5th European Petrochemical Summit

5th European Petrochemical Summit Refining and Petrochemicals Integration Rafael Larraz

Rotterdam, February 2018

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1. CEPSA Overview 2. Petrochemical Market 3. Refinery Petrochemical Integration 4. Refinery Petrochemical Integration. Cointegration Analysis 5. Conclusions DISCLAIMER: The information included in this presentation has been collected from public sources and does not represent neither CEPSA strategy nor CEPSA position on these topics. 2 Platts 5th European Petrochemicals Summit, 2018

1. CEPSA Overview

Platts 5th European Petrochemicals Summit, 2018

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Introduction to Cepsa: BU’s overview at a glance

With more than 10,000 employees worldwide, Cepsa is a fully integrated oil & gas company, 100% owned by Mubadala Investment Company and headquartered in Madrid Spain • • • •

Canada Becancour: LAB plant

La Rábida Refinery (Huelva) Gibraltar San Roque Refinery (Algeciras) ASESA (50%) (Tarragona) Tenerife Refinery (Canary I.)

E

Exploration

D

Development

P

Production Refining MarketingChemicals Gas & Power

Upstream

• Puente Mayorga (Algeciras) • Palos de la Frontera (Huelva) • Retail, wholesales, LPG, Lubes and Aviation • 8 Combined Heat and Power + 1 Combined Cycle

China Germany

Phenol plant

Sulfonation and sulfation plant

Portugal

Panama

Thailand and Malaysia

Colombia E

P

D P

Suriname E Brazil

E

Deten: LAB plant

•


P

Indonesia UAE

Peru E

E

Nigeria Sulfonation plant

Algeria • • • • •

D P

Fatty alcohols plant

P

BMS • MEDGAZ RKF Timimoun Ourhoud Rhourde er Rouni

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2. Petrochemical Market


5

Petrochemical Value Chain Volume

Price Oil&Gas (106 MT)

Upstream (105 MT)

Intermediate (104MT)

Downstream

Conversion Industries

Olefins:

Plastic Resins:

EDC/VCM

PE, PP, PVC, PS, EPS, PET

EO/EG

PC, POM, PBT, Nylon 6,6, PMMA

Oxoalcohols

Synthetic Fibers:

Acrylonitrile

Polyester

Aromatics:

Nylon 6

EthylBenzene

Polypropylene

Styrene

Acrylic

Ciclohexane

Synthetic Rubber Elastomers:

Caprolactam

BR, SBR, EPDM

MT: Million Tons

Cumene/Fenol

PTA/PIA/PET


LAB

Synthetic Coating Adhesives:

PTA/PIA

PVA, Silicone

E&P Oil Refinery Gas Separation

Olefins: Ethylene Propylene

Aromatics: Benzene Toluene Xylene´s

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Petrochemical Business Cycle Demand excedes supply

Start of the Cycle

Beginning of investment in the sector Era of high margin and expansion

Era of competitive devaluation

Over investment in the sector

Beginning of consolidation and closures Manufacturers start regaining pricing power

End Of cycle

Excess Capacity

Manufacturers start losing pricing power Supplies slowly start exceeding demand

Demand starts exceeding supply

World GDP mainly to growth in Africa, Middle East and Asia. Petrochemical linked to GDP growth, specially in the emergent areas.

Product

LTGR

Ethylene

1-1,5 x GDP

Propylene

2 x GDP

Benzene

1 x GDP

P-Xylene

1,5 x GDP

HDPE

1,5 x GDP

LDPE

2 x GDP

PP

1-1,5 x GDP Deutsche Bank, 2013


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Petrochemical Trends by Geographic Region World Petrochemical market value estimation is 1300 US$ billion. Basic Petrochemical Market size is around 400 MT/y. About 10% of the oil demand. North America, Shale gas boost petrochemicals, mainly ethylene. Propylene and aromatics a possible issue. Today ethane accounts for 55% of the olefin slate and propane 20%. Shale gas is bringing cheap feed stocks and more ethane cracking. Western Europe, Petrochemicals threatened by lack of cheap feedstocks. Refinery naphtha is the main cracker feed. Naphtha and condensates provided about 75% of the feed to the European ethylene crackers. 12.5% came from ethane, propane and butane and the balance from gasoil and other sources. Middle East, Feedstock availability, expansion projects in refining and petrochemicals. Ethane is the primary cracker feedstock. Some countries has promoted, through incentive pricing, LPG cracking. ME has been leading the petrochemical expansion due to the rich hydrocarbon availability in the region Asia, China is the main player. Coal an alternative feedstock. Refinery naphtha is the main cracker feed. This area is driving the global petrochemicals demand. Platts 5th European Petrochemicals Summit, 2018

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3. Refinery Petrochemical Integration


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Petrochemical Production Process Steam Cracking Produce olefins and some aromatics. Processing feedstocks include ethane, LPG and naphta. Aromatics yields are low when natural gas is used as feedstock.

