Scenario Planning: Things to Consider

Transcription

1 Scenario Planning: Things to Consider ICIS Consulting Karl Bartholomew Vice President, Americas July 28,

2 Today s Topics Things all planners should know Oil Price Impact Long vs. short-term cycles Reality check Recap 2

3 Scenario Planning Fundamentals 3

4 Things to consider... Unless building a thermonuclear device, ensure a material balance (lbs. in = lbs. out) Economics beats technology every time You cannot forecast history Those who forget the lessons of history are doomed to repeat them Rising tides float all ships Correlation does not automatically mean causality Stewart s corollary: Politics beats economics every time Ziesmer s axiom Remember there s math, then there s government math 4

5 Brainstorm plan for the unexpected (like 50% drop in oil price) Create list of 10 items that could be unexpected Select top 3 mostly likely to impact your project / plant / business Develop contingency plan for your planning options But be aware of group-think 5

6 Oil Prices 6

7 No one gets oil forecasts correct Geo-political events Financial events Technology / resource changes Look at fundamental supply & demand patterns 7

8 Gasoline Demand = Miles Driven 8

9 Events that impacted oil price 9

10 Energy Information Administration forecasts 10

11 Brent pre oil price crash 11

12 Ethane pre oil price crash 12

13 Propane pre oil price crash 13

14 Brent look at drops & recoveries 14

15 Scenario planning could have captured drop (maybe not 50%) 15

16 Everyone has different forecasts for oil EIA 16

17 Goldman Sachs 17

18 World Bank 18

19 Wide range of forecasts dictates scenario planning EIA Short Term Energy Outlook (STEO) Shell Tudor Pickering Holt (TPH) 19

20 Oil Price Change Scenarios 20

21 Propane Dehydrogenation (PDH) Projects ICIS did an analysis last year looking at profitability of PDH projects at different price levels How do you think lower oil prices impact profitability? 21

22 Base Case 22

23 $50/bbl Case 23

24 Long vs. short-term cycles 24

25 Today s cycle is about low oil price; however... We re in the midst of a longer term cycle feedstock quality This can be seen by looking at supply & demand data, key ratios for both downstream segments years ago, refiners were running lighter crude oils Same period of time, ethylene crackers were running more ethane During 1980s-1990s, heavier crudes were being processed; petrochemical operations were building flex-crackers In 2015 back to lighter feeds 25

26 Coker Utilization Gulf Coast refiners were reconfigured for Mexican Maya, heavy Middle East crude oils in 1990s Today, utilization is down; more refiners processing shale oil that don t have as many bottoms 26

27 Cracker Feeds In 1970s, crackers ran mostly ethane 1980s-1990s, flexcrackers were in vogue, taking advantage of propane, naphtha, heavier feed 2015 back to ethane! 27

28 Scenario Planning requires reality checks! 28

29 Calibrate, then forecast Client hired ICIS and another firm to provide forecasts ICIS developed base case scenario model based on historical operations, margins Other firm developed high, low cases, used average as base Did not check to see if the model matched actual performance As a result, over-predicted 2015 YTD margins for the operation ICIS model matched 2015 YTD results while other model did not The low scenario was closer But best answer was to reset forecasts to match history first! 29

30 ICIS forecast 30

31 Other forecast 31

32 A 50/50 average isn t always the best answer 32

33 Recap 33

34 Scenario Planning Make sure fundamentals are solid: Supply & demand supports market direction Price scenarios have to tie back to actual history In periods of price volatility (like today s oil price), don t assume trend continues Trend that can t continue, won t continue Look for both short-term and long-term cycles chances are we ve been there before 34

35 One last thought... Same data can be interpreted differently 35

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37 Scenario Planning: Things to Consider Whitepaper Click here to download our free white paper for more information on this topic. 37

38 Contact us Karl Bartholomew Vice President, Americas Mike Perkins Vice President, EMEA Ee Foong Ewe Vice President, Asia Paul Ray Head of Consulting and Analytics 38

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