study prospectus naphtha nexus - esai energy llc nexus: the interaction of global gasoline, naphtha...

Naphtha Nexus:

The Interaction of Global Gasoline, Naphtha

and Petrochemical Markets to 2025

Study Prospectus

Naphtha Nexus:

The Interaction of Global Gasoline, Naphtha and Petrochemical Markets

2016

No parts of this publication may be duplicated, transmitted or stored without ESAI’s written permission. The estimates, forecasts and analyses in this report are our judgement and are subject to change without

notice. No warranty is made or implied. ©2016, ESAI Energy LLC

ESAI Energy LLC | 401 Edgewater Place, Suite640 | Wakefield, MA 01880 | +1.781.245.2036

www.esai.com

Naphtha Nexus: The Interaction of Global Gasoline, Naphtha and Petrochemical Markets to 2025 ESAI Energy, LLC

____________________________________________________________________________________

2

Contents Introduction

List of Figures ................................................................................................................................................ 6

I. Executive Summary .................................................................................................................................... 9

A. Naphtha Balances and West-to-East Trade .......................................................................................... 9

B. Demand Trajectories Favor Petrochemicals Over Transport .............................................................. 10

II. Overview ................................................................................................................................................. 11

A. Global and Regional Price Implications .............................................................................................. 11

B. Demand, Supply and Balance by Region............................................................................................. 13

North America ..................................................................................................................................... 13

Asia ...................................................................................................................................................... 14

Middle East ......................................................................................................................................... 15

Europe ................................................................................................................................................. 16

FSU ...................................................................................................................................................... 17

Africa ................................................................................................................................................... 18

Latin America ...................................................................................................................................... 19

III. Global Outlook on Naphtha Supply ....................................................................................................... 20

A. Condensate Impacts on Naphtha Supply............................................................................................ 20

Global Condensate Supply .................................................................................................................. 20

B. Global Refinery and Splitter Investment ............................................................................................ 22

East of Suez Leads Capacity Additions ................................................................................................ 22

Condensate Splitter Capacity Additions.............................................................................................. 22

Throughput Growth and Alternative Supply ....................................................................................... 24

C. Methodology and Forecasts for Naphtha Supply ............................................................................... 25

Trends in Naphtha Production from Distillation ................................................................................. 25

Splitting Light and Heavy Naphtha ...................................................................................................... 26

Global Naphtha Supply ....................................................................................................................... 27

Asia Naphtha Supply ........................................................................................................................... 29

Middle East Naphtha Supply ............................................................................................................... 30

Europe Naphtha Supply ...................................................................................................................... 32

North America Naphtha Supply .......................................................................................................... 33

Africa, Latin America and FSU Naphtha Supply .................................................................................. 34


____________________________________________________________________________________

3

IV. Naphtha Use in Gasoline Production ..................................................................................................... 35

A. Global Demand’s Structural Decline ................................................................................................... 35

United States CAFE Policy and OECD Demand Destruction ................................................................ 36

China’s Transition and the Limits of Asian Demand Growth .............................................................. 37

Emerging Market Demand in the Post-Super-Cycle Era ..................................................................... 38

B. Gasoline Blending Analysis ................................................................................................................. 39

Avenues for Blending Naphtha into Gasoline ..................................................................................... 39

Scale and Flexibility in North America ................................................................................................ 40

Filling Gasoline Supply Gaps in Asia .................................................................................................... 41

More Naphtha in Middle East Gasoline .............................................................................................. 42

Secondary Units Lift Naphtha Use in FSU ........................................................................................... 43

Naphtha’s “Blend Wall” in Africa ........................................................................................................ 44

Europe Refinery Cuts Trim Naphtha Use ............................................................................................ 45

Ethanol Drives Fickle LatAm Naphtha Use .......................................................................................... 46

V. Naphtha Demand from Ethylene Production ......................................................................................... 47

A. The Global Ethylene Market and Naphtha Demand........................................................................... 47

Macroeconomic Environment ............................................................................................................ 47

Ethylene Production from Naphtha .................................................................................................... 47

B. Regional Ethylene and Naphtha Demand Analysis ............................................................................. 49

China ................................................................................................................................................... 49

Rest of Asia .......................................................................................................................................... 50

Middle East ......................................................................................................................................... 51

Europe ................................................................................................................................................. 52

North America ..................................................................................................................................... 53

Other Regions: Africa, FSU, Latin America .......................................................................................... 54

VI. Naphtha Use in Aromatics Production .................................................................................................. 55

