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The shifting state of play in global petrochemical and refining markets. How will you prepare?ICIS Webinar: 20 June 2019
Jeremy Pafford
Head of North America, ICIS
Joseph Chang
Global Editor, ICIS
www.icis.com 2www.icis.com 2Copyright © 2019 ICIS
IMO 2020 and Crude Oil
Crude oil outlook: Is there reason to be bullish on crude pricing?
How will IMO 2020 alter the refining slate?
Besides a change in demand for distillates, what other knock-on effects from IMO 2020 are expected?
Global Petrochemical Industry Outlook – Macro Trends and Rising Risks
Macroeconomic outlook - the state of global manufacturing and the economy
US trade flows and the US-China trade war
US ethylene and PE capacity wave
Rise of Middle East oil companies in petrochemicals
Crude oil-to-chemicals (CTC)
China foreign direct investment
Plastics waste
Agenda
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Crude perspectives in an IMO 2020 worldSupply, demand, and regulatory change to propel oil market movements
Jeremy Pafford
Head of North America, ICIS
www.icis.com 4www.icis.com 4Copyright © 2019 ICIS
Crude in focus: Where is it going?
IMO 2020’s effects on crude
What will shippers choose to fuel their ships in 2020?
The cascading effects of IMO 2020
Topics
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Crude perspectives amid a forthcoming new reality
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The crude oil price will likely drop in Junedue to concerns over a global GDP slow-down, the effects of the US-China trade warand growing crude stocks
Crude and equity prices have decreased sinceMay announcement of additional tariffs
Huge build in US crude stocks – 32 millionbarrels cumulative build since the beginning of2019
Price is forecast to increase in July due toanticipated OPEC+ production agreement
Previously, Russia seemed reluctant to agreeto further cuts but rhetoric has been positivefrom Russia and Saudi in recent weeks
If another cuts agreement does go ahead, thecuts will likely be lower than the currentagreement
Source: ICIS short term crude forecast, May 2019
Historical Price
Forecast Price
40.0
60.0
80.0
J F M A M J J A S O N D
BFO
E C
rud
e P
rice
Fo
reca
st (
$/b
bl)
Month
2019 BFOE Crude Price Forecast
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Prices to drop in August but in September,the price is forecast to resume its increase,thanks largely to factors associated withIMO 2020
Refineries will look to prepare as early aspossible, spurring demand for crude oil
Those refineries with large tank farms will beable to prepare as early as September bypurchasing crude oil at lower prices
Prices are expected to continue increasingto >$70/bbl by the end of the year
There will be a drive to maximise middledistillates production as IMO approaches
This is expected to prompt a reduction inturnarounds in Q4, further bolstering demandfor crude oil
Historical Price
Forecast Price
Source: ICIS short term crude forecast, May 2019
40.0
60.0
80.0
J F M A M J J A S O N D
BFO
E C
rud
e P
rice
Fo
reca
st (
$/b
bl)
Month
2019 BFOE Crude Price Forecast
www.icis.com 8Copyright © 2019 ICIS
Maritime transport is essential to the global economy, as the International Maritime Organization (IMO) estimates that more than 90% of the world’s trade is carried by sea.
Transport by sea is the most cost-effective method to move goods and raw materials globally, and it will continue to be – but it will be more costly.
IMO 2020: A game change for shipping and beyond
www.icis.com 9Copyright © 2019 ICIS
Majority of the shipping fuel used today is high-sulphur fuel oil (HSFO) with a 3.5% sulphur-content cap
As of 1 Jan, the sulphur-content cap is reduced to 0.5%, leaving shippers with a host of cost-inducing options.
Refiners need to build inventory of fuels ahead of time; hence the forecasted run-up in oil buying/pricing ahead of January 2020
IMO 2020: A game change for shipping and beyond
www.icis.com 10Copyright © 2019 ICIS
Stick with high-sulphur fuel oil (HSFO) and install “scrubbers” to get the sulphur out of emissions
Switch to low-sulphur fuel oil (LSFO)
Switch to marine gas oil (MGO)
Switch to a ship fueled by liquefied natural gas (LNG)
Ignore the rules and see if the IMO catches you (you know someone will try this …)
IMO 2020: Shipping fuel options
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IMO 2020: Our view of what shippers will choose
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Increase in demand for LSFO and MGO will cause their prices to jump
HSFO prices could crash amid severe loss in demand
Going the “scrubber” route will be viewed as impractical and/or too difficult to find ports that will allow “open-loop scrubbing,” which uses seawater’s natural alkalinity as a neutralizing agent to “scrub” the sulphur oxide from engine exhaust
IMO 2020: Cascading effects
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Diesel fuel set to rise due to increase as MGO demand pushes distillate prices higher
With the crude oil complex rising, gasoline prices could well increase as well, so no overland fuel will be immune from IMO 2020’s indirect effects
Whether you ship over land or over water,the price of transport fuels are likely going up in short term, and someone (producers, buyers, end-users) will have to eat that cost.
