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Dec 2015
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Global Energy Outlook:Implications for Petrochemical Feedstocks
Stephen Halliday, CEO
November 2015, Dubai
Trusted commercial intelligencewww.woodmac.com
2
The key themes shaping the market for energy and petrochemical feedstocks
� Dynamics driving oil, gas (HH) and ethane pricing
� Impact on margin and competitiveness of downstream industry
� Changing role of US
� Outlook for Ethylene supply and demand
Trusted commercial intelligencewww.woodmac.com
2
Trusted commercial intelligencewww.woodmac.com
3
Co
mm
od
itie
s
Oil/oil
products
Gas/LNG
Coal
Metals
Petro-chemicals
Fin
d
Ext
ract
Re
fin
e
Tra
nsp
ort
En
d m
ark
et
Macro
Corporate
Geographic
Asset
Historic/forecast
Wood Mackenzie is the Reference Source for commercial intelligence in Energy, Chemicals, Metals & Mining
Fully-integrated SolutionsConsistent view across commodities and the
value-chain developed over 40 years
Global coverage based on regional dynamics; leveraging 29 global office locations
Bottom-up approach combined with corporate/macro perspective
Objective analysis and advice on assets, companies and markets, empowering
clients to make better strategic decisions
Deep understanding of our clients’ business
Trusted commercial intelligencewww.woodmac.com
4
Energy Benchmarks Today: Fall in oil price; Uncertainty in chemicals industry investment
Key Global Energy Benchmarks - Annual
0
2
4
6
8
10
12
14
16
18
0
16
32
48
64
80
96
112
128
144
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$/m
mb
tu$/b
bl
China Coal Range Brent Oil US Henry Natural Gas US Ethane
Source: ArgusMedia, NYMEX, SXCoal, forecast Wood Mackenzie
40
119
79
159
198
238
278
318
357
$ p
er to
n (c
oal)
Middle East Nat. Gas Range
North America & Middle East Gas-based
& China Coal-based: Chemical
Industry Advantage
Uncertainties over advantage
Trusted commercial intelligencewww.woodmac.com
5
Oil: Oil supply has outpaced oil demand growth in both 2014 and 2015, as suppliers battle for market share; depressing the oil price
Global oil supply and demand Oil Price Index – 2008 vs 2014
Source: Wood Mackenzie
0
20
40
60
80
100
120
0 50 100 150 200 250 300
Ind
ex (
peak c
rud
e o
il p
rice =
100)
Days from price peak
2014 decline
2008 decline
0.0 0.5 1.0 1.5 2.0 2.5
Demand
Supply
Million b/d
2014 2015
15%
41%
36%
19%
40%
30%
OPEC
Non-OPEC
N. America
2008 2014
Trusted commercial intelligencewww.woodmac.com
6
Oil: Spend is being cut across all major oil sectors; supply / demand rebalances during 2016 – stabilizing crude prices
Estimated reduction in 2015/16 Global Capex Y-o-y change in supply demand
Source: Wood Mackenzie
-0.5 0.5 1.5 2.5
Demand
Supply
Million b/d
2014 2015 2016 2017Global capex reduced by US$286 billion
(28%) in 2015/16
US$30-40 billion
US$20-25 billion
US$5-20 billion
US$1-5 billion
< US$1 billion
US$150+ billion
Capex reduction 2015 & 2016
Trusted commercial intelligencewww.woodmac.com
7
Oil: Ongoing demand growth and production decline will result in a supply gap, pushing oil prices back up
Supply gap – 2014 to 2025, million bpd
Source: Wood Mackenzie
60
65
70
75
80
85
90
95
100
105
Millio
n b
/d
Trusted commercial intelligencewww.woodmac.com
8
US Gas: Reduced upstream activity, technology improvements and understanding of plays lowers costs; Strong supply growth continues
Marginal US cost curve for 2020 (H1 ‘15 vs H2 ‘14) US natural gas supply outlook
Source: Wood Mackenzie North American Gas Service
0
20
40
60
80
100
120
2010 2012 2014 2016 2018 2020 2022 2024
bcfd
Conventional Associated CBM Tight Shale
0.00
1.00
2.00
3.00
4.00
5.00
6.00
0 5 10 15
US
$/m
mb
tu
bcfd
H1 2015 H2 2014
Trusted commercial intelligencewww.woodmac.com
9
US Ethane: Ethane supplies will increasingly need to be extracted rather than rejected from the gas system – increasing cost and price
North America Ethylene Capacity US Ethane Supply and Demand, 2014-2025
Source: Wood Mackenzie
0
500
1000
1500
2000
2500
3000
2014 2016 2018 2020 2022 2024
kb
d
Gas plants at max capacity Supply
Demand plus exports
40%
60%
80%
100%
0
20
40
60
2005 2010 2015 2020 2025
Hypothetical Projects Firm/Likely Projects
Existing Capacity % Ethane Feedstocks
Million Tons, Ethylene Capacity
Trusted commercial intelligencewww.woodmac.com
10
Energy Benchmarks Outlook: Low US gas price maintained, Ethane decouples and global crude prices rise again
Key Global Energy Benchmarks - Annual
40
119
79
159
198
238
278
318
357
$ p
er to
n (c
oal)
0
2
4
6
8
10
12
14
16
18
0
16
32
48
64
80
96
112
128
144
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$/m
mb
tu
$/b
bl
China Coal Range Brent Oil US Henry Natural Gas US Ethane
