SLIDE 1
Sebastian Rodrigano
Principal Popp Hutcheson PLLC Austin, TX
U.S. Shale Oil and Gas
Resurgence of U.S. Chemical Industry
SLIDE 2 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
SLIDE 3
Chemical Industry and U.S. Manufacturing
SLIDE 4
What do these have in common?
SLIDE 5
SLIDE 6 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
SLIDE 7 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
SLIDE 8
Recent History
Slides from November 2008 IPT Presentation
SLIDE 9
(2008) Global Energy Outlook
Natural Gas
SLIDE 10 22.3 23.4 25.9 26.9 27 26.9 5 10 15 20 25 30
NATURAL GAS (TCF)
2003 2010 2015 2020 2025 2030
US Natural Gas Demand
SLIDE 11 1 2 3 4 5 6 7 8 China 2003 India China 2015 India China 2030 India Production Imports
SLIDE 12 1 2 3 4 5 6 7 8
Natural Gas (TCF)
China 2003 India China 2015 India China 2030 India
China and India Gas Demand
Production Imports
SLIDE 13 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
Natural Gas (TCF)
2003 2010 2015 2020 2025 2030
LNG Supply Regions Gas Demand
AFRICA MIDDLE EAST CENTRAL - SOUTH AMERICA
SLIDE 14
(2008) Current Industrial Growth Trends
SLIDE 15 2008 Industrial Investment
10 20 30 40 50 60 70 80
Middle America South America Europe Africa Asia Oceania USA Chemical Processing Oil Refining Metals and Minerals
SLIDE 16 $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.00 Investment ($B) North America Central America South America Europe Africa Asia Oceania
2001-2005 Industrial Projects by Region
SLIDE 17
Recent History
Slides from November 2009 IPT Presentation
SLIDE 18 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
SLIDE 19 Chemical Industry
- Inventory destocking in 4th 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
SLIDE 20 Ethylene History and Outlook
Source: Citi Investment Research
SLIDE 21 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
SLIDE 22
SLIDE 23
Shale Formation Oil and Gas Production
SLIDE 24
SLIDE 25
SLIDE 26
Natural Gas Prices
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SLIDE 30
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SLIDE 32
Resurgence of Petrochemical Industry
SLIDE 33
Petrochemical Cost Curve
SLIDE 34 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
SLIDE 35
Ethane Based Ethylene Advantage
SLIDE 36 U.S. Ethylene Capacity Boom
Facility Capacity (MM lbs/Year) Start-Up Westlake Chemical – Lake Charles, LA - Expansion 239 2012 Dow Chemical – St. Charles, LA - Restart 860 2012 Ineos Olefins & Polymers – Chocolate Bayou, TX - Debottleneck 255 2013 Westlake Chemical – Lake Charles, LA - Expansion 250 2014 LyondellBasell – La Porte, TX - Expansion 850 2014 Shell Chemical – US Northeast - New Cracker 3,000 2016
SLIDE 37 U.S. Ethylene Capacity Boom
Facility Capacity (MM lbs/Year) Start-Up ChevronPhillips Chemical – Cedar Bayou, TX - New Cracker 3,000 2017 Dow Chemical –USGC - New Cracker 3,000 2017 Sasol – Lake Charles, LA - New Cracker 2,500 2017+ LyondellBasell – Channelview, TX - Expansion N/A 2017+ SABIC – USGC - New Cracker 3,000 2017+ Braskem – USGC - New Cracker 3,000 2017+ Formosa Plastics - Point Comfort, TX - New Cracker 3,000 2017+
SLIDE 38
Global Ethylene Supply & Demand
SLIDE 39 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
SLIDE 40 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