Fluidized Catalytic Cracking Produces Propylene as a by product After some years of low margins, propylene production might turn it into a key process for refinery petrochemical integration.

Catalytic Reforming Produces BTX Aromatics. New catalyst generations focused on xylenes

Refiner has to consider petrochemicals as a high priced alternative option, but for a small market. Platts 5th European Petrochemicals Summit, 2018

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Petrochemical Feedstocks Most Petrochemicals are made from ethane, propane or naphta, that come from oil refineries and gas processing. Regions with surplus, low priced ethane are atractive for steam cracking Olefins (ethylene, propylene, butadiene) and aromatics (benzene, toluene and xylenes) make up 90% of the petrochemical production, and are building blocks for almost all other petrochemicals and polymers

Source: CEPSA Outlook 2017

These petrochemicals are commodities and its market is cost driven and very price sensitive. Demand for naphtha will raise significantly driven by Asian growth. Also ethane and LPGs will grow in new feedstocks volumens for petrochemicals production thanks to the strong natural gas production in USA and Middle East. Platts 5th European Petrochemicals Summit, 2018

* Source: 1984-1990 German Federal Statistical Office 1991-2014 German Federal Office of Economics and Export Control (BAFA). Source: ICIS Heren Energy Ltd. ‡ Source: Energy Intelligence Group, Natural Gas Week. BP Statistical Review, 2016

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Refinery Petrochemical Integration Drivers Resilient Value Chain Market demand and prices flexibility Regional clusters

Feedstock and product flexibility Feedstock Availability By Products streams

Hydrogen balance management Maximise the potential value of hydrocarbon streams, upgrading from fuel value to higher value transport fuels or petrochemical feedstock. Capital, OPEX and Resource Optimization Shared Infrastructure, Storage & Utilities Lower Logistic & Energy cost Minimize overhead and waste Trained workforce and contractors

No transportation costs. Specially for olefins 12 Platts 5th European Petrochemicals Summit, 2018

Refinery Petrochemical Integration Scheme Methane

Process Configuration:

Ethane Natural Gas

Integrate process units to drive máximum efficiency and flexibility.

Condensate Splitter

Ethylene

NGL

Condensates Naphtha

Steam Cracker

Propylene

Butadiene Hydrogen

Technology Selection:

Py Gas Benzene

Select the most efficient process technologies, catalyst and adsorbents.

Reformate Crude Oil

Molecule Management: Process the right molecule in the right unit.


Refinery

Gasoline Blend

Aromatics Recovery

Toluene

(O, P, M) Xylene HCN

VGO / Residue ETBE Gasoline Blend

Propylene FCC Complex

Diesel Blend

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Refinery Petrochemical Integration. Steam Cracker Steam Cracking yields strongly rely on the kind of feedstock. Additional Ethylene capacity expansions (2015-17) represents 15 MT mainly is USA and ME. Ethane

Naphtha

Present a very high selectivity to ethylene Negligible aromatics and propylene production For each ton of ethylene produced, 1,2 tons of ethane are needed

Is the most common feedstock for crackers Produces a broad range of products For each ton of ethylene produced, 3,3 tons of naphta are needed

%Weight

Hydrogen&Methane Ethylene Propylene Butadiene Mixed Butenes C5+ Benzene Toluene Fuel Oil

Ethane

Propane

Butane

Naphtha

GasOil

13

28

24

26

18

80

45

37

30

25

2

15

18

13

14

1

2

2

5

5

2

1

6

8

6

2

9

13

8

7

5

5

4

3

2

18

Source: Chemistry of Petrochemical Processes. Matar, Hatch, 2005 Source: ICIS, 2016 Platts 5th European Petrochemicals Summit, 2018

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Refinery Petrochemical Integration. Oxidative Methane Coupling

Source: Lancaster et al, ACS Catalysis,2016

Direct methane upgrading using oxidative coupling is a vibrant field that so far has not yielded a commercially viable catalytic technology. 15 Platts 5th European Petrochemicals Summit, 2018

Refinery Petrochemical Integration. Ethylene Separation ExxonMobil: New Zeolite Cuts Ethylene Extraction Costs The new material is patented and called ITQ-55, ExxonMobil said. When used with other separation processes, ITQ-55 can result in reductions of up to 25% in the energy used in ethylene separation as well as the carbon dioxide (CO2) associated with it. Exxon, August, 2017

ITQ-55

“The discovery of new materials for separating ethylene from ethane by adsorption is a key milestone for molecular separation because of the multiple and widely extended uses of these Source: Bereciartua et al., Science 358, 1068–1071 (2017) molecules in the industry”. 16 Platts 5th European Petrochemicals Summit, 2018

Refinery Petrochemical Integration. Propylene Gap High propylene world demand. Propylene Gap, more than 10 MT/y. On purpose propylene capacity will increase from 17 MT to 42 MT by 2020. Steam Cracker. The increase in US ethane cracking has led to a drop in propylene production.

