Is Liquids Cracking the Future of Gulf Coast
Petrochemicals?
Fran Keeth
Executive Vice President
Shell Chemicals Limited
Petrochemical feedstock: oil and gas
Gas Cracking
Raw
Natural
Gas
Separation of
natural gas and
natural gas
liquids (NGLs)
power, heat
Ethane,
Propane,
Butane
‘Gas’
Cracker
Ethylene
USGC Ethylene Production
• 70% from Gas
• 30% from Liquids
Liquids Cracking
Crude
Oil
Refinery
distillation
Naphtha,
Gas Oil
Liquids
Cracker
Ethylene
Co-products (Propylene,
transportation
fuels, heat, power
C4s, Gasoline, Aromatics)
2
Ethylene manufacture
45
40
35
From Liquids
Fixed Cost
40
Energy
35
30
25
20
15
10
5
0
45
Feedstock
• Liquids
Co-Product
Credits:
• Propylene
• C4s
• Gasoline
• Aromatics
From Gas (NGL)
30
25
20
15
Energy
Net
Ethylene
Cost
Co-Product
Credits
Fixed Cost
10
5
Feedstock
• Gas (NGL)
Net
Ethylene
Cost
0
3
Natural Gas to Crude Oil Ratio
Natural gas / crude oil
1.20
1.00
1990 – 1997 Average = 0.60
0.80
0.60
1998 – 2004 Average = 0.88
0.40
0.20
@ 6 MMBtu/bbl
0.00
1990
1992
1994
1996
1998
2000
2002
2004
4
Historical ethane vs. naphtha
cracking margins for generic USGC crackers
Source: CMAI
5
Global ethylene production costs
•Middle East lowest
cash cost
•Ethane availability
enables Middle East
supply growth
•Middle East 9% of
world ethylene
today 14% by
2010
Source: CMAI
6
Shifting trade flows in polyethylene
1996
Source: historical data - Parpinelli TECNON; Shell forecasts
2001 2010
-1.0
-1.0
-8.3
-1.3
-1.1
-0.9
1.8
-1.1
-2.0
-1.0
1.0
2.5
-0.9
-0.4
1.9
1.8
0.3
9.9
Net trade in polyethylene 1996 – 2010 (mln t/a )
export
import
7
Co-Product Price Composite Index
USGC Generic Naphtha Cracker
Percent
140
Basket of naphtha cracker co-product values,
normalized by crude price and indexed to longterm average, includes propylene, C4s,
pyrolysis gasoline components
120
Increasing in 2004
100
80
1985 – 2003 Average = 100%
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
60
8
Higher Values for “non-C2”
On-Purpose Propylene Growth
Source: CMAI
9
US Ethylene Market
Expected demand growth met by
capacity creep/de-bottlenecks
Source: CMAI
10
USGC Refining Picture - Current
• No new grass roots US refineries in last 30 years
• US fuels demand greater than domestic supply
• Global demand and limited supply growth =>
favorable margins in recent years
• Clean fuels regulations
- less sulfur
- less aromatics (Bz)
- lower vapor pressure & MTBE
• Invested/investing in hydrotreating & coking
11
Western Hemisphere Crude Shifts
Heavy/Sour Discounts Growing
Maya Discount from WTI ($/bbl)
25
20
15
10
5
0
Jan-99
Source: Simmons & Co., Platts
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
12
USGC Refining Picture – Future?
• Refinery additions - chemicals feed?
- Gasoline future: FCC, coking, benzene extraction
- Distillate future: Hydrocracking & coking
- Steam cracking as ‘conversion capacity’
- Only integrated refining/chemical companies
likely to play
13
Relative Competitiveness of USGC
Cracking – Gas vs. Liquids
High
Liquids >> Gas
Future?
Natural Gas/
Oil Ratio
Past
X
X
Liquids << Gas
Low
Co-product Values
Weak
Strong
14
Conclusions
• Liquids cracking competitiveness improves
• Demand does not warrant new crackers (liquid or gas)
• New liquids feedstock opportunities may be created
• Revitalization of USGC petrochemicals based on
liquids feeds unlikely
We need to make the most of what we have
15
16