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spk01: Hello and welcome to the Lyondell Bissell teleconference. At the request of Lyondell Bissell, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question and answer session. I would now like to turn the conference over to Mr. David Kinney, head of investor relations. Sir, you may begin.
spk14: Thank you, operator. Hello and welcome to Lyondell Bissell's fourth quarter 2021 teleconference. I'm joined today by Ken Lane, our interim chief executive officer, and Michael McMurray, our chief financial officer. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.LyndellBussell.com slash investor relations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that can lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our investor relations website. Additional documents on our investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern time today. until February 28th by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13725132. During today's call, we will focus on fourth quarter and full year 2021 results, the current environment, and our near-term outlook. Before turning the call over to Ken, I would like to call your attention to the non-cash lower of cost or market inventory adjustments, or LCM that we have discussed on past calls. These adjustments are related to our use of last in, first out, or LIFO accounting and the volatility in prices for our raw material and finished goods inventories. During the fourth quarter of 2021, we recognized a non-cash impairment of $624 million that reflected our ongoing evaluation of strategic options for the Houston refinery. Comments made on this call will be in regard to our underlying business results, excluding the impacts of the refinery impairment and the LCM inventory adjustments. With that being said, I would now like to turn the call over to Ken.
spk19: Thank you, Dave, and good day to all of you. We appreciate you joining us today and as we discuss our fourth quarter and full year 2021 results. Before we begin the business discussion, I would like to take a moment and thank our Board of Directors for the opportunity to lead Lyondell Bazell as interim CEO until Peter Vonneker can join the company at the end of the second quarter. For the past 30 years, I've worked in the chemical industry in roles spanning manufacturing, major projects, strategy, and business leadership, with assignments in Asia, Europe, and the Americas. Since 2019, I've had the pleasure of leading Lion Devil's L's global olefins and polyolefins businesses. Our company is in great shape, and we have good momentum. I want to emphasize that our strategy remains unchanged, and I'll keep our company moving forward, continuing to execute our strategy and ensuring Peter has a successful start. I'll work closely with our board, the Lyondell Bazell leadership team, and our 19,000 talented employees to advance our growth projects, actively manage our business portfolio, and ensure we remain consistent with our goals of being the best operated and most valued company in our industry. Now, moving on to the business discussion, as Dave mentioned, a set of slides accompanies today's call and is available on our website. Let's turn to slide three and review some highlights for the past year. 2021 earnings were $18.19 per share with $9.3 billion of EBITDA. Earnings per share were more than three times higher than 2020, and EBITDA improved by 140%. Our company's growing portfolio of assets delivered EBITDA that exceeded our previous best year by 15%, and resulted in $7.6 billion of cash from operating activities. Altogether, we generated a 25% return on invested capital during 2021. Our results provide an indicator of how Lionel Bezell's earnings power is stepping up relative to the performance we delivered over the prior decade. Our 2021 performance was supported by strong demand for our products, supply constraints across our industry, and our growth investments. Favorable markets drove seven consecutive months of contract price increases for polyethylene in the United States. In our intermediates and derivatives segment, strong demand for polyurethanes drove record earnings from our leading propylene oxide and derivatives business. A robust market for building and construction materials served to increase margins across our acetal's value chain. Also, rebounding demand for transportation fuels, self-help cost reductions, and higher operating rates enabled our refining segment to return to profitability in both the third and the fourth quarters. I want to emphasize that we're maintaining our commitment to a disciplined approach to capital allocation. Our team worked diligently to convert our EBITDA into $7.6 billion of cash from operating activities. After investing $1.9 billion to maintain our assets and fund additional profit-generating investments, $5.7 billion of free cash flow remained. We rewarded investors by deploying $4.44 per share in dividends and repurchasing over 5 million shares. Last but not least, we delivered on our commitments and strengthened our balance sheet with $4 billion of long-term debt reduction. Our strategy is to identify, develop, and capture opportunities through all phases of business cycles, During 2021, we capitalized on those opportunities. Let's turn to slide four. Our core commitments to health and safety remain steadfast. The tragic incident that resulted in two fatalities and several injuries at our acetic acid plant last July reminds us of why we work so diligently toward our goal of flawless safety performance. We learn from experience and seek to further bolster a goal zero work environment to prevent these incidents from recurring. On slide four, you can see that during 2021, our team continued to deliver recordable incident rates that are among the lowest for our industry. I'm particularly proud of our team's performance over the final months of 2021 as we engaged the entire organization and leadership teams of our largest contractors to reduce recordable incident rates across our employee and contractor workforce each month during the second half of the year. Now, please turn to slide five. to review our quarterly profitability. While increased costs for feedstocks and energy continue to compress margins from second quarter highs, demand for our products remains strong. Our business portfolio delivered $2 billion of EBITDA during the fourth quarter, exceeding the results of the prior year quarter by 60%. Increased energy costs were particularly impactful for our European O&P and IND operations, where on Sundays in December, Dutch natural gas prices exceeded $50 per million BTU. Higher natural gas prices directly impact our fuel costs, but also show up as higher costs for our purchased electricity and steam. Nonetheless, seasonal patterns for our businesses typically trend downward at the end of the year, and the $2 billion of EBITDA we earned during the fourth quarter of 2021 is reflective of healthy markets for our products. The downward trends we saw in the fourth quarter seemed to be abating with margins stabilizing in January. During the remainder of the first quarter, we could see inflection on stronger seasonal demand and supply constraints. With most economists expecting 2022 global GDP growth rates to exceed historical averages at roughly 4%, we remain constructive on the outlook for our businesses. New