1. New Investment in Shale Advantaged Chemicals
33rd USAEE/IAEE North American Conference
Pittsburgh
27 October 2015
New Investment in Shale Advantaged Chemicals
Martha Gilchrist Moore
Sr. Director, Policy Analysis and Economics

2. The Chemical Industry is Energy-Intensive
Fuel, Power and Feedstock Costs as a Percent of Total Costs
Source: ACC analysis

3. Shifting Petrochemical Competitiveness
In the US and Canada, historically cheaper to crack ethane, propane and other natural gas liquids (from natural gas)
In Western Europe and NE Asia, naphtha (from oil refining) is primarily used
Correlation between feedstock and energy prices
Thus, feedstock costs (and competitiveness) are driven by relative oil and gas prices
10 years ago,
US near top of global cost curve
Plus a wave of low-cost capacity in the Middle East
US emerges as low-cost producer
Share of US ethylene production from NGLs increases from 59% in 2005 to 92% in 2014.
Middle East ethane supplies are becoming constrained.
Lower oil prices have eroded some competitiveness, but U.S. remains feedstock-advantaged

4. Divergence between Naphtha and Ethane Prices Key Competitiveness
Sources: US Energy Information Administration, Chemical Week, ICIS

5. Oil and Natural Gas Prices (oil equivalent)
Source: Energy Information Administration

6. Oil-to-Gas Ratio: A Proxy for U.S. Petrochemicals Competitiveness
When the ratio is above 7, U.S. competitiveness is enhanced.
Oil price declines have created some uncertainty about future
Current ratio remains very favorable for U.S. competitiveness
Growth likely to slow but be offset by stimulative consumer effect
Sources: EIA, ICE, NYMEX

7. Natural Gas Liquids Production
Source: Energy Information Administration

8. Ethane and Propane Production in PADD I (East Coast)
Source: Energy Information Administration

9. U.S. Chemical Industry Investment
Improved feedstock competitiveness led to surge of announcements to build new chemical manufacturing capacity
Building began as early as 2010 with small projects to increase ethane utilization
As of the beginning of October, ACC is tracking 246 projects valued at $153 billion
63% of projects are foreign or include a foreign partner
Additional projects in Canada and Mexico
In addition, ACC is tracking more than 500 plastic processor projects

10. Cumulative Announced Chemical Industry Investments (from Shale Gas)
Source: ACC analysis

11. The Build-Out is Underway (Chemical Industry Construction Spending)
$ Billions
(seasonally adjusted annual rate)
Note: Data are presented as a 3 month moving average to smooth month-to-month variations.
Source: Census Bureau

12. US Chemical Industry Capital Investment: Incremental Due to Shale Gas
More projects likely to be announced
Peak year for investment outlays –2017
Billions of 2013 Dollars
This is in addition to the $30 billion per year that the industry normally invests…
Note: excludes projects designated as “delayed/uncertain”
Source: ACC analysis

13. Shale Advantage Driving Capacity Expansion Across Many Products
Ethane, Propane and NGL Feedstock
Ethylene – capacity could grow by more than half
Ethylene Derivatives – PE, vinyls, MEG, EO, etc.
Ethlyene cracker co-products – on-purpose propylene (PDH, MTP), butadiene
Complementary products, i.e., chlor-alkali for PVC, industrial gases, etc.
Methane Feedstock
Methanol
Nitrogeneous fertilizers – ammonia, urea and derivatives (AN, UAN)
Demand Driven Products
Chemistry used in hydraulic fracturing, drilling, and oil/gas production

14. Olefin Yields by Feedstock

15. Composition of Announced Projects Investment by Industry Segment*
*Some large cracker projects with derivatives projects not separately broken out
Source: ACC analysis

16. Geography of Shale-Advantaged Chemical Investment
Source: ACC

17. Much of the New Capacity is Export-Oriented
U.S. trade surplus for the selected chemicals increases from $19.5 billion to $43.3 by 2030.
Trade deficit in C1 chemistry shrinks, but continues for aromatics
C2 trade balance expands in just about every regions.
C3 derivative exports recover after PDH/MTP projects come online.
Source: Nexant

18. U.S. Captures Market Share Away From Western Europe…
Basic Chemicals - Volume Index of Production (2007=100)
Sources: Eurostat, Federal Reserve, METI, ACC analysis

19. Key Chemical Industry Investment Risks
Unpredictable energy dynamics
Workforce development issues
Chemical plant operations personnel, engineers, etc.
Construction trades and labor
Shortages of key equipment, etc.
Both lead to capital cost escalation
Wage increases
Costs of valves, pressure vessels, pumps, etc. escalating
Infrastructure bottlenecks (e.g., Houston Ship Channel)
Market access/trade exposure (e.g., protective tariffs)
More stringent environmental and other regulations affecting license to operate
Market imbalances (short- or over-supply) created by variations in regional supply vs. demand growth and government policies

20. Questions? martha_moore@americanchemistry.com (202) 249-6182