Outlook for Petrochemical Spending Trey Hamblet VP of Research – Chemical Processing March 31st, 2016 Presented by Project Analysis Underlying Methodology IIR Market Intelligence Core Service Offering Our global research teams identify and monitor project spending activity throughout the life cycle of an industrial asset. All our data is sourced and validated directly from Plant Owners, Contractors and Equipment Vendors. $ Our online data service helps our end-users stay connected to the right people and right opportunities. $ Maintenance, Repairs & Overhaul Spending ($1mn and above) $ $ $ $ Annual MRO activity $ $ Outages/ Turnarounds Total Investment Value Project Status (Planning, Engineering, Under Construction) Project Milestones (AFE, RFQ, Bid Doc, KO, Completion) Project Scope & Key Equipment Needs Key Personnel Contacts – Plant Owners, Plant Operators & Contractors Probability Factors (likely versus unlikely) © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Outlook for Petrochemical Spending Agenda • Natural gas and NGL demand outlook • Midstream investments • Major chemical industry spending outlook • Labor market outlook © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Natural Gas Midstream US Natural Gas Cumulative Demand Growth 2015-2020 US Natural Gas Cumulative Demand Growth 2015-2020 Gas Demand 18 Natural Gas Supply Growth 25% 2015-2020 16 Demand Drivers 14 LNG exports – 9+ Bcf/d Under Construction Coal displacement – Coal-to-Gas Switching Gas power generation – New Construction Gas-on-gas competition – Pushing out imports Pipeline exports to Mexico New industrial demand (Ammonia and Methanol) 12 10 BCF/d 8 6 $73 Billion Advanced Stage Industrial Projects scheduled for startup in Gulf Coast States between now and late 2017. 4 2 NGL Demand 0 2015 2016 Power Gen 2017 2018 Industrial 2019 LNG Exports Total US Gas Production BCF/d 2010 2015 2020 61 72 89 2020 US Supply Growth 40+% 2015-2020 US is now the Largest Exporter of Propane in the World US Ethane Crackers 495,000 BBL/d by 2018 US Propane Dehydrogenation(PDH )198,000 BB/d by 2018 © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Oil & Gas – Midstream US/Canada Oil & Gas Midstream Buildout Midstream Projects $60.00 1,500 1,300 $50.00 1,100 $40.00 900 $30.00 700 500 $20.00 300 $10.00 100 $0.00 -100 Oil & Gas Pipelines TIV Gas Processing TIV LNG TIV Total Project Count Terminals TIV © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical Industry Expectations of continued low-cost feedstock Natural Gas (Henry Hub Spot) • Natural gas input costs remain cheap • Supports general CPI growth $5 $/mmBtu $4 $3 $2 Historical Oil to N/G ratio $1 Q1 Q2 Q3 Q4 Q1 2014 Q2 Q3 Q4 Dec 2012 27:1 Dec 2013 23:1 Dec 2014 17:1 Dec 2015 16:1 2015 Source: NYMEX Natural Gas Liquids (NGL’s) 0.8 0.7 • Ethane remains flat • Supports ethylene and propylene investments $/gal 0.6 0.5 0.4 0.3 0.2 0.1 0 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Ethane Propane Butane Source: Petrochem Wire © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical Industry Beneficiaries of Cheap Natural Gas ($127 Billion) Ethylene $47.2 bn 42.9B Lbs/yr Natural Gas Continued expectation of low n/g prices Ammonia $20.1 bn 16.4M metric T/yr Methanol $25.3 bn 35.2M metric T/yr Adipic acid $47 Methyl Methacrylate (MMA) $753 Adiponitrile $42 Nitric acid $352 Alcohols, alpha $41 Phenol Ammonium nitrate $664 Polyethylene Terephthalate Butadiene $638 Polyethylene Butanol, n- $0 Polypropylene Caprolactam $27 Polystyrene Cumene $12 Polyvinyl alcohol Ethylbenzene $0 Polyvinyl Chloride