2. On the agenda…
2
• The ethylene boom – US projects at a glance
• Cheap feedstock and its effect on olefins pricing
• Cashing in through exports of polymer resin
• The propylene dilemma – is propane the savior?
• Other products being squeezed – butadiene, benzene
• Short-term implications for Mexico
3. The resurgence of US petchems
3
• The North American petrochemical industry is bullish
about the future thanks to the shale gas boom
• Olefins, in particular, are undergoing a renaissance – and
dreaming big – less than 7 years after being left for dead
Ethylene – In the US alone, more than 11.5 million mt/year
in announced greenfield expansions
– Up to 2.45 million mt/year in brownfield
Propylene – Up to 4.1 million mt/year (greenfield)
Butadiene – TPC Group to expand on-purpose production
• Methanol production in North America is staging an impressive
comeback after years of exile
4. Shale gas & petchems– the link
4
Source: BENTEK/Platts
5. 5
Olefins are key building blocks
Steam crackerNGLs
Naphtha
Gas Oil
HDPE
LDPE
LLDPE
PP
PVC
PET
PS
MEG
ABS
SBR
Ethylene
Propylene
Butadiene
Benzene
Methane
Hydrogen
Heavy Oil
FCC, PDH, CTO/MTO, metathesis
BDH
CTO/MTO, others
Source: BENTEK/Platts
7. NGL growth driven by crude/gas ratio
7
• The delta between feedstocks is dictating ethane profitability
• Crude-to-gas ratio has more than doubled since 2008
0
20
40
60
80
100
120
140
160
180
0
100
200
300
400
500
600
700
800
900
1000
Ethane vs. Naphtha price
Naphtha Index Purity Ethane Mt Belvieu
$/mt
Cents/gal
8. Ethane yielding record margins
8
-$1,000
-$500
$0
$500
$1,000
$1,500
03/01/2011
03/02/2011
03/03/2011
03/04/2011
03/05/2011
03/06/2011
03/07/2011
03/08/2011
03/09/2011
03/10/2011
03/11/2011
03/12/2011
03/01/2012
03/02/2012
03/03/2012
03/04/2012
03/05/2012
03/06/2012
03/07/2012
03/08/2012
03/09/2012
03/10/2012
03/11/2012
03/12/2012
03/01/2013
03/02/2013
03/03/2013
03/04/2013
03/05/2013
03/06/2013
03/07/2013
03/08/2013
03/09/2013
03/10/2013
03/11/2013
03/12/2013
03/01/2014
03/02/2014
03/03/2014
US cracker margins
Ethane Cracker Margin Ethane/Propane Mix Cracker Margin Naphtha Cracker Margin Propane Cracker Margin
Since early 2011, margins for US ethane and E/P Mix have climbed
from $500/mt to $1,000/mt; naphtha margins fluctuate
$/mt
Source: Platts
9. Shift to lighter feeds in full effect
9
• Ethane consumption in US crackers
has climbed from 41% of total
feedstock in 2005 to 58% of total
feedstock in 2013
• Ethane is expected to account for
76% of US cracker feedstock by
2024
– Cut in propane use is
necessitating PDH development
– Aromatics output at the cracker
has diminished, contributing to a
tighter benzene market
18. US product in Latin America
18
Country 2012 (MT) 2000-2012 (MT)
Mexico 980,949 10,751,045
Canada 593,670 7,228,356
China 173,140 2,962,309
Colombia 138,962 1,067,259
Brazil 165,176 980,295
Belgium 85,228 930,664
Hong Kong 62,036 847,535
Peru 99,407 785,584
Guatemala 67,362 763,976
Ecuador 55,040 723,765
Source: U.S. Dept. of Commerce/US International Trade Commission
Top US PE Export Destinations
21. US PVC expansions limited so far
21
Source: Company announcements, Platts
Company Location +,000 mt/yr ETA
Westlake Chemical Kentucky 80 2014
Shintech Louisiana 300 2016
• Caustic, ethylene expansions have translated in additional
PVC capacity projects, although scope is currently limited
• However, cracker project announcements by Shintech, Axiall
and Oxychem/Mexichem could signal expansions
• Dow Chemical’s proposed divestment of its $5 billion chlor-
alkali, chlor vinyls business adds new wrinkle to North
American market
23. North American propylene at a glance
Shift to light feeds has diminished production, injecting volatility in pricing
24. US propylene production sliding
24
0
1000
2000
3000
4000
5000
6000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Propylene produced in US crackers, by feedstock
Ethane Propane Butane Naphtha Full-range Naphtha Gas Oil
During the next decade, propylene produced by US crackers will fall
30% to 3.5 million metric tons
Source: Platts
Thousandmt/yr
27. US PP: Wait-and-see approach
27
Company Location ,000 mt/yr ETA
RexTac Odessa, TX 270 H2 2016
• Despite several on-purpose propylene projects, only one PP
expansion has been announced
• For the past few years, the business has looked unattractive,
with the likes of Dow and Sunoco exiting it all together
• In 2012, Chevron Phillips and Sumika ended a JV in Pasadena,
Texas, taking 320,000 mt/year out of the market
Source: Company announcements, Platts
28. US PP uncompetitive globally
28
$1,200
$1,400
$1,600
$1,800
04/01/2012
04/02/2012
04/03/2012
04/04/2012
04/05/2012
04/06/2012
04/07/2012
04/08/2012
04/09/2012
04/10/2012
04/11/2012
04/12/2012
04/01/2013
04/02/2013
04/03/2013
04/04/2013
04/05/2013
04/06/2013
04/07/2013
04/08/2013
04/09/2013
04/10/2013
04/11/2013
04/12/2013
04/01/2014
04/02/2014
04/03/2014
04/04/2014
PP Homo CFR Peru
PP Homo Inj CFR Brazil
PP Inj CFR FE Asia
PP Homo FAS Houston
$/mt
Source: Platts
31. Butane: On-purpose butadiene
31
• Restart of dehydrogenation assets to provide isobutylene
feedstock for MTBE, PIB, HP isobutylene and
diisobutylene
• Engineering design optimization for TPC OXO-D unit
due late 2013
• Engineering also underway for PIB expansion
Company Location ,000 mt/yr ETA
TPC Group (BDH) Houston, TX 295 (isobutylene) 2014
TPC Group (OXO-D) Houston, TX 272 (butadiene) 2016
34. Shifts to lights also squeezes benzene
34
• Pygas to decrease 40%
• Crude C4 to decrease 20%
• Propylene to decrease 20%
• 69% growth in ethane based output
• 32% decrease in naphtha based output
Source: Platts Petrochemical Analytics
36. US benzene depends on Asia
36
1200
1250
1300
1350
1400
1450
1500
1550
1600
1650
1700
$/mt
Global benzene prices
Europe
US
Asia
Europe at premium to
US on limited supply
US reaches record-high at
$1,655/mt FOB basis
39. US methanol – announced projects
3939Source: Platts and published releases
40. China will be thirsty for methanol
40
• CTO and MTO projects in China could add up to 10 million mt of
new PE capacity in the country by 2020 – nearly equal to China’s
forecast demand growth
43. Tempered expectations
43
• Etileno XXI will be the first new steam cracker and polyethylene
project in North America in over a decade, but…
• Mexico is expected to remain an importer of PE, with the US as
its main supplier
• Polypropylene imports account for at least half of
consumption, and a portion of the raw material is outsourced
• Will remain net short butadiene, styrene, among others, which
are key to a booming automotive industry
• Energy reform will likely invite petrochemical investment, but
realization of major petchem projects is easily 5-10 years away