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Vinyl Chain Feedstocks: A Changing Landscape
Vinyl Chain Feedstocks: A Changing Landscape Joel Lindahl, Director Chlor-Alkali, Vinyls SPI FVPD Annapolis, MD July 2012 The Vinyl Chain in the Shale Gas Era • The vinyl chain is…. − Energy intensive via chlorine − And, connected to oil/gas through ethylene • Changed by the Shale Gas Era − North American chemical rebirth is underway − US chlor-alkali and vinyl producers are globally advantaged − But what does it mean to a buyer in this region? © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2 Ethylene-Based Vinyls Flow – Balanced VCM Process Oxygen Caustic + OxyChlor EDC HCL Direct Chlor EDC VCM Chlorine Ethylene © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. PVC Energy Flows in the Vinyl Chain Most of the World Oil Naphtha Ethylene EDC VCM PVC Oil Electricity Chlor-Alkali Natural Gas Ethane Ethylene EDC VCM PVC Natural Gas Electricity Chlor-Alkali China Coal Carbide Acetylene VCM PVC Pipe/Siding & Other Fabricated Products North America & Middle East Coal Electricity Chlor-Alkali © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 4 How the Chinese Do It Feedstock Products CO Limestone Calcium Hydroxide (Waste) Calcium Carbide Acetylene Limestone VCM PVC Coke H2O H2 HCl (Anhyd.) Chlorine Salt Power (Coal) Caustic Soda © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 5 U.S. Shale Gas Changes Dynamics © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Stranded Liquids from Wet Shale Gas Need to Find a Home Steam Crackers Source: EIA © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 7 The ‘All-Important’ Ratio Chart North America Energy Price Trends Dollars Per MMBtu Gas as a % of Crude, BTU Basis 18 70% 16 60% 14 50% 12 10 40% 8 30% 6 20% 4 10% 2 0 0% 06 07 08 09 Crude (WTI) 10 11 12 Natural Gas 13 14 15 16 Gas as % of Crude © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Today’s View: Shale to Ethylene • Advantaged feedstock position due to Shale development − Separation of crude and natural gas created ethane advantage − Low cost position relative to most of world, supports exports • Strong domestic ethylene market balance − Strong recovery from recession − Reduced production capacity from 2008 – 2010 − Any domestic growth is fed by reducing exports • Resulting in high ethylene prices and strong margins • Attracting massive investment © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 9 Ethane Based Competitive Advantage Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant 950 2003: WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu 850 2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu 750 2009 650 2003 550 450 350 Asia 250 150 West Europe North America Middle East 50 0 25 50 75 100 Cumulative Ethylene Capacity (Million Tons) © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 10 125 150 2011 Global Ethylene Cash Costs (Dollars per Ton) 1650 WTI Crude $95/Barrel Nat Gas $4.14/MMBtu Ethane 76.7 cpg 1450 1250 West Europe Avg. 1050 NE Asia Avg. 850 SE Asia Avg. U.S. Ethane 650 450 Middle East Avg. Middle East Ethane 250 50 0 20 40 60 80 100 120 CUMULATIVE ETHYLENE CAPACITY (million tons) © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 140 160 Low Cost Isn’t Always Low Price • Ethylene producers compete on a global scale, mainly through exports of polyethylene and PVC polymers • The regions that use naptha (oil prices) as feedstock are ‘price setters’ of global prices for ethylene and derivatives • U.S. producers are now ‘price takers’, enjoying strong margins above their costs • Domestic ethylene prices are tied to world prices… • …and are providing a U.S. margin to support reinvestment © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 12 Rebirth is Underway Ethylene – North American capacity increases to leverage ethane Announced (-000- MT) BASF/Fina (Port Arthur) Chevron Phillips (Cedar Bayou) Dow (Taft / Freeport) Equistar (All locations) Exxon (Baytown) Formosa (Point Comfort) Ineos (Chocolate Bayou) Oxy (Ingleside) Sasol (Lake Charles) Shell (Northeast) Westlake (Lake Charles) Williams (Geismar) Nova (Sarnia) Braskem/Idesa (Mexico) Unidentified Total Cumulative Total 2012 2013 180 386 121 50 2014 Future 310 1500 1500* 90 1500 800 57 550* 1400 1000* 30 20 100 100 110 70 145 1069 1169 80 210 600 1769 250* 1000 110 9500 11269 * Dow, Shell, NOVA, and Oxy capacity additions shown are IHS estimates © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. •Dow, Shell, NOVA, and Oxy capacity additions shown are CMAI estimates 13 U.S. Cost Advantage Supports Exports U.S. To NEA Cost Ratio Ratio 2.50 Million Metric Tons 5 2.00 4 1.50 3 1.00 2 0.50 1 0.00 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Ethane Weighted Average Ethylene Net Equivalent Trade © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 14 Global Annual Ethylene Prices Current Dollars Dollars Per Metric Ton 1,800 1,600 U.S. Large Buyer Contract Ethylene West Europe Contract Ethylene Southeast Asia Spot Ethylene 1,400 1,200 1,000 800 600 400 200 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 15 Export Derivative: PVC, the Construction Polymer, Competes Globally Wire & Cable 8% All Others 12% Pipe & Fittings 43% Bottles 2% Rigid Film & Sheet 17% Profiles & Tubes 18% Durable Goods = 70% of Demand 2011 Total Global Demand = 36 Million Metric Tons © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Global Residential Construction Spending 2012 Vs. 2011 • North American residential construction growth goes positive World N. America South America Western Europe • Western Europe still in the doldrums Eastern Europe Middle East & Africa • Asia still leads the way Asia India -5.0 0.0 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 5.0 10.0 17 U.S. Housing Starts Housing Starts, Total Privately Owned (Thousands) 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 Source: U.S. Bureau of Census Forecast: IHS Global Insight 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 18 U.S. PVC Pipe Resin Demand Billion Pounds 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2006 2007 2008 2009 2010 2011 2012 2013 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2014 2015 2016 19 U.S. PVC Cost Leadership – Bright Future Dollars Per Metric Ton 1,300 Integrated - Asset Sharing Method 1,200 * NEA excludes China 1,100 1,000 900 800 700 600 ADVANTAGE $200 + 500 400 06 07 08 North America * Northeast Asia 09 10 11 12 13 14 15 16 West Europe China Cash Cost (Acetylene based) © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 20 U.S. PVC Export Forecast Billion Pounds 1.8 Exports% of 1.6 Production 2007 = 10.5 1.4 2009 = 20.4 1.2 2010 = 32.5 2011 = 38.0 1.0 2012 = 38.0 – 40.0 0.8 0.6 0.4 0.2 0.0 07 Q3 08 Q3 09 Q3 10 Total Exports Q3 11 Q3 12 Q3 China © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 21 2.6 2.8 2.6 PVC – A Global Voyager 0.7 0 0.4 0.3 2.1 2.1 2.8 2.1 2.6 0.7 -0.1 0.0 0.7 0.4 0.3 0.3 -0.3 0.2 -0.3 -0.4 -0.3 0.4 0.3 0.9 -0.6 0.3 -0.6 -0.6 0.2 0.9 0.7 0.7 -0.8 -0.8 0.9 0.7 0.7 2.1 0.0 -0.1 0.9 0.7 -1.0 0.4 0.3 0.3 0.7 -1.2 -0.3 0.3 2.1 0.4 -0.3 0.1-0.3 -0.1 0.0 -0.4 0.3 0.3 0.1 0.3 -1.4 0.3 -0.3 0.1 0. -0.6 -0.6 -0.6 0.4 -0.3 -0.3 0. 0.3 0.1 0.3 0.7 -0.4 0.2 0.1 -0.8 -0.8 -0.6-0.6 -0.6 -0.1 0.0 -1.0 0.4 -0.8 -0.8 0.3 0.3 -0.3 -0.1 0.2 -0.3 -0.3 0.9 -1.2 -0.4 0.0 -1.0 0.0 -1 -0.3 -0.1 0.7 0.7 -0.3 -0.6 -0.6 -0.4 -0.3 -0.6 -0.3 0.9 0.3 -0.3 -0.3 -1.2 -0.3 -0.4 -0.3 -0.8 -0.40.7 -0.6 -0.6 -0.6 0.7 -0.6 0.4 -0.6 -0.6 -0.6-0.60.3-0.9 0.3 -0.6 0.0 0.3 -0.1 -0.8 -0.8 -0.8-0.8 -0.80.1 0.1 -1.2 -0.3 0.4 -1.0 -0.3 -0.9 -0.3 -1.4 0.3 South America 0.3 North America West Europe Central Europe CIS & Baltic States Africa Middle East Nor -0.4 0.3 -1.0 0.1 -1.2 -0.6 -1.2 -1.2 -1.4-0.6-0.6 0.1 -1.4 -0.8 -0.8 -1.9 0.0 -1.4 -0.1 -0.3 -0.3 -0.1 0.0 -1.0 -0.4 -0.3 2006 -1.2 -1.9StatesAfrica Middle North America South West Central CIS & Baltic -0.6 -0.6 Europe -0.6 -0.3 -1.4 Ea -0.3America -0.3Europe 2011 -0.4 .8 -0.8Europe North America South America West Europe Central CIS & Baltic StatesAfrica Middle -0.6 -0.6 -0.6 -1.02016 -0.8 Net Trade, Million Metric Tons -1.2 -0.9 West a Europe Central Europe CIS & Baltic States Africa Middle East Northeast Asia Southeast Indian Asia Subcontinent 1.0 -1.4 -1.2 North America South America West Europe Central Europe CIS &-1.4 Baltic States Africa Middle East North South ca America West Europe Central Europe CIS & Baltic States Africa Middle East Northeast Asia Southeast InA © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 22 & Baltic StatesAfrica Middle East Northeast Asia Southeast Indian Asia Subcontinent 0.2 2.6 2.8 0.3 PVC Resin: New Rules PVC Resin – North America • Shale gas development is a game changer for North America − Lower cash cost − Export opportunities, price set by other regions − Dependent on domestic demand but not as dependent as before PVC converters must begin to look beyond the dynamics of their particular domestic industry when pricing their products. © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 23 Global Price Comes Home PVC Regional Netback Comparison Dollars Per Metric Ton 1,500 1,300 1,100 900 700 500 300 90 92 94 96 98 NAM Contract-Market 00 02 04 06 08 WEP Contract-Market © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 10 12 14 16 NEA Spot 24 Ethylene-Based Vinyls Flow – Balanced VCM Process Oxygen Caustic + OxyChlor EDC HCL Direct Chlor EDC VCM Chlorine Ethylene © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. PVC The Other ‘Half’ of the Feedstock Story The combined output of 1.0 Ton of Chlorine and 1.1 Ton of Caustic = ECU ( Electro-Chemical Unit ) 1.0 ton Electricity 1.1 ton Cell Water Treatment Pharmaceuticals Chlorine Salt Health Care Caustic Soda Electronics Plastics (PVC) Metals: Aluminum, TiO2 Food Production Processing & Packaging Water Home/Gov’t Construction Hydrogen Pulp and Paper Production Auto & Truck Production Caustic Supply is Set by Chlorine Production Flame Retardant Materials © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 26 U.S. Gulf Coast Chlor-Alkali: It Runs on Shale Gas Dollars per MMBtu 18 Gas as % of Crude 70% 16 60% 14 50% 12 • Shale Gas advantage is enabling more chlorine derivative investment 10 40% 8 30% • Chlorine derivatives go 20% offshore… Especially PVC 6 4 10% 2 0 0% 06 07 08 09 10 11 12 13 14 15 16 Crude (WTI) Natural Gas Gas as % of Crude • Generating caustic soda in the region… © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 27 Regional Chlor-Alkali Production Cash Costs: Power is Key 2012 Operating Costs, Dollars Per ECU Metric Ton 450 400 ≈ $200 350 300 250 200 150 100 West Europe Membrane Asia Membrane North America Membrane © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Middle East Membrane 28 ECU Cash Costs: Shale Gas Improves U.S. Cash Costs, Dollars Per Metric Ton 600 550 500 450 400 350 300 2011 Electricity Costs (Cents/kWh) 250 North America = 3.0 200 Europe = 8.4 150 Brazil = 7.3 100 2006 2007 2008 2009 2010 USGC ECU Cash Costs NEA ECU Cash Costs Middle East 2011 2012 2013 2014 2015 2016 WEP ECU Cash Costs CHI ECU Cash Costs © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 29 U.S. Chlor-Alkali Industry Responds to Shale Gas Advantage Capacity, Million Dry Metric Tons 17.0 Change in Capacity, Million Dry Metric Tons 1.00 16.5 0.75 16.0 0.50 15.5 0.25 15.0 0.00 14.5 -0.25 14.0 -0.50 13.5 -0.75 13.0 -1.00 Change in Capacity Year over Year North NorthAmerica AmericaCaustic CausticCapacity Capacity © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 30 Rebirth Part II: North American Chlor-Alkali Capacity Additions Producer Timing Capacity (-000- MT Chlorine) 2010 12,480 Shintech Q4-2010 162 FPC Mid-2011 175 Mid-2011 482 Mid-2013 800 Westlake 2013 350 OxyChem Mid-2013 183 Various 18 Shintech Added Capacity 2010-2014 Dow/Mitsui Others Total Announced Additions 2014 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2,170 