PEMEX PETROQUIMICA 2013

ANNUAL CONFERENCE

PCI Xylenes & Polyester

Doug Rightler
Discussion Points

» MEG demand growth by region.

» MEG supply - China is in control or is it?
» Price drivers - the Chinese trader and
speculation. Can there be effective
forecasting?
» Impact of shale gas and cheap ethane on US
MEG production.
» US PEO getting dangerously close to a
major supply problem.
MEG Overview

» The global MEG market continues to be spooked by

uncertainties in demand and downstream markets, as
well as economic woes around the world.
» Demand growth in 2012 was forecast at 1.5 million tonnes
came in at 1.0 million tonnes final. China on target nearly
ROW did not deliver.
» Initial demand forecast 2013 was also 1.5 million tonnes
but GDP rates have been cut so forecast cut to 1.35
million tonnes. Likely result growth forecast of 1.1 to 1.2
million tonnes MEG.
MEG Overview

» From late last year gambling mentality in China having

huge impact on spot pricing in MEG => pricing in all
regions affected (US??) as everyone looks to China spot.
» MTO up and running no surprise was expected.
» China is investing in MEG or trying too as it did in PTA =>
issue who will really build or not.
» What is the threat from coal based MEG?
World Fiber & PET MEG Growth
18 35%

16 30%
14
25%
12

Growth Rates
Million Tonnes

20%
10
15%
8
10%
6
5%
4

2 0%

0 -5%
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

EGAF PET Fiber Fiber Rate PET Rate

Global EO Demand by End Use: 2001-17
35

30

25
Million Tonnes

20

15

10

0
2001 2003 2005 2007 2009 2011 2013 2015 2017
Total Glycols Ethanolamines Ethoxylates Glycol Ethers
Polyols PEGs Other/Inventory
New EO

1.6

1.4

1.2
Million Tonnes

1.0

0.8

0.6

0.4

0.2

0.0
2012 2013 2014 2015 2016 2017
China North America Middle East/Africa Other Asia
New MEG

2.0
1.8
1.6
1.4
Million Tonnes

1.2
1.0
0.8
0.6
0.4
0.2
0.0
2012 2013 2014 2015 2016 2017
China North America Middle East/Africa Other Asia
World MEG Capacity vs Demand Increase

The “missing” years

3
Million Tonnes

-1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Capacity Increase Demand Increase
MEG Demand by Region

25

20
Million Tonnes

15

10

0
2011 2012 2013 2014 2015 2016 2017
North America South America Europe Middle East/Africa Asia
MEG Production by Region

18

16

14

12
Million Tonnes

10

0
2011 2012 2013 2014 2015 2016 2017
North America South America Europe Middle East/Africa Asia
Surpluses and Deficits of MEG

10
8
6
4
Million Tonnes

2
0
-2
-4
-6
-8
-10
2011 2012 2013 2014 2015 2016 2017
NAFTA Latin America Europe MEA China Other Asia
MEG Production (Thousand Tonnes)

Country 2012 2013 2014 2015 2016 2017 12vs 13

Saudi Arabia 6,250 6,232 5,994 6,452 6,486 6,466 -19

China 2,976 4,607 5,864 6,799 8,306 8,328 1,631
Taiwan 1,941 2,073 2,428 2,402 2,253 1,789 132
USA 1,648 1,562 1,753 1,749 2,108 3,080 -86
Canada 1,463 1,517 1,533 1,528 1,520 1,503 54
Kuwait 1,061 1,221 1,168 1,168 1,168 1,168 161
Korea 1,181 1,146 1,135 1,245 1,166 1,131 -35
India 1,080 1,082 1,111 1,250 1,717 1,706 1
Singapore 800 777 747 723 687 670 -23
Iran 763 757 747 776 772 731 -7
Japan 646 690 664 631 625 497 43
Belgium 532 499 527 500 389 405 -33
Russia 359 352 440 441 446 1,075 -6
Thailand 350 341 340 340 339 334 -9
Malaysia 366 320 346 342 345 342 -46
Mexico 252 251 240 250 242 235 -1
Germany 190 229 281 217 134 169 39
Indonesia 234 219 219 218 184 156 -15
Brazil 182 125 111 95 155 457 -56
MEG Demand (Thousand Tonnes)
Country 2012 2013 2014 2015 2016 2017 12vs 13