Middle East ......................................................................................................................................... 56

Asia ...................................................................................................................................................... 57

Europe ................................................................................................................................................. 57

North America ..................................................................................................................................... 58

Other Regions: FSU, Africa and Latin America .................................................................................... 58

VII. The Global Pentanes Plus Market ......................................................................................................... 59


____________________________________________________________________________________

4

A. Growing Source of Petrochemical Feedstock ..................................................................................... 59

B. Regional Balances ............................................................................................................................... 59

North America’s Emerging Surplus ..................................................................................................... 59

Middle East ......................................................................................................................................... 61

Rest of the World ................................................................................................................................ 62

VII. Statistical Appendix .............................................................................................................................. 63

A. Prices ................................................................................................................................................... 63

B. Condensate Balances .......................................................................................................................... 64

C. Naphtha and Pentanes Balances; Gasoline and Petrochemical Analysis ........................................... 65

Global .................................................................................................................................................. 65

Africa ................................................................................................................................................... 66

Asia ...................................................................................................................................................... 67

Europe ................................................................................................................................................. 68

FSU ...................................................................................................................................................... 69

Latin America ...................................................................................................................................... 70

Middle East ......................................................................................................................................... 71

North America ..................................................................................................................................... 72

United States ....................................................................................................................................... 73

China ................................................................................................................................................... 74

Russia .................................................................................................................................................. 75

India .................................................................................................................................................... 76

Japan ................................................................................................................................................... 77

South Korea ......................................................................................................................................... 78

Brazil .................................................................................................................................................... 79

Saudi Arabia ........................................................................................................................................ 80

Canada ................................................................................................................................................ 81

Iran ...................................................................................................................................................... 82

Mexico ................................................................................................................................................. 83

Thailand ............................................................................................................................................... 84

Singapore ............................................................................................................................................ 85

Venezuela ............................................................................................................................................ 86

Kuwait ................................................................................................................................................. 87


____________________________________________________________________________________

5

Taiwan ................................................................................................................................................. 88

Indonesia ............................................................................................................................................. 89

Belgium ............................................................................................................................................... 90

United Arab Emirates .......................................................................................................................... 91

Algeria ................................................................................................................................................. 92

Australia .............................................................................................................................................. 93

Argentina ............................................................................................................................................. 94

Egypt ................................................................................................................................................... 95

Malaysia .............................................................................................................................................. 96

France .................................................................................................................................................. 97

Germany .............................................................................................................................................. 98

Italy...................................................................................................................................................... 99

Netherlands ....................................................................................................................................... 100

Spain .................................................................................................................................................. 101

United Kingdom ................................................................................................................................ 102

Turkey ............................................................................................................................................... 103

South Africa ....................................................................................................................................... 104


____________________________________________________________________________________

6

List of Figures

Figure 1: Naphtha Balances by Region ......................................................................................................... 9

Figure 2: Naphtha Demand Growth by Type and Sector ............................................................................ 10

Figure 3: Global Naphtha Balances ............................................................................................................. 11

Figure 4: USGC Gasoline and Naphtha Spreads to LLS Crude ..................................................................... 12

Figure 5: Benchmark Regional Naphtha Prices ........................................................................................... 12

Figure 6: Naphtha Use in North America .................................................................................................... 13

Figure 7: Naphtha Supply in North America ............................................................................................... 13

Figure 8: Naphtha Balances in North America ............................................................................................ 13

Figure 9: Naphtha Use in Asia ..................................................................................................................... 14

Figure 10: Naphtha Supply in Asia .............................................................................................................. 14

Figure 11: Naphtha Balances in Asia ........................................................................................................... 14

Figure 12: Naphtha Use in the Middle East ................................................................................................ 15

Figure 13: Naphtha Supply in the Middle East............................................................................................ 15

Figure 14: Naphtha Balances in the Middle East ........................................................................................ 15

Figure 15: Naphtha Use in Europe .............................................................................................................. 16

Figure 16: Naphtha Supply in Europe ......................................................................................................... 16

Figure 17: Naphtha Balances in Europe ...................................................................................................... 16

Figure 18: Naphtha Use in FSU ................................................................................................................... 17

Figure 19: Naphtha Supply in FSU ............................................................................................................... 17

Figure 20: Naphtha Balances in FSU ........................................................................................................... 17

Figure 21: Naphtha Use in Africa ................................................................................................................ 18

Figure 22: Naphtha Supply in Africa ........................................................................................................... 18

Figure 23: Naphtha Balances in Africa ........................................................................................................ 18

