Allocated Fixed Costs
Allocated fixed costs are the fixed costs incurred by the business unit that may run a number of plant operations in different locations. It also includes any local tax and insurance charges that are incurred.
By-product credits list all the economically viable streams that are produced by the process alongside the main commercial product. Each stream is quoted per ton of production of the main product. Occasionally these by-product stream are a mixture of hydrocarbons that have little value other than as a fuel-in this instance the mass flow and price will be based on the heating value of the stream.
The capital cost is the summation of the ISBL and OSBL capital costs and represents our best estimate of the current capital outlay required to build the plant.
Cash Cost Margin
The cash cost margin is the margin achieved over cash costs from sales realising the netback value at the plant gate. Petrochemical producers can run plants at a negative cash cost margin, although they will fail to recover enough cash to fully fund maintenance and manning costs during this time.
Co-product streams from crackers can be routed back through the cracker with the cracker feedstock (e.g. naphtha) and co-cracked with the cracker feedstock. This is usually done if there is no alternative use for the co-product or if the cracker feedstock cost is high. Co-products treated in this way are given a "co-crack" value; that is, its value to the cracker as a feedstock as opposed to a market value.
A co-product is a product that is produced as a by-product during the conversion of feedstock to the desired primary product in a petrochemical process. Almost all petrochemical processes produce some form of co-product, although many can only be vented or used as fuel streams. A number of processes however produce economically significant co-product streams and act as an alternative source for these chemicals.
Current Monetary Basis
Nexant uses the term "Current Monetary Basis" to describe prices and costs in money of the day, i.e. as published at the time being considered. This is also referred to as a "nominal basis". Current money ignores the value eroding effect of inflation which makes US$1 in 2010 being worth less on a purchasing basis than US$1 in 1990. Nexant also presents results on a "Constant Monetary Basis"; this uses the US GDP Deflator to convert published nominal values in "real" values thereby allowing more direct comparisons of costs and prices across decades.
The depreciation presented here is a simple straight line depreciation calculation, based on the current estimated capital cost of the plant. The depreciation is that which would be paid by a unit that had just been completed in the region in question - many actual operating units are in fact fully depreciated and do not need to support this charge.
Direct Fixed Costs
Direct fixed costs are the fixed costs that are directly related to the process operation. These include the wages and salary burden for all staff directly involved in plant operation, along with an average annualised maintenance charge.
Direct overheads include all salary burden that the company needs to pay on top of the basic wage paid to the employees on the plant. This includes any pension and statutory insurance and healthcare payments.
Dubai Crude Oil
Dubai crude oil is a medium sour crude produced from the Fateh Field in Dubai. Although declining in production it is still used as a benchmark crude in for price setting. Due to its physical location Dubai Crude is shipped to Asia rather than being consumed in Western Europe or the United States. Its heavier composition and high sulphur content mean it is less favourable for the production of gasoline than Brent or WTI crudes.
One of the three elements of our end-use consumption analysis requires a correlation with an indicator of Economic Growth in a given region. The analysis uses a multiplier on this economic growth indicator to calculate these elements' contribution to the growth in demand for the product. The most common indicator used in our system is GDP as this is commonly understood and readily available around the world. Alternative indicators include population, industrial production, construction activity etc.
Nexant models consumption in two distinct ways; Firstly by consumption as feedstock for making petrochemicals, and secondly as an "end-use". This second form of demand models the consumption of a product in the wider economy as distinct from use as a petrochemical intermediate. End-Use consumption is modelled using a combination of multipliers on key economic indices along with a penetration effect. Nexant aggregates these End-Uses into one "End-Use" when displaying a regional total as the End-Use sectors modelled in each country within a given region can vary.
The end-use for a petrochemical intermediate / product is a term used to describe the aggregate consumption of a given chemical into a homogenous industrial/consumer sector. End-Uses can be contrasted with petrochemical demand as a feedstock (e.g. ethylene demand into PE) which is classified here as derivative consumption
We refer to Financing in our capacity analysis to ensure that any planned new capacity has a source of funds to finance the construction of the new unit. This financing can be from the owners, from banks or from Government sources.
Firm capacity is the annualised capacity which is either already existant, or in the event of future dates includes capacities for projects which we are certain will come to fruition. The firm capacity total reflects our internal estimation of when new projects will enter operations, which can in some cases differ from the dates proposed by the project developers.