Ethylene oxide $3,000 Propylene Formaldehyde $52 Styrene $47 $507 $7,900 $803 $37 $214 $526 $10,076 $135 Formic acid $0 Urea Glycerine $5 Vinyl acetate $133 $111 Vinyl Chloride $297 Maleic anhydride © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 $8,000 U.S. & Canada Chemical CPI Projects byIndustry Sector (USA & Canada) Methanol capacity and spending outlook Approved Capacity 45 Proposed Capacity 40 Million metric T/yr 35 5.6M metric T/yr $8.3 billion 30 25 29.6M metric T/yr $17 billion 20 15 Approved Proposed Project Completions New Capacity 10 5 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 4Q21 Demand Drivers • Chemical synthesis • Methanol-to-Olefins – China • Transportation fuels – Asia & Europe • Gasoline blending • Biodiesel • Potential in marine industry as fuel © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical CPI Projects byIndustry Sector (USA & Canada) Methanol capacity projects Status TIV $’s M Const $2,200 Const $350 Eng $5,000 Eng $750 Project Name Project Type Capacity T/yr BEAUMONT METHANOL UNIT ADDITION Addition 1,750,000 TX GEISMAR METHANOL UNIT (GEISMAR 2 ) ADDITION Addition 1,000,000 LA LAKE CHARLES WESTLAKE G/R PET-COKE TO METHANOL Grassroot 1,000,000 LA SAINT JAMES GRASSROOT METHANOL PLANT PHASE 1 Grassroot 1,900,000 LA State Planning $2,400 TACOMA GRASSROOT METHANOL PLANT Grassroot 3,650,000 WA Planning $1,500 PORT ARTHUR METHANOL UNIT ADDITION Addition 1,800,000 TX Planning $1,500 BELLE METHANOL UNIT ADDITION Addition 1,000,000 WV Planning $1,300 SAINT JAMES G/R SOUTH LOUISIANA METHANOL PLT Grassroot 1,825,000 LA Planning $1,000 TACOMA METHANOL PLANT LINES NO 3 & 4 ADDITION Addition 3,650,000 WA Planning Planning $1,000 $1,000 KALAMA GRASSROOT METHANOL PLANT CLATSKANIE PORT WESTWARD G/R METHANOL PLT Grassroot Grassroot 1,825,000 1,825,000 WA OR Planning $800 KALAMA METHANOL UNIT NO 2 ADDITION Addition 1,825,000 WA Planning $800 CLATSKANIE PORT WESTWARD UNIT NO. 2 ADDITION Addition 1,825,000 OR Planning $800 BISHOP METHANOL UNIT ADDITION Addition 1,300,000 TX Planning $800 FREEPORT OPUS MMTP PROJECT - PART 1 Addition 1,000,000 TX Planning $750 LAKE CHARLES GRASSROOT METHANOL PLANT Grassroot 1,400,000 LA Planning $700 NORCO SAINT CHARLES METHANOL UNIT ADDITION Addition 1,600,000 LA Planning $500 SAINT JAMES METHANOL UNIT ADDITION (PHASE 2) Addition 1,400,000 LA Planning $360 SAINT JAMES G/R METHANOL PLANT (PHASE 1) Grassroot 500,000 LA Planning $350 GEISMAR METHANOL UNIT (GEISMAR 3) ADDITION Addition 900,000 LA Planning $100 SAINT JAMES METHANOL PLANT EXPANSION (PHASE 2) Expansion 200,000 LA Planning $100 LA PORTE SYNGAS AND METHANOL PLANT EXPANSION Expansion 200,000 TX Planning $5 TUCUMCARI PLT CONVERSION TO WASTE-TO-FUEL Conversion © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 5,955 NM U.S. & Canada Chemical CPI Projects byIndustry Sector (USA & Canada) Methanol capacity and spending outlook 45 Approved Capacity 29.6M metric T/yr 40 Million metric T/yr 35 30 Proposed Capacity 5.6M metric T/yr $8.3 billion $17 billion 25 Approved 20 Proposed 15 10 5 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 4Q21 Constraints • Cost per gallon has decreased in recent months • Slowdown in China • USA to become net exporter very soon © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Project Completions All New Capacity Most Likely new capacity U.S. & Canada Planned Ethylene Capacity 93 billion pounds of installed capacity by 4Q19 7,000 13.8 billion pounds 15.2 billion pounds 120,000 105,000 6,000 90,000 Millions of Lbs/yr 4,000 3,000 2,000 1,000 Lotte (LACC) Shintech