Source: ArgusMedia, NYMEX, SXCoal, forecast Wood Mackenzie
Middle East Nat. Gas Range
Trusted commercial intelligencewww.woodmac.com
11
Impact: Refining and chemicals sectors have been benefiting from the crude oil price collapse; USGC long term outperforms other regions
Refining margins (real 2015, US$/bbl)
USGC: United States Gulf CoastSource: Wood Mackenzie
0
100
200
300
400
500
600
700
800
900
2010 2015 2020 2025
Europe - Region 'Average Size Plant, Naphtha Feed' Margin
United States Gulf Coast - US 'World Scale Plant, Ethane Feed' Margin
0
2
4
6
8
10
12
2010 2015 2020 2025
Europe USGC
Regional Ethylene Margins (real 2015, US$/ton)
Trusted commercial intelligencewww.woodmac.com
12
Outlook: US will play an important role as a global feedstock producer –supplying existing facilities in Europe and Asia
US Refined Product Balance - million bpd
Source: Wood Mackenzie
-2,000
-1,000
0
1,000
2,000
3,000
4,000
2005 2010 2015 2020 2025
Bala
nces (
kb
/d)
LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil
Deficit
Surplus
Trusted commercial intelligencewww.woodmac.com
13
0
200
400
600
800
1000
1200
1400
0 2500 5000 7500 10000
Thousand Tons, Monthly Global Ethylene Production
$/ton
Mid
Ea
st
Eth
an
e
No
rth
Am
eri
ca
Eth
an
e
Mid
Ea
st
LP
G/N
ap
hth
a
Re
st
ofW
orl
d
Asia
N
ap
hth
a
WE
uro
pe
Na
ph
tha
N A
me
rica
LP
G
WE
uro
pe
LP
G
Asia
L
PG
Ch
ina
Co
al
N A
me
rica
Na
ph
tha
Outlook: Lower feedstock costs reduce but do not remove the US gas based chemicals ‘advantage’ – supporting further investment
Global Ethylene Production Cost Supply Curve – Sept 2014 vs Sept 2015
0
200
400
600
800
1000
1200
1400
0 2500 5000 7500 10000
$/ton
Thousand Tons, Monthly Global Ethylene Production
Mid
Ea
st
Eth
an
e
No
rth
Am
eri
ca
Eth
an
e
Mid
Ea
st
LP
G/N
ap
hth
a
Re
st
ofW
orl
d
Asia
N
ap
hth
a
WE
uro
pe
Na
ph
tha
N A
me
rica
LP
G
WE
uro
pe
LP
G
Asia
L
PG
N A
me
rica
Na
ph
tha
Ch
ina
CT
O
Ch
ina
MT
O
Sept 2014 Sept 2015
~$800/t “advantage
~$350/t advantage
Brent Crude Oil = $98/bbl; US Natural Gas = $3.90/mmbtu; US Ethane = 23cpg Brent Crude Oil = $48/bbl; US Natural Gas = $2.67/mmbtu; US Ethane = 19 cpg; US Spot Ethylene = $484/ton (22cpp)Source: Wood Mackenzie
Trusted commercial intelligencewww.woodmac.com
14
Outlook: China, North America and the Middle East will see the most Ethylene capacity additions
Ethylene Production by Feedslate Global Ethylene Capacity Additions
-
50,000
100,000
150,000
200,000
250,000
2005 2010 2015 2020 2025
All Others
Methanol
Gas Oils
Paraffinic Naphthas
LPG
Ethane
Refinery Ethylene
-4
0
4
8
12
2005 2010 2015 2020 2025
Americas
Europe + Japan
Russia and The Caspian
Middle East + Africa
China + India
Rest of World
million tons
Emergence of the North America Gas-based & China Coal-based
ChemicalIndustry Advantage
Source: Wood Mackenzie, Long-Term Ethylene Service
Units: Thousand Tons
Trusted commercial intelligencewww.woodmac.com
15
Outlook: Demand and trade in ethylene and primary derivatives will be driven by China
Net Ethylene equivalent Demand Growth (m tons) Global Trade of Ethylene Equivalents
-60
-40
-20
0
20
40
60
2005 2010 2015 2020 2025
United States + Canada Latin AmericaEurope Russia and The CaspianMiddle East China + IndiaJapan + S. Korea + Taiwan Rest of World
Net Imports (+)
Net Exports (-)
Million tons
-9
-6
-3
-
3
6
9
12
15
2006 2009 2012 2015 2018 2021 2024
China Demand Growth Rest of World India
Source: Wood Mackenzie
Trusted commercial intelligencewww.woodmac.com
16
The Wood Mackenzie market view
� Tremendous uncertainty in oil markets – but prices will rise
� US gas supply is dominating demand – prices will rise but only modestly
� Ethane pricing will decouple from HH due to rise in demand but remain advantaged with rising crude oil
� China will continue to dominate demand outlook with the US and Middle East being key suppliers
� Despite rise in ethane pricing, environment still positive for chemicals investment but beware of contracting margins due to risk of over investment
� Investment is expected to slow following the looming wave of new capacity
� Capex constraints amongst oil major and recent uncertainty in energy markets will likely delay future investment decisions
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16
Trusted commercial intelligencewww.woodmac.com
17
Disclaimer
� This report has been prepared for GPCA 2015 conference delegates by Wood Mackenzie Limited. The report is intended solely for the benefit of GPCA 2015 conference delegates and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.
� The information upon which this report comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.
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