This document discusses fast evolving trends in petrochemical feedstock availability, pricing, and transportation. It focuses on coal, methanol, and natural gas and how these feedstocks are changing rapidly. The document provides an overview of these topics and trends in countries like China, India, and others. It also summarizes developments in specific coal and natural gas based chemical processes and technologies.

1. “Fast Evolving Trends in Petrochemical Feedstock
Building Blocks Availability, Pricing and Transportation
– Coal, Methanol and Natural Gas – a year is a long time
in the energy world!”
Noor Jivraj
Group Manager, Petroleum, Chemicals & Energy
Jacobs Consultancy Limited, London
noor.jivraj@jacobs.com
APIC 2014
15-16 May 2014
Pattaya, Thailand

2. Agenda
• Changing drivers for alternative feed stocks – where to for China, India, and JKT
(Japan-Korea-Taiwan)?
• Trends in “emerging” feedstocks–coal, natural gas (LNG, shale)
• Coal Chemicals – methanol to olefins via synthesis gas (and CTO-CTP using
MTO/MTP processes)
• Coal Chemicals – Coal to Mono-Ethylene Glycol – CT-MEG
• Coal Chemicals - Acetylene Based Chemicals - VCM for PVC – C-VCM -
competitive economics and prospects
• Shale gas, LNG and Natural Gas Pricing
• Summarizing..

3. Ever-Changing Drivers for Alternative Feed
Stocks

4. Drivers that are changing the feedstock horizon
• Crude oil demand “growing” much slower than petrochemicals demand –
naphtha alone will not propel chemical complexes
• Faster growth in demand for lighter feed stocks C2,C3,C4 than aromatics –
benzene demand slows further, PX demand matures
• Middle East associated gas C2 and C3 allocation has peaked
• Emerging economic powers have limited crude oil and gas reserves but
large coal reserves (China, India)
• China keep innovating in coal chemicals and ups investments
• Shale gas and shale oil seeing huge investments and are seen as game
changers – however its not all a one sided picture – e.g. extraction costs
not fully transparent and environmental challenges not yet resolved

5. Oil meeting less and less of the world’s energy demands
• As oil plateaus and eventually
declines in contribution to world fuel
usage, naphtha also follows oil trend
(may decline faster as heavy crudes
will dominate)
• Oil versus Coal – a case of Back
to the Future?
• Coal and Natural Gas
increasingly meeting a greater
share of world’s energy demand

6. China, India and JKT countries and petrochemical
feedstocks
• China and India have abundant coal but limited gas and petroleum
• JKT relies on energy imports more and more after Fukushima
• So where to with feedstocks?
• Coal Chemicals in China is not new – more than 65-70% of its
ammonia/urea and methanol capacity is coal based. 90% of its VCM
capacity is carbide-acetylene route
• India has lagged behind China in coal gasification and thus limited coal
chemicals opportunities to date
• China now has “in house” options for C-MTO/MTP (Dalian, Sinopec) and C-
MEG
• Despite environmental challenges, China has increased coal focus on Coal-
to-Liquids as well

7. Coal Chemicals – The Chemistry of
yesteryears for the petrochemicals of today
and tomorrow?

8. Coal Chemistries – the old, the relatively old, and the
relatively new

9. Coal Chemicals – Where China and India
stand

10. China’s coal reserves are to the North and West thus coal
pricing governed by logistics also
• High quality bituminous coals reserves are concentrated in Xinjiang and Inner
Mongolia provinces
• Lower quality (low carbon, high volatiles) thermal coal is mainly used for power
plants but gasification requires high carbon bituminous coals

11. India’s Coal situation remains difficult
• KG Basin Gas resources have been
subject to wide variation, but the gas
remains substantial. Gas is quite dry
• Short term a number of refinery
revamps and upgrades will improve
availability of propylene and aromatics
• The National Oil companies are now
investing seriously in petrochemicals
(BPCL, IOCL)
• Coal in India has logistics challenges
(Adani plans to source coal from
Indonesia) as well as inter-state political
issues. Coal has been subject of a
number of scandals
With very limited gasification in place, India will retain a refinery/naphtha focus for a few
years to come

12. Coal Chemicals – Coal to Olefins (CTO/CTP)
via synthesis gas and methanol –
MTO/MTP processes - competitive
economics and investments prospects

