Impacts of feedstocks on the surfactants value chain – what’s new? Eric Hudson, Managing Consultant Caleb Chong, Consultant 6 th February 2019
Agenda 1. Introduction to Nexant 2. Feedstock prices and impact on the Surfactants value chain 3. Ethylene Oxide issues/ changes in perspective 4. Bio-EO – is this the future? 5. Summary Caleb Chong Eric W Hudson Consultant Managing Consultant Energy & Chemicals Advisory Energy & Chemicals Advisory 1 King’s Arms Yard T: +44 20 7950 1593 1 King’s Arms Yard T: +44 20 7950 1564 E. cchong@nexant.com London M. +44 77 8627 6317 London EC2R 7AF E. ehudson@nexant.com EC2R 7AF United Kingdom United Kingdom 2 February 2019
1. Introduction 3
Nexant provides expertise across the energy and chemicals value chain Energy Chemicals POWER & C1 CHEMICALS & PETROCHEMICALS INTERMEDIATE & GAS DOWNSTREAM OIL RENEWABLES FERTILIZERS & POLYMERS SPECIALITY CHEMICALS Grid Management Gas Monetization Petroleum Refining Ammonia Olefins Surfactants Distribution LNG Storage & Urea Aromatics Oleochemicals Software Distribution Gas Pipelines Melamine Polyolefins Engineering & Energy Efficiency Biofuels Regulatory Ammonium Vinyls Speciality Demand Side Oxygenates Frameworks Nitrates Styrenics Polymers Management Coal to Liquids Phosphate & NPK Polyesters Coatings, Renewables Fertilizers Gas to Liquids Adhesives, Polyamides • Solar Methanol Sealants & Base Oils Acrylates • Biomass Elastomers Formaldehyde Lubricants Rubbers (CASE) • Municipal Waste Acetyls Other olefin and Polyurethanes • Wind Other syngas aromatic Resins derivatives • Clean Coal derivatives Biochemicals Speciality & Fine Chemicals 4 February 2019
Nexant provides global knowledge and regional expertise in Energy and Chemicals Industry London Beijing Seoul San Francisco White Plains, N.Y. Washington, DC Tokyo Houston Shanghai Bahrain Pune Bangkok Kuala Lumpur La Paz Rio de Janeiro Pretoria Headquarters Buenos Aires Main Offices Representative Offices Project Offices Nexant E&CA has over 120 knowledgeable and responsive consultants that focus on energy and chemicals, providing global coverage and regional expertise 5 February 2019
2. Feedstock prices and impact on the Surfactants value chain 6
Feedstocks for Surfactants Synthetic Feedstock Natural Feedstock Versus n -Paraffin Kerosene Linear Alkylbenzene LAB & Benzene Sulfonates (LAS) Fatty Alcohol Synthetic Alcohol Sulfates Sulfates (AS) Synthetic Fatty Formulators Detergent Alcohol Alcohol Fatty Alcohol Alcohol Ether Ethoxylates Sulfates +EO Coconut Oil Ethylene (AES) Palm Kernel Oil 7 February 2019
Consumption of crude oil products into chemicals has increased gradually, but remains a minor application compared to energy use Global Consumption of Crude Oil Products by Application 4500 4000 5% 3500 11% Million tons of oil equivalent 3000 2500 85% 2000 1500 1000 500 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 Energy use Chemical/petrochemical Other non-energy use Source: IEA Energy Balances & Statistics 2015 8 February 2019
Palm Kernel Oil (PKO), the main feedstock for natural surfactants in the personal care business, is essentially a by-product of palm oil production and is a relatively small end-use (~10%) Global Demand for Palm Fruit Used in Detergent Alcohols Mainly edible oils and biofuels 9 February 2019
Crude Oil Price Volatility – what is the new norm? Global benchmark crude oil pricing 140 120 100 “Forecasting is a Dollars per barrel complicated thing. 80 Especially when it 60 comes to forecasting future.” 40 Viktor Chernomyrdin 20 2019/20 ?? 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 Brent FOB Sullom Voe Dubai FOB Fateh WTI FOB Cushing 10 February 2019
Many diverse factors influence supply and demand for crude oil, consolidating to drive price reductions Strengthening Demand or Shortening Supply Strong economic environment US dollar weakness Weakening Demand Low inventories or Lengthening Supply Political uncertainty, year of supply disruption Weak economic environment – Brexit impact? Limited spare capacity Growing need for OPEC oil supplies Strengthening US dollar Disciplined adherence to OPEC production Slowing demand growth and accelerated supply quotas (Iran) Lack of adherence to OPEC production quotas Higher Prices Energy efficiency initiatives Switch to renewable, low carbon fuels Substitution by low cost gas or coal Subsidy removal in key markets (e.g. Arab Gulf) Lower Prices 11 February 2019
