Petchems market in review –Fundamental changes –US feedstock advantage •Naphtha trade flows –Where are the demand & supply centers –Growth of US shale oil gives rise to LPG, naphtha exports to Asia 2

1. © 2013 Platts,McGrawHill Financial.All rightsreserved.
Shale gas, naphtha & the petchems
conundrum
Shahrin Ismaiyatim
Editorial Director, Petrochemical Analysis
September 2013

2. Agenda
• Petchems market in review
– Fundamental changes
– US feedstock advantage
• Naphtha trade flows
– Where are the demand & supply centers
– Growth of US shale oil gives rise to LPG, naphtha exports
to Asia
2

3. Agenda
• Petchems market in review
– Fundamental changes
– US feedstock advantage
• Naphtha trade flows
• Where are the demand & supply centers
• Growth of US shale oil gives rise to LPG, naphtha exports
to Asia
3

4. Platts Mumbai conference Aug 2012 recap
4
• Shale gas to flood global markets with ethylene, ethylene
derivatives while dramatically cutting certain co-products
• Can lead to naphtha crackers becoming more competitive due
to higher co-product credits
• Falling ethane prices could lead to ethane rejection, leading to
more oil exploration
• New oil discoveriescould narrow crude-natural gas delta,
improving naphtha’s profitability as a petrochemical feedstock
• India’s naphtha surplus positions its petrochemical industry to
take advantage of a dramatic shift to ethane cracker

5. Shale gas puts US back on petchems map
Source: Platts Petrochemical Analytics

6. Strong ethane margins promotes US projects
Source: Platts

7. US ethylene output to rise 30% in 10 years
With six new worldscale
crackers:
• Ethylene surplus to hit
2.1 million mt in 2018
• Climb as high as 2.9
million mt in 2019 and
2020.
With 10 new worldscale
crackers:
• Ethylene surplus to top 7
million mt through 2021
• Falling slightly in 2022
and 2023.
Source: Platts Petrochemical Analytics

8. Asia sees better cracking margins in 2013
8
Source: Platts

9. Europe’s margins recover but lags US
9
Source: Platts

10. Agenda
• Petchems market in review
• Fundamental changes
• US feedstock advantage
• Naphtha trade flows
– Where are the demand & supply centers
– Growth of US shale oil gives rise to LPG, naphtha exports
to Asia
10

11. Naphtha trade flows, old & new
11
Why US is exporting
naphtha?
• Flat gasoline
demand
• Cheap natgas
feedstock

12. US ethylene output by feedstock forecast
12
BASE CASE Ethane Propane Butane Naphtha
Full-range
Naphtha Gas Oil
Total
Ethylene
Produced Capacity Run Rate
2011 15826 4862 777 1955 1150 607 25177 26194 0.96
2012 15848 5549 823 1895 1168 575 25858 26226 0.99
2013 15612 5626 650 1849 1125 534 25396 27720 0.92
2014 17184 4493 715 1833 1022 502 25749 28105 0.92
2015 18005 4399 840 1800 926 466 26436 28219 0.94
2016 18316 4411 842 1714 896 433 26612 28219 0.94
2017 21099 4399 840 1604 863 417 29222 33208 0.88
2018 24402 4399 840 1594 845 406 32486 38493 0.84
2019 25315 4399 840 1562 863 395 33374 38493 0.87
2020 25384 4411 842 1518 869 381 33405 38493 0.87
2021 25314 4399 840 1469 826 363 33210 38493 0.86
2022 25313 4399 840 1385 791 331 33058 38493 0.86
2023 25313 4399 840 1377 763 342 33033 38493 0.86
• Ethane to account for 77% of all US ethylene produced in
2023, up from 61.5% in 2013
• Use of naphtha as petchems feedstock in the US to decline
as a result
Source: Platts Petrochemical Analytics

13. Asia naphtha premium attracts US cargoes
13
Source: Platts

14. 14
Price Reporting
BreakingNews
Assessments
Market Reports
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Top 10 naphtha suppliers to Japan 2012
Source: Japan Customs
Japan’s naphtha trading partners

15. Korea’s naphtha trading partners
15
Price Reporting
BreakingNews
Assessments
Market Reports
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Top 10 naphtha suppliers to Korea 2012
Source:Korea Customs

16. Taiwan’s naphtha trading partners
16
Price Reporting
BreakingNews
Assessments
Market Reports
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
Top naphtha suppliers to Taiwan 2012
Source:TaiwanCustoms