IMO 2020: Cascading effects
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Going further, vacuum gas oil costs could well eat into base oils margins, which would effect lubricant pricing
Sweet crudes advantaged in making LSFO, as they contain less sulphur
Complex refineries such as those on the US Gulf Coast well positioned to handle light/sweet or heavy/sour crudes for compliant bunker fuel production, while simpler refineries around the world will be challenged
IMO 2020: Cascading effects
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The bottom falling out of HSFO will not portend its ultimate demise
Refiners with extra conversion capacity will be able to access surplus HSFO as an incremental feedstock for their conversion units
Supply-demand forces could drive prices so low in a few years that we forecast its use along with scrubbers could be too cost-effective to ignore
IMO 2020: Not the death knell for HSFO
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Global Petrochemical Industry OutlookMacro trends and rising risks
Joseph Chang
Global Editor, ICIS
www.icis.com 17
Macroeconomics outlook - the state of global manufacturing and the economy
US trade flows and the US-China trade war
US ethylene and PE capacity wave
Rise of Middle East oil companies in petrochemicals
Crude oil-to-chemicals (CTC)
China foreign direct investment
Plastics waste
Topics
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30
35
40
45
50
55
60
65Ju
l-0
8
Dec
-08
May
-09
Oct
-09
Mar
-10
Au
g-1
0
Jan
-11
Jun
-11
No
v-1
1
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
Dec
-13
May
-14
Oct
-14
Mar
-15
Au
g-1
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Jan
-16
Jun
-16
No
v-1
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Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
Dec
-18
May
-19
US
Eurozone
China
Europe sharp slowdown
EXPANSION
CONTRACTIONChina dipped to contraction, still weak
NOTE: Figures through April 2019, US = ISM, Eurozone = IHS Markit, China = Caixin
US losing momentum
Global Manufacturing PMI
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Synchronized global economic slowdown
US trade battles on 2 major fronts – China, EU
US-China trade war hits China business confidence, impacting US as well. Escalation hits financial markets
Crude oil – precarious outlook on slowing economies, but geopolitical risks – Iran, Venezuela, Libya
Europe borderline recession – Brexit uncertainty, France protests
US economic expansion nearing longest in history
BUT US Fed shift, pausing rate hikes, to halt balance sheet reduction. Plus China stimulus
Macro developments heighten risk
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US-China tariffs – impact on chemicals and plastics
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US CHEMICAL TRADE 2018
$m
Exports Imports Trade Balance
Mexico 22,938 5,396 17,542
Canada 22,565 19,485 3,080
China 11,833 15,836 -4,002
Brazil 7,739 2,042 5,697
Belgium 7,439 1,746 5,693
Japan 6,418 6,741 -322
South Korea 6,054 3,822 2,232
Netherlands 4,753 3,275 1,479
India 3,781 3,400 381
Singapore 3,332 1,425 1,907
World 140,224 109,091 31,133 -5000 0 5000 10000 15000
China
Japan
India
Netherlands
Singapore
South Korea
Canada
Belgium
Brazil
Mexico
Source: American Chemistry Council
Mexico is over 1/2 of the entire US chemical trade surplus
US chemical trade balance, Top 10 export destinations
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0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Round 2 (Aug 2018) Round 3 (Sep 2018, May/Jun 2019)
Exports under tariff based on 2017 trade flows
US exports impacted China exports impacted
$ millions
$2.0bn $2.2bn
$8.8bn
$13.2bn
Source: American Chemistry Council, US International Trade Commission
US raises tariffs from 10% to 25% May 10
China retaliates by raisingtariffs from 5-10%, to 5-25% in June
Tariff impact on US and China chemicals + finished plastics
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0%
1%
2%
3%
4%
5%
6%
7%
8%
0
50
100
150
200
250
300
350
US exports to China as % of total production 2018
2018 exports to China % total production
‘000 tonnes
* HTS codes 3206.11 and 3206.19 – pigments and preparations based on TiO2Source: ICIS Supply and Demand Database, USITC. Shows only chemicals with volume of at least 10k tonnes
3rd round with 5-25% tariffs
Double hit – tariffs, PLUS China polyester textiles under US tariff
Double hit – tariffs, PLUS China finished plastics under US tariff
Rounds 2 and 3 - US chemical exports hit by China tariffs
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
NE Asia Europe Africa Asia Pacific South & CentralAmerica
HDPE, LLDPE net imports as % of total for deficit regions 2020
Net imports % of total
‘000 tonnes
48%
China represents more than 100% of NE Asia at10.6m tonnes as other countries are net exporters
Source: ICIS Supply and Demand Database
What would the loss of China’s HDPE, LLDPE market mean for the US by 2020?