Formosa, Shell, Total, Williams, Badlands (2), Aither, PTT, Nova, Siluria CP Chem, Dow, ExxonMobil, Formosa, Ingleside, Sasol 75,000 60,000 45,000 30,000 15,000 0 0 Installed capacity New capacity © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Installed Capacity in billions of pounds 5,000 U.S. Chemical Processing Industry Olefin and Polymer pricing Ethylene & Propylene 0.6 • Ethylene prices have continued to fall • New capacity in 2017 and 2018 will pressure prices 0.5 $/lbs 0.4 0.3 0.2 0.1 0 Ethylene Polymer Grade Propylene Refinery Grade Propylene $/lbs Polymers 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 • Polymer prices have remained strong • Globally advantaged against naphtha-based polymers • Export demand remains positive HDPE LLDPE PP Source: Petrochem Wire © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical Industry Petrochemicals $12.5 Billion in 2015 $10.6 billion in Propane Dehydrogenation (PDH) proposed, 13.7 million pounds Approved Capacity Proposed Capacity 18,000 16,000 14,000 Million Lbs/yr 12,000 10,000 8,000 2.9M Lbs/yr $1.7 billion 10.8M Lbs/yr $8.9 billion 6,000 4,000 Approved Proposed Project Completions New Capacity 2,000 0 4Q16 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 • Lighter feeds in ethylene fleet supports PDH investments • Propane prices more volatile, although they remain low • Two (2) PDH units in development/construction, Enterprise Products & Formosa • Eight (8) additional capacity projects proposed © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical CPI Projects byIndustry Sector (USA & Canada) Ammonia capacity and spending outlook Approved Capacity Proposed Capacity 38 36 Million metric T/yr 34 32 30 28 6.2M metric T/yr $7 billion Approved 10.2M metric T/yr $13.1 billion 26 24 22 20 1Q16 Challenges for new capacity 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 • Large displacement of imported capacity • Domestic demand for Ag chemicals • Future of Corn-to-Ethanol [for fuel] © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Proposed Project Completions New Capacity U.S. & Canada Chemical Industry Project Spending Gap Analysis Proposed Actual Pending Continued n/g cost advantage drives optimism $70 $60 $40 $30 $21.1 $17.1 $46.5 $25.9 $46.7 $15.3 $48.9 $29.7 2010 2011 2012 2013 2014 2015 2016 $66.5 $57.8 $13.4 $10.7 $10 $14.9 $8.5 $20 $11.1 $5.8 $ Dollars in billions $50 $15.9 bn $0 Construction Kick-Off Year Proposed: Actual: Pending: What was initially scheduled to start construction in the calendar year What actually started construction or was funded in the calendar year Proposed spending for current and future years that remains active © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 2017 Most Likely spend U.S. & Canada Chemical Industry Project Delays – Schedule Assessment Spending Delayed from a previous year Spending Originated for that year $70 $57.8 $ Dollars in billions $60 $50 $40 $30 $29.7 $25.9 $15.3 $20 $10 $15.9 bn $0 2014 2015 2016 Construction Kick-Off Year © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 2017 U.S. & Canada Chemical Industry Projects currently On-Hold $10.7 billion On-hold projects with an original Construction Kick-Off in 2016 and 2017 CPI Segments TIV ($ in millions) Market Region TIV ($ in millions) Petrochemicals $5,828 Southwest $5,683 Plastics/Rubbers $1,677 Great Lakes $1,540 Specialty Chemicals $1,645 Mid Atlantic $1,202 Ag Chemicals $1,101 Quebec $1,100 Cogen/Energy $372 West Coast $833 $138 Industrial Gases $30 Rocky Mountains Other $16 Southeast $97 Western Canada $35 