U.S. Shale Oil and Gas Resurgence of U.S. Chemical Industry Sebastian Rodrigano Principal Popp Hutcheson PLLC Austin, TX
Topics • Importance of the chemical industry to broader manufacturing economy • Recent history – chemical industry decline • Emergence of shale oil and gas – market changes affecting the industry • Resurgence of chemical industry • Challenges in valuing energy and manufacturing assets
Chemical Industry and U.S. Manufacturing
What do these have in common?
U.S. Chemical Industry • $720 billion business • Highly energy intensive • Consumes Oil and Natural Gas as primary raw materials to convert into other products • Petrochemicals are necessary in every step of the manufacturing process • Basic industry for industrial development • Domestic production critical to value added chain
Chemical Industry History • Modern era begins during WWII • Developed in regions close to oil, gas, water, refineries, transportation • U.S. Growth industry through 70’s • Stalled in 80’s • Began decline in 90’s • General manufacturing tends to track chemical industry health
Recent History Slides from November 2008 IPT Presentation
(2008) Global Energy Outlook Natural Gas
US Natural Gas Demand 30 27 26.9 26.9 25.9 25 23.4 22.3 NATURAL GAS (TCF) 20 15 10 5 0 2003 2010 2015 2020 2025 2030
Production Imports 8 7 6 5 4 3 2 1 0 China India China India China India 2003 2015 2030
China and India Gas Demand Production Imports 8 7 6 Natural Gas (TCF) 5 4 3 2 1 0 China India China India China India 2003 2015 2030
LNG Supply Regions Gas Demand AFRICA MIDDLE EAST CENTRAL - SOUTH AMERICA 20.0 18.0 16.0 14.0 Natural Gas (TCF) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2003 2010 2015 2020 2025 2030
(2008) Current Industrial Growth Trends
2008 Industrial Investment Chemical Processing Oil Refining Metals and Minerals 80 70 60 50 40 30 20 10 0 Middle America South America Europe Africa Asia Oceania USA
2001-2005 Industrial Projects by Region $800.00 $700.00 $600.00 Investment ($B) $500.00 $400.00 $300.00 $200.00 $100.00 $0.00 North Central South Europe Africa Asia Oceania America America America
Recent History Slides from November 2009 IPT Presentation
U.S. Industry Impacts • Industrial properties impacted by not only domestic trends but also global ones • Foreign competition offers lower wage, healthcare and benefit costs • Capital intensive industries impacted: Oil Refining Chemicals Automotive Manufacturing
Chemical Industry • Inventory destocking in 4 th Quarter 2008 • Weakening demand for chemicals • Looming overcapacity in Middle East and Asia • Capacity reductions and closures to continue • Shared services of integrated chemical complexes impacted by plant closures
Ethylene History and Outlook Source: Citi Investment Research
Plant Cutbacks & Closures • BASF - idled 80 plants temporarily worldwide, reduced production at additional 100 plants (representing over 20% of global capacity) • DOW - closed 20 plants permanently, idled 180 worldwide • INEOS - mothballed Port Arthur TX cumene plant • SOLUTIA - permanently closed Greenwood SC nylon fibers plant • FLINT HILLS - permanently closed Odessa TX polymers plant • SUNOCO - permanently closed Bayport TX polypropylene plant • LYONDELLBASELL - permanently closed Beaumont TX glycol plant and Chocolate Bayou TX olefins plant
Shale Formation Oil and Gas Production
Natural Gas Prices
Resurgence of Petrochemical Industry
Petrochemical Cost Curve
U.S. Ethylene Capacity Boom • Ethane now the preferred feedstock of choice • Ethylene capacity to increase 30% by 2017 • Capital investment of $20 billion by 2017 • Includes brownfield and greenfield projects • First new plants to be built in U.S. since 2001
Ethane Based Ethylene Advantage
U.S. Ethylene Capacity Boom Capacity Facility (MM lbs/Year) Start-Up Westlake Chemical – Lake Charles, LA - 239 2012 Expansion 860 2012 Dow Chemical – St. Charles, LA - Restart Ineos Olefins & Polymers – Chocolate 255 2013 Bayou, TX - Debottleneck Westlake Chemical – Lake Charles, LA - 250 2014 Expansion LyondellBasell – La Porte, TX - 850 2014 Expansion Shell Chemical – US Northeast - New 3,000 2016 Cracker
U.S. Ethylene Capacity Boom Capacity Facility (MM lbs/Year) Start-Up ChevronPhillips Chemical – Cedar 3,000 2017 Bayou, TX - New Cracker 3,000 2017 Dow Chemical – USGC - New Cracker 2,500 2017+ Sasol – Lake Charles, LA - New Cracker LyondellBasell – Channelview, TX - N/A 2017+ Expansion 3,000 2017+ SABIC – USGC - New Cracker 3,000 2017+ Braskem – USGC - New Cracker Formosa Plastics - Point Comfort, TX - 3,000 2017+ New Cracker
Global Ethylene Supply & Demand
U.S. Competitive Position Returns • Manufacturing derivatives of ethylene to include polyethylene, ethylene glycol, among others • Methanex - relocation of methanol plants from South America to the USGC • Rationalization of naphtha based capacity in Asia and Europe creates additional export opportunities
U.S. Competitive Position Returns “ The U.S. chemical industry is the biggest potential winner from the shale boom. ” -Wall Street Journal, December 27, 2011
Recommend
More recommend