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0
10
20
30
40
50
60
70
Causticsoda
TiO2* Acrylicacid
SBR Aceticacid
Adipicacid
Methanol PG Toluene
China exports to US under tariff in Round 3 in 2018‘000 tonnes
* HTS codes 3206.11 and 3206.19 – pigments and preparations based on TiO2Source: ICIS Supply and Demand Database, USITC
Rest are mostly small volumes
Round 3 – China exports to US impacted by increase in tariffs from 10% to 25%
www.icis.com 26Source: American Chemistry Council, USITC, 2017 figures
0
1,000
2,000
3,000
4,000
5,000
6,000
$ millions
Round 2 Round 3
$1.4bn
$5.6bn
China combined total of $7.0bn = ~30% of total US imports of these particular products, and 18% of all US finished plastics imports
NOTE: The US imported $39bn of finishedplastics products worldwide in 2017
The big impact on China: finished plastics exports to US
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US projects – ethylene, polyethylene (PE) wave
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CompanyC2 capacity
(kt/year)Downstream (kt/year) Location Start-Up
OxyChem/Mexichem 544 Feed existing VCM plant of 1,050 Ingleside, Texas Q1 2017
Dow Chemical 1,500ELITE PE (400); LDPE (350) – Plaquemine, Louisiana; EPDM (200); elastomers (320)
Freeport, Texas Q3 2017
Chevron Phillips Chemical 1,725Bimodal HDPE (500), mLLDPE (500) both at Old Ocean
Cedar Bayou, Texas Q1 2018
ExxonMobil Chemical 1,500mLLDPE plus LLDPE (650 x2) at Mont Belvieu
Baytown, Texas Q3 2018
Lotte/Westlake 1,000MEG (760) by Lotte, feed into existing PVC for Westlake
Lake Charles, Louisiana Q2 2019
Shintech 500 VCM (400), PVC (290), caustic soda (270) Plaquemine, Louisiana Q2 2019
Formosa Plastics 1,200 HDPE (400), LDPE (400), EG (800) Point Comfort, Texas H2 2019
Sasol 1,500LLDPE (470), LDPE (420), EO/EG (300), ethoxylates, detergent alcohols (300)
Lake Charles, Louisiana H2 2019
8 new crackers from 2017-2019 = 9.4m tonnes/year
New US crackers complete, under construction through 2019
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Company Capacity (kt/year) Location Status/Start-Up
LyondellBasell 363 Corpus Christi, Texas Fully started up Q2 2017
Westlake Chemical 32 Calvert City, Kentucky Started up Apr 2017
Indorama (restart) 440 Lake Charles, LouisianaDec 2018 but trial runs
May 2019
Dow 91 Orange, Texas H1 2019
Dow 500 Freeport, Texas 2020
INEOS 270 Chocolate Bayou, Texas 2020
LyondellBasell 250 Channelview, Texas Evaluating for 2020s
Expansions about 1.4m tonnes/year + new crackers 9.4m = 10.8m, or 38% of existing US capacity by 2019
Expansions of existing US crackers, plus 1 restart
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Company Capacity (kt/year) Grade, breakdown Location Start-Up
Dow Chemical 400 ELITE PE Freeport, Texas Q3 2017
Dow Chemical 350 LDPE Plaquemine, Louisiana Q4 2017
Chevron Phillips Chemical 1,000 Bimodal HDPE (500), mLLDPE (500) Old Ocean, Texas Q3 2017
ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas Q4 2017
INEOS/Sasol 470 HDPE La Porte, Texas Q4 2017
Dow Chemical 125 Bimodal HDPE St Charles, Louisiana Q4 2018
Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana Q1 2019 / Q3 2019
LyondellBasell 500 HDPE La Porte, Texas Q3 2019
Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas Q3 2019
ExxonMobil Chemical 650 LLDPE Beaumont, Texas H2 2019
Total/Borealis/NOVA 625 Borstar PE Bayport, Texas 2021
Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania Early 2020s
NOVA Chemicals 430 LLDPE Sarnia, Canada 2022
SABIC/ExxonMobil* NA PE unspec (2 units) Corpus Christi, Texas H1 2022
Dow Chemical 600 PE (unspec) US Gulf Coast 2021-2023
Dow Chemical 350 PE (unspec) US, global debottlenecks 2021-2023
PTT Global Chemicals 1,600 HDPE/LLDPE, mLLDPE Belmont County, Ohio 2024
Through 2019 = 6.5m tonnes/year (+41% US capacity)Through 2022 = 12.1m tonnes/year (+73% US capacity)*Assuming 1,300kt PE for SABIC/ExxonMobil
North America PE expansions
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CompanyCapacity (kt/year)