The fixed costs presented here are those directly involved in running the plant and supporting the business that sells product from the plant. It is calculated as a summation of the Direct (plant costs) and Allocated Costs (business costs) as is presented per unit of main product. Fixed Costs do not include any allowance for corporate costs.
Fluidised Catalytic Cracker (FCC)
An FCC Unit (Fluidised Catalytic Cracker) is a refinery operation that upgrades the heavy oil fraction from an atmospheric distillation column into lighter, more valuable components. The main purpose of the FCC unit is to increase the gasoline yield on the refinery, however the unit can also produce significant amount of propylene. Typical yields provide 6 percent propylene by weight, although careful selection of catalyst can boost this yield to 20 percent albeit at the expense of gasoline production.
The freight charge covers the cost for marketing and moving the product from the plant to the point of sale. This point of sale is dependent on the price quotation; common basis include FOB (Free On Board), CFR (Carriage and Freight) and FD (Free Delivered) reflecting increasing cost to the producer as he incurs cost moving product to the delivery point. This cost includes any fixed costs associated with warehousing.
The GDP multiplier is a term used in the calculation of End-Use Consumption. One of the three elements of our End-Use Consumption analysis requires a correlation with an indicator of Economic Growth in a given region. The analysis uses a multiplier on this Economic Growth indicator to calculate the contribution of these elements to the growth in demand for the product. The most common indicator used in our system is GDP as this is commonly understood and readily available around the world.
The growth index is a data series defined to best represent the economic drivers for the consumption growth of a product in a particular sector. The growth index is based on varying proportions of different indices such as GDP, population and industrial production etc as appropriate for each product sector.
Inside Battery Limits (ISBL)
Inside Battery Limits (ISBL) is a term that refers to all equipment items that directly impacts on the process. This includes all process operations, immediate feedstock and product storage, etc.
During the economic life cycle, there are likely to be periods where producers are found building stocks and those where stock reduction is occurring. Our end-use Consumption analysis seeks to quantify the degree of inventory build through a correlation with the rate of change of economic growth in a given region. The analysis then uses a multiplier to calculate the inventory effects as economic activity changes in the region
A laggard plant is a hypothetical unit chosen to be representative of plant that are in the least competitive 15-25 percent of installed capacity ranked by cost in a given region (excluding plants known to have unusual economic disadvantage). The definition includes all parameters relating to the Techno-Economics of a plant. The laggard plant is not intended to represent any specific unit in that region.
A leader plant is a hypothetical unit chosen to be representative of plant that are in the most competitive 10-15 percent of installed capacity ranked by cost in a given region (excluding plants known to have unusual economic advantage). The definition includes all parameters relating to the techno-economics of a plant. The leader plant is not intended to represent any specific unit in that region.
Local Tax and Insurance
Local Tax/Insurance are the fixed costs associated with any rates payable to local authorities and the insurance costs associated with operating the plant.
Maintenance is an annualised average charge to cover both day to day maintenance costs as well as a charge for 3-5 year plant turnaround maintenance.
Net exports show the trade balance in a given region, being the sum of materials exported from the region, less any imports. Our methodology calculates trade forecasts on a region to region basis ensuring that all exports are sent to regions that need additional supply.
The netback is the sales realisation achieved by the producer after allowance is made for freight costs from the chosen point(s) of sale.
Octane rating is a key physical parameter used in gasoline specifications. Octane ratings are a measure of the anti-knock properties of a fuel, with a rating of zero assigned to the performance of normal heptane and 100 to iso-octane (2,2,4-trimethylpentane). Fuels with a lower octane level perform less well in a given engine.
Operating rate is calculated by dividing production by capacity for a given product in a given region. This is a key feature in determining profitability for a given product.
Outside Battery Limits (OSBL)
Outside Battery Limits (OSBL) is a term that refers to all equipment items that are solely related to the process operation, but are outside the actual requirements of immediate operation. This includes the majority of feedstock and product storage, any packaging and logistical operations, the control room etc.
Penetration effect is a mathematical methodology used to model the market effects of how demand growth in a given sector matures over time. As one of the three elements of our End-Use Consumption analysis, the penetration effect uses a time dependant function which recognises product life cycle effect and the impact on the growth in demand for a product. A typical sector will experience a demand enhancement once it has established a new end-use. This enhancement is lost as the product approaches its equilibrium market share in the sector and can subsequently become a negative contributor to growth if new products are introduced into the sector. The penetration factor therefore determines the relation to the chosen growth index over time.
