Read the How co-product credits will preserve naphtha’s viability as an olefin feedstock presentation given at EPCA 2012 by Platts editor Jim Foster. This presentation talks about ethane’s growing popularity; propylene feeling the pinch; naphtha’s positive co-product scenario and ethane rejection and the impact on naphtha.
4. Ethane remains the most popular feedstock
• Currently has the best margins
• Produces the most ethylene – which is the industry’s largest-volume feedstock
• Ethane is the reason natural gas is driving new cracker construction
• Ethane crackers also are less expensive, with naphtha crackers costing about
40% more for a similar scale plant
• Ethane makes basically only ethylene
• 80% of ethylene is used for polymers, produced by back-integrated companies
5. Ethane – big return for small investment
Ethane Propane EP Mix Normal Butane Light Naphtha Gas Oil 2 Full Range Naphtha
Feedstock Cost $ 231.88 $ 487.14 $ 282.93 $ 642.13 $ 860.67 $ 920.83 $ 994.22
Margin $ 862.13 $ 386.63 $ 741.76 $ 289.16 $ 63.74 $ (44.66) $ (71.57)
Return on Feedstock Cost 372% 79% 262% 45% 7% -5% -7%
Ethane and ethane/propane mix not only have the largest margins, but also
the lowest feedstock costs – providing the best return on investment.
5
6. Why shale gas changed US petrochemical
dynamics
Marcellus shale gas composition
1%
1%
1% 1%
5%
16%
75%
Methane Ethane Propane Butane Pentanes Hexanes Inerts/Other
6
8. Wide margins motivate new crackers and
expansions
10 million metric tons of additional ethylene capacity planned in the US – if all is
built.
Less than half a million tons of additional propylene and crude C4 will be
produced from these new and expanded cracker projects.
8
9. Agenda
• Ethane’s growing popularity
• Propylene feeling the pinch
• Naphtha’s positive co-product scenario
• Ethane rejection and the impact on naphtha
9
10. Propylene feeling the pinch
Before Shale Gas
Heavier liquids,
30%
Propylene
production suffers
• Changing feeds has
NGL, 70% reduced propylene
production in crackers
After Shale Gas by more than 50%.
Heavier
Liquids, 13% • Refineries, which
make 50% of
propylene, remain at
or below 2008 levels.
NGL, 87%
10
11. On-purpose propylene projects in the US
Year Company Location Const. Type Feedstock FS Quantity Propylene
2015 Enterprise USG New PDH Propane 1,650,680,195.68 1,642,427,000.00
2015 Dow Freeport, TX New PDH Propane 1,661,758,586.25 1,653,450,000.00
2015 Formosa Point Comfort, TX New PDH Propane 1,329,406,869.00 1,322,760,000.00
2015 LyondellBasell Channelview, TX New Metathesis Propane 502,958,932.11 500,444,200.00
Unknown Williams Alberta, Ontario New PDH Propane 1,005,917,864.21 1,000,888,400.00
12-17 Total Million lbs 6,150,722,447.24 6,119,969,600.00
12-17 Total MT 2,789,949.40 2,776,000.00
11
17. Scenario: Ethane at 2011 average, ethylene 2x
ethane
Ethane Propane EP Mix Normal Butane Light Naphtha Gas Oil 2 Full Range Naphtha
Feedstock Cost $ 567.18 $ 487.14 $ 551.17 $ 642.13 $ 860.67 $ 920.83 $ 994.22
Margin $ 419.15 $ 328.02 $ 381.28 $ 233.73 $ 20.99 $ (74.36) $ (110.12)
Return on Feedstock Cost 74% 67% 69% 36% 2% -8% -11%
Assumptions: Ethane at 2011 average of $567.18 per metric ton. Ethylene
valued at a 2-to-1 ratio against ethane (down from the current 5-to-1 ratio). All
other prices as of COB October 3, 2012.
In this scenario, the ethane-based return falls from 372% to 74%. Light naphtha
remains profitable, but the return on feedstock cost falls from 7% to 2%.
17
18. Cracker yield percentages
The large amount of pygas (aromatics)
and crude C4 (butadiene) from light
naphtha allows for potentially large
co-product credits if aromatics and
butadiene prices climb.