Downstream (kt/year)
Location Start-up Status
Total/Borealis/NOVA
1,000Borstar PE (625) + existing PE (400)
Port Arthur, Texas End 2020Under
construction
Shell 1,500HDPE/LLDPE (2x 550),
HDPE (500)Monaca,
PennsylvaniaEarly 2020s
Underconstruction
SABIC/ExxonMobil
1,800 PE (2 units), MEGCorpus Christi,
TexasH1 2022
Underconstruction
Formosa Petrochemicals
1,200LLDPE (400), HDPE
(400), EG (900)St James Parish,
Louisiana2022 Evaluation
PTTGC/Daelim 1,500HDPE/LLDPE, mLLDPE
(1,600 total)Belmont County,
Ohio2024 FID 2019
Chevron Phillips Chemical
NA NA US Gulf Coast NA FID early 2020
2nd wave of new US cracker projects
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25
35
45
55
65
75
85
95
930
1,030
1,130
1,230
1,330
1,430
Brent crude oil vs Asia LLDPE
LLDPE Film, dutiable, spot CFR SE Asia LLDPE Film, spot CFR China Brent
$/tonne $/bbl
LLDPE decouples from crude oil
Source: ICIS
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1
2
3
4
5
6
7
8
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
LLDPE capacity growth GDP 1.5x GDP
Source: ICIS Supply and Demand Database, IMF, including impact from US-China trade war 2020, 2021
%
Global LLDPE capacity additions far exceed GDP
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80
82
84
86
88
90
0
5
10
15
20
25
30
35
40
45
50
2014 2015 2016 2017 2018 2019 2020 2021
Production Capacity Cap utilisation
M tonnes % CU
Source: ICIS Supply and Demand Database
Global LLDPE capacity utilization
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ICIS Live Disruptions Tracker – capacity changes month by month
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Rise of Big Middle East Oil in Petrochemicals
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ADNOC (Abu Dhabi) - $45bn investment plan
New mixed feed cracker. Triple petrochemical capacity to 14.4m tonnes/year by 2025 and add new downstream product chains - construction chemicals, oil and gas chemicals, surfactants and detergents
Saudi Aramco - $100bn over next 10 years
Crude oil to chemicals (CTC) complex with SABIC –9m tonnes/year by 2025
New cracker and downstream in JV with Total (Amiral) next to Satorp - $9bn investment
In India, JV with ADNOC and local consortium to build $44bn refining and petchem complex in Raigad. 18m tonnes/year of petchem capacity by 2025
Planned merger with SABIC (SABIC plans cracker complex in Fujian, China)
Long term threat from EVs recognized. Hydrocarbon demand to shift from fuels to chemical feedstock
BUT no longer satisfied just providing feedstock for chemicals. Wants to “stretch the value from the barrel of oil”
The rise of Middle East Oil in petchems
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Thermal CTC (TCTC)
Step 1: crude oil to hydroprocessing plant to remove contaminants
Step 2: processed crude to steam cracker
Partners McDermott, Chevron Lummus Global (CLG)
70% conversion oil to chems – 120k bpd
‘Commercial readiness’ by 2020, 30% capex reduction
Catalytic CTC (CCTC)
Process oil in hi-temp fluidized bed reactor (builds on Aramco HS-FCC)
Partners Axens, TechnipFMC
60-80% conversion oil to chems – 120k bpd
‘Commercial readiness’ by 2021, 30% capex reduction
MORE – ‘unpublicized high risk/high reward tech tracks’ – Holy Grail
Saudi Aramco crude oil to chemicals – multiple tech tracks
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Reconfiguration – 3rd track
Original mega project with SABIC in Yanbu
Reconfiguring refinery/petchem integration to skew to chemicals
3m tonnes/year ethylene, 9m tonnes/year total petchems, base oils
40-50% conversion oil to chems
KBR contractor, FEED stage, start-up 2025
Aramco has options on mega project
Could apply one or more CTC techs
Also can build separate CTC projects at ~$5bn or less
Saudi Aramco crude oil to chemicals – multiple tech tracks
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Company Type Products Capacity* Location Cost Start-up
Aramco/SABIC CTC and/orrefinery/mixed feed cracker