17. 17
India naphtha production volumes
Price Reporting
BreakingNews
Assessments
Market Reports
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
02-'03 03-'04 04-'05 05-'06 06-'07 07-'08 08-'09 09-'10 10-'11 11-'12
‘000mt
Source:PetroleumPlanning& Analysis Cell,fiscalyearApril 1-March 31

18. 18
Price Reporting
BreakingNews
Assessments
Market Reports
0
2,000
4,000
6,000
8,000
10,000
12,000
02-'03 03-'04 04-'05 05-'06 06-'07 07-'08 08-'09 09-'10 10-'11 11-'12
'000 mt
Source:PetroleumPlanning& Analysis Cell,fiscalyearApril 1-March 31
India naphtha export volumes

19. 19
Strong US NGL output leads to high stocks, exports
NGLs production poised to grow by
1.5 million b/d in the next 6 years
Spurt in ethane, propane output
causes supply glut, stocks
overhang
Prices at historical lows toward
end of 2012
US NGLs forecast
Source: Bentek,a unit of Platts

20. Naphtha exports from US may increase too
• Eagle Ford shale production to hit nearly 1 million b/d in 2013
• Of that, 30-50% of crude expected to be condensate
• Naphtha production expected to outpace US domestic demand
• More condensate splitters in the US = more naphtha
• US domestic naphtha likely to be exported to world markets
20

21. US to become largest oil producer by 2020
21
Alberta Saskatchewan
Alaska
Bakken
Utica
Anadarko
RockiesCalifornia
Permian
EagleFord

22. Asia dumping ground for naphtha
• Asia traditionally short of 500,000-700,000 mt/month of
naphtha
• Have been able to absorb more than 1 million mt from NWE, the
Med and US
• Exact monthly volume of US naphtha to Asia on regularly
remains hazy, restricted by long journey times
• Naphtha needs to compete with LPG as petchems feedstock
• NE Asian petrochemical producers regularly replaced naphtha
with LPG when LPG price is less than 95% of naphtha
• In Q2, Asia LPG prices around 90% of naphtha price
• Similar situation in Europe – Dow Chemicals, BASF, Borealis and
SABIC have all been regular importers of propane to use as
feedstock
22

23. Co-products output via ethane forecast
23
Source: Platts Petrochemical Analytics
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
EthaneDemand(MT/year) 19,437,459 19,658,292 20,890,497 22,312,795 22,567,827 23,074,784 26,985,856 33,907,080 35,021,562 35,359,404 34,948,837 35,551,901 35,001,656
ETHYLENEPRODUCED 15,079,487 15,250,809 16,206,747 17,310,159 17,508,012 17,901,307 20,935,498 26,304,950 27,169,560 27,431,656 27,113,139 27,580,994 27,154,116
PROPYLENEPRODUCED 542,862 549,029 583,443 623,166 630,288 644,447 753,678 946,978 978,104 987,540 976,073 992,916 977,548
CRUDEC4PRODUCED 542,862 549,029 583,443 623,166 630,288 644,447 753,678 946,978 978,104 987,540 976,073 992,916 977,548
BUTADIENEPRODUCED 376,987 381,270 405,169 432,754 437,700 447,533 523,387 657,624 679,239 685,791 677,828 689,525 678,853
RAFFINATE-1PRODUCED 165,874 167,759 178,274 190,412 192,588 196,914 230,290 289,354 298,865 301,748 298,245 303,391 298,695
PYGASPRODUCED 331,749 335,518 356,548 380,823 385,176 393,829 460,581 578,709 597,730 603,496 596,489 606,782 597,391
BENZENEPRODUCED 165,874 167,759 178,274 190,412 192,588 196,914 230,290 289,354 298,865 301,748 298,245 303,391 298,695
TOLUENEPRODUCED 30,159 30,502 32,413 34,620 35,016 35,803 41,871 52,610 54,339 54,863 54,226 55,162 54,308
XYLENEPRODUCED - - - - - - - - - - - - -
OTHERAROMATICSPRODUCED 135,715 137,257 145,861 155,791 157,572 161,112 188,419 236,745 244,526 246,885 244,018 248,229 244,387
GASOILPRODUCED - - - - - - - - - - - - -
HYDROGEN/FUELPRODUCED 2,940,500 2,973,908 3,160,316 3,375,481 3,414,062 3,490,755 4,082,422 5,129,465 5,298,064 5,349,173 5,287,062 5,378,294 5,295,053
CRACKERCO-PRODUCTPRODUCTIONFROMETHANE
With Pygas production accounting only 5% of the output, this will
adversely impact US aromatics production

