Could coal be the answer to global plastics

shortages?
Ben Gonzalez
May 7, 2015

© 2014 Platts, McGraw Hill Financial. All rights reserved. 1

Outline

• The CTO/MTO process

• CTO/MTO Economics

• Current Status – Projects

• Impact on the global ethylene feedstock slate

• Impact on PE and PP fundamentals

• Conclusions

2
 Petrochemical Value Chain

Naphtha
Aromatics Polystyrene -18%
Catalytic Reformate
Reforming Benzene -38% Ethylbenzene Styrene
ABS -14%
-42% -13%
Cracker Feedstock Toluene -33%
Ethane Polymers
Associated Xylene -35% P-Xylene PTA
Pygas -36% -29%
Gases PET -23%
Propane -39%
Refining
Ethylene Oxide Ethylene Glycol
Olefins
LPG Butane -38%
Crude Oil Ethylene Polyethylenes
-5%
-46% Naphtha -42% Steam Ethylene Vinyl Chloride
Cracking Propylene -26% Dichloride Monomer HDPE -13%
-25% -18%
Gas Oil LDPE -5%
-40%
C4 Stream Butadiene -22% LLDPE -15%
CTO/MTO Methane
PVC -12%
Raffinate-1 Cumene
Methanol -1%
Coal Syngas
Polypropylene -17%
-11%
Methane
MTBE -33%
Ethane
Phenol -30%
Propane -39%
Gas Processing Acetone -35%

Natural Gas NGLs

Butane -38% Petrochemical Value Chain - Price Deltas
Natural Avg Asia Monthly Prices Current vs. June 2014
Gasoline

3
Source: Platts, Platts Analytics
 China’s Position – CTO/MTO

© 2014 Platts, McGraw Hill Financial. All rights reserved. 4

Why CTO/MTO?

• China’s shortage of ethylene and propylene

• Difficulty of importing olefins
• Demand growth for PE and PP
• Naphtha crackers too dependent on imports
• Coal price advantage
• CTO process proven successful in 2011

5
Asia PE Outlook

6
 CTO/MTO Process

© 2014 Platts, McGraw Hill Financial. All rights reserved. 7

CTO/MTO Process

• Coal gasification, syngas cleaning, methanol synthesis, olefins polymerization.

• Coal is synthesized in a gasifier to produce the synthetic gas
• Syngas is then converted into methanol
• Transformation into olefins

8
UOP/Hydro MTO Process
History
• In the 1990’s UOP and Norsk Hydro developed the MTO
technology and was integrated with the Total/UOP olefin
cracking process for the basis for advanced MTO. 1990s

• In 2009, TOTAL constructed the first fully integrated MTO

demo plant in Belgium.
2009
• In 2011, Wison (Nanjing) Clean Energy Corp announced
that they would use the UOP MTO process to produce
ethylene and propylene, started up in 2013 2011
Process
• Methanol feed is preheated and introduced into the
reactor. The catalyst (proprietary) is circulated to the
fluidized bed regenerator.
• Reactor effluent is quenched to separate water from the
2013
gas stream.
• Gas is compressed
• Effluent is processed in fractionator and purifier removing
contaminants and separating olefins (ethylene and
propylene) from byproducts (C4 and C6).

9
DMTO Process
History
• The DMTO technology was developed by the Dalian
Institute of Chemical Physics (DICP), Chinese Academy of
Science (CAS) in 1991. 1991
• In 2006, DICP, Lyoyang Petrochemical Engineering
Company of Sinopec, and Shaanxi Xinxing Coal Chemical
Industry constructed a 16.7 k mt demo plant. 2006
• In 2009, an agreement was signed between CAS and
LUMMUS to allow LUMMUS to act as the exclusive agency 2010
of DMTO marketing and licensing.
• DMTO-II, based on DMTO technology, was developed by
Shaanxi Coal (SCCTEC) joinlty with Sinopec Lyoyang.
Testing was completed in 2009.
• In 2010, the Shenhua Baotou plant successfully started up 2014
its DMTO plant.
• In 2014, the first DMTO II plant was started by Pucheng
Clean Energy.
Process
• Involves two reactions of methanol conversion and the
reconversion of by products, both using the same
catalysts. 10
Sinopec SMTO Process

History
• Sinopec S-MTO was developed by Sinopec and Beijing Yanshan Petrochemical
• In October 2011, a plant using the S-MTO process was set up in the 600k mt/year
Sinopec Zhongyan plant
Process
• Methanol feed is preheated and introduced into the reactor. The catalyst (proprietary),
based on SAPO-34, is circulated to the fluidized bed regenerator.
• Reactor effluent is quenched to separate water from the gas stream.
• Gas is compressed
• Effluent is processed in fractionator and purifier removing contaminants and separating
olefins (ethylene and propylene) from byproducts (C4 and C6).
• Converts methanol to ethylene and propylene at above 80% carbon selectivity