Olefins and derivatives 9,000 total,3,000 ethylene
Yanbu, Saudi Arabia
$20-30bn
2025
Aramco/Total (Amiral)
Refinery(SATORP)/mixed feed cracker
Olefins, PE, PP, benzene, isobutylene
1,500 ethylene Jubail, Saudi Arabia
$5bn + $4bn**
2024
ADNOC Refinery/mixed feed cracker
Olefins, aromatics, PE, PP, surfactants, specialties
9,900 total, 1,800 ethylene, 700 HDPE, 700 LLDPE, 480 PP
Ruwais, Abu Dhabi
$45bn 2025
* tonnes/year, some derivatives not disclosed** Additional investment expected from 3rd parties downstreamSource: Companies, ICIS news, ICIS Supply & Demand Database
Middle East mega projects – a big factor by 2025 and beyond
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Company Type Products Capacity* Location Cost Start-up
Aramco/PETRONAS (RAPID)
Refinery/cracker
Olefins and derivatives
1,200 ethylene, 1,440 propylene,350 LLDPE, 400 HDPE, 900 PP
Johor, Malaysia $27bn Q4 2019
Aramco, ADNOC, Indian consortium
Refinery/cracker
Petrochemicals and derivatives
18,000 total Raigad, India $44bn 2025
Aramco/NORINCO/Panjin Sincen
Refinery/cracker
Olefins, aromatics
1,500 ethylene, 1,300 PX
Liaoning, China $10bn 2024
SABIC/ExxonMobil Cracker Ethylene, PE (2 units), MEG
1,800 ethylene San Patricio, Texas, US
NA 2022
SABIC/FuhaichuangPetrochemical
Refinery/cracker, PDH
Olefins 1,800 ethylene, 600 propylene
Zhangzhou, China NA NA
Source: Companies, ICIS news, ICIS Supply & Demand Database
Middle East mega projects in Asia, US
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‘New Dow’ to focus on capital discipline – NO new cracker. Only incremental expansions through 2023
LyondellBasell opts for PO/TBA project vs cracker, still engaged in Braskem negotiations
In past year, BASF the only traditional Western chemical company that’s announced a new cracker (China 2026). Rest have been oil companies
Big oil shifts focus to petrochemical growth – ExxonMobil, Chevron planning new crackers
Chemical companies shift focus to capital discipline
Chemical companies retreat from mega cracker projects
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Integrated cracker complex in Guangdong province - proposal
1.2m tonne/year flexible feed cracker
2 performance PE lines
2 performance PP lines
Start-up targeted for 2023
“It would support progress toward China’s
national petrochemical development
priorities, which include self-sufficiency,
diversified feedstock sources, rebalancing
fuels versus chemicals and advancing new
competitive technology.” - ExxonMobil
Source: ExxonMobil
China may attract more foreign direct investment - ExxonMobil
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China may attract more foreign direct investment - BASF
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Initial funding commitment of $1bn, goal of $1.5bn over 5 years
24 chemical companies, plus packaging, consumer products, waste management companies
Focus on clean-up and collection90% of river borne plastic waste into the ocean come from 10 rivers – 8 in Asia
Partner with Renew Oceans – Ganges Project involves compensating waste pickers in India
Also investment in mechanical, chemical recycling technologies, infrastructure
Cost of doing business
Spotlight on plastic waste – clean-up and collection key
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Synchronized global economic slowdown, with weakness in China and Europe, and the US losing momentum
US-China trade war hits US PE exports to China just when major new capacity is starting up. Also adds cost, threatens business sentiment
Middle East and other oil companies will build mega projects regionally and worldwide while traditional chemical firms retreat
With threat of protectionism, more direct investment in China
Plastic waste a key issue in 2019 and beyond. Watch industry efforts, particularly on clean-up and developing circular economy
Summary
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Global Editor, ICIS
Joseph Chang
Thank you!
Head of North America, ICIS
Jeremy Pafford