24. 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NaturalgasolineDemand(MT/year) 9,179,312.70 6,316,011.57 6,876,230.01 7,067,731.46 6,861,241.87 6,844,338.45 6,876,804.75 6,850,040.95 6,882,687.97 6,850,685.27 6,878,359.18 6,855,592.48 6,875,582.02
ETHYLENEPRODUCED 3,176,232.77 2,185,471.13 2,379,318.34 2,445,581.82 2,374,132.14 2,368,283.20 2,379,517.22 2,370,256.38 2,381,552.93 2,370,479.33 2,380,055.08 2,372,177.33 2,379,094.12
PROPYLENEPRODUCED 1,467,419.54 1,009,687.66 1,099,245.07 1,129,858.80 1,096,849.05 1,094,146.84 1,099,336.95 1,095,058.45 1,100,277.45 1,095,161.45 1,099,585.45 1,095,945.93 1,099,141.49
CRUDEC4PRODUCED 828,996.75 570,407.97 621,002.09 638,296.85 619,648.49 618,121.92 621,053.99 618,636.92 621,585.31 618,695.11 621,194.38 619,138.28 620,943.57
BUTADIENEPRODUCED 431,967.66 297,224.07 323,587.29 332,599.13 322,881.97 322,086.52 323,614.34 322,354.87 323,891.20 322,385.19 323,687.49 322,616.12 323,556.80
RAFFINATE-1PRODUCED 397,029.10 273,183.89 297,414.79 305,697.73 296,766.52 296,035.40 297,439.65 296,282.05 297,694.12 296,309.92 297,506.88 296,522.17 297,386.77
PYGASPRODUCED 1,756,456.72 1,208,565.54 1,315,763.04 1,352,406.75 1,312,895.07 1,309,660.61 1,315,873.02 1,310,751.78 1,316,998.77 1,310,875.07 1,316,170.46 1,311,814.06 1,315,639.05
BENZENEPRODUCED 635,246.55 437,094.23 475,863.67 489,116.36 474,826.43 473,656.64 475,903.44 474,051.28 476,310.59 474,095.87 476,011.02 474,435.47 475,818.82
TOLUENEPRODUCED 314,447.04 216,361.64 235,552.52 242,112.60 235,039.08 234,460.04 235,572.20 234,655.38 235,773.74 234,677.45 235,625.45 234,845.56 235,530.32
XYLENEPRODUCED 165,164.10 113,644.50 123,724.55 127,170.25 123,454.87 123,150.73 123,734.90 123,253.33 123,840.75 123,264.93 123,762.86 123,353.22 123,712.89
OTHERAROMATICSPRODUCED 641,599.02 441,465.17 480,622.31 494,007.53 479,574.69 478,393.21 480,662.48 478,791.79 481,073.69 478,836.82 480,771.13 479,179.82 480,577.01
GASOILPRODUCED 177,869.04 122,386.38 133,241.83 136,952.58 132,951.40 132,623.86 133,252.96 132,734.36 133,366.96 132,746.84 133,283.08 132,841.93 133,229.27
HYDROGEN/FUELPRODUCED 1,772,337.89 1,219,492.89 1,327,659.63 1,364,634.66 1,324,765.73 1,321,502.03 1,327,770.61 1,322,603.06 1,328,906.54 1,322,727.47 1,328,070.73 1,323,674.95 1,327,534.52
CRACKERCO-PRODUCTPRODUCTIONFROMNAPHTHAandNATURALGASOLINE
Co-products output via naphtha forecast
24
Source: Platts Petrochemical Analytics
By comparison, aromatics output from naphtha trumps ethane

25. Conclusion
• Naphtha remains a very viable alternative for petchem
producers in Asia
• Co-products like aromatics more yield from naphtha
• US naphtha exports to rise on poor domestic demand, high
stocks
• NE Asian petrochemical producers have more cracking choices
depending on price of naphtha versus LPGs
25

26. Thank you
Shahrin Ismaiyatim
Editorial Director,Petrochemical Analysis
Tel:+44-207 176 6264
Email: shahrin@platts.com