vma market outlook workshop / august 2017 global ... · confidential. © 2017 ihs markittm. all...

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

VMA MARKET OUTLOOK WORKSHOP / August 2017


Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?

Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market - Houston, TX [email protected]

Presented to:

VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA

mailto:[email protected]



Addressing strategic

challenges with

interconnected

capabilities

2

Resources

Financial

Consolidated Markets

& Solutions

Transportation

© 2017 IHS Markit. All Rights Reserved.


VMA MARKET OUTLOOK WORKSHOP / August 2017 3

Best-in-Class

Brand Names

Brought together to form the most comprehensive

single source for global data & information, key

industry events, market insights, analysis &

forecasts, technology & analytical platforms, and

consulting services

3

Oil Markets / Midstream / Downstream / Chemicals



Core Segments within Energy & Natural Resources

4

• Country E&P Terms and

Above-Ground Risk

• Plays and Basins

• Costs and Technology

• Companies and

Transactions

UPSTREAM

• Global Gas

• Coal

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and Coal Markets

POWER, GAS, COAL

& RENEWABLES

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• Climate Strategy

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ENERGY-WIDE PERSPECTIVES

• Crude Oil Markets

• Midstream Oil and

Natural Gas Liquids

• Refining and Marketing

• Company Strategies and

Performance

OIL MARKETS, MIDSTREAM,

DOWNSTREAM & CHEMICAL

• Chemical Week and

Market Daily Service

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& Plastics

• Specialty Chemicals

• Costs & Technology

• Company Benchmarking

& Analytics

Our core capabilities serve our energy and chemical customers across the value chain

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© 2017 IHS Markit


© 2017 IHS Markit


• Transportation

• Consumer products

• Packaging

• Construction

• Recreation

• Industrial

• Medical

• Pharmaceutical

• Personal care

• Textiles

• Electronics

• Aerospace

• Business equipment

Oil

Gas

Coal

Minerals

Renewables

Customers

Olefins

Aromatics

Chlor-alkali

Syn-gas

Ag-chems

Commodities

Differentiated

commodities

Technical

specialties

Chemical industry value chain

Formulated

products /

performance

materials

Natural

resources

Chemical

intermediates

Base

chemicals

CHEMICALS ENABLE MODERN LIVING

Polymers & plastics

Engineering resins

Synthetic fibers

Paints and coatings

Adhesives/sealants

Water treatment

Flame retardants….

5



• Energy markets will see natural gas in North

America significantly advantaged versus crude oil

• Global economy will grow at 2.5-3.0 % leading to

annual demand growth of:

❖Ethylene ~ 5.5 to 6 million tons

❖Propylene ~ 4 to 4.5 million tons

❖Methanol ~ 3.5 to 4 million tons

• North America will remain an attractive region for

base chemical and derivatives capital investments

• Investments continue in China and Middle East at

a more moderate pace

Petrochemical Market OutlookAs global demand grows, North America will continue to

attract new investments

Ethylene

Propylene

Methanol

6



Energy fundamentals impact chemical industry investment decisions,

short term demand growth

• Energy trends impact regional competitiveness, industry

profitability, and ultimately drive investment decisions in the global

petrochemical industry

• Advantaged investments in North America, Middle East and China

see lower margins in low crude oil market

• IHS Markit Vice Chairman Daniel Yergin observes that there are

two major forces currently operating on the global oil market,

rebalancing and recalibration.

• The North American natural gas market is becoming more

integrated, complex, and globally connected, subject to

demand uncertainties in a currently oversupplied world market.

• Crude oil (energy) “at the extremes” impacts demand for

chemicals and plastics. At the extremes, energy trends will both

destroy and stimulate demand

7



Combination of high crude prices and stable gas is attractive for North America

chemical investments, based on natural gas and natural gas liquids

0

3

7

10

13

17

20

0

20

40

60

80

100

120

00 02 04 06 08 10 12 14 16 18 20 22 24

USGC Natural Gas

Brent Crude

Global crude oil vs. USGC natural gas

Source: History: Argus (crude), Intelligence Press (gas); Forecast by IHS Markit Energy

$/B

arr

el,

Cru

de

$/ M

MB

tu, N

atu

ral G

as

Source: IHS Markit

Lower longer case

8



Demand growth for chemicals & plastics directly linked to global economic growth

• Basic chemicals and plastics represent the

key building blocks for durable and non-

durable consumer goods

• Multiple years of positive economic growth

results in acceleration of base chemical

demand growth

• Aligning capacity additions with demand

growth is the balance producers are seeking

• Economic contractions/stimulus causing

supply-chains to respond rapidly (inventor de-

stock / re-stock).

