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%
25%

12

20%

10
15%
8
10%

5%

0%

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

PET

Fiber

Fiber Rate

PET Rate

Growth Rates

Million Tonnes

14

Global EO Demand by End Use: 2001-17

35

Million Tonnes

30
25
20
15
10
5
0
2001

2003

Total Glycols
Polyols

2005

2007

Ethanolamines
PEGs

2009

2011

2013

Ethoxylates
Other/Inventory

2015
Glycol Ethers

2017

New EO
1.6
1.4

Million Tonnes

1.2
1.0
0.8
0.6
0.4
0.2
0.0
2012
China

2013
2014
North America

2015
2016
Middle East/Africa

2017
Other Asia

New MEG
2.0
1.8

Million Tonnes

1.6

1.4
1.2
1.0
0.8
0.6
0.4
0.2

0.0
2012
China

2013
2014
North America

2015
2016
Middle East/Africa

2017
Other Asia

World MEG Capacity vs Demand Increase

5
The missing years

Million Tonnes

-1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Capacity Increase

Demand Increase

MEG Demand by Region

25

Million Tonnes

20

15

10

0
2011
North America

2012

2013

South America

2014
Europe

2015

2016

Middle East/Africa

2017
Asia

MEG Production by Region

18
16

Million Tonnes

14
12
10
8
6
4
2
0
2011

2012

North America

2013

South America

2014
Europe

2015

2016

Middle East/Africa

2017
Asia

Surpluses and Deficits of MEG

10
8
6

Million Tonnes

4
2

0
-2
-4
-6
-8

-10
2011
NAFTA

2012

2013

Latin America

2014
Europe

2015
MEA

2016
China

2017
Other Asia

MEG Production (Thousand Tonnes)

Country

2012

2013

2014

2015

2016

2017

12vs 13

Saudi Arabia
China
Taiwan
USA
Canada
Kuwait
Korea
India
Singapore
Iran
Japan
Belgium
Russia
Thailand
Malaysia
Mexico
Germany
Indonesia
Brazil

6,250
2,976
1,941
1,648
1,463
1,061
1,181
1,080
800
763
646
532
359
350
366
252
190
234
182

6,232
4,607
2,073
1,562
1,517
1,221
1,146
1,082
777
757
690
499
352
341
320
251
229
219
125

5,994
5,864
2,428
1,753
1,533
1,168
1,135
1,111
747
747
664
527
440
340
346
240
281
219
111

6,452
6,799
2,402
1,749
1,528
1,168
1,245
1,250
723
776
631
500
441
340
342
250
217
218
95

6,486
8,306
2,253
2,108
1,520
1,168
1,166
1,717
687
772
625
389
446
339
345
242
134
184
155

6,466
8,328
1,789
3,080
1,503
1,168
1,131
1,706
670
731
497
405
1,075
334
342
235
169
156
457

-19
1,631
132
-86
54
161
-35
1
-23
-7
43
-33
-6
-9
-46
-1
39
-15
-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

Million Tonnes

World MEG Balance

45

90%

40

89%

35

88%
87%

30

86%

25

85%
20

84%

15

83%

10

82%

81%

80%
2011 2012 2013 2014 2015 2016 2017

MEG Capacity

MEG Production

MEG Consumption

EO Utilisation Rate

MEG consumption

expected to rebound
following poor 2012.

Supply just barely keeps

pace with demand but the

DMO is now critical.

Middle East not until 2017

or later.

EO utilization rates have

to hit near max every year

through 2015.

Next wave of surplus

projected for 2016 with

maximum surplus 201718.

U.S. and China lead the

way

China MEG Production Surges Ahead

16

1.4

14

1.2
1.0

10
0.8
8

0.6
6
0.4

4
2

0.2

0.0
2011

2012

2013

Inventory (RHS)

2014
Production

2015

2016
Imports

2017
Demand

Million Tonnes

Million Tonnes

12

MEG Sourcing based on Raw Materials

40,000
More DMO plants or MTO
plants would put pressure
on the producers: but not
advantaged feedstocks.