Ontario $25 Northeast $19 Chlor-Alkali $3 © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 CPI Projects Sector (U.S. & Canada) CPIbyProjects by Sector (USA & Canada) 2015 vs 2016 Comparison Rank 1 2 3 4 5 6 7 8 9 10 CPI Segments Petrochemicals Ag Chemicals Cogen/Energy Specialty Chemicals Plastics/Rubbers Industrial Gases Other Chlor-Alkali Surfactants Pigments Grand Total $ in millions; capital and maintenance projects 2015 Actual TIV ($ Millions) 2016 Planned TIV ($ Millions) Variance $8,345 $1,596 $293 $675 $2,313 $1,099 $800 $55 $49 $51 $12,218 $1,045 $1,025 $502 $478 $388 $139 $97 $21 $18 $3,873 ($551) $731 ($173) ($1,836) ($711) ($661) $42 ($29) ($33) $15,277 $15,930 $653 Approved $10.7 billion (as of Jan’ 16) © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Gulf Coast Region Labor Assessment – Forecast of Craft Labor Hours for Industrial Construction Quarter/Quarter Change in Labor Demand (Hours MM) 200 150 173 million hours at peak Revised down from 185 Million hours at peak. 100 4Q15 0 2010 1Q16 Reduction of 36.2 Million Hours 50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0.0% -2.0% -4.0% -6.0% Change in Hours Reduction in Hours -8.0% 2015 2016 2017 2018 Source: Industrial Info Resources Labor Demand Forecast © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 2019 2020 0 -2 -4 -6 -8 -10 -12 -14 Gulf Coast Region Project Spending Forecast Based on 70% + Confidence Gulf Coast Spending Forecast $52.1 $7.6 $53.3 $50.8 $8.0 $7.5 $7.9 $7.9 $33.8 $24.6 $8.0 $24.4 $8.1 $19.1 $7.9 $7.3 $16.8 $7.1 $14.8 $21.4 $0 $6.9 $10 2019 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 41.6% 11.8% 0.7% 20.5% 0.5% -$2.0 2017 -$3.5 2016 -$1.9 -$0.6 $0.0 2013 4.2% -0.4% $0.0 -$4.0 -2.5% -10.1% -22.6% 2018 2014 27.7% 10.1% -$0.7 2015 Gulf Coast Region - Project Spending Annual % Change 50% 40% 30% 20% 10% 0% -10% -20% -30% -$1.1 $39.7 $32.6 $26.9 $24.1 $21.9 $20.7 $20 $32.5 $28.1 $28.3 2020 $44.2 $51.4 $40 $30 $59.7 $41.7 $7.4 $ in Billions $50 $58.7 $32.2 $60 $61.2 $59.0 $7.5 Spending in the Gulf Region will hit a record high in 2015 Brownsville to Pascagoula Total $36.9 $70 Capital $7.3 Maintenance -26.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 -$3.0 -$2.0 -$1.0 $ in Billions $0.0 Gulf Coast Region Labor Assessment • Weakness in China reduces demand for commodities (demand down 3.2% in 2016 and 5.7% in 2017) • Labor pressure is relieved from the Oil Sector fallout • Quality workers remain in a shortage thru peak years • Wage rates leveled out in 2015 and will carry forward in 2016 • Maintenance Turnarounds will cause conflicts © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 U.S. & Canada Chemical Industry Maintenance T/A Comparison by Year $2.0 800 $1.8 700 $ in Billions $1.4 $1.2 $1.0 $1.9 $1.8 $1.6 $1.7 600 $1.6 $1.5 500 $1.3 400 $1.0 $0.8 300 $0.6 200 $0.4 $0.2 100 $0.0 0 2010 2011 2012 2013 TIV 2014 2015 2016 2017 Count • Planned chemical plant t/a’s remain high • Increased activity in response to high utilization and operating rates © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479 Projects $1.6 U.S. & Canada Chemical Processing Industry Conclusion • The next significant uptick in NGL spending is expected in 2018 to meet demand in 2020 • Petrochemicals will contribute over 75% of total CPI spend in 2016 • Methanol projects will be the key to CPI growth in 2016 • Exports and emerging markets will largely influence further investment spending • Labor markets remain tight through 2018 © 2016, Industrial Info Resources, Inc., 2277 Plaza Drive Suite 300, Sugar Land, Texas 77479