9



Economic growth in advanced countries and emerging markets are key drivers to

petrochemical demand

2014 2015 2016 2017 2018 2019

World 2.8 2.8 2.5 3.0 3.2 3.1

USA 2.4 2.6 1.6 2.3 2.7 2.3

Canada2.6 0.9 1.4 2.7 2.3 2.3

Eurozone1.2 1.9 1.7 2.0 1.8 1.7

UK 3.1 2.2 1.8 1.4 1.0 1.2

China 7.3 6.9 6.7 6.6 6.3 6.1

Japan 0.2 1.2 1.0 1.3 1.0 0.7

India 6.9 7.7 7.0 7.3 7.4 7.6

Brazil 0.5 -3.8 -3.6 0.2 1.7 3.5

Russia 0.8 -2.8 -0.2 1.5 2.1 1.8

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

World Advanced countries Emerging markets

Real GDP, Annual % Change

Source: IHS Markit © 2017 IHS Markit

Annual % Change in GDP

10



Chemical demand growth (vs GDP) has been decelerating over time; forecast to

continue

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990-1999 2000-2007 2011-2016 2017-2025

Ethylene Propylene Methanol Paraxylene

Benzene Chlorine Weighted Average

Average global GDP elasticity, by market & time period

Source: IHS Markit

11



Ethylene and propylene continue pattern of accelerating demand growth / strong

capacity growth is needed

0.0

2.0

4.0

6.0

8.0

Ethylene Propylene Methanol

2016 Dmd GrowthAvg. Dmd Growth (2011-2015)Avg. Dmd Growth (2017-2021)

Demand growth: past / present / forecast

(million metric tons)

Source: IHS Markit

0.0

2.0

4.0

6.0

8.0

Ethylene Propylene Methanol

2016 Cap. Growth

Avg. Cap. Growth (2011-2015)

Avg. Cap. Growth (2017-2021)

Nameplate capacity growth: past / present / forecast

(million metric tons)

Source: IHS Markit

12



Growth in base chemicals dominated by ethylene, propylene and

methanol; new capacity dominated by APAC

0

100

200

300

400

500

600

700

800

900

00 02 04 06 08 10 12 14 16 18 20 22 24

Ethylene

Propylene (PG/CG)

Methanol

Chlorine

Benzene

Paraxylene

World base chemical capacity by market (MM tons)

Source: IHS Markit

0

100

200

300

400

500

600

700

800

900

00 02 04 06 08 10 12 14 16 18 20 22 24

China

Asia + India (less China)

North America

Europe & Africa

Middle East

South America

World base chemical capacity by region (MM tons)

© 2017 IHS Markit

13



Other unknowns impact strategic investment decisions

• Energy risk in an OPEC / shale regime

• Demand risk given China’s economic and

industrial pivot

• Unpredictable capital and project EPC

performance

• Climate policy post Paris Accords

• Disruptive technologies (e.g. Siluria)

• Country risk with geo-political unrest

• Market access risk under protectionist

backlash

14




Capital investments in chemicals

are seeking a sustainable

competitive advantage

Chemical Investment “Drivers”

• Secure an energy & feedstock

advantage.

• Leverage current technology and

build world-scale.

• Invest with proximity to local

markets and/or access to trade

routes.

• Build to leverage an upstream and/or

downstream integrated position.

Braskem-Idesa Ethylene/PE Plant

Nanchital, Veracruz, Mexico

Start-Up: June 2016

Photo courtesy of Braskem IDESA

15



Beyond energy and economic

growth, there are many other

factors to consider:

Additional Investment Considerations:

• Crude oil/energy price trends

• Global economic growth

• Geo-political considerations

• Govt. fiscal policy / currency strength

• Global energy markets

• State of industry profit cycle

• China structural changes

• Non-conventional technology

• Sustainability

• Levels of integration

• Regional CAPEX differentials

• Logistics investments

• Evolving Consumer Products

Braskem-Idesa Ethylene/PE Plant

Nanchital, Veracruz, Mexico

Start-Up: June 2016

16



17

Benzene

Chlorine

Ethylene

Methanol

Paraxylene

Propylene PG ❖ 470 MM metric tons of production in 2016

❖ What are the best locations for future investments?

GLOBAL BASE CHEMICAL ASSETS

BY LOCATION - 2016



Market uncertainty results in slowdown in new capacity additions; 2019 forecast to

decline to 2012 levels

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

Mil

lio

n M

etr

ic T

on

s

Ethylene Propylene Methanol Chlorine Benzene Paraxylene

Annual Base Chemical Capacity Change By Market

© 2017 IHS MarkitSource: IHS Markit

18



Driven by a number of major initiatives, China investment in base chemicals has

accelerated since 2000 and will continue into the 2020’s

• Secure an energy & feedstock

advantage

• Leverage current technology

and build world-scale

• Invest with proximity to local

markets and/or access to

trade routes

• Build to leverage an upstream

and/or downstream integrated

position0

50

100

150

200

250

300

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

United States Canada

Mexico Saudi Arabia

Iran South Korea

Singapore China

India

Total base chemical capacity for select countries

Millio

n M

etr

ic T

on

s

Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine

19



Beyond China and the United States, since the early 90’s some countries have

continued to invest in base chemicals while others have seen investments stall

• Saudi Arabia, Iran; leveraging

low cost hydrocarbons to

drive industrial development

• S.Korea, Singapore, India are

driven by strong demand

growth in APAC

• Mexico and Canada linked to

strong demand via NAFTA,

but limited by energy

developments 0

5

10

15

20

25

30

35

40

45

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

Canada Mexico

Saudi Arabia Iran

South Korea Singapore

India

Total base chemical capacity for select countries

Millio

n M

etr

ic T

on

s

Source: IHS Markit Base Chemical Capacity = ethylene, propylene, methanol, benzene, paraxylene, chlorine