11
CTO v MTO

• CTO
– High return on investment
– Larger projects result in more jobs
– CO2 and water resource challenges
• MTO
– Provides private entry into olefins market
– Viable at smaller capacities
– C02 implications relatively small
– Exposure to merchant methanol pricing

12
Reasons For China MTO/CTO Investment

• Movement away from oil feedstock

– Oil imports account for about 60% of China’s demand
• Coal mining diversification as traditional downstream
coal demand levels off
– More than 70 per cent of China's miners are losing money
(China Coal Industry Association)
• Power generators looking for non-regulated
investments with higher margins
• Job creation in poor regions

13
 CTO/MTO Challenges

© 2014 Platts, McGraw Hill Financial. All rights reserved. 14

 Water Issues

- Theoretical consumption:
15-20t water/ton of
ethylene (4x that of
traditional refinery routes)
- Actual consumption in
Shenhua Baotou CTO: 31t
water/ton of ethylene
- Most coal rich regions are
water scarce
- Must consider the
availability and cost of
water

Source: MEDIUM-TERM COAL MARKET REPORT 2013, IEA

Source: MEDIUM-TERM COAL MARKET REPORT 2013, IEA

 Far from Markets

China Methanol Production and

Consumption by Region
50%
Production
45%
40% Consumption
35%
30%
25%
20%
15%
10%
5%
0%

Source: World Energy Council- Survey of Energy Resources

16
CO2 Price Could Hit CTO Margins
(Ethylene Output Only)

Source: Platts 17
Challenges to CTO/MTO
Challenges
•High Capital Costs
•Consumes ~40 mt of fresh
water to produce 1 mt of olefins
•Water depleted in production
regions
•Near coal mines away from
coast
•MTO projects relies on imports
Benefits
• Lower Feedstock (Coal) Prices
• Lower cash cost for producing
1 mt of ethylene
• Higher return on investment
• Abundant feedstock for CTO
projects
18
 CTO/MTO Economics

© 2014 Platts, McGraw Hill Financial. All rights reserved. 19

CTO/MTO Cost Structure

20
 Coal vs. naphtha: A comparison

Inner Mongolia Self-owned mine Apr-15 Jun-14 Eastern China naphtha cracker Apr-15 Jun-14

Feedstock Cost Naphtha Feedstock Cost

Coal Price ( ex-plant) $ 40.71 $ 45.60 Naphtha price (ex-plant) $ 574.88 $ 991.63
Coal Consumption per/ton MeOH 1.4 1.4 Naphtha consumption per ton olefins 2 2
Methanol Consumption per/ton olefins 3 3
Total Feedstock Cost per ton olefins $ 170.97 $191.50 Feedstock cost per ton olefins $1,149.76 $1,983.26
Co-Products Co-Products
Total co-product credits $ 111.55 $162.95 Total co-product credits $ 644.28 $ 872.67
Electricity Electricity
Total electricity cost per ton olefins 109.2 109.2 Total electricity cost per ton olefins $ 22.15 $ 22.15
Depreciation and Labor Depreciation and Labor
Total depreciation and Labor $ 96.00 $ 96.00 Total depreciation and Labor $ 54.40 $ 54.40
Water cost Water Cost
Total water cost $ 33.60 $ 33.60 Total water cost $ 4.99 $ 4.99
Effluent treatment cost Effluent treatment cost
per ton olefins $ 18.24 $ 18.24 per ton olefins $ 2.50 $ 2.50
Others Others
others $ 132.80 $132.80 others $ 159.36 $ 159.36
Transportation cost for olefins product Transportation cost for olefins product
Transportation cost per ton olefins $ 91.20 $ 91.20 Transportation cost per ton olefins 0 0
Total production cost per ton olefins $ 540.45 $509.59 Total production cost per ton olefins $ 748.88 $1,353.99

21
Cost Curve
$/MT

Based on Average April Price

22
Thousand MT/Year Olefin Ethylene Capacity
Olefin Production Margins

23
Global Ethylene Prices

24
Source: Platts
 Current Status

© 2014 Platts, McGraw Hill Financial. All rights reserved. 25

What Currently Exists in China?
Non-Refinery base Non-Refinery base
Olefin Capacity - 2014 Olefin Capacity - 2015

Ethylene MT Ethylene MT
Cracker 19,061,000 Cracker 20,061,000
CTO/MTO 3,250,000 CTO/MTO 5,601,000
22,311,000 25,662,000