Figure 24: Naphtha Use in Latin America ................................................................................................... 19

Figure 25: Naphtha Supply in Latin America ............................................................................................... 19

Figure 26: Naphtha Balances in Latin America ........................................................................................... 19

Figure 27: Distillation Capacity Growth by Region ..................................................................................... 22

Figure 28: Condensate Splitter Capacity Growth by Region ....................................................................... 23

Figure 29: Growth of Throughput and Other Oil Supply ............................................................................ 24

Figure 30: Refinery Throughput Growth by Region .................................................................................... 24

Figure 31: Crude Oil Demand Growth by Quality ....................................................................................... 25

Figure 32: CDU Naphtha Supply by Region ................................................................................................. 27

Figure 33: Global CDU Naphtha Supply ...................................................................................................... 27

Figure 34: Naphtha Supply from Condensate Splitters by Region .............................................................. 28

Figure 35: Global Naphtha Production by Unit Type .................................................................................. 28

Figure 36: Asia Naphtha Production ........................................................................................................... 29

Figure 37: Asia Naphtha Production Growth by Unit Type ......................................................................... 29

Figure 38: Asia CDU Naphtha Supply .......................................................................................................... 30

Figure 39: Middle East Naphtha Production ............................................................................................... 30

Figure 40: Middle East Naphtha Production Growth by Unit Type ............................................................ 31

Figure 41: Middle East CDU Naphtha Supply .............................................................................................. 31


____________________________________________________________________________________

7

Figure 42: Europe Naphtha Production Growth by Unit Type .................................................................... 32

Figure 43: Europe CDU Naphtha Supply ..................................................................................................... 32

Figure 44: North America Naphtha Production Growth by Unit Type ....................................................... 33

Figure 45: North America CDU Naphtha Supply ......................................................................................... 33

Figure 46: Africa CDU Naphtha Supply ....................................................................................................... 34

Figure 47: Latin America CDU Naphtha Supply ........................................................................................... 34

Figure 48: FSU CDU Naphtha Supply........................................................................................................... 34

Figure 49: Global Gasoline Demand Growth .............................................................................................. 35

Figure 50: Advanced Economy Gasoline Demand Growth ......................................................................... 36

Figure 51: Non-OECD Asia Gasoline Demand Growth ................................................................................ 37

Figure 52: Non-OECD, Non-Asia Gasoline Demand Growth ....................................................................... 38

Figure 53: 2014 Global Gasoline Blending Ratios ....................................................................................... 39

Figure 54: Additional Use of Naphtha Derivatives in Global Gasoline Production ..................................... 39

Figure 55: 2014 North America Gasoline Blending Ratios .......................................................................... 40

Figure 56: Additional Use of Naphtha Derivatives in North American Gasoline ........................................ 40

Figure 57: 2014 Asia Gasoline Blending Ratios ........................................................................................... 41

Figure 58: Additional Use of Naphtha Derivatives in Asian Gasoline ......................................................... 41

Figure 59: 2014 Middle East Gasoline Blending Ratios ............................................................................... 42

Figure 60: Additional Use of Naphtha Derivatives in Middle East Gasoline ............................................... 42

Figure 61: 2014 FSU Gasoline Blending Ratios ........................................................................................... 43

Figure 62: Additional Use of Naphtha Derivatives in FSU Gasoline ............................................................ 43

Figure 63: 2014 Africa Gasoline Blending Ratios ........................................................................................ 44

Figure 64: Additional Use of Naphtha Derivatives in African Gasoline ...................................................... 44

Figure 65: 2014 Europe Gasoline Blending Ratios ...................................................................................... 45

Figure 66: Additional Use of Naphtha Derivatives in European Gasoline .................................................. 45

Figure 67: 2014 Latin America Gasoline Blending Ratios ........................................................................... 46

Figure 68: Additional Use of Naphtha Derivatives in Latin American Gasoline .......................................... 46

Figure 69: Global Ethylene Production ....................................................................................................... 48

Figure 70: Global Ethylene Naphtha Demand ............................................................................................ 48

Figure 71: China Ethylene Production from Naphtha ................................................................................. 49

Figure 72: China Ethylene Naphtha Demand .............................................................................................. 49

Figure 73: Asian Ethylene Production ......................................................................................................... 50

Figure 74: Other Asia Ethylene Demand ..................................................................................................... 50

Figure 75: Middle East Ethylene Production ............................................................................................... 51

Figure 76: Middle East Ethylene Naphtha Demand .................................................................................... 51