20



Market uncertainty causing delayed project approvals, results in falling capital

spending across global chemical markets by early 2020’s

21

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Aromatics Fibers Inorganics Olefins Plastics Syngas Products

Capital Spending by Product (2014 Constant$, billions)


0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

AFR CEP FSU ISC MDE NAM NEA SAM SEA WEP

Capital Spending by Region (2014 Constant$, billions)




Ammonia, along with ethylene, propylene (and related derivatives) make up the

vast majority of new capital spending in the next wave of investments

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

PROPYLENE OXIDE

BUTADIENE

BENZENE

ETHYLENE OXIDE

CHLORINE

LLD POLYETHYLENE

LD POLYETHYLENE

HD POLYETHYLENE

PARAXYLENE

MONOETHYLENE GLYCOL

POLYPROPYLENE

TEREPHTHALIC ACID

METHANOL

MIXED XYLENES

PROPYLENE (PG/CG)

AMMONIA

ETHYLENE

Capital Spending (US$ billions) Capacity Additions (million tons)

Capacity additions (MM tons) and Capital spending (US$ billions) by chemical market: 2016 to 2025


22



North America Low Cost Brings Back Base Chemical & Associated Derivative

Investments

-10

10

30

50

70

90

110

130

150

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Ethylene Propylene (PG/CG) Methanol Chlorine Benzene Paraxylene

North America - Base Chemical Total Capacity

Source: IHS Markit

Millio

n M

etr

ic T

on

s

© 2017 IHS Markit

23



North America ethylene capacity growth including firm and announced projects

24

Company Location TimingTotal Growth

-000- metric tons

Dow Plaquemine, LA 1H-17 250

Equistar Corpus Christi, TX 1H-17 401

Oxy/Mexichem Ingleside, TX 1H-17 550

ChevronPhillips Cedar Bayou, TX 2H-17 1,500

Dow Freeport, TX 2H-17 1,500

ExxonMobil Baytown, TX 1H-18 1,500

Indorama Lake Charles,LA 2H-18 420

Formosa Point Comfort, TX 2H-18 1,150

Shin-Etsu Plaquemine, LA 1H-19 500

Sasol Lake Charles, LA 1H-19 1,550

LACC Lake Charles, LA 1H-20 1,000

Shell Monaca, PA 1H-22 1,500

Total additions 11,821

Company LocationTotal Growth

-000- metric tons

Ascent / Braskem West Virginia 1,000

Badlands NGL 1 North Dakota 1,500

Badlands NGL 2 “Shangri-La” 1,000

ChevronPhillips 2 Cedar Bayou, TX 1,500

Formosa St James Parish, LA 1,000

Formosa LA 1,000

Hanwha TBA 1,000

Indorama LA or TX 1,500

PTTCG/Marubeni Shadyside, OH 1,000

Total additions 10,500

Firm Projects: 2017 - 2022 Announced Projects: 2022+



Chemical industry earnings forecasts to decline with new waves of capacity in the

near term; Chlor-alkali market showing good recovery by 2020

-200

-100

0

100

200

300

400

500

600

700

800

900

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Do

lla

rs P

er

Me

tric

To

n

Global

Aromatics Chlor Alkali Olefins Plastics Syn Gas

Global Cash Earnings Trends by Chemical Value-Chain


25



Lower earnings in Americas and Middle East are offset by stronger earnings in Asia

and Europe where new capacity discussions are also underway

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Do

llars

Per

Metr

ic T

on

World Africa_MidEast Americas Asia Europe

Regional Weighted Average Cash Earnings


26



• Energy markets will see natural gas in North America

advantaged versus crude oil (BTU basis)

• Two major forces in the global oil market, rebalancing

and (cost) recalibration will play out in the near term

• Global economic fundamentals remain solid;

uncertainty indicators have declined; US is strong;

Europe is brighter; China remains resilient.

• Capital spending slowdown will create tight market

conditions in olefins and chlor-alkali by end of the

decade

• North America will remain an attractive region for

petrochemical and related investments; investors to

include both domestic and foreign companies

27

Final Thoughts As You Plan Your

Next Move In The Chemical Sector




Global Petrochemical Market Outlook:Will Expansion Activity in North America Continue?

Mark Eramo, Vice President Oil / Midstream / Downstream / Chemicals IHS Market - Houston, TX [email protected]

Presented to:

VMA MARKET OUTLOOK WORKSHOPOMNI Parker House, Boston, MA

Thank You!

mailto:[email protected]

vma market outlook workshop / august 2017 global ... · confidential. © 2017 ihs markittm. all...

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