35,000

000 Tonnes

30,000
25,000
20,000
15,000
10,000
5,000
0
2011
Advantaged

2012
Napthta

2013
Ethanol

2014
MTO

2015
DMO Others

2016

China DMO production Possible Outcome

2013

2014

2015

2016

2017

1,232.8

1,932.8

2,990.0

3,198.2

3,190.0

453.4

923.0

1,595.0

1,806.0

1,806.0

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

Capacity
Base Case Production

Base Case Rate

China DMO MEG impact on China inventory if it works

at 80% vs 50% base case
2,800

000 Tonnes

2,300

1,800

1,300

800

300
2011

2012
inv

2013

2014
demand

2015

2016

2017

adj inv with DMO at 80%

What About The Sleeper Projects?

7

Million Tonnes

6
5
4
3
2
1

0
2015

2016

2017

The Nightmare! China does to MEG what they did to

polyester and PTA
40

25

23

35

Million Tonnes

30
25

20

15
12

15

10

10

10
5

5
5

2013

2014

2015

cum world demand

2016

2017

cum world supply

2018

2019

2020

# of new China MEG

# new China plants

20

Comparative Cash Cost Economics:

Integrated EO from Cash Cost C2
1,600
1,400

$/tonne

1,200

Brent at $120
Naphtha - Asia & Europe

Green EO in India and Taiwan from

ethanol near $1650/tonne cash cost

1,000

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

$/Tonne

1,000
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

Million Tonnes

2.5

1,400

1.35 MMT demand

increase in 2013

1,200
1,000

2.0

800
1.5

600
1.0

400

0.5

200

0.0

0
2009

2010
2011
Projected Inventory
China MEG Inv

2012

2013
MEG demand
Asia Spot Price

$/Tonne

3.0

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

000 Tonnes

3,500
3,000

2,500
2,000
1,500
1,000
500
0

2008

2009

USA

2010

2011

Mexico

2012
Brazil

2013

2014

2015

Argentina

2016

2017

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

Billion Pounds

30
25

20
15
10
5
0

2013

2017
Ethylene

2020
C2 for EO

US MEG Balance

2.0

92% MEG turnarounds are significant

in 2013, especially first half of
the year.
91%
Imports may increase from
Canada as some Saudi Arabia
90%
imports appear to be redirecting
to South America.
89% EO for EODs continues to grow,
taking EO from MEG.

1.5

88% Ineos still planning new 750,000

tonnes plant by Q3 2016.

1.0

87% Shell Northeast, maybe 2020.

0.5

86%

0.0

85% Mitsubishi Corp MEG, in

Trinidad.

4.0
3.5

Million Tonnes

3.0

2.5

2011 2012 2013 2014 2015 2016 2017

MEG Capacity

MEG Production

MEG Consumption

EO Utilisation Rate

At least three other real

prospects for new MEG plants in

US by 2017.

Shell and Huntsman add crude

EO capacity in 2014-15 to use
existing MEG capacity.

U.S. MEG Production vs Demand

3.5

MEGlobal

3.0
Huntsman

Million Tonnes

2.5

Shell

Ineos

2.0

1.5
1.0
0.5
0.0
2011

2012
2013
Production

2014

2015
2016
Demand

2017

U.S. Crude EO Production

5.0
Ineos

4.5

Sasol
MEGlobal

Shell
Huntsman

4.0
Million Tonnes

3.5
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
000 Tonnes

700
600
500
400
300
200

100
0
2012

2013
Demand

2014

2015

2016

Effective Capacity

2017

1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

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

700

600

500

400

300

200

100

-100

MEG
EO

Regional PEO pricing vs PEO value as MEG

West Europe

United States

Far East (China)

mar-13

ene-13

nov-12

sep-12

jul-12

may-12

mar-12

ene-12

nov-11

sep-11

jul-11

may-11

mar-11

2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
ene-11

$/Tonne

Ethylene Oxide Prices (incl Freight) 2011-2013

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.