13. China’s Coal-To-Olefins (CTO) has taken wing
• More than 2.5 Million tons MTOs
now in China
• Coal Chemicals location in China
are mostly in the North West
• China has licensed UOP and
Lummus Technologies for MTO and
MTP
• China now has “in-house”
technology options (e.g. Dalian’s
MTO technologies, Sinopec and
SCRIPT’s DMTO processes )
• Local technology emphasis is on the
P than the E

14. Surge could come in Coal based Ethylene capacities
Almost a third of China’s ethylene production could soon be coal based if
integrated process technology challenges are overcome

15. Growth in On-purpose Propylene capacities
• Over 14% of China’s propylene production could be coal based by 2016
• Interest in PDH investments is growing rapidly as technology scale increases
• Chinese coal technology emphasis on propylene can change the picture

16. Cost competitiveness - Coal based Ethylene
0
100
200
300
400
500
600
700
800
900
1000
$/ton
Cash Cost of EthyleneProduction
Fixed Costs
Utilities
Net Feedstock
Coal based MTO process is more competitive than naphtha cracker, but less
competitive in comparison with gas crackers in N. America / M. East
Brent Crude @ $ 100/bbl
Thermal Coal @ $120/ton
HH $5/MMBTU
KSA $0.75 MMBTU

17. Coal Chemicals – Mono-Ethylene Glycol –
CT-MEG - competitive economics and
prospects

18. MEG via DMO is commercial in China, new methanol
route Eastman-Davy process available for licensing
• China is supposed to have
commissioned around 1 Million tons
Coal MEG – some conflicting
information on actual rates
• Chinese C-MEG process goes through
and oxalate intermediate (DMO)
• Eastman/Davy technology is a two-
step, single-line process based on
synthesis gas (syngas) and methanol –
technology available for licensing

19. Success of CT-MEG product quality wise could change the
industry dynamics
• Current Chinese MEG capacity is modest compared to Olefins
• Coal based processes are likely to be a major source of MEG supply in China.
• Around 700-800 kta CT-DMO-MEG capacity was online by end of 2013.
• At least 2.7 Million tons CT-MEG projects on the books

20. Cost competitiveness – Coal based MEG
Coal based MEG processes are more competitive than naphtha cracker.
DMO process is less competitive than MTO process.
Brent Crude @ $ 100/bbl
Thermal Coal @ $120/ton
HH $5/MMBTU
KSA $0.75 MMBTU

21. Coal Chemicals - Acetylene Based Chemicals
- VCM for PVC –competitive economics and
prospects

22. Carbide Chemistry route to PVC
• The chlorinated mercury catalyst is embedded in a carbon carrier
• The catalyst is reported to have a relatively short lifetime, is highly toxic
and recovery of the mercury is subject to mercury losses
• Xianjiang Tianye (has more than 1.1 million tons PVC), together with
Tsinghua and Nankai universities appear to be close to successful
demonstration scale non-mercury catalyst

23. Acetylene VCM technology has mercury disposal, as well as
acetylene safety issues
• Currently for one ton PVC produced in China, 1.2 kg of HgCl 2 catalyst
consumed on average (at 11% of HgCl2 content)
• For 5.8 million tons of PVC produced in 2009, around 7000 tons of
mercury catalyst used, comprising 770 tons of HgCl2 and 570 tons of
mercury were used
• Carbide-based PVC production consumes around 60％ of China’s total
annual mercury use
• A new catalyst (gold dispersed on activated carbon) is now being
commercialized as an alternative to mercury

24. Coal VCM plants tend to be relatively small and very
numerous in China
• Acetylene VCM was the feedstock of choice in the early fifties – high energy costs and
EHS issues lead to ethylene route becoming dominant
• Acetylene based VCM now accounts for just over 20% of the worlds total VCM demand –
with China accounting for almost all of this
• More than 90% of VCM plants in China are acetylene based, but contribute to less than
70% of the total PVC produced - The average size of the Acetylene based VCM is around
110 kta versus 650 kta that today’s world scale via EDC route
• More than 80% of the acetylene based VCM capacity in China has been added since 2002

25. Coking coal prices have almost halved in the past two
years
• Coal has shown much volatility in pricing in the last 2 years currently leading
to increased competitiveness petrochemicals for coal chemical producers
• Asian Slowdown and slow down in the steel industry etc has affected prices