Each feedstock to formulators has its pressures Supply/demand of palm oil Price of competing vegetable oils Weather patterns Import policies Taxation/ import duty changes Consumer pressures 12 February 2019
3. Ethylene Oxide issues 13
Simplified Typical Surfactants Value Chain NATURAL GAS Ethylene Oxide (EO) CRUDE OIL ETHOXYLATED ALCOHOLS\ HOUSEHOLD DISTRIBUTION ALCOHOLS SULFONATED FORMULATIONS LINEAR ALCOHOLS NATURAL OILS Natural or Synthetic FEEDSTOCK SUPPLIERS SULFONATORS RETAILERS INTEGRATED PRODUCERS SOAPERS 14 February 2019
EO Case Study The Chemical Producer is caught between the oil/petchems players and the big brand consumer marketers Chemical Branded Crude Oil Refinery Cracker Formulators Consumer Producer Seller There are many Price Pass Through Achievable ? Resistance to Price Pass Through? factors at play, including green, sustainability, Crude Oil Refinery Cracker Ingredient Branded Seller RSPO, massive Supplier Continual downward resistance from Cost pressure - retailers, pressure from consumers formulator’s producers moving based on “green” factors, to China. Use of flexibility and Climate Change, Carbon inventory to consumer trends footprint anticipate price -Experience curve increases and - Macro Economic conditions declines, to maintain margins Chemical Producers are increasingly influenced by consumer pressures February 2019 15
EO Case Study – Detergent Alcohols – Inter-material competition Currently synthetic producers are gaining market share from natural producers. Naturals still dominate personal care applications due to end user consumer pressure Detergent alcohol producers Supply: 4.5 million tons Demand: 2.4 million tons Personal Care Idle Capacity Natural Natural Non – personal care Natural Synthetic Synthetic Synthetic Globally installed capacity is split 75/25 between natural and 25 percent of detergent alcohol demand is consumed by synthetic based plants the personal care sector February 2019 16
EO Case Study – Detergent Alcohols The relative pricing between natural and synthetic feedstocks dictates the formulator’s demand, except where the end-use applications are dependent on consumer pressures 1800 160 PKO, dollars per ton on the day 1600 140 Crude, dollars per barrel 1400 120 1200 100 1000 80 800 60 600 40 400 20 200 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Palm kernel oil ($/ton) Crude oil ($/bbl) Market Demand 1.8 million tons Synthetic Natural Performance is often the key differentiator, not just the price February 2019 17
Global Ethylene Oxide and Downstream Markets by end-use Major application 100% Coatings, Lubricants, Others 90% Pharmaceuticals etc. 80% Ethylene 70% Gas scrubbing CO 2 , H 2 S Ethanolamines 60% Ethylene 50% Oxide (EO) 40% Surfactants Ethoxylates 30% 20% Mono-ethylene PET 10% glycol (MEG) Fibre / Bottle 0% Global Ethylene Oxide Demand, 2018 ( volume – 30.6 million tons ) 18 February 2019
In Western Europe and America, demand for EO is more varied unlike other regions which are heavily focused on MEG Global ethylene oxide demand (2018) C&E Europe (0.5 million tons) 100% Western Europe (2.9 million tons) 80% North America 60% 100% (4.8 million tons) 80% 40% 100% 60% 20% 80% 40% 0% 60% 20% 40% 0% 20% 0% Asia (14.5 million tons) Middle East & Africa 100% South America (7.5 million tons) 80% (0.4 million tons) 100% 100% 60% 80% 80% 40% 60% 60% 20% 40% 0% 40% 20% 20% 0% 0% Areas with access to relatively cheap feedstock (the Middle East) or high PET demand (Asia Pacific) have sparked new construction 19 February 2019
No EO capacity additions in Europe in recent years but this is likely to change with INEOS and BASF announcements Global Ethylene Oxide Capacity Additions by region, 2015-2020 2.5 2.0 Million tons 1.5 1.0 0.5 0.0 2015 2016 2017 2018 2019 2020 North America South America Western Europe Central Europe Eastern Europe Middle East Africa Asia Pacific EO recent capacity addition announcements by INEOS and BASF in Western Europe are not shown in the above list. 20 February 2019
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