China 11,140 11,690 12,429 13,157 14,128 14,931 550

USA 2,227 2,273 2,272 2,300 2,409 2,471 46
India 1,674 1,810 2,036 2,320 2,509 2,846 136
Korea 1,199 1,189 1,177 1,201 1,236 1,245 -11
Taiwan 924 961 978 995 1,003 993 37
Indonesia 616 720 779 843 941 992 104
Thailand 435 485 502 511 526 538 50
Mexico 434 466 471 478 469 469 32
Japan 429 448 456 466 475 475 19
Germany 378 371 362 365 365 372 -6
Russia 285 315 359 399 420 456 30
Pakistan 251 270 310 343 361 384 19
Turkey 197 265 342 368 383 407 68
Brazil 211 236 318 376 412 422 25
World MEG Balance

45 90% » MEG consumption

expected to rebound
40 89%
following poor 2012.
88%
35 » Supply just barely keeps
30
87% pace with demand but the
Million Tonnes

86%
DMO is now critical.
25
85% » Middle East not until 2017
20 or later.
84%
15 » EO utilization rates have
83%
to hit near max every year
10 82% through 2015.
5 81% » Next wave of surplus
0 80%
projected for 2016 with
2011 2012 2013 2014 2015 2016 2017 maximum surplus 2017-
18.
MEG Capacity MEG Production
» U.S. and China lead the
MEG Consumption EO Utilisation Rate way
China MEG Production Surges Ahead
16 1.4

14 1.2

12
1.0

Million Tonnes
10
Million Tonnes

0.8
8
0.6
6
0.4
4

2 0.2

0 0.0
2011 2012 2013 2014 2015 2016 2017

Inventory (RHS) Production Imports Demand

MEG Sourcing based on Raw Materials
40,000
More DMO plants or MTO
35,000 plants would put pressure
on the producers: but not
30,000 advantaged feedstocks.

25,000
‘000 Tonnes

20,000

15,000

10,000

5,000

0
2011 2012 2013 2014 2015 2016
Advantaged Napthta Ethanol MTO DMO Others
China DMO production – Possible Outcome

2013 2014 2015 2016 2017

Capacity 1,232.8 1,932.8 2,990.0 3,198.2 3,190.0

Base Case Production 453.4 923.0 1,595.0 1,806.0 1,806.0
Base Case Rate 36.8% 47.8% 53.3% 56.5% 56.6%
at 80% 986 1,546 2,392 2,559 2,552
inc prodn at 80% 533 623 797 753 746
cum inc production 533 1,156 1,953 2,706 3,452
China DMO MEG impact on China inventory if it works
at 80% vs 50% base case
2,800

2,300
‘000 Tonnes

1,800

1,300

800

300
2011 2012 2013 2014 2015 2016 2017

inv demand adj inv with DMO at 80%

What About The Sleeper Projects?

5
Million Tonnes

0
2015 2016 2017
The Nightmare! China does to MEG what they did to
polyester and PTA
40 25
23
35
20
30

# new China plants

Million Tonnes

25
15

20 12
10 10
15 9
8
10
5 5
5 3
2
0 0
2013 2014 2015 2016 2017 2018 2019 2020
cum world demand cum world supply # of new China MEG
Comparative Cash Cost Economics:
Integrated EO from Cash Cost C2

1,600

1,400
Brent at $120 Green EO in India and Taiwan from
ethanol near $1650/tonne cash cost
1,200 Naphtha - Asia & Europe

1,000
$/tonne

U.S./Mexico ethane
800
China DMO,MTO integrated to coal
Canada
600

400
Middle East
200

0
Regional Ethylene ($ tonne) del

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Asia spot Europe cnt U.S. cnt
Asia MEG Volatility

1,600

1,400

1,200

1,000
$/Tonne

800

600

400

200

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
C2 Margin MEG Margin Integrated Cost Spot Price
World & China MEG Inventory

3.0 1,400
1.35 MMT demand
increase in 2013 1,200
2.5

1,000
Million Tonnes

2.0

$/Tonne
800
1.5
600
1.0
400

0.5 200

0.0 0
2009 2010 2011 2012 2013
Projected Inventory MEG demand
China MEG Inv Asia Spot Price
AMERICAS
New Americas Investments Polyester Industry
(units kt)
» Petroquimica Suape, Brazil 540 polymer late
2013
» Indorama Decatur , Alabama 500 polymer 2016
» M&G, Corpus Christie , Tx 1000 polymer late
2016
» Ineos, LaPorte, TX 700 MEG Q3 2016
» Sasol , Lk. Charles, La, 300,240 EO/MEG 2017
» MEGlobal 600 MEG 2017
» M& G, Corpus Christie, TX 1200 PTA late 2016
» Petroquimica Suape , Brazil 700 PTA Q1 2013
Americas Polyester Production

