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Propylene: Historically A Stepchild of Industry Now Becoming a Favorite Child Presented By: Prem Cholia Jacobs Consultancy Houston Texas At FlexPo Conference The Woodlands, Texas October 21, 2015

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Jacobs Consultancy

• Fully owned subsidiary of Jacobs Engineering Group Inc. • Originally Pace Consultants Inc. established in 1957 • 1974 – acquired by Jacobs Engineering • 2001 – name changed to Jacobs Consultancy • Professional staff of 140 located in 5 primary offices

– Houston – Chicago – Calgary – London – Leiden

• Worldwide experience • Worldwide alliances in petrochemicals consulting

– PCI (London) and PTAI (US)

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Practice Areas

• Refining & Production • Chemicals &

Petrochemicals • Natural Gas • Energy & Utilities • Logistics &

Infrastructure

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What We Do

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Coke Quarterly, Coal Tar Pitch, Ethylene / Propylene Competitiveness Report

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• Strategic / capital planning support and advice • Technology development support

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Agenda

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1. Introduction 2. Propylene 3. Propylene Production Routes 4. On-purpose Propylene Production 5. Conclusions

Propylene

Historically: • Produced in refineries or steam crackers as a secondary product

• Consume what is produced

• Consumption (non-fuel) governed by supply

Now: • Production is reducing but demand is growing fast

• In short supply relative to ethylene

• Development of new on-purpose production processes

• Production governed by demand

Propylene an unwanted product has become product in Demand

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The Global Propylene Industry

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• Global production and consumption

85 mmtpa (2014)

• Global Nameplate capacity

119 mmtpa (2014)

Propylene Demand by Application in 2014

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Polypropylene dominates and will continue to dominate

Propylene Production Routes

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Traditional Co-product Sources of Propylene:

• Steam Cracking

• Fluidized Catalytic Cracking (“FCC”)

On-purpose Propylene Processes:

• Propane Dehydrogenation (“PDH”)

• Methanol to Olefins (“MTO”) and Methanol to Propylene

(“MTP”)

• Olefin Metathesis (“OTC”)

Steam Cracking • Currently most dominant production route for propylene in all regions

except North America

• Propylene is a by-product in ethylene production process of steam cracking

• Propylene yield varies with feedstock used for ethylene production

With increasing ethane feed in ethylene manufacture, propylene production from steam crackers has dropped

Feedstock Propylene Yield P/E (%) Ethane 1.9% 2.4

Propane 18.8% 36.2

Butane 17.0% 42.8

Naphtha 15.7% 47.0

Gas oil 14.7% 55.8

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Ethane Value on $/Btu Basis Has Dropped

Ethane at natural gas parity due to ongoing supply glut

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WTI Crude Oil

USGC Purity Ethane

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• Ongoing shale gas revolution continues to add to ethane supply in US – ethane surpluses projected despite new crackers and exports

• In January 2014, US feed slate exceeded 65% ethane

• The dramatic change in US feedstock supply in the last 6 years is structural

• This trend will continue in the coming years, mostly due to new crackers utilizing shale gas derived ethane

• Over 7 million tons of new ethylene capacity is expected before 2018, but producing relatively little co-product propylene (~200 kta)

Source: Hodson Report

20%

25%

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45%

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65%

70%

Volume % of Ethane in USGC Steam Cracker Feedslate from January 1988 to June 2014

Monthly Ethane Percentage

Annual Average

US Ethane Consumption Continues to Climb

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Propylene from Refinery • A major source for propylene in North America but not in Asia or Europe

• FCC (fluidized cat cracker) and delayed coker produce propylene as a by-product

• FCC propylene yield is 8 to 9 %v (~4% wt.), but can go up to 20% v adding ZSM-5 to the catalyst or by severe cracking in FCC

• Propylene production often constrained by gas recovery units

• Delayed coker propylene yields are 2 to 3% (~1 to 2% wt.) depending on quality of crude

• Propylene from refineries contains around 30% propane requires separation

• Propane separation requires PP splitter, which is often a part of the petrochemical facilities

• Standalone PP splitters also exist (e.g., Enterprise splitter at Mont Belvieu)

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Propylene Production in the US

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Billi

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US Propylene Production by Source

Propylene from steam crackers Propylene from Refineries

Propylene production has dropped in the US

US Now a Net Importer of Propylene

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• US was net propylene exporter until refinery production started coming down after 2008