A process is a distinct petrochemical technology for producing a product from a feedstock (occasionally a choice of feedstocks). Many processes remain under some form of patent control, however they are generally available for third parties to use, subject to licensing fees. Our process definition identifies the main product used to determine plant operating characteristics as well as any associated co-product and feedstock requirements.
A process type is a term given to a grouping of similar processes.
Producer Inventory Rise
Producer inventory rise is the net change in producer-held product inventory. In most markets, the annual change in this quantity is not significant, and producer inventory rise is only included in SDT balances when there is an abnormal inventory build or draw-down which affects the market.
Return on Replacement Capital
The return on replacement capital is calculated by comparing the annualised revenue (cash margin less depreciation) with the total capital cost of the plant (ISBL + OSBL). This calculation is termed on replacement capital as it uses the current estimated capital cost as the divisor. Actual plants in a region will have been built at an earlier date, at potentially a lower capital cost.
Royalty costs are the costs per ton agreed to cover any license granted to the plant owner by the technology provider. It is also common for this royalty charge to be capitalised and included in the ISBL capital cost.
Speculative capacity is our estimate of any additional annualised net capacity additions that are likely in each region. This speculative capacity includes both new plant construction and expansions on existing units, and can also include the predicted closure of existing capacity.
Start-up refers to the commencing of continuous commercial operation at a new (or newly expanded) petrochemical plant. This Start-Up may be preceded by commissioning and contractual performance test runs.
A steam cracker is a fundamental process in the petrochemical industry providing a key linkage between refined products and petrochemical intermediates. The Steam Cracker uses a pyrolysis process to partially decompose hydro-carbon feeds, with steam acting as a diluent. The main product from a stream cracker is ethylene, however propylene and to a lesser extent benzene and butadiene are also produced in commercial quantities. Hydro-carbon feed varies by region, with ethane being the feed of choice where available, and naphtha popular in regions with developed refining facilities.
The term swing plant is used as a designation for petrochemical plants that are able to change product from one material to another without any great change in feedstock. LLDPE-HDPE swing units which can make either LLDPE or HDPE depending on operating conditions and catalyst are the most common form of swing plants.
Technical Support Cost
Technical support costs are service costs associated with promoting and supporting technical grades. These costs are particularly applicable to polymer production to allow the producer to fine tune his production to the needs of his customers.
Techno-economics is the term used to describe a technical-economic analysis of the cost competitiveness of a petrochemical plant. It combines a mass and energy balance with market price information to calculate the variable cost of production, then adds direct and indirect fixed costs to compute the production cash cost.
We refer to metric tons when we use the term "tons" in our reports. This mass is equivalent to 2204.6 pounds.
A typical plant is used for products that do not have sufficient operations in a given region to be able to reasonably define leader and laggard plant scales.
A plant is considered as being under construction once ground has been broken for civil works on a site. This classification can be reviewed if activity is reported to have been halted at the site.
Units refer to the selected production basis for any output. The default unit is tons (tons per annum, US dollars per ton), however the user can alternatively select pounds or even volumetric measures such as US gallons and barrels.
Utilities lists the separate utility services that are needed to balance the energy requirements of the process. Some petrochemical reactions produce significant amounts of energy. Such processes will commonly show a negative steam mass flow per ton of main product, indicating that steam is produced by the reaction.
Vapour Pressure is a key physical parameter used in gasoline specifications. Vapour pressure determines the ease with which the fuel is vapourised within a combustion engine as well as the amount of vapour created during filling operations. Gasoline regulations often specify a higher vapour pressure during the summer to reduce vapour emissions at gasoline retail stations.
The Variable Cost of production is calculated here as the net cost of all materials (feedstocks less co-products) plus utility costs associated with the plant operation, and are presented per ton of main product. Sales realisation of the main product are not included in the variable cost calculation.
Variable Cost Margin
The Variable Cost Margin is the margin achieved over net raw material and utility costs from sales realising the netback value at the plant gate. Petrochemical producer cannot run plants at a negative variable cost margin for any significant length of time, unless cash is available from other sources to fund feedstock and utility costs.