5,000

4,500

4,000

3,500
‘000 Tonnes

3,000

2,500

2,000

1,500

1,000

500

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
USA Mexico Brazil Argentina Canada
North America MEG issues

» MEGlobal expands Fort Saskatchewan in Q2 2013 by

“substantial” amount.
» Shell to add a 200,000 tonnes EO reactor to allow max 375,000
tonnes MEG production at Geismar in 2015. Now estimated to
be 170,000 tonnes.
» Huntsman has moved the 115,000 tonnes used EO reactor
from PDGlycol site to its location for feed to PEO and MEG.
» How much PEO is Ineos planning to use which would limit
MEG?
» Up to four other EO/MEG plants soon appear, other than Shell
and Ineos.
» US will become net exporter putting MEG prices at a minimum
of Asia spot less freight, but low cost ethylene makes this a
good strategy.
» Still just a handful of very big buyers: DAK, M&G, Indorama,
Old World, Prestone - so competition remains keen.
New EO MEG U.S. (kt)

» Ineos 550 EO, 700 MEG PEO? Q3 2016

» Sasol 300 EO, 100-150 PEO, 180-240 MEG 2017
» MEGlobal 450 EO, 600 MEG 2017
» Formosa 640 EO, 800 MEG 2017 ?
» Shell 540 EO, 750 MEG no PEO 2020
» Other 592 EO 740 MEG 2017-18?
» Alpek? Indorama? Mitsubishi? Westlake? Aither Chem?
Ethanol to EO?
U.S. Ethylene new max capacity and max use for EO

40

35

30
Billion Pounds

25

20

15

10

0
2013 2017 2020
Ethylene C2 for EO
US MEG Balance

4.0 92% » MEG turnarounds are significant

in 2013, especially first half of
3.5 the year.
91%
» Imports may increase from
3.0 Canada as some Saudi Arabia
90% imports appear to be redirecting
Million Tonnes

2.5 to South America.

89% » EO for EODs continues to grow,
2.0 taking EO from MEG.
88% » Ineos still planning new 750,000
1.5 tonnes plant by Q3 2016.
87% » Shell Northeast, maybe 2020.
1.0
» At least three other real
86% prospects for new MEG plants in
0.5
US by 2017.
0.0 85% » Mitsubishi Corp MEG, in
2011 2012 2013 2014 2015 2016 2017 Trinidad.
» Shell and Huntsman add crude
MEG Capacity MEG Production EO capacity in 2014-15 to use
MEG Consumption EO Utilisation Rate existing MEG capacity.
U.S. MEG Production vs Demand

3.5
MEGlobal
3.0
Ineos
Huntsman Shell
2.5
Million Tonnes

2.0

1.5

1.0

0.5

0.0
2011 2012 2013 2014 2015 2016 2017
Production Demand
U.S. Crude EO Production

Sasol
5.0 MEGlobal
Ineos
4.5
Shell
4.0 Huntsman

3.5
Million Tonnes

3.0
2.5
2.0
1.5
1.0
0.5
0.0
2012 2013 2014 2015 2016 2017 2018 2019
US PEO Merchant Sellers

1,000
900
800
700
‘000 Tonnes

600
500
400
300
200
100
0
2012 2013 2014 2015 2016 2017
Demand Effective Capacity
 100
200
300
400
500
600
700

-100
0
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996

MEG
1997
1998
1999
U.S. EO vs MEG margin ($/Tonne)

2000
2001
2002
EO 2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Regional PEO pricing vs PEO value as MEG
Ethylene Oxide Prices (incl Freight) 2011-2013
2,000
1,900
1,800
1,700
1,600
$/Tonne

1,500
1,400
1,300
1,200
1,100
1,000
jul-11

nov-11

jul-12

nov-12
ene-11

mar-11

may-11

sep-11

ene-12

mar-12

may-12

sep-12

ene-13

mar-13
West Europe United States Far East (China) China EO as MEG
Conclusions

» World is in balance for EO and MEG through 2015.

» Expect surplus EO and MEG to start in 2016 with lower
prices with stable oil values.
» Oil sets the cost curve floor for Asia and Europe while the
US will have a huge advantage using abundant ethane
from growing shale gas supply.
» US will have lowest EO derivative costs and scale and is
in perfect position to dominate global growth for
commodity type EODs, i.e. alcohol ethoxylates,
ethanolamines, ethers.
» Specialty ethoxylates to remain regional supply to meet
regional demand.
» U.S. PEO merchant EO values rising to match MEG
margins and supply should be a concern until new
capacity arrives.