Impact of shale gas and shale oil plays on US aromatics production and pricing

1. Impact of shale plays on US aromatics
production and pricing
Platts US | January 10, 2013

2. Agenda
• Benzene supply constraints support higher prices
– Impacts derivatives production costs
– Positive HDA, TDP margins
• Toluene and the return of the driving season
– Refiners may opt to raise reformer run rates
• MX performing better than PX

3. Benzene: Supply cuts support higher prices
• Production of benzene (as well as other aromatics) in the US
seriously constrained by shift to lighter feed crackers and lighter crude
slate.
• Aromatics cracker output from switch to light feed in crackers down by
~55% with some suggesting that estimate is conservative.
• Prior to shale oil, refiners were using a naphtha with a 40% naphthene
and aromatics cut while that number drops to roughly 35% with
lighter crude.
• Total US aromatics lost on shale oil and light feed crackers estimated
at roughly 20%
• This is on top of refinery closures, outages seen in the face of
hurricanes Isaac and Sandy, and planned and unplanned outages.

4. Further supply constraints
• Sunoco shuttered Marcus Hook refinery in December 2011, which took
out about 19kb/day of BTX out of the market.
• HOVENSA shuttered it’s refinery in St. Croix in H2 February which had
a capacity to produce 4,500 b/d of benzene, 5,800 b/d of toluene, and
4,000 b/d of MX,
Other outages include:
• BP – Texas City, TX - No1 FCC unit restarted on Jan 6
• Phillips 66 – Borger, TX – No 2 FCC unit under maintenance Dec
19
• Valero – Corpus Christi, TX – 6 week FCC maintenance starting in
Jan
• Valero – Texas City, TX – 8 week FCC maintenance to begin in Jan

5. Benzene derivative demand
• Styrene – Higher benzene is pushing styrene values up and prices are
expected to stay strong in the near term. This has killed arb opportunities.
US was about mid 1600’s and CFR China is closest possible arb
opportunity at about 1700 as of Wednesday but nothing moving.
• Styrene producers are running at near 80-85% and if possible, they will
re-inject whatever benzene they can back into the market when possible
to try to bring down BZ costs and accordingly their production costs.
• Downstream PS demand in the US lackluster and support comes from
upstream BZ and to a lesser extent, ethylene. With PS prices high, seems
some people in PS are looking for cheaper substitutes such as PP and
PE.
• Overall consensus seems to be that if US styrene or PS demand actually
shows some serious signs of life, benzene prices could get up into the $6-
7/gal range (though I would think at $7 there would be some demand
destruction.)

6. 0.5
1.5
2.5
0
2
1
02/03/2009
02/05/2009
02/07/2009
02/09/2009
02/11/2009
02/01/2010
02/03/2010
02/05/2010
02/07/2010
02/09/2010
02/11/2010
02/01/2011
Benzene ration to Dated Brent
02/03/2011
02/05/2011
02/07/2011
02/09/2011
02/11/2011
02/01/2012
02/03/2012
02/05/2012
02/07/2012
02/09/2012
02/11/2012
02/01/2013

7. 0.5
1.5
2.5
0
1
2
02/01/2009
02/03/2009
02/05/2009
02/07/2009
02/09/2009
02/11/2009
02/01/2010
02/03/2010
02/05/2010
02/07/2010
02/09/2010
02/11/2010
02/01/2011
02/03/2011
02/05/2011
02/07/2011
02/09/2011
02/11/2011
Benzene reflects high crude-naphtha cracks
02/01/2012
02/03/2012
02/05/2012
02/07/2012
02/09/2012
02/11/2012
02/01/2013

8. Chemical demand strong for most of 2012

9. Benzene lifts HDA, TDP & MSTDP margins

10. Mixed xylenes and paraxylene
• Mixed xylene prices showed significant strength in the latter part
of 2012 and TDP were stronger than MSTDP. On November 26,
MSTDP margins fell below TDP margins.
• This would seem to suggest that mixed xylene strength is
greater than paraxylene though MX arb to Asia shut in late
November. Exports from US to Asia lower according to EIA data
and US producers would have to export more than 80kt/month
to keep volumes level.
• Higher MX prices make MX unattractive as a blendstock.
• Value in xylenes chain was seen in mixed xylenes in H2 2012
as evidenced by both exports and TDP margins and then by PX
demand to close out the year.

11. TDP margins above MSTDP

12. Toluene and the return of the driving season

13. Ratio to naphtha widening at end of 2012

14. US toluene imports most prevalent in summer
• Spring and summer are the
periods where most imports to
the US would be feasible – 90000
during the past two years. The 80000
increased profitability of
70000
imports to the US from Asia in
2012 during the summer 60000
months could have been 50000
absorbed by blenders – or fed
40000
into the chemical process.
30000
• There has only been a brief 20000
period of exports from the US
10000
during the past two years. If
chemical and blend demand 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
continue to pick up in 2013, the
US could be in a position to
absorb more foreign material.

15. US MX exports surge in Q3 - EIA
80000
70000
60000
50000
40000
30000
20000
10000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
15

16. Paraxylene and derivatives
• US domestic paraxylene demand somewhat lacking on weak
demand from downstream sectors.
• PTA demand in the US remains relatively lackluster due to soft
downstream PET demand. At the same time, prices remain high.
• Participants anticipate that PET demand will pick up in March and
April when the bottling season in the US begins.
• Though PET demand is weak, participants anticipate an uptick of
2-3 cents on the January contract as a result of higher xylene
prices.
• So where is the PX going? For non-integrated producers, exports
to Asia are not economically viable however integrated producers
still can make decent margins in the short term.
16

17. US-Asia PX spread

18. US paraxylene export stats - EIA
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct

19. Conclusions
• The primary issue facing the US BTX markets is the
reduction of aromatics output by refineries and steam
crackers.
• The ~20% decrease has bolstered pricing across the board,
often at times when derivative demand did not justify higher
values.
• With US production expected to reach close to 8 million b/d
in 2014, relevant questions might consider how much will
increased crude production in the US going forward help to
negate losses from shale?
• What will the impact of PTA and PX capacities in Asia be on
the US market in the near term. Long term this will drive US
xylene demand.

20. Thank You
Contact: kevin_allen@platts.com