ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO DERIVATIVES PETROCHEMICAL SUB-SECTOR
Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include: • Market specific studies • Geopolitical analyses • Commodity reports (crude oil, electricity and natural gas) In addition, CERI hosts an annual Petrochemical Conference.
Canadian Energy Research Institute CERI receives financial support from its core funders which include Natural Resources Canada, Alberta Energy and the Canadian Association of Petroleum Producers. In addition, the institute benefits from funds provided by donors which include: • Alberta’s Industrial Heartland Association • Chemistry Industry Association of Canada • Government of Saskatchewan • Ivey Foundation • University of Calgary CERI also receives in-kind support from the following contributors : • Alberta Energy Regulator • Lithuanian Energy Institute • Advisian Worley Parsons Group • Deloitte Canada Ltd. • Petroleum Services Assoc of Canada • Atlantic Institute for Market Studies
Presentation Outline 1. Natural Gas Market 2. Petrochemical Industry 3. Methane-based Products 4. Economic and Environmental Analysis 5. Concluding Remarks
Natural Gas Supply and Demand Forecasts 25000 Canadian natural gas 20000 production forecast Export market under 15000 threat. mmcfd Industrial use, oil sands, power 10000 generation, LNG, chemicals and petrochemicals 5000 production 0 2005 2010 2015 2020 2025 2030 2035 Pipeline Exports LNG Exports Supply Demand
The Export Market Challenge
Where do we find new markets for Western Canadian Natural Gas? Petrochemicals
Global Petrochemical Outlook Source: IHS Chemical 2016
North America Petrochemical Outlook Low cost feedstock advantage leading to investments in chemicals and derivatives
Methanol Outlook Methanol demand is forecast to grow at 4% globally compound annual growth rate (CAGR) Source: Argus 2017
Petrochemicals in Canada 0%/100% 75%/25% 60%/40% 9,000 92%/8% 8,000 7,399 7,000 1,722 6,000 4,908 5,000 kt/yr 370 4,000 3,000 5,677 1,901 4,538 2,000 762 1,000 590 1,139 590 - Alberta Ontario Quebec Canada Olefins Aromatics Total
Methane as a Feedstock
Methane Derivatives Acetic Acid Formaldehyde Methyl tert-butyl ether (MTBE) Dimethyl ether (DME) Hydrogen (H 2 ) Credit potential Methylamine if sequestered? Methanol to Olefins Methanol (MTO) (MeOH) Methanol to Propylene CO 2 (MTP) Methanol to Gasoline (MTG) Methane Synthesis Gas METHYL (CH 4 ) (Syngas) METHACRYLATE (MMA) Natural Gas Ammonia Urea (N.G) Natural gas Liquified Fischer-Tropsch liquids Process Petroleum Gas (NGLs) (LPG)
Economic Assessment 1. Assessment of 9 technologies: Methanol, Hydrogen, MTP, MTO, MTG, Ammonia, Urea, Formaldehyde and Fischer Tropsch Gasoline 2. Key Assumptions 3. Life Cycle Costs (LCC): NPV of CAPEX (ISBL- inside battery limits and OSBL – Outside Battery Limits), Natural Gas costs, taxes, etc. 4. Jurisdictional competitiveness comparison: AB, ON, USGC 5. Discounted NPV and Internal Rate of Return (IRR) 6. Direct and indirect economic impacts: GDP, Employment
CO 2 Tax Assumptions ($/T CO2) Canada: 20 (2019), 30 (2020), 40 (2021), 50 (2022->) Alberta: 30 (2019), 30 (2020), 40 (2021), 50 (2022->) Ontario : Mid-range CO 2 Price Forecast (ICF Study for OEB)
Price Assumptions Derivative prices are kept constant Where available 2016 are used Natural Gas Price Assumption USGC AB ON Average 2016 Prices Henry, AECO and Dawn Natural Gas (US$/ MMBTU) 2.34 1.56 2.38 Hubs Prices
Growth Assumptions
Results: IRR for 9 Methane Derivatives Applying the new US Corporate Tax Code improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively.
Methanol NPV Jurisdictional Comparison Gone
Hydrogen NPV Jurisdictional Comparison Gone Higher Exemption limit
Methanol: Life Cycle Costs Make-up Now 12%-14%
Methanol Tax Rebates Scenarios 1: Provincial Tax Rebate Could Increase IRR by: 1.1% in AB 0.9% in ON 2: Corporate Tax Rebate Could Increase IRR by: 2.3% in AB 2% in ON
Economic Impacts GDP Alberta (GDP C$ Million) Ontario (GDP C$ Million) Product Provincial National Provincial National FTS 365.3 425.3 376.1 434.4 H2 41.9 48.8 43.2 49.9 Methanol 296.8 345.6 305.9 353.3 Employment: Person years Jurisdiction H2 MeOH FTS Provincial Canada Provincial Canada Provincial Canada Alberta 1,059 1,509 7,499 10,686 9,230 13,153 Ontario 1,908 2,287 13,520 16,200 16,623 19,918
Concluding Remarks • New capacity for ethylene, propylene and methanol followed energy and demand growth dynamics • Results show that some opportunities exists for methane derivatives sub-sector in Alberta. This is driven principally by 10-15% low feedstock prices, OPEX and corporate taxes. • CO 2 taxes based on custom approaches for trade exposed industries seems to sustain economic competitiveness against the USGC. • New natural gas feedstock demand – 0.5 bcfd • However, the new US Tax Code will likely make USGC the most competitive jurisdiction. For example, it improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively.
US Tax Code Change is Significant NPV Advantage to USGC Compared to Canadian Product Jurisdictions Due to Tax Code Change (US$ million) Ammonia 24.0 Formaldehyde 0.6 FTS 370.6 Hydrogen 1.7 Methanol 231.1 MTO 28.9 MTP 33.7 MTG 14.3 Urea 17.6
Thank You for Your Time CANADIAN ENERGY RESEARCH INSITUTE @CERI_CANADA WWW.CERI.CA UPCOMING STUDIES: Economic and Emission Impacts of Oil Sands Production Allan Fogwill | President & CEO Carbon Management Impacts on Electricity Markets 403.220.2367 Economic and Emissions Impacts of Conventional Oil and Gas afogwill@ceri.ca Production UPCOMING CONFERENCE: Petrochemical: June 10-12 2018, Kananaskis, AB
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