asian BD Supplies: In addition, there are several new steam crackers in Asia with 1.6 million

tons of new butadiene capacity by 2015

– BD from C4 supplies will be insufficient: In the long-term, butadiene demand is growing at slightly

less than GDP, which is faster than supplies of mixed C4 from steam crackers

New Price setting mechanism for BD: Consequently, the market will develop new sources of

marginally cost effective butadiene supply - for instance, on-purpose butadiene (OPBD) from

dehydrogenation or bio-based butadiene. The marginal cost of this OPBD will be the new price setting

mechanism for butadiene

Chinese OPBD Supply: China producers have announced plans for 12 plants producing 1.25 million

tons per year of OPBD, of which 2 plants are already operational. This OPBD capacity is likely to be

used as swing capacity during periods of tight supply/demand

The long-term shortage of mixed C4 has led to rapid development of additional BD extraction and OPBD in China

Butadiene prices are likely to remain volatile until additional (on-purpose) supplies balance the market

Threat from Renewables

43


Section Title Area

Slide Title Area







Renewable Chemicals Value Chain

Feedstocks

Corn

Sugar

Switchgrass

Hybrid Poplar

Corn Stover

MSW

Conversion

Technologies

Cellulosic

Hydrolysis

Genetically Modified

Fermentations

Biomass

Gasification

Thermochemical

and Catalytic

Transformation

Chemicals/

Plastics

C1

C2

C3

C4

Aromatics

Vegetable Oils

Others

Fabrication

Technologies

Injection molding

Blow molding

Thermoforming

End Products

Packaging

Automotive

Electronics


Section Title Area

Slide Title Area







Renewable Chemicals Value Chain and Cost Competitiveness


Section Title Area

Slide Title Area







Renewable Bio-Adipic Acid Cost Competitiveness, 2014

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

BoricAcid

Rennovia20 kta

Rennovia135 kta

Boric Acid

Dol

lars

per

Ton

Net Raw Materials Net Utilities Fixed Costs Depreciation

Stand-Alone Adipic Acid Plant Plant Integrated Upstream

with Benzene


Section Title Area

Slide Title Area







pX Price

Anellotech Gevo Micromidas Virent Petro

Aromatic Renewable Chemicals Cost Competitiveness: para-Xylene

para-Xylene Competitive Costs, 1Q2014

Relevant NexantThinking Offerings

48


Section Title Area

Slide Title Area







Special Report: U.S. Ethane Utilization : Domestic Use Versus Exports

Special Report : On-purpose Propylene : Is Propane the Best Feedstock?

Petroleum & Petrochemicals Economic (PPE) : 2014 Butadiene & Derivatives

Petroleum & Petrochemicals Economic (PPE) : 2014 Propylene & Derivatives

Petroleum & Petrochemicals Economic (PPE) : 2014 Olefins

Process Evaluation/Research Planning (PERP) program : Propylene

Process Evaluation/Research Planning (PERP) program : Bio-Butadiene

Process Evaluation/Research Planning (PERP) program : On-purpose Butadiene

Process Evaluation/Research Planning (PERP) program : Butadiene/Butylenes

Special Report: Biorenewable Insights

Please visit http://thinking.nexant.com/ for more information.

49

Latest NexantThinking’s Related Reports

William L. Tittle Principal Nexant, Inc. 44 South Broadway White Plains, NY 10601 USA tel +1 914 609-0303 email [email protected]

www.nexant.com

Questions?

50

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