Figure 77: Europe Ethylene Production ...................................................................................................... 52

Figure 78: Europe Ethylene Naptha Demand ............................................................................................. 52

Figure 79: North America Ethylene Production .......................................................................................... 53

Figure 80: North America Ethylene Naphtha Demand ............................................................................... 53

Figure 81: Ethylene Production in Other Regions ....................................................................................... 54

Figure 82: Ethylene Naphtha Demand in Other Regions ............................................................................ 54

Figure 83: Global Aromatics Production by Region .................................................................................... 55


____________________________________________________________________________________

8

Figure 84: Global Aromatics Production by Feedstock Source ................................................................... 55

Figure 85: Global Aromatics Naphtha Demand .......................................................................................... 56

Figure 86: Middle East Aromatics Naphtha Demand .................................................................................. 56

Figure 87: Asia Aromatics Naphtha Demand .............................................................................................. 57

Figure 88: Europe Aromatics Naphtha Demand ......................................................................................... 57

Figure 89: North America Aromatics Naphtha Demand ............................................................................. 58

Figure 90: FSU, Africa and Latin America Aromatics Naphtha Demand ..................................................... 58

Figure 91: Global C5+ Balance .................................................................................................................... 59

Figure 92: North America C5+ Demand ...................................................................................................... 60

Figure 93: North America C5+ Balance ....................................................................................................... 61

Figure 94: Middle East C5+ Balance ............................................................................................................ 62


Overview

Naphtha is a 19 million b/d market, accounting for one fifth of global oil demand, though much of the

naphtha produced is used to produce gasoline and petrochemicals before leaving the refinery gate. Since

95 percent of naphtha and pentanes is used for the production of gasoline and petrochemicals, it goes

without saying that understanding how much demand for naphtha will grow between now and 2025

requires a detailed analysis and forecast demand from both sectors.

Our approach to supply-demand analysis was to

divide naphtha and pentanes into light and heavy

even though in practice a significant amount of

full-range naphtha, i.e. a mix of light and heavy,

is traded. Naphtha is classified as light or heavy

based on the number of carbon atoms in the

naphtha hydrocarbons, which can be anywhere

from 4 to 11. Petrochemical enterprises

producing ethylene favor light naphtha, which

has six or fewer carbon molecules. Heavy

naphtha with more carbon molecules is favored

for gasoline and aromatics production, though

the gasoline pool absorbs light naphtha as well.

More than 11 million b/d of naphtha are blended into the gasoline pool as reformate, isomerate and

straight-run naphtha. In this study, we lay out our forecast of light and heavy naphtha use to produce

gasoline along with the underlying analysis of the diverse blending methods across the world and of

anticipated changes in the trajectory of gasoline demand. Another 7 million b/d of light and heavy naphtha

are used to produce olefins and aromatics, respectively. Using our analysis of the future supply of

petrochemicals and the feedstocks used in that production, we explain how much petrochemical demand

will grow between 2015 and 2025.

The refinery and condensate splitter supply analysis and projections in this study draw on ESAI Energy’s

estimate of current and future crude slates of every refinery in the world, which falls within our analysis

of crude and condensate production as well as processing by quality. Pentanes from NGL fractionation are

an incremental source of light naphtha supply. This analysis includes our view of pentanes demand,

including in gasoline blending, petrochemicals and as diluent.

Lastly, price forecasts accompany our conclusions about changes in light and heavy naphtha fundamentals

and trade flows. The forecasts include ESAI Energy’s outlook to 2025 for crude prices and gasoline and

naphtha prices and spreads in the U.S. Gulf Coast, Northwest Europe and Asia. The pricing discussion

includes a brief description of future changes in gasoline spreads in the context of gasoline-diesel

dynamics affecting refining margins.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2015

Global Supply of Naphtha & Pentanes

HeavyNaphtha

LightNaphtha

Pentanes

('000 b/d)

Afric

a

Year

Cond

ensate

Prod

uctio

nSplitter

Throughp

utOther

NGL

Prod

uctio

n of

Pentan

es

Pentan

e Use by

Refin

eries

Pentan

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for P

etchem

Pentan

e Use

for D

iluen

t

Light

Nap

htha

Ba

lance

Heavy

Nap

htha

Ba

lance

Total

Nap

htha

Ba

lance

Light

Na p

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Light N

aphtha

Light

Nap

htha

Light

Nap

htha

Light

Nap

htha

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Gasoline

Blen

ding

An

alysis

Isom

erate

& SR

Nap

htha

Reform

ate

Cracked

Gasoline*

High‐

Octan

e Blen

dstock

**

Total

Gasoline

Supp

ly

Petche

m

Analysis

(tkp

a)