26. Coking Coal price determines Acetylene VCM
competitiveness
• Competitiveness of Acetylene VCM versus Chlor-Alkali integrated and
balanced Oxy-EDC VCM is very dependent on the price of coking coal
• Coking coal price of $120/ton makes Acetylene VCM competitive
• Raw materials dominates Cash Cost of Production of Acetylene VCM even
more than ethylene based VCM
Production Cash Cost
Coal Carbide
Acetylene VCM
Coking Coal @
$240/ton
Coal Carbide
Acetylene VCM
Coking Coal @
$120/ton
Balanced Oxy-EDC
Chlor-Alkali
Integrated VCM Crude
Oil =$100/bbl
Location China Capacity: 150 kta Capacity 150 kta Capacity 600 kta
Raw Materials
883 732 756
Utilities
59 59 79
Fixed Costs 28 28 46
Total ($/ton) 970 819 881

27. Shale Gas and Oil – so where are we today
and some food for thought

28. 2009/2014 - Shale Gas technology leads to optimistic
predictions for a new dawn
• The boom …..Optimism abound – high rates of drilling, abundant gas
supply, high production drives gas prices in the US from $7-8/MMBTU to
close to $2/MMBTU
• “Saudi America” projections take hold - crackers, methanol, urea plants
announced – grassroots, greenfield and relocated
• Major announcements of investments in grassroots and brownfield
crackers, methanol and urea capacities
• New Dawn in US petrochemicals forecast as gas prices remain low. Cold
winter of 2013/14 drives up gas price
• In parallel, shale oil takes off driven by high oil prices and the light nature
of the shale oils, especially in Dakota
With slow shifts to coal and gas based olefins, the dynamics of coal versus
shale gas an important perspective to understand

29. US gas based petrochemicals competitiveness – a check
against natural gas price evolution
• The 2008/2009 slowdown coincided
with demand drop as well as shale gas
“explosion”
• The current gas price range of $4-
5/MMBTU restores some
competitiveness and enables at least
some return to profitability for E&P
• It restores the ethane based margins to
pre-2003 levels
• US wet gas based petrochemicals
ruled the day until the 2003
slowdown – about the time KSA gas
began to shake up the industry
• Subsequently the US gas prices
remained at a high riding on
economic boom

30. NGL prices still significantly higher energy-wise
• NGL prices had equivalency
with Crude but since 2012 has
decreased but still extremely
lucrative
• NGLs drive wet shale gas
production
• US NGLs hovering around
$10/MMBTU
• Global Propane price
equivalence (crude/energy)
no longer in place and thus
LPG export opportunity for
the US

31. Post 2008 growth in US NGLs
• Ethane production from natural gas has stagnated
• Propane and butanes the real growth story since 2009

32. Ethane-Ethylene Production has steadily risen since
2008
• Projections are that ethane
will remain long in the US
• Ineos setting up
infrastructure for Ethane
exports to European plants

33. Like everywhere, the days of crude sourced
chemical feedstocks has peaked
• Refineries based NGLs continue to decline in
the US

34. But some caution is still advised….
• Security and Exchange Commission’s 2009 17 CFR Parts 210, 211 et al.,
“Modernization of Oil and Gas Reporting” relaxed a number of reporting and
reserves estimation rules, including:
 no requirement of independent/third party verifications – how sure can
we be about the reserves projections?
• Uncertainties around reserves, actual production costs, and limited data on
well depletion rates
• Recently some companies have got their hands burnt – Chesapeake, Shell, BP
• Jury is out on how many of announced petrochemicals and fertilizers projects
(and also LNG export terminals) will actually see the light of the dollar
• LNG exports, demand from new projects will push up gas prices in the US

35. North American Shale Oil and Gas – Key Fields and Basins

36. Critical for shale gas is the gas well depletion rate
• Shale gas well depletion rates are significantly faster that conventional gas
wells and offshore reserves
• To maintain the exploitation rates, more and more wells need to be drilled
and sweet spots may begin to decline

37. So where’s the hot activity??
• As expected, shale oil has taken off as large margins for a very light crude,
especially in Dakota. No sign yet of “peak-oil”
• Shale gas now largely a Marcellus play - some fields showing signs of post-peak
activity

38. Questions on the way ahead……
• Is there enough certainty that shale gas plays alone can be
banked upon to supply low cost gas for world scale
petrochemicals and fertilizer complexes for at least 30 years?
• To what extent will the announced LNG exports, petrochemicals
and fertilizers project materialize, and what effect will this have
on the HH gas price in the medium term?
• Should shale gas be seen any differently from “tight” gas,
offshore gas, deep water and sub-sea gas – isn't it just gas with
a different extraction profile, depletion profile, and cost
structure?