Source: ICIS, 2016

Petrochemical FCC Olefin Cracking On purpose production: Propane Dehydrogenation Olefin Metathesis Methanol to Propylene Source: Bricker, 2016 Platts 5th European Petrochemicals Summit, 2018 17

Refinery Petrochemical Integration. The Petrochemical FCC Specific unit designs for existing FCC Units, proposed by different licensors: PetroFCC (UOP technology): New reactor design, 13,5 % of C3= achievable Rx-Pro (UOP technology): Two risers, able to reach 20% of C3= Source: AFPM: AM-17-47

Source: Axens, UOP, 2007, 2014

Increase in propylene production by zeolite (ZSM-5 type) addition and/or process adjustment (pressure, temperature, steam…). Innovative catalyst topology allowing a better reactant and products diffusion across the matrix. After these modifications significant changes to the gas and lighter product recovery sections are necessary

production Maxofin (KBR technology): Two risers, 1st dedicated to distillates production and 2nd for C3= production (18%) based on naphtha cracking Petroriser (Axens technology): Two risers able to reach 17% of C3= production Designs for new FCC Units, proposed by KBR licensor: Naphtha feed to these FCC modified units Superflex: Orthoflow reactor working on a higher severity, able to reach up to 40% of C3= production depending on olefins proportion in feed.

Source: UOP, 2015

Source: KBR, 2015

K-COT: Specially indicated for paraffinic naphtha feed. Achievable C3= production up to 27%


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Petrochemical FCC. Propylene Maximization Scenario.

Propane Dehydrogenation

Petrochemical FCC complex Olefin Metathesis

Propane dehydrogenation produces propylene with rather high selectivity. The economics of dehydrogenation of propane to propylene depends on the differential among propane and propylene. Most of today’s activity in dehydrogenation is centered in the US, Middle East and China

Source: J. Mol, 2004

Metathesis is the reaction of ethylene with 2-butene to form propylene, the reaction is equilibrium limited.

Olefin cracking Unit

Feasibility depending on ethylene vs. propylene prices (typical historical value for the P/E price ratio has ranged from 0,7 – 0,8) Propylene Gap make this unit competitive under some specific scenarios Grass roots steam crackers, which incorporate metathesis as a method to increase propylene production must over-produce ethylene feed to unit, increasing the overall capital expenditure.


Source: KBR, UOP, 2007-09

Newer catalytic routes using ZSM5 type catalysts have shown promise recently, by converting C4-C8 olefinic feeds into as much as 40% propylene The olefin cracking technologies can be fed olefin-containing byproduct streams that are typically available in a refinery 19

On purpose Propylene. Propylene in China Natural Gas

Coal

China is using its low value coal reserves to feed Coal to Liquids and Methanol to Olefin (MTO) technologies to produce ethylene and propylene.

Power Synthesis Gas

Gasification

F-T Liquids Steam, H2

In China metanol consumption for olefins production ramps up to more than 8 MT/y. China is the biggest metanol producer in the world with a share of 50%. Methanol

Chemicals

At low oil prices economics of MTO are weak. No economic direct routes for converting methane to propylene.

Methanol to Olefins consumption in China 9 8 7

MT

Methane from Natural Gas must first be converted to methanol (or DME), and then it can be converted to ethylene and propylene.

6 5 4

High capital intensity for such Methane (or Methanol) to Olefins (MTO) processes


3 2 1 0 2006

2008

2010

2012

2014

2016

Source: Nexant, 2014

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Refinery Petrochemical Integration. Aromatics Aromatics (BTX) yearly demand is 119 MT. Paraxylene market represents 38 MT out of 44 MT for Xylenes. Benzene demand is around 46 MT and 29 MT for Toluene. Additional world BTX demand (2015-2020) is around 17 MT, of which 85% of new BTX supply is dominated by Asia (63%) and ME (22%). World Naphtha demand is around 817 MT, splitted in 41% for Naphtha Petrochemical use and 59% for Gasoline production. A significant availability of naphtha from tight oil is expected. The naphtha from tight oil is very paraffininc and eventually a bad feedstock for the catalytic reforming and good for a steam cracker.