Ethylene

Prod

uctio

n from

Na p

htha

Ethylene

Prod

uctio

n from

Other⁰

BTX

Prod

uctio

n from

Na p

htha

2014

2014

2015

2015

2016

2016

2017

2017

2018

2018

2019

2019

2020

2020

2021

2021

2022

2022

2023

2023

2024

2024

2025

2025

*Include

s outpu

t from FCC

and

other th

ermal units

⁰Include

s ethane and LPG

**Includ

es Alkylate, Butane, Ethanol, M

TBE, ETB

E and othe

rs

Splitter N

aphtha

Outpu

tRe

finery Nap

htha

Outpu

t Re

finery Nap

htha

Use

for G

asoline Blen

ding

Refin

ery Nap

htha

Use

for P

etrochem

icals

Nap

htha

Nexus

The Interaction of Globa

l Gasoline, Nap

htha

and

Petrochem

ical M

arkets to

202

5

Refin

ery Nap

htha

Sup

ply

Prim

ary Dispo

sitio

nNGL Nap

htha

Sup

ply an

d Dem

and

Balance

South Ko

rea

Year

Cond

ensate

Prod

uctio

nSplitter

Throughp

utOther

NGL

Prod

uctio

n of

Pentan

es

Pentan

e Use by

Refin

eries

Pentan

e Use fo

r Pe

tche

m

Pentan

e Use fo

r Dilu

ent

Light

Nap

htha

Ba

lance

Heavy

Nap

htha

Ba

lance

Total

Nap

htha

Ba

lance

Light

Na p

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Heavy

Nap

htha

Light

Nap

htha

Light

Nap

htha

Light

Nap

htha

Light

Nap

htha

Light

Nap

htha

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Gasoline

Blen

ding

An

alysis

Isom

erate

& SR

Nap

htha

Reform

ate

Cracked

Gasoline*

High‐Octan

e Blen

dstock**

Total

Gasoline

Supp

ly

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

*Include

s outpu

t from FCC

and

other th

ermal units

**Includ

es Alkylate, Butane, Ethanol, M

TBE, ETB

E and othe

rs

Splitter N

aphtha

Outpu

tRe

finery Nap

htha

Outpu

t Re

finery Nap

htha

Use

for G

asoline Blen

ding

Refin

ery Nap

htha

Use fo

r Pe

troche

micals

Nap

htha

Nexus

The Interaction of Globa

l Gasoline, Nap

htha

and

Petrochem

ical M

arkets to

202

5

Refin

ery Nap

htha

Sup

ply

Prim

ary Dispo

sitio

nNGL Nap

htha

Sup

ply an

d Dem

and

Balance

Invoice To:

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About ESAI Energy LLC

ESAI Energy, LLC is an energy research and forecasting firm that focuses on global petroleum, alternative fuels and natural gas markets. The firm is an affiliate of Energy Security Analysis, Inc, which has conducted energy market analysis and price forecasting since the mid-1980s.

ESAI Energy’s petroleum, alternative fuel and natural gas analysis and forecasting is based on a data-heavy methodology that is designed to integrate available data with the expert judgment of regional specialists to determine supply and demand trends by product and coun-try. Using actual data and estimates where data are unavailable, ESAI Energy’s regional analysts maintain historical databases for a varie-ty of industry attributes: consumption, production, quality and inventories for crude oil and each of the main petroleum products, refin-ery capacity and throughput, alternative fuels supply and demand, and petrochemical and midstream blending inputs. Using these data, information and understanding of language and political economy in each region, analysts forecast developments in these markets from one week to 25 years.

The quantitative supply/demand analysis is complemented by detailed political, regulatory, and industrial analysis. ESAI Energy maintains a database of environmental specifications, taxes, tariffs and subsidies, and combines that information with ongoing political, financial, and regulatory research to determine future market trends in countries and regions. In addition, we study and interpret key geopolitical developments that impact the global energy markets.

ESAI Energy produces multi-client studies like Naphtha Nexus several times per year. In addition, we provide our retainer clients, who include energy companies and national governments all over the world, with ongoing market analysis and forecasting.

ESAI Energy LLC | 401 Edgewater Place, Suite640 | Wakefield, MA 01880 | +1.781.245.2036

www.esai.com

Naphtha Nexus:

The Interaction of Global Gasoline, Naphtha

and Petchem Markets 2025

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