Platts US | January 10, 2013

Impact of shale plays on US aromatics

production and pricing

• Benzene supply constraints support higher prices

– Impacts derivatives production costs

– Positive HDA, TDP margins

• Toluene and the return of the driving season

– Refiners may opt to raise reformer run rates

• MX performing better than PX

Agenda

Benzene: Supply cuts support higher prices

• Production of benzene (as well as other aromatics) in the US

seriously constrained by shift to lighter feed crackers and lighter crude

slate.

• Aromatics cracker output from switch to light feed in crackers down by

~55% with some suggesting that estimate is conservative.

• Prior to shale oil, refiners were using a naphtha with a 40% naphthene

and aromatics cut while that number drops to roughly 35% with

lighter crude.

• Total US aromatics lost on shale oil and light feed crackers estimated

at roughly 20%

• This is on top of refinery closures, outages seen in the face of

hurricanes Isaac and Sandy, and planned and unplanned outages.

Further supply constraints

• Sunoco shuttered Marcus Hook refinery in December 2011, which took

out about 19kb/day of BTX out of the market.

• HOVENSA shuttered it’s refinery in St. Croix in H2 February which had

a capacity to produce 4,500 b/d of benzene, 5,800 b/d of toluene, and

4,000 b/d of MX,

Other outages include:

• BP – Texas City, TX - No1 FCC unit restarted on Jan 6

• Phillips 66 – Borger, TX – No 2 FCC unit under maintenance Dec

19

• Valero – Corpus Christi, TX – 6 week FCC maintenance starting in

Jan

• Valero – Texas City, TX – 8 week FCC maintenance to begin in Jan

Benzene derivative demand

• Styrene – Higher benzene is pushing styrene values up and prices are

expected to stay strong in the near term. This has killed arb opportunities.

US was about mid 1600’s and CFR China is closest possible arb

opportunity at about 1700 as of Wednesday but nothing moving.

• Styrene producers are running at near 80-85% and if possible, they will

re-inject whatever benzene they can back into the market when possible

to try to bring down BZ costs and accordingly their production costs.

• Downstream PS demand in the US lackluster and support comes from

upstream BZ and to a lesser extent, ethylene. With PS prices high, seems

some people in PS are looking for cheaper substitutes such as PP and

PE.

• Overall consensus seems to be that if US styrene or PS demand actually

shows some serious signs of life, benzene prices could get up into the $6-

7/gal range (though I would think at $7 there would be some demand

destruction.)

Benzene ration to Dated Brent

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02/01/2013

Benzene reflects high crude-naphtha cracks

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02/11/2012

02/01/2013

Chemical demand strong for most of 2012

Benzene lifts HDA, TDP & MSTDP margins

Mixed xylenes and paraxylene

• Mixed xylene prices showed significant strength in the latter part

of 2012 and TDP were stronger than MSTDP. On November 26,

MSTDP margins fell below TDP margins.

• This would seem to suggest that mixed xylene strength is

greater than paraxylene though MX arb to Asia shut in late

November. Exports from US to Asia lower according to EIA data

and US producers would have to export more than 80kt/month

to keep volumes level.

• Higher MX prices make MX unattractive as a blendstock.

• Value in xylenes chain was seen in mixed xylenes in H2 2012

as evidenced by both exports and TDP margins and then by PX

demand to close out the year.

TDP margins above MSTDP

Toluene and the return of the driving season

Ratio to naphtha widening at end of 2012

US toluene imports most prevalent in summer

• Spring and summer are the

periods where most imports to

the US would be feasible –

during the past two years. The

increased profitability of

imports to the US from Asia in

2012 during the summer

months could have been

absorbed by blenders – or fed

into the chemical process.

• There has only been a brief

period of exports from the US

during the past two years. If

chemical and blend demand

continue to pick up in 2013, the

US could be in a position to

absorb more foreign material.

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US MX exports surge in Q3 - EIA

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Paraxylene and derivatives

• US domestic paraxylene demand somewhat lacking on weak

demand from downstream sectors.

• PTA demand in the US remains relatively lackluster due to soft

downstream PET demand. At the same time, prices remain high.

• Participants anticipate that PET demand will pick up in March and

April when the bottling season in the US begins.

• Though PET demand is weak, participants anticipate an uptick of

2-3 cents on the January contract as a result of higher xylene

prices.

• So where is the PX going? For non-integrated producers, exports

to Asia are not economically viable however integrated producers

still can make decent margins in the short term.

US-Asia PX spread

US paraxylene export stats - EIA

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• The primary issue facing the US BTX markets is the

reduction of aromatics output by refineries and steam

crackers.

• The ~20% decrease has bolstered pricing across the board,

often at times when derivative demand did not justify higher

values.

• With US production expected to reach close to 8 million b/d

in 2014, relevant questions might consider how much will

increased crude production in the US going forward help to

negate losses from shale?

• What will the impact of PTA and PX capacities in Asia be on

the US market in the near term. Long term this will drive US

xylene demand.

Conclusions

Thank You

Contact: kevin_allen@platts.com