Oil Demand and Chemicals

Feedstocks
Increasing risk and uncertainty

Stefano Zehnder, Vice President, Consulting

Michael Connolly, Senior Consultant, Analytics

9th October 2020

Agenda

01 COVID-19 and Post – COVID-19 Oil Product Demand

02 Petrochemical Feedstocks Market

03 Energy Transition Effects

04 NGL Feedstocks Globalisation

05 Conclusions

2
COVID-19 and Post-COVID-19
Oil Product Demand

3
13 Million bd of Oil Demand (18%) lost in 1st Half of 2020
World Oil Demand Loss in Jan –Jun 2020
due to COVID-19 (Million bd) • Preliminary statistics are
incomplete, and developments
0 still subject to change.
Petchem Feeds (5%)
• Most affected (% of demand lost)
-2 are transportation fuels for
Jet Kero (40-50%) “personal mobility”.
• Jet Kero demand is drastically
-4 down and full re-opening of
intercontinental passenger flights
Gasoline(15-20%) within the year is questionable. A
-6 global issue, even if some
regional activity resumes.
• Trends in Gasoline demand
-8
Road Diesel (10-15%) strongly driven by developments
in North America (still 40% of
global demand…). Size of global
-10 Heating & Cooking (8%)
market (3.5 times that of Jet Kero)
makes it the biggest sensitivity
area.
-12 • Freight transportation less
affected than personal mobility,
with impact on Diesel relatively
Heavier - incl. Bitumen/Bunkers (12%) TOTAL LOSS lower. Demand loss varies by
-14 Base Oil (30%)
13 Mmbd Region.
Figures in parenthesis indicate % of 2020 demand lost by product Others (10%)

October 9, 2020 Source: ICIS Consulting 4

COVID-19 has not only affected the short term demand but
will impact the long term too
A combination of behavioural change and stimulus packages will help drive the energy transition.

ICIS Revisions in Demand

30

25

20
Million Bd

15

10

Gasoline Jet Diesel

G - Post Covid J - Post Covid D - Post Covid

October 9, 2020 Source: ICIS Consulting, ICIS Analytics 5

Petrochemical Feedstocks
Market
 Transportation Fuels: Demand & Values
Gasoline / Jet / Diesel: Global Demand in 2020
Demand (Million Bd)

Weaker
Demand in transportation fuels
has hurt cracks in gasoline, jet
and diesel apart from a period
Range 2015- 2019 Average 2015-2019 2020 of very low crude prices.
150
Key Transportation Fuels “Cracks”
100
Crude Price
Price ($/tonne)

50

0
Recovery
-50 Continued to pressure the
already weak jet and gasoline
-100 cracks.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Gasoline Jet Diesel

October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing 7
 Feedstocks vs Fuels: Naphtha & Gasoline
Naphtha Demand in 2020
Demand (Kbbl/day)

Refiners
Have reduced runs to balance
fuels supply, reducing total
naphtha supply, despite shifting
some gasoline to naphtha.
Range 2015- 2019 Average 2015-2019 2020
20
Gasoline-Naphtha Differential
15

Demand
Price ($/bbl)

10
5
From petrochemicals has been
0 propped up by lower oil prices,
-5 increasing competitiveness
relative to non crude sourced
-10 feedstocks.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Differential Naphtha Crack Gasoline Crack

October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing 8
 Feedstocks vs Fuels: LPGs & Naphtha
Total LPG: Global Demand in 2020
Demand (Kbbl/day)

Supply
Reduced due to reduced crude
runs in refineries to balance
fuels supply and demand.

Range 2015- 2019 Average 2015-2019 2020

150
Propane-Naphtha Differential
100

Demand
Price ($/tonne)

50
0
Has been strong for total LPG,
-50 particularly in China and India,
-100 supporting LPG price.

-150
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Differential Propane Crack Naphtha Crack

October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing 9
 Historical perspective on Propane & Naphtha
price relationships
Propane-Naphtha Differential
150
In recent
100 years..
LPGs attractiveness versus
50
Naphtha was a growing albeit
seasonal factor in ethylene
Price ($/tonne)

0 production.
Increased US supplies…
-50

-100

-150

-200
Jul-15
Jan-15

Oct-15
Jan-16

Oct-16

Oct-17

Oct-18

Oct-19

Oct-20
Jul-16

Jan-17

Jul-17

Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20
Apr-15

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20
Differential Propane Crack Naphtha Crack
October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing
10
 Historical perspective on Propane & Naphtha
price relationships
Propane-Naphtha Differential
150 90
In recent
100
80
years..
70
LPGs attractiveness versus
50
60 Naphtha was a growing albeit
seasonal factor in ethylene
Price ($/tonne)

0 50 production.
Increased US supplies…
-50 40

-100
30

20
…in spring
-150
10
2020
The drop in crude prices and
-200 0 fear of supply-chain disruptions
combined in making Propane a
Oct-15