Propylene Propylene
Cracker 9,066,453 Cracker 9,066,453
PDH 1,500,000 PDH 3,350,000
CTO/MTO 3,135,000 CTO/MTO 5,745,000
13,701,453 18,161,453

Total Olefin 36,012,453 Total Olefin 43,823,453

26
 Future Projects and Outlook

© 2014 Platts, McGraw Hill Financial. All rights reserved. 27

CTO/MTO Projects

• In our forecast we are tracking around 32 CTO/MTO projects scheduled to

come on stream by 2020
• Most starting up in 2014, 2015, and 2016
• The bulk of the CTO/MTO ethylene projects are expected online by 2018
• ~34% of future production of ethylene is at risk
28
What Could Happen?

Source: Platts 29
30
31
 Impact of Ethylene Production and Feedstock

© 2014 Platts, McGraw Hill Financial. All rights reserved. 32

Asia Ethylene Production

33
China Ethylene Production

34
China’s Feedstock Landscape Will Change
If Projects Come To Fruition
Chinese Ethylene Capacity
Ethylene Produced from - 2014
Additions by Feedstock

Ethylene produced from - 2024

12.3 million mt of propylene

18 million + mt of ethylene

Source: Platts 35
Future Capacity Additions

36
Impact on Feedstock Globally

37
 Impact On The PE and PP Market

© 2014 Platts, McGraw Hill Financial. All rights reserved. 38

Global PE Picture

39
North America

• We expect demand for PE in North

America to reach 16.2 million mt in
2015.
• We expect production to reach ~19
million mt, resulting in a surplus of 2.8
million mt.
• The largest surpluses will reside in
HDPE and LLDPE
• The major destination will be South
America, followed by Asia and then
Western Europe
• Largest PE Plants • Trade Partners
– CP Chemical Pasadena, Texas, US – – South America
990 k MT/Yr HDPE • Brazil
• Colombia
– LyondellBasell La Porte, Texas, US – • Peru
555 k MT/Yr LDPE • Chile
– Dow Fort Saskatchewan, Alberta, – Asia
• China
Canada – 880 k MT/Yr LLDPE • Singapore
40
New Capacity

Total 7,915
HDPE 3,312
LDPE 1,420
LLDPE 3,183

41
Europe
• We expect demand for PE in Europe to reach
16.7 million mt in 2015.
• We expect production to reach ~15.2 million
mt, resulting in a deficit of 1.5 million mt.
• LLDPE to show the strongest growth in
Western Europe
• LDPE will switch to a deficit market in the
medium term
• Western Europe will be the driver to the PE
deficit in Europe
• HDPE and LLDPE will remain in a deficit
market
• The major capacity additions will be in Russia
• Largest PE Plants • Trade Partners
– LyondellBasell Wesseling, Germany 770 – Middle East
• Saudi Arabia
MT/Yr HDPE • Qatar
– SABIC Geleen, Netherlands – 480 k • Iran
MT/Yr LDPE – Americas
• US
– Dow Terneuzen, Netherlands – 655 k • Brazil
MT/Yr LLDPE 42
New Capacity

Total 5,760
HDPE 3,205
LDPE 800
LLDPE 1,755

43
Middle East

• We expect demand for PE in the Middle East

to reach 5.7 million mt in 2015.
• We expect production to reach ~15.9 million
mt, resulting in a surplus of 10.1 million mt.
• Major capacity additions will be in Iran, Oman
and Saudi Arabia
• The region’s surplus to remain above 10
million mt post 2014
• The largest surpluses will reside in LLDPE
• The main export markets will be Asia, Europe,
and Africa
• Largest PE Plants
– Yanpet Yanbu, Saudi Arabia 535 kMT/Yr
HDPE • Trade Partners
– Qapco Mesaieed, Qatar – 700 k MT/Yr – Asia
LDPE • China
• India
– Sharq Eastern Petrochemical Al Jubail, – Western Europe
Saudi Arabia – 1,150 k MT/Yr LLDPE • Turkey
• Italy
• Belgium
• Spain 44
New Capacity

Total 9,830
HDPE 3,820
LDPE 2,520
LLDPE 2,540

45
Asia
• We expect demand for PE in Asia to reach
40.7 million mt in 2015.
• We expect production to reach ~34.6
million mt, resulting in a surplus of 6.1
million mt.
• Asia is expected to be in growing deficit
driven by China and India, the majority by
China
• The majority of capacity additions will be
via coal in China, capping deficits in the
short to medium term
• The Middle East will remain the dominant
supplier to Asia, especially China
• Largest PE Plants • Trade Partners
– Thai Polyethylene SCG, Map Ta Phut, – Middle East
Thailand 1,280 (980 + 300) k MT/Yr HDPE • Saudi Arabia
• Iran
– BASF-YPC Nanjing, China
• Qatar
– Sinopec Beijing Yanshan PC, Beijing, • UAE
China – 400 k MT/Yr LDPE – North America
– ExxonMobil Jurong Island, Singapore – • US
1,900 (600+650+650) k MT/Yr LLDPE 46
 China