• Demand still growing

• Increased ethane use as feedstock has reduced production after 2009

• Hence US now an importer

• Trend may change after the new PDH plants come on stream

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1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

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US Propylene Net Export (Imports)

Net Exports Net Imports

Propylene Price Now Higher than Ethylene Prices

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2002 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 2015ytd

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US Ethylene & Polymer Grade Propylene Price

Ethylene Poly-Grade Propylene

• Historically in US, ethylene prices higher than propylene

• Trend has reversed since 2007/2008

• Trend continues

Shrinking Supply of Traditional Propylene • Increased availability of shale gas in the US has increased

availability of ethane from NGLs

• This abundant ethane availability has resulted in increased usage of ethane for ethylene production

• Several large steam crackers based on ethane are under construction or are being planned

• P/E ratio of ethane-based steam cracker is substantially lower compared to other feedstocks, resulting lower propylene production

• Gasoline demand is shrinking because of more fuel-efficient engines and several other reasons

• Propylene production from traditional sources is dropping but propylene demand is increasing, mainly driven by increasing PP demand

Need for non-traditional supply source for propylene

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Increasing On-Purpose Propylene Production

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1990 1995 2000 2005 2010 2015 2020 2025 2030

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On-purposeRefinerySteam Cracker

2014

16%

29%

55%

28%

28%

45%

2005 2030

63%

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5%

2020

26%

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48%

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Propane Dehydrogenation (PDH)

• Catalytic dehydrogenation of propane and propylene separation

• C2H6 --------> C2H4 + H2

• More than 4 mm tonnes propylene produced globally by this route

• Most significant on-purpose production route

• Technology Licensors: o UOP – Oleflex o Lummus – Catofin o Uhde / Krupp Thyssen – STAR

• UOP and Lummus dominate

• All new plants planned mainly in US or China

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• Surge in PDH driven by US propane glut and shale gas ethane cracking created propylene shortage

• Surplus of shale gas derived liquids has driven down all NGLs prices

• US is now a significant net exporter of propane

• Limitations in export terminal capacity are stimulating new investment in export terminals

• US propane prices have fallen substantially below the discounted propane prices in Saudi Arabia for petrochemical use (Saudi domestic propane is priced relative to export naphtha)

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Prop

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Propane PricesUSGC PropaneSaudi Propane (Disc.)W. Europe Propane

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US Waterborne Propane TradeExports Imports

US Propane prices are distressed

US Propane exports have quadrupled since 2011

Propane Distressed in US

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USGC PDH WE PDHSaudi Arabia Disc.Propane/PDH China PDHUSGC Contract PG Propylene Prices

US PDH production costs are comparable to Saudi PDH production costs using discounted feedstock price

Propane Dehydrogenation Economics

US PDH Plants Now Cost Advantaged

US PDH Plant Locations US/Canada • Existing Plant

• Flint Hills Resources (former Petrologistics), Houston, TX – 658kta operating (Catofin)

• Under Construction / Planned • Enterprise, Mont Belvieu, TX – 750 kta in engineering (Catofin) • Dow, Freeport, TX – 750 kta Being started (Oleflex) • Formosa, Point Comfort, TX – 650 kta in engineering (STAR) • Ascend (Now CH3 Technologies) – 1,170 kta (Oleflex) • Williams Alberta, Canada (Oleflex)

KSA • Existing Plants

• SPCo Jubail – 550 kta (Catofin) • APPC Jubail – 550 kta (Catofin) • Sipchem Jubail – 500 kta (Oleflex) • Natpet Yanbu – 400 kta (Oleflex)

Existing Plants in Asia and Europe - operate when economical

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Changjiang Gas Chemical 660 KTA Was planned but suspended now

Zhejiang Julong Petrochemicals 450/750 KTA 2014/2017

China Ningbo Haiyue 600 Kta 2014

Haiyue New Material 600 KTA 2014

Bohai Chemical Industry Group 600 KTA 2013

Yangtse Petrochemical 600 KTA 2014

Fujian Meide 660 KTA 2015

Hengyuan Petrochemical 10 KTA, 2012

Zhejiang Shaoxing Sanyuan Petrochemical 450 KTA 2014

Oriental / Huanchang/ Feixiang- Zhangjiagang Yangzi River Petrochemical Co. Ltd 600/660 KTA 2014/2017

Jiangsu Haili Chemicals 500 KTA 2017

Yantai Wanhua 750 KTA 2014

Haiwei Group 500 KTA 2015 (four 500 KTA plants planned)

Yangzijiang Petrochemical 600 KTA Planned

Operational

Under Construction

Expected On-stream in 2014-2015

China’s PDH Projects – Will All Be Built?