MMBPSD

In the FCC evaluate ZSM-5 addition in order to increase the FCC naphtha octane. Reduce the rare earth FCC catalyst content. Lower products sulphur content and emmisions Tight Oil residue suitable to be fed directly to the FCC improving the heat balance, constrained by the lower coke making tendency

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Platts 9th Annual European Refining Summit, 2015 Source: ADI, 2017

Refinery Petrochemical Integration. Aromatics Complex HT Naphta

Naphtha/ Ethane/ LPG

Catalytic Reforming

Raffinate

Aromatics Extracton

Benzene

Steam Cracker Py Gas

Toluene Benzene Tower

Paraxylene

Toluene Disproportionation/ Transalkylation Toluene Tower

Adsorption

Xylene Tower

O-Xylene

Isomerization

O-Xylene Tower A9 Tower

Platts 9th Annual European Refining Summit, 2015

Production / Demand / Isomer 23% 18% o-Xylene 53% 2% m-Xylene 24% 80% p-Xylene

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A10+

Isomerization

Isopentane

RZ Hydrogen Platformin g Light Naphtha Reforming

Benzene

CEPSA Hysopar Isomerization Catalyst is an excelent option due to its high yields and stability

Aromatics Selectivity, mol-%

Refinery Petrochemical Integration. Naphtha Cut Optimization Light Naphtha Reforming

80 60 40 20

0

Tight Oil Naphtha

6

7 8 Feed Paraffin Carbon Number

UOP RZ PlatformingTM Technology - Maximizing Profitability from Tight Oil JL. Miramontes; AICHE Meeting, April 12, 2016

Naphtha

Naphtha Splitter

Catalytic Reforming

High BTX Reformate

Naphtha splitting is a key part of the Aromatic Complex, Light Naphtha has very low conversión to aromatics in the Catalytic Reforming. Isomerization to gasolina components is an option. Srong advance on catalyst stability, C8 aromatization activity and physical properties has been achieved by several licensors. Light Naphtha reforming allows an additional benzene capacity production due to its high hexanes conversión. Naphta and Condensates from Tight Oil is good feedstock for a high benzene production due to its content in C6 and C7 paraffins. Platts 5th European Petrochemicals Summit, 2018

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Refinery Petrochemical Integration. FCC and Aromatics Complex UOP, 2015 Paraffinic Naphta Steam Cracker Py gas

Max Ene

Naphtha/LPG Naphtenic Naphta

HDT

Aromatics Extracton

Raffinate

Catalytic Reforming

Benzene Toluene

Paraxylene

Benzene Tower

GTC, 2016

Toluene Disproportionation/ Transalkylation

LPG, Off gas Toluene Tower

C4, C5 Aromatization

FCC Naphtha

Aromatics

C6, C8 HDS

Xylene Tower

Aromatic Extraction

Adsorption

C9, C10 Heavies FCC

Isomerization

A9 Tower

Production / Demand / Isomer 23% 18% o-Xylene 53% 2% m-Xylene 24% 80% p-Xylene

O-Xylene Tower

VGO/Resid

O-Xylene

A10+

Source: Jechura, 2011 24 Platts 5th European Petrochemicals Summit, 2018

Refinery Petrochemicals Integration. Biochemicals Integration Technology Development Status Research

BioEthanol Sugars

Dehydration

BioPropylene

BioButanol

BioButylene

FCC

Bio-Naphtha

Vegetable Oil Deoxygenation

Hydrocracking

Bio-Hydrogen

Glycerine

Lignocellulosics

Commercial

BioEthylene

BioPropanol

Deoxygenation

Industrial

Furfural


Furfural Derivatives

Bio-Chemicals

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Refinery Petrochemical Integration. Crude Direct Cracking “In 2014, ExxonMobil commissioned a world-scale facility in Singapore that produces 1 million tons per year of ethylene directly from crude oil,” IHS Chemical Report, 2016

“Aramco, Sabic Sign Pact for $20 Billion Oil-to-Chemicals Project “ BLOOMBERG November2017

Crude Oil

Source: ExxonMobil, 2010 Platts 5th European Petrochemicals Summit, 2018

Steam Cracker

Products

Deep FCC

Products

Hydrocracker

“These new processes could potentially save refiners as much as $200-per-ton of ethylene produced, according to a comprehensive engineering analysis conducted by IHS (NYSE: IHS), the leading global source of critical information and insight” IHS, July 6 2016 26

4. Refinery Petrochemical Integration. Cointegration Analysis


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Refinery Petrochemical Integration.