Oct-16

Jul-17
Oct-17

Jul-18

Jul-19

Jul-20
Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jan-18

Oct-18
Jan-19

Oct-19
Jan-20

Oct-20
Apr-15

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20
more expensive option.
Temporarily…?
Differential Propane Crack Naphtha Crack Crude (rgt scale)
October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing
11
 Feedstocks Comparisons: Propane vs Naphtha
LPG for Petrochemicals Demand in 2020
Demand (Kbbl/day)

Feedstock
Demand has dropped for LPG
as a reflection of relative
closing of competitiveness
against naphtha compared to
recent historical trends.
Range 2015- 2019 Average 2015-2019 2020
150
Propane-Naphtha Differential
100
Demand
Price ($/tonne)

50
0
LPG “energy” demand remains
-50 the key driver in pricing.
-100
-150
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Differential Propane Crack Naphtha Crack

October 9, 2020 Source: Various Gov’t data, ICIS analytics, ICIS Pricing 12
Energy Transition Effects
Refiners Are Becoming Increasingly Involved In Petrochemicals
Asia additions are overwhelming, with China dominating. A number of projects are now being delayed or
cancelled due to the uncertainty from COVID-19 and the push for the energy transition.

Refiner involvement in New Petrochemical Capacity Additions

Relative Absolute (Million T /yr.)
100% 80

90%
70
80%
60
70%
50
60%

50% 40

40%
30
30%
20
20%
10
10%

0% 0
World N. Amr. S&C Eur. FUSSR Afr. M.E. N.E.A. A. & P. N. Amr. S&C Eur. FUSSR Afr. M.E. N.E.A. A. & P.
Amr. Amr.
Non Refinery Sources C2/C3 ex NGL C2 / C3 ex Refinery PX

October 9, 2020 14
Renewables Announcements In Recent Months
Renewables offer an simpler step to stay in a traditional space, limit investment and fit into the environmental
shift. COVID-19 has helped to spur a number of refiners to make this step.

Country Company Site Project Capacity Related

US HollyFrontier Cheyenne Conversion to renewable diesel 13 kbd Closure of existing refinery
(45kbd)
US Marathon Martinez Potential conversion to renewable fuels 48 kbd Closure of existing refinery
(166kbd)
US Phillips 66 Rodeo Conversion to renewable fuels 52 kbd Closure of existing refinery
(76kbd)
US REG Geismar Expanded renewables unit 16 kbd Addition to 6kbd facility

France Total Grandpuits Conversion to renewable fuels 12 kbd Closure of existing refinery
(101kbd)
Sweden Preem Gothenburg New renewables unit 16 kbd New unit
Sweden Preem Lyskeil New renewables unit ? kbd Cancellation of refinery
upgrade
Indonesia Pertamina Cilicap New renewables unit 6 kbd Part of refinery upgrade

October 9, 2020 Pertamina

Indonesia Plaju New renewables unit 20 kbd Dedicated site 15
NGL Feedstocks Globalisation
More light NGLs from the US could also
flow to International Feedstocks Trade
US Ethane Flows, Million tonnes of Ethane
8
Ethylene Equivalent Despite over 5 MMt of rapidly materializing
domestic demand, US ethane export remained
6 stable so far, on a 2020 average.
New production streams, new export terminals
4 and ample rejection in the US should provide
Asia
ample incremental volumes
2 EU
Canada
0
2020 US average Additional Exp to Additional Exp to New US Exp
Exports Asia, Short Term Europe, Mid Term Terminal Capacity

Other
Asia

October 9, 2020 17
More light NGLs from the US could also
flow to International Feedstocks Trade
US Ethane Flows, Million tonnes of Ethane
8
Ethylene Equivalent Despite over 5 MMt of rapidly materializing
domestic demand, US ethane export remained
6 stable so far, on a 2020 average.
New production streams, new export terminals
4 and ample rejection in the US should provide
Asia
ample incremental volumes
2 EU
Canada
0
2020 US average
Exports
Additional Exp to
Asia, Short Term
Additional Exp to
Europe, Mid Term
New US Exp
Terminal Capacity LPGs
US LPG exports account for about 40% of
US LPG Exports, Million tonnes of Propane global trade, growing also in 2020, 11% to date
60
New trade opportunities for propane as
feedstock to PDH and Ethylene in Europe and
40 Asia are emerging in the mid term.
Other
The US can further capture market for its
20 Asia LPGs, but competition may grow.

0 EU
2019 US Exports Incremental 2020 US 2025 Incremental 2025 Incremental
avge exports potential imports for potential imports for
October 9, 2020 PDH Ethylene 18
Conclusions
Conclusions

• COVID-19 has impacted oil demand in the long term, contributing to increase the pace
of the energy transition. Private transportation has been most affected, whilst
petrochemical feedstocks proved more resilient.
• Refiners still consider petrochemicals as an attractive alternative to the traditional
transportation fuels, but more options are considered along the decarbonisation path.
• The incremental availability of petrochemical feedstocks from global refineries is
combined with expectations for comfortable supplies of competitively priced light
NGLs in international markets. A diversified and ample availability of hydrocarbons
should support petrochemical developments.

October 9, 2020 20
Thank You

Stefano Zehnder Michael Connolly

Vice President, Consulting Senior Consultant, Analytics
ICIS ICIS
stefano.zehnder@icis.com michael.connolly@icis.com