MTO/MTP (Methanol to Olefins or Propylene)

• Methanol reaction in presence of zeolite type catalyst

• UOP process produces ethylene and propylene in fluidized bed reactors (MTO Process)

• Lurgi process also a similar catalytic process but with fixed bed reactors primarily for propylene production (MTP)

• Higher P/E ratio for MTP

• Both processes operational in China but not in other regions

• The technologies viable only if inexpensive methanol is available

• China utilizes its huge coal reserves to get methanol and reduces dependency on imported hydrocarbons

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China’s Coal to Olefin Projects (2010-18)

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Shenhua Baotou MTO: 600 KTA On-stream: Aug 2010

Sinopec Zhongyuan PC MTO: 200 KTA On-stream: Oct 2011

Yankuang MTO: 600 KTA Q3 2014

Shenhua/Dow JV Integrated complex MTO :1220 KTA 2018

CPI/Total JV MTO: 800 KTA 2016

Shenhua Xinjiang Ganquanbao Industrial Park MTO: 600 KTA 2016

Yili Meidianhua MTO: 600 KTA Q1/2016

Yulin Energy & Chemical MTO: 600 KTA Q2/2014

Ningbo Fund Energy Co., Ltd. (Earlier Ningbo Heyuan Chemical) MTO: 600 KTA Q4/2012

Shenhua Ningxia Coal MTP: 500 KTA Q2/2011 2nd Phase MTP: 500 KTA Q3/2014

Shaanxi Yanchang MTO: 600 KTA Q1 2015

Datang International (Duolun) MTP: 500 KTA Q4/2011

Shanxi Coking MTO: 600 KTA End 2014

Wison Nanjing Clean Energy MTO: 300 KTA Q2 2013

Sinopec Zhijin MTO: 600 KTA Q1 2015

Operational

Under Construction

On-stream in 2014

Zhejiang Xingjiang New Energy Technology MTO : 600 KTA Q4/2013

Huating Coal Group MTP: 200KTA Q1 2015

Fude Energy Chemical MTO: 1000 KTA Q4/2013

Jiutai Energy MTO : 600KTA Q1 2015 Elion Resources

MTO : 600 KTA Q1 2015 Ningxia Baofeng Energy

MTO: 600KTA Q1 2015

Shenhua Shenmu Chemical MTO : 600 KTA H2 2014

Sinochem (Zhonghua) YiYe MTO : 800 KTA 2014

Shaanxi Pucheng Clean Energy MTO: 680 KTA Q4 2014

Quinghai Salt Lake Industry Co. MTO : 320 KTA Q4 2014

Zhong’an United Coal Chemical MTO: 650 KTA On-stream: Q3 2014

Legend Holding MTO: 400 KTA Q3 2014

Sinopec Henan MTO: 650 KTA On-stream: Q1 2015

Plants marked in blue are MTP plants

Metathesis Route • Catalytic Reaction of n-butylene (C4 H8) and ethylene (C2H4) to

produce two molecules of propylene (C3H6) • Key determinants for this process are:

– Adequate price differential between ethylene/n-butylene and propylene

– Availability of surplus ethylene and n-butylenes at one location • Combined with a steam cracker (with liquid feed), this process

enhances the propylene/ethylene production ratio • Main licensor is Lummus (OCT), who can offer this technology

with or without their steam cracking process for ethylene • Lyondell Basell and BASF/Total operate metathesis plants in

the US • Borouge 2 (Abu Dhabi), SPCo in KSA operate metathesis units • Plants in Japan, Korea and other Asian countries also have

metathesis units 27

Conclusions

• Propylene historically long, now becoming short • Propylene from steam cracker and refineries still dominate • Steam cracker feedstocks moving toward ethane feed

which produces very little propylene • Refinery production of propylene is not increasing

because of reducing gasoline demand • On-purpose production of propylene becoming popular • PDH the largest source for on-purpose propylene • More popular in US with increasing propane availability • MTO and metathesis are gaining some ground but have

limitations

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