Complexity: Ability to deliver high value light products. Flexibility on feedstocks: Ability to process different slates of crudes thanks to an efficient trading unit and an adapted logistics system.

45

IInvestment Cost, k$/Bbl

Capacity: A minimum size to reach economy of scales.

50 40 35 30 25

Petrochemical Integration

20

Deep Conversion

15

FCC Conversion

10

Hydroskimming

5 0 0

Flexibility on high value products: Adapted to the market demand and changes.

5

10

15

20

25

Gross Margin, $/Bbl Source: Jacobs, 2009

Energy efficiency: Integration of the different units with efficient energy use. Refining Margin Frequiency

Petrochemical Integration: Combined optimization of the feedstock streams, sharing units and transfers of products between refining and petrochemicals.

35 30 25 20 15 10 5 0 -5

0

5

10

15

20

US$/Bbl Hydroskimming

FCC

Hydrocracking

Petrochemical

Source: BP Satistical Review 2016, Credit Suisse, 2015


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Refinery Petrochemical Integration. Cointegration Analysis Whenever we have two non-stationary time series X and Y and some linear combination of X and Y is stationary, then we say that X and Y are cointegrated. In other words, while neither X nor Y alone hovers around a constant value, some combination of them does, so we can think of cointegration as describing a particular kind of long-term equilibrium relationship. The refining margin is defined as a linear combination of the value of refined products less the sum of the cost of crude oil and operating costs plus logistics, thus the refining margin is a linear combination of non-stationary variables. The forces involved in the pricing of crude oil and products interact so that refining margin varies as a stationary variable that can be represented by a cointegration relationship are shown in the figure.

Engle, Robert F.; Granger, Clive W. J.; "Co-integration and error correction:Representation, estimation and testing". Econometrica. 55 (2): 251–276.JSTOR 1913236.(1987) Javier Población; Gregorio Serna; Is the refining margin stationary?,International Review of Economics & Refining; (2016)


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Refinery Petrochemical Integration. Cointegration Analysis Crude Price Time Series

Products Price Time Series

Refinery Output Price Time Series

Cointegration Analysis

Cointegration

No Cointegration

Refinery-Petrochemical Complex Products yields and Operating Costs

The benefit of using cointegration and devising a long term trend for the refinery margin, is that we can swiftly evaluate the impact of changes in the refinery operation caused, for instance, by different products yields due to new investments increasing the refinery complexity, as in a refinery-petrochemical integration project. 30


Refinery Petrochemical Integration. Cointegration Analysis We have studied the refinery-petrochemical optimum integration share for an Aromatic Complex and a for a Steam Cracker+Aromatic Complex schemes.

*Refinery-Petrochemical Integration measured as a percentage of the Complex variable margin.

BrentP50 BrentP30 BrentP10 DubaiHCP40 DubaiHCP30

After conducting the Engler-Granger analysis, we considered two time series as cointegrated if the probability of not being cointegrated, measured as the p-Value, is below 5%.

DubaiHCP20 DubaiHCP10 LLCLSCracking BrentLScracking DubaiHCS DubaiFCC DubaiHSK

Several refinery models (Hydroskimming, FCC and Hydrocracker) and crudes (Dubai, Brent, LLC) have been studied. Source: IHS, EIA, ICIS (2004-2016). The Steam Cracker+Aromatic Complex margin running Dubai crude is cointegrated up to an integration level of 10%, for higher integration levels the margin presents a non-stationary behaviour. The Aromatic Complex margin, running Brent crude is cointegrated up to a refinery-petrochemical integration level of 50%. Platts 5th European Petrochemicals Summit, 2018

0 10 p-Value=5%

20

30

40

50

60

p-value, %

Dubai Steam Cracker+Aromatic Complex

Brent Aromatic Complex

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5. Conclusions


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CONCLUSIONS Petrochemicals is a cyclical market of high value products. Petrochemicals market size is around 10% of the whole oil market, and present a solid growing path. Petrochemicals rely on feedstocks cost and availability. Shale gas availability and oil price fluctuations, strongly affect the market dynamics. USA, ME and Asia are the most favored locations for petrochemicals production due to feedstock costs and product demand. Petrochemicals integration improves refinery´s economics despite the required investments are significant. The FCC seems to be the most promising unit for petrochemical integration. Petrochemical contribute to improve refinery economic performace on a disparate set of economic environments. Cointegration is presented as a tool for evaluating refinerypetrochemical integration schemes long term margin trend. 33 Platts 5th European Petrochemicals Summit, 2018

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