39. Oxford Energy Institute’s estimates of shale gas and
shale oil cost curves USA
• Quality of gas and oil affects
returns and profitability
• Shale Oil production costs mostly
lower than tar sands and shale in
Canada, and profitable at current
oil prices
• It’s all about oil price allowing
profitable exploitation
• Even at HH price of
$5/MBTU, many fields
rely on NGLs for
returns
• With Ethane price now
at gas price, C3+ is king

40. LNG Developments and Natural Gas pricing

41. “Clean” energy demand post Fukushima has driven LNG
demand and investment
• JKT (Japan, Korea, Taiwan) lack natural energy resources and cleaner fuels
also forces India and China towards LNG to serve gas demand for all needs
• Demand for LNG services has resulted in massive escalation in
construction costs
• Historically LNG Pricing based on quite simple Crude Oil based formulae
• Advent of shale gas in the US with low gas prices drives discussions
towards Henry Hub based gas pricing formulae
• With very high investment costs, investors expect a solid long term return
so a hedge formula between Crude based and HH based more likely the
solution

42. Delivered Gas Pricing mechanisms vary by geography
and availability and proximity of gas reserves
• Gas prices can be tied to Henry Hub based formula. LNG historically tied on a
long term (>5 years) Crude based formula
• Huge LNG capex ( $10 Billion per 5 MMTPA line) means investors look at long
term pricing guarantees rather than short term flexible sales

43. “Anomalies” in Global Gas pricing now creating waves
in some countries
• India’s gas demand relies on a combination of imported LNG, domestic inland
gas, and deep water gas. The government regulates prices and subsidies. Gas
to the power and fertilizers industries is subsidized in India
• India’s domestic-to-imports production is around 65%-35% with importations
to outstrip local supplies
• This results in quite diverse ways gas being priced:
 LNG short term imports from Qatar are around $15-16/MMBTU for $100/bbl oil
formula
 KG fields (offshore, deep water) originally priced at $2.4MMBTU, then more
recently at $4.2/MMBTU
 Other gas fields are priced up to $5.7/MMBTU
 Government is considering various “pooled” pricing options at around
$8.4/MMBTU.

44. In Summary ….

45. In Summary ……
• High oil prices and abundance of alternative feed stocks is driving industry to
diversifying from conventional feed stocks for petrochemicals
• MTO and MTP processes, integrated into natural gas or coal are now a serious
commercial proposition
• Coal based MEG has the potential to significantly change the source of supply for this
product, still lagging MTO in capacity
• Shale Gas has a potential to be a game changer but a lot of unanswered questions
remain about competitiveness and projections of reserves remain questionable. NGLs
are currently driving profitability of shale gas ventures.
• Cleaner fuels will mean greater reliance on LNG – high shipment costs of LNG will mean
petrochemicals, fertilizers and synfuels will be produced at gas source
• Dry or Wet Gas – as natural gas extraction is ramped up, so will the usage in the
petrochemical value chains

46. Shanghai Office
6F South Tower B,
China Diamond Exchange Center
1701 Century Avenue,
Pudong New District
Shanghai 200122, PRC
+86 21 5081 8811 x 607 (phone)
+86 21 5081 6006 (fax)
Beijing Office
B-1523, Nanxincang Business
Tower
No.22 Dongsishitiao
Dongcheng District
Beijing, 100007, PRC
+86.10.64096636 (phone)
Canada Office:
400S, 8500 Macleod Trail S
Box 5244, Station A
Calgary, AB T2H 2NZ, Canada
+1 403 255 1421 (fax)
+1 403 258 6411 (phone)
United Kingdom Office:
Tower Bridge Court,
226 Tower Bridge Road,
London, SE1 2UP, UK
+44 20 7403 3330 (phone)
+44 20 7089 7750 (fax)
Netherlands Office:
Plesmanlaan 100, 2332 CB Leiden
P.O. Box 141, 2300 AC Leiden,
The Netherlands
+31 71 582 7111 (phone)
+31 71 582 7050 (fax)
Houston Office:
5995 Rogerdale Road,
Houston, Texas 77072, USA
+1 832 351 7800 (phone)
+1 832 351 7887 (fax)
Chicago Office:
525 West Monroe,
13th Floor,
Chicago, Illinois 60661, USA
+1 312 612 6035 (fax)