14,650 31 2012 Caustic Demand Million Dry Metric Tons 25% 12% 5% 14% 12% 15% 17% North America Demand = 11.9 Global Demand = 64.7 (2011-2016 %AAGR = 3.3) Product Segments Pulp Alumina Organics Soaps/Detergents/Textiles Inorganics Water Treatment Others China Demand = 22.2 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 32 U.S. Caustic Supply/Demand Balance Million Dry Metric Tons 14 Percent 100 13 90 12 80 11 70 10 60 9 50 8 40 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Domestic Demand Production Operating Rate © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 33 Load the Ships, Anchors Aweigh? • The revitalized U.S. Gulf chlor-alkali industry is filling ships…. − PVC, VCM, EDC − MDI, TDI − TiO2 • Chlorine derivatives are only part of the story… • …U.S. caustic will increasingly hit the high seas as well − Loading more, traveling farther − Leaving some other regions in its energy wake © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 34 To Avoid Infighting, Producers Will Export Million Dry Metric Tons 3.5 Percentage 14% 3.0 12% 2.5 10% 2.0 8% 1.5 6% 1.0 4% 0.5 2% 0.0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Imports Exports Net Exports as % of Total Demand © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 35 Arbitrage Yields a ‘Global Caustic Price’ $450 FOB Northeast Asia $430 FOB Middle East $410 FOB USGC $94 CFR Australia February 2012 Spot Caustic Prices © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 36 Energy and Caustic: Price Support Caustic, U.S. Dollars per DMT 600 Crude, U.S. Dollars per Barrel 130 120 500 110 400 100 2011 Avg = $106 per Barrel 300 90 200 80 Tosoh Explosion 100 2010 Avg = $78 per Barrel 0 Jan-10 Japan Tsunami 70 60 May-10 Sep-10 FOB NEA Spot Jan-11 May-11 CFR SEA Spot Sep-11 Jan-12 Dubai Crude Oil © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 37 Caustic Price: Global in Nature Dollars Per Dry Metric Ton 800 U.S. AAP Caustic USGC 700 West Europe Contract (Delivered) 600 NEA Contract* (Delivered Taiwan) 500 400 300 200 100 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 * Excludes China © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 38 All Together, Ethylene + Caustic: Chlor-Alkali Vinyls Complex Regional ROIs Percent 35 30 25 20 15 10 5 0 -5 1990 1993 1996 1999 NAM ROI 2002 WEP ROI 2005 2008 2011 2014 NEA ROI © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 39 Integration Determines Competitiveness for US Vinyl Producers VCM Producer FPC USA Georgia Gulf Oxy Vinyls LP SHINTECH Westlake Integration Level Chlorine/Caustic Ethylene Key Full Differentiator Partial/Studying Now Full Partial+Dow Becoming the Partial/Completing Standard © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. New Full Key to None Success None In None Shale Gas Era Full 40 Regional Realities • North America − Able to make money with shale gas advantage − Reinvesting and expanding • Europe − Lights flickering… − Financial issues keep Europe from growing, reinvesting • Asia/China − Still the growth engine, but severely overbuilt − Demand growing, but at slower pace. • World slower economic conditions are restraining PVC/Chlorine demand growth in 2012 but optimistic future is approaching. © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 41 North America ‘Re-tools’ Chlorine Capacity, Million Metric Tons 18 16 14 12 10 8 6 4 2 0 05 06 07 08 Mercury 09 10 Diaphragm 11 12 Membrane © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 13 14 15 West Europe Needs Investment Chlorine Capacity, Million Metric Tons 12 10 8 6 4 2 0 05 06 07 08 Mercury 09 10 Diaphragm 11 12 Membrane © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 13 14 15 Conclusions… • The high cost regions have work to do… or they risk a rusty future • U.S. producers can accept a global price and experience good margins at their cost position • Global energy price sets the floor on prices © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 44 Thank you!