18
20. Scenario: Naphtha price falls 25%
Ethane Propane EP Mix Normal Butane Light Naphtha Gas Oil 2 Full Range Naphtha
Feedstock Cost $ 567.18 $ 487.14 $ 551.17 $ 642.13 $ 645.50 $ 729.47 $ 710.05
Margin $ 413.93 $ 315.83 $ 373.87 $ 213.77 $ 208.88 $ 89.15 $ 144.42
Return on Feedstock Cost 73% 65% 68% 33% 32% 12% 20%
Assumptions: Ethane at 2011 average of $567.18 per metric ton. Ethylene
valued at a 2-to-1 ratio against ethane (down from the current 5-to-1 ratio).
Naphtha price down 25% from current level to $645.50/mt. Benzene price at a
1.5-to-1 ratio with naphtha. RBOB gasoline priced at 3-to-1 ratio with naphtha.
Full-range naphtha maintains a 10% premium over light naphtha. All other prices
as of COB October 3, 2012.
Extending the scenario to include a drop in naphtha – and a subsequent drop in
benzene – ethane’s return on feedstock is down slightly at 73% and light
naphtha climbs to 32%, up from 2%. Full range naphtha also is profitable at
20%.
20
22. Scenario: $3,500 butadiene
Ethane Propane EP Mix Normal Butane Light Naphtha Gas Oil 2 Full Range Naphtha
Feedstock Cost $ 567.18 $ 487.14 $ 551.17 $ 642.13 $ 645.50 $ 729.47 $ 710.05
Margin $ 433.57 $ 346.42 $ 396.96 $ 285.39 $ 265.41 $ 149.35 $ 210.84
Return on Feedstock Cost 76% 71% 72% 44% 41% 20% 30%
Assumptions: Ethane at 2011 average of $567.18 per metric ton. Ethylene
valued at a 2-to-1 ratio against ethane (down from the current 5-to-1 ratio).
Naphtha price down 25% from current level to $605.64/mt. Benzene price at a
1.5-to-1 ratio with naphtha. RBOB gasoline priced at 3-to-1 ratio with naphtha.
Butadiene at $3,500/mt. All other prices as of COB October 3, 2012.
Extending the scenario to include a jump in butadiene provides a boost across
the board, pushing light naphtha to 41% from 32% and ethane to 76% from
73%. If butadiene approached record-high levels, the profitability of light naphtha
would climb to 50%
22
23. How likely is the US to overbuild?
The petrochemical industry follows an approximate 8-year cycle of profitability.
Overbuilding during peak times causes supplies to lengthen. The additional
capacity also tends to coincide with an economic downturn, resulting in reduced
demand.
23
24. Are we entering a period of overbuilding?
“If the petrochemical industry knows
anything, it’s how to overbuild.”
-- Senior Vice President of major engineering firm
Peak behavior Valley behavior
• Expansion in current business areas • Market share drives sales
• Too much new capacity by too many • Some companies exit because of
companies heavy loses (resulting in cheap
acquisitions)
• Capacity tends to start up at the
same time • Little new investment
• Does any of this apply to the current • Demand starts to catch up with
petrochemical environment? supply as older units are closed
24
26. Who has shale gas?
• US – 482 Trillion Cubic Feet
• China – 1,275 Trillion Cubic Feet
• Mexico – 681 Trillion Cubic Feet
• Argentina – 774 Trillion Cubic Feet
• Australia – 396 Trillion Cubic Feet
• All of Europe – 639 Trillion Cubic Feet
• South Africa – 485 Trillion Cubic Feet
• All of Africa – 1,042 Trillion Cubic Feet
• Saudi Arabia was not included in the EIA study, but the country expects
to be producing from shale gas by 2020. They call their reserves “very
significant.”
26
27. Agenda
• Ethane’s growing popularity
• Propylene feeling the pinch
• Naphtha’s positive co-product scenario
• Ethane rejection and the impact on naphtha
27
29. Ethane oversupply leads to ethane rejection
At the point of ethane rejection, propylene, pygas and Crude C4 need
to support continued drilling – or the wells shift from NGLs to oil.
29
