ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO - - PowerPoint PPT Presentation

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ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO - - PowerPoint PPT Presentation

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ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO DERIVATIVES PETROCHEMICAL SUB-SECTOR Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable

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ECONOMIC IMPACTS AND MARKET CHALLENGES FOR THE METHANE TO DERIVATIVES PETROCHEMICAL SUB-SECTOR

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Canadian Energy Research Institute

Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include:

  • Market specific studies
  • Geopolitical analyses
  • Commodity reports (crude oil, electricity and natural gas)

In addition, CERI hosts an annual Petrochemical Conference.

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Canadian Energy Research Institute

CERI receives financial support from its core funders which include Natural Resources Canada, Alberta Energy and the Canadian Association of Petroleum Producers. In addition, the institute benefits from funds provided by donors which include:

  • Alberta’s Industrial Heartland Association
  • Chemistry Industry Association of Canada
  • Government of Saskatchewan
  • Ivey Foundation
  • University of Calgary

CERI also receives in-kind support from the following contributors:

  • Alberta Energy Regulator
  • Advisian Worley Parsons Group
  • Petroleum Services Assoc of Canada
  • Lithuanian Energy Institute
  • Deloitte Canada Ltd.
  • Atlantic Institute for Market Studies
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Presentation Outline

  • 1. Natural Gas Market
  • 2. Petrochemical Industry
  • 3. Methane-based Products
  • 4. Economic and Environmental Analysis
  • 5. Concluding Remarks
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Natural Gas Supply and Demand Forecasts

Canadian natural gas production forecast Export market under threat. Industrial use, oil sands, power generation, LNG, chemicals and petrochemicals production

5000 10000 15000 20000 25000

2005 2010 2015 2020 2025 2030 2035

mmcfd

Pipeline Exports LNG Exports Supply Demand

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The Export Market Challenge

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Where do we find new markets for Western Canadian Natural Gas? Petrochemicals

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Global Petrochemical Outlook

Source: IHS Chemical 2016

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North America Petrochemical Outlook

Low cost feedstock advantage leading to investments in chemicals and derivatives

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Methanol Outlook

Methanol demand is forecast to grow at 4% globally compound annual growth rate (CAGR)

Source: Argus 2017

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4,538 1,139 5,677 370 762 590 1,722 4,908 1,901 590 7,399

  • 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Alberta Ontario Quebec Canada kt/yr Olefins Aromatics Total

92%/8% 60%/40% 0%/100% 75%/25%

Petrochemicals in Canada

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Methane as a Feedstock

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Methane Derivatives

Synthesis Gas (Syngas) Hydrogen (H2) Ammonia Natural Gas (N.G) Urea Formaldehyde Acetic Acid Methyl tert-butyl ether (MTBE) Dimethyl ether (DME) Methylamine Methanol to Olefins (MTO) Methanol to Propylene (MTP) Methanol to Gasoline (MTG) METHYL METHACRYLATE (MMA) Fischer-Tropsch Process Methanol (MeOH) Liquified Petroleum Gas (LPG) Methane (CH4) CO2

Natural gas liquids (NGLs)

Credit potential if sequestered?

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Economic Assessment

  • 1. Assessment of 9 technologies:

Methanol, Hydrogen, MTP, MTO, MTG, Ammonia, Urea, Formaldehyde and Fischer Tropsch Gasoline

  • 2. Key Assumptions
  • 3. Life Cycle Costs (LCC): NPV of CAPEX (ISBL- inside battery

limits and OSBL – Outside Battery Limits), Natural Gas costs, taxes, etc.

  • 4. Jurisdictional competitiveness comparison: AB, ON, USGC
  • 5. Discounted NPV and Internal Rate of Return (IRR)
  • 6. Direct and indirect economic impacts: GDP, Employment
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CO2 Tax Assumptions ($/T CO2)

Canada: 20 (2019), 30 (2020), 40 (2021), 50 (2022->) Alberta: 30 (2019), 30 (2020), 40 (2021), 50 (2022->) Ontario: Mid-range CO2 Price Forecast (ICF Study for OEB)

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Price Assumptions

Derivative prices are kept constant Where available 2016 are used

Natural Gas Price Assumption USGC AB ON Average 2016 Prices Natural Gas (US$/ MMBTU) 2.34 1.56 2.38 Henry, AECO and Dawn Hubs Prices

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Growth Assumptions

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Results: IRR for 9 Methane Derivatives

Applying the new US Corporate Tax Code improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively.

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Methanol NPV Jurisdictional Comparison

Gone

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Hydrogen NPV Jurisdictional Comparison

Gone Higher Exemption limit

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Methanol: Life Cycle Costs Make-up

Now 12%-14%

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Methanol Tax Rebates Scenarios

1: Provincial Tax Rebate Could Increase IRR by: 1.1% in AB 0.9% in ON 2: Corporate Tax Rebate Could Increase IRR by: 2.3% in AB 2% in ON

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Economic Impacts

Product Alberta (GDP C$ Million) Ontario (GDP C$ Million) Provincial National Provincial National FTS 365.3 425.3 376.1 434.4 H2 41.9 48.8 43.2 49.9 Methanol 296.8 345.6 305.9 353.3 Jurisdiction H2 MeOH FTS Provincial Canada Provincial Canada Provincial Canada Alberta 1,059 1,509 7,499 10,686 9,230 13,153 Ontario 1,908 2,287 13,520 16,200 16,623 19,918

GDP Employment: Person years

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Concluding Remarks

  • New capacity for ethylene, propylene and methanol followed energy

and demand growth dynamics

  • Results show that some opportunities exists for methane derivatives

sub-sector in Alberta. This is driven principally by 10-15% low feedstock prices, OPEX and corporate taxes.

  • CO2 taxes based on custom approaches for trade exposed industries

seems to sustain economic competitiveness against the USGC.

  • New natural gas feedstock demand – 0.5 bcfd
  • However, the new US Tax Code will likely make USGC the most

competitive jurisdiction. For example, it improves the IRR of Hydrogen and Methanol by 1.7% and 1.5%, respectively.

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US Tax Code Change is Significant

Product NPV Advantage to USGC Compared to Canadian Jurisdictions Due to Tax Code Change (US$ million) Ammonia 24.0 Formaldehyde 0.6 FTS 370.6 Hydrogen

1.7

Methanol

231.1

MTO

28.9

MTP

33.7

MTG

14.3

Urea

17.6

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Thank You for Your Time

WWW.CERI.CA CANADIAN ENERGY RESEARCH INSITUTE @CERI_CANADA

Allan Fogwill | President & CEO 403.220.2367 afogwill@ceri.ca

UPCOMING STUDIES: Economic and Emission Impacts of Oil Sands Production Carbon Management Impacts on Electricity Markets Economic and Emissions Impacts of Conventional Oil and Gas Production UPCOMING CONFERENCE: Petrochemical: June 10-12 2018, Kananaskis, AB