• Production expected to be 15 million mt

• Demand expected to be 22 million mt,
resulting in a deficit of ~7 million mt.
• Largest PE Plants
– PetroChina Fushun PC 350k MT/Yr HDPE
– SINOPEC Maoming PC 350k MT/Yr HDPE
– BASF-YPC – 400 k MT/Yr LDPE
– SINOPEC Beijing Yanshan PC– 400 k MT/Yr
LDPE
– PetroChina Daqing PC – 625k MT/Yr LLDPE

• Trade Partners
– Middle East
• Iran
• Saudi Arabia
• UAE
• Qatar
– Asia
• South Korea
• Thailand
• Malaysia
• Japan
– North America
• US
47
New Capacity

48
New Capacity

CTO/MTO
Total 15,322 4,945
HDPE 5,330 2,075
LDPE 2,712 180
LLDPE 7,280 2,690

49
Global PP Picture

50
North America PP

• Production expected to be 7.9 million

mt
• Demand expected to be 7.6 million mt,
resulting in a small surplus.
• Rextac Odessa PP plant scheduled to
come online in 2017 is expected to be
the only new plant in NA
• US largest producer with capacity of 8
million mt/year.
• Largest PP plant
– ExxonMobil Baytown, Texas, United
States – 800k mt/year
– Braskem Sao Paulo, Brazil – 800k • Trade Partners
mt/year – Asia
• China

51
Europe PP

• Production is expected to be 10.5

million mt
• Demand is expected to be 10.4 million
mt, resulting in a small surplus.
• Eastern Europe will account for all of
the new PP capacity.
• Germany is the largest producer with a
capacity of 2 million mt/year.
• Largest PP plant
– Total Feluy, Belgium – 910k mt/year

• Trade Partners
– Middle East
• Saudi Arabia
– Asia
• India
• S. Korea

52
New Capacity

Total 1,900

53
Middle East PP

• Production is expected to be 8.2

million mt
• Demand is expected to be 3.8 million
mt, resulting in a massive surplus of
roughly 4.4 million mt
• The majority of PP will go to Asia
• Oman, Qatar, Saudi Arabia and Iran
will see PP investments
• The laregest producer in the region is
Saudi Arabia with roughly 5.3 million
mt/year
• Largest PP plant
– Ibn Zahr Al Jubail, Saudi Arabia – • Trade Partners
1,220k mt/year – Asia
• China
– Western Europe
• Turkey
• Italy
• Belgium

54
New Capacity

Total 2,025

55
Asia PP
• Production expected to be 31.6 million
mt
• Demand expected to be 34.4 million
mt, resulting in a deficit of roughly 2.8
million mt
• China accounts for most of the new PP
projects followed by India and
Indonesia
• China accounts for more than half of
Asia PP demand
• South East Asian countries will
experience higher demand increases.
• The largest producer in the region is • Trade Partners
China with a capacity of 18.6 million – Middle East
• Saudi Arabia
mt/year • UAE
Oman
• Largest PP plant •
• Kuwait
– ExxonMobil Pulau Ayer Chawan, Jurong – North America
Island– 885k MT/Year • US
56
China PP
• Production expected to be 15.8 million
mt
• Demand expected to be 20.2 million
mt, resulting in a deficit of roughly 4.4
million mt
• Largest PP plant
– Shenhua Group Ningdong, Ninxia–
1,000k MT/Year
• Trade Partners
– Asia
• South Korea
• Singapore
• India
• Thailand
• Japan
– Middle East
• Saudi Arabia
• UAE
• Oman
• Qatar

57
New Capacity

Total 17,940

58
Conclusions
• The economics show the feasibility of building
CTO/MTO projects

• We are currently tracking 32 CTO/MTO plants,

9.9 million mt of ethylene and 9.8 million mt of
propylene.

• All of these should be operating by 2018.

• Coal will account for the highest growth of

ethylene production on a percentage basis.

• For Polyolefins, the Middle East and the US are

the world suppliers. The global demand centers
are in Asia, Europe, and South America.
59
Source: Platts, EIA
Global Polyolefins Report (GPO)

60
 Thanks!
Ben.Gonzalez@platts.com

© 2014 Platts, McGraw Hill Financial. All rights reserved. 61