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© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
US Chemical Manufacturing
and Supply Chains
Opportunities for the Delmarva
Peninsula
3rd Annual Delmarva Freight Summit
New Castle County Chamber of Commerce
June 26, 2013
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Agenda
• Project overview
• Chemical industry trends
• Chemical manufacturing and the Delmarva Peninsula
• Supply chain implications
2
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
IHS Consulting: An Integrated Approach
3
• Supply Chain
• Chemicals Insight
• Energy Insight
• Transportation & Trade
• Macroeconomics
• Industry Forecasts
• Safety and Security
• Sustainability
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Macroeconomic and Industry Context
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Chemicals market study
−Key commodities
−Relevance to Delaware and the Delmarva Peninsula
• Delaware primary research
−Chemicals industry leaders
−Distribution and logistics firms
−Transportation agencies and companies
Research
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Chemicals Supply Chains
• Analyze key multi-modal
infrastructure (including
pipelines)
• Analyze regional and
wider supply chains
• Chemical flows analysis
and forecasts
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Identify economic opportunities
• Analyze infrastructure investment opportunities
• Conduct SWOT analysis
Objectives and Deliverables
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
5 Years Ago... The North American Chemical
Industry Was Looking Ugly!
• Canada was starting to see natural gas and
ethylene plant feedstock production declines
• Mexico had not had a major chemical
investment in 20 years and project Phoenix
died
• The United States had oversupply of high
cost chemical assets
− no feedstock advantage
− domestic demand was shrinking
− trend in off-shoring of manufacturing
Global Investment Focus was on Asia & Middle East
Capacity Rationalizations in North America
8
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0%
20%
40%
60%
80%
100%
120%
0
2
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Crude (WTI) Natural Gas Gas as % of Crude
Gas as % of Crude $US per Million Btu
North America Energy Advantage
Emerges…Is It Sustainable?
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Natural Gas as a Percentage of Brent Crude Oil
0%
20%
40%
60%
80%
100%
120%
0%
20%
40%
60%
80%
100%
120%
90 95 00 05 10 15 20
Changes in Global Energy Markets have a
profound impact on Petrochemicals…
Comparative Btu Price Basis
Quickly becoming the largest natural gas producer in the world…
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 11
0%
20%
40%
60%
80%
100%
120%
0
2
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Crude (WTI) Natural Gas Gas as % of Crude
Gas as % of Crude $US per Million Btu
The shift from crude oil parity to a
significant advantage for natural gas has
sparked renewed interest in North
American based chemical and derivative
investments
North America Energy Advantage
Emerges…Is It Sustainable?
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ethane Based
Competitive Advantage Develops
2009
50
150
250
350
450
550
650
750
850
950
0 25 50 75 100 125 150
Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant
Cumulative Ethylene Capacity (Million Tons)
West
Europe
North
AmericaAsia
Middle East
2003
2003: WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu
2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu
12
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North American Ethylene Capacity Increases
To Leverage Advantaged Ethane
13•Dow, Shell, NOVA, and Oxy capacity additions shown are CMAI estimates
Announced (-000- MT) 2012-2014 2016-2020
BASF/Fina (Port Arthur) 180
Chevron Phillips (Cedar Bayou) 1500
Dow (Taft / Freeport) 386 1500*
Eastman 90
Equistar (All locations) 521
Exxon (Baytown) 1500
Formosa (Point Comfort) 800
Ineos (Chocolate Bayou) 107
Oxy (Ingleside) 550*
Sasol (Lake Charles) 1400
Shell (Northeast) 1000*
Westlake (Lake Charles/Calvert City) 310
Williams (Geismar) 300
Nova (Sarnia) 250*
Braskem/Idesa (Mexico) 1000
Total 1,894 9,500
Cumulative Total 11,394* Dow, Shell, NOVA, and Oxy capacity additions shown are IHS estimates
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 14
Ethylene: Domestic Producers Will Be
Increasingly Export Focused
North America Net Exports Million Metric Tons
• Naphtha cracking
economics remain the
Global Price Setter
• Business plans for
new capacity include
significant exports
•
Exports to be 50% of
future production –
ethane cost position is
critical0%
5%
10%
15%
20%
25%
30%
35%
0.0
2.5
5.0
7.5
10.0
12.5
15.0
90 95 00 05 10 15 20 25
Polyethylene
Polypropylene
Vinyls
Percent of Production
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The Shale Influence…..More
• More natural gas and oil production
• More investment in plants, equipment, and logistics
• More domestic ethylene production− More ethylene and derivatives,
− Eventually more propylene and butadiene
• More chemical production based on natural gas− Methanol, ammonia, fertilizers
• More NGL production− Rapidly expanding pipeline logistics capability
− New fields are being developed continually
• More exports of hydrocarbons and chemicals
• More countries look to develop their shale
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The Shale Influence…..Less
• Less polyethylene export to Mexico− As domestic production starts in 2016
• Less co-product production− Pygas, propylene, and butadiene
• Less NGL Rail shipments as pipeline infrastructure is developed− Logistics investments catch up with increasing production
• Less polyethylene shipments to the Northeast− If and when the Northeast Shell cracker project proceeds
• Less coal shipments− As coal fired power plants are retired
• Less costly energy
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North American Basic Chemicals and PlasticsProduction Change (1990 base)
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
90 95 00 05 10 15 20
Million Metric Tons
New capacity is necessary to return
N. America to historical production levels…
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Natural Gas as a Percentage of Brent Crude Oil
0%
20%
40%
60%
80%
100%
120%
0%
20%
40%
60%
80%
100%
120%
90 95 00 05 10 15 20
North American Basic Chemicals and Plastics Production
Cumulative Change 1990-2020
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
90 95 00 05 10 15 20
Million Metric Tons
• Wide divergence
between oil and natural
gas prices attracts $100
Billion in investment
• Moving product into
international markets
has been critical to
recovery and will be key
to future growth
• A portion of the new
capacity will relate to
units funded by foreign
direct investment
Pace of growth in North American production
will depend on ability to sustain advantage…
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
19
Global Earnings Before Interest and Taxes
Significant Regional Differences
-$100
-$50
$0
$50
$100
$150
$200
$250
$300
-$100
-$50
$0
$50
$100
$150
$200
$250
$300
85 88 91 94 97 00 03 06 09 12 15 18
U.S. $ per Metric Ton – Volume Weighted Basis
Global AverageWest Europe
North America
Asia
Profit Continues to Cycle
34
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Chemical Industry Trends
• After a weak 2012, improving
economic fundamentals are
expected to enhance future
growth prospects
• Chemical demand continues to
migrate to the developing
world
• Unconventional feedstocks
will play an increasing role in
shaping the global industry
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• High-cost regions need
strategies to offset increasing
competitive pressure
• Dislocation of supply and
demand increase need for
sound supply-chain and go-to-
market strategies
• New competitors emerge as
markets expand West in China
and unconventional resource
owners enter the stage
Chemical Industry Trends (cont’d)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Chemicals Manufacturing and the
Delmarva Peninsula
Marshallt
on
North
Claym
ont
Cheswold
Clayto
n
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• Regional competitive advantages/disadvantages
− Infrastructure and connectivity
−Proximity to markets
−Existing assets, economies of scale, labor pool, etc.
−Regulatory environment
• Export markets, competition, and logistics
• Transportation and supply chain costs and global
risks
Supply Chain Implications
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Bob Brodesky
Director, IHS Supply Chain
+1 (781) 301-9072
Tony Palmer
Senior Director, IHS Chemicals
+1 (914) 831-1753
Chris Grillo
Senior Consultant, IHS Supply Chain
+1 (781) 301-9288