capacity will come online in 2022, but will largely be needed to meet growing demand from well-funded consumers, address order backlogs as supply chains normalize, and support further global reopening from the pandemic. Slide 6 provides a historical view of Lionel Bezell's profitability over the past decade. During the period from 2011 to 2019, we delivered an average of $6.7 billion of EBITDA, Our performance in 2021 exceeded the 2015 peak by 15%. While 2021 was a particularly strong year for our core markets, we have confidence that the growth investments we brought online since 2018 will drive a sustainable step change improvement in our profitability over the next decade. The formation of our advanced polymer solutions segment in 2018 provided visibility into Lionel Bezell's sizable legacy compounding business. The businesses we acquired that year from A. Shulman added approximately $200 million in annual EBITDA. Since 2018, the APS segment has been challenged by production constraints in their largest market, plastic compounds used in vehicle production. Despite high consumer demand, automotive production has been held back by COVID-related manufacturing shutdowns and shortages of semiconductors. With global vehicle production expected to rebound by 9% in 2022 and an additional 10% in 2023, we expect to reach higher utilization across our APS segment. Increased capacity utilization will enable the realization of volume-driven synergies. In 2020, we commissioned the first world-scale plant utilizing Lionel Bazelle's proprietary HyperZone technology for high-density polyethylene. We have a long and successful track record of introducing new polyolefin technologies. Each new generation of technology encounters initial challenges, and we are making good progress working through those with our first HyperZone asset. Our manufacturing and R&D teams have been working diligently to improve reliability. In the fourth quarter of 2021, we decided to bring down the HyperZone plant and make some modifications. While it's still early days, we are highly encouraged by the performance of the plant since restarting in December. It's my expectation that we will realize a greater share of the volume and margin benefits from this investment during 2022. In 2020, we invested in integrated cracker joint ventures in China and Louisiana where new assets were fully built and generated immediate returns. In 2022, we are starting up two new propylene oxide plants, a joint venture in China and a wholly owned asset in Houston that will expand Lionel Bazell's ownership capacity for propylene oxide by nearly 50%. I'm pleased to report that the China plant is already producing on-spec products and rapidly ramping up rates. Our larger POTBA facility in Houston is progressing on schedule for startup during the end of this year. Both propylene oxide facilities are starting up with tight markets and all-time high margins for this intermediate chemical, that is essential for the production of polyurethanes and other downstream products. Taken together, our growth investments give us the confidence that we will step up earnings in the current decade. On slide seven, I would like to highlight how we are also stepping up our progress on sustainability. In April, we introduced our circulant family of polymers produced using recycled and renewable-based feedstocks that reduce our reliance on fossil-based raw materials. These products are targeted at the rapidly growing market for sustainable plastics. In October, we extended the Circulum brand to the compounds and solutions provided by our APS segment. All of this is part of Lionel Bezell's commitment to annually produce and market 2 million tons of recycled and renewable-based polymers by 2030. 2022 will be an exciting year for our proprietary Moortec advanced recycling technology. In December, our team commissioned upgrades to our pilot facility, enabling us to determine the extent of our technology advantage and guide an investment decision for our first commercial-scale facility. This technology provides Lionel Lizell with an opportunity to be a leader in the rapidly growing markets for circular plastics. In late September, we announced accelerated targets and a goal to achieve net-zero Scope 1 and Scope 2 greenhouse gas emissions from our global operations by 2050. We also increased our 2030 ambition and now aim to reduce absolute emissions by 30% relative to a 2020 baseline. In the near term, we don't expect significant increases in our overall capital budget, as reduced spending associated with the completion of our POTBA project in 2022 should offset an increasing share for circular and climate-related investments going forward. I'll turn the call over to Michael for him to describe our financial and segment results in more detail.
spk18: Thank you, Ken, and good morning, everyone. Please turn to slide 8 and let me begin by highlighting our substantial cash generation during 2021. Lyondell Bazell delivered record cash from operations and free cash flow in 2021. Our team worked diligently to efficiently convert 82% of our EBITDA into cash for the year, despite increased working capital needs to support higher prices. After accounting for sustaining capital investments, we achieved a 23% free operating cash flow yield relative to our market capitalization. Let's continue with Slide 9 and review the details of how we deployed all of this cash last year. During 2021, we paid dividends and repurchased shares to provide a total of $2 billion in returns for shareholders. In May, we increased our quarterly dividend by 8%. 2021 represents our 11th consecutive year of annual dividend growth. At the same time, we reduced our long-term debt by $4 billion and further bolstered our balance sheet by paying down $300 million of short-term commercial paper. Net interest expense increased to $510 million higher than our guidance at the beginning of 2021, largely due to debt extinguishment costs. Our current portfolio supports our solid investment-grade balance sheet, and we do not see the need for additional debt reduction. We ended the year with $1.5 billion of cash and short-term investments, and $5.4 billion of cash and available liquidity. Now, I'd like to provide an overview of the results for each of our segments on slide 10. As Ken mentioned, our business portfolio delivered $2 billion of EBITDA during the fourth quarter. Our results reflected strong demand for our products, offset by higher costs for feedstocks and energy, primarily in our O&P Europe, Asia, International, IND, and APS segments. Let's begin the individual segment discussions on slide 11. with the performance of our olefins and polyolefins America segment. Fourth quarter 2021 EBITDA was $1.3 billion, $306 million lower than the third quarter. Margins declined on lower pricing for both olefins and polyolefins. Olefin results decreased approximately $190 million compared to third quarter 2021 due to margin declines driven by lower ethylene and propylene prices. Although we operated our North American ethylene crackers at 97%, sales volumes remained relatively unchanged as we built inventory to support maintenance downtime planned for the first quarter. Combined polyolefin results were approximately $120 million lower than the third quarter, primarily due to a decrease in polyethylene and polypropylene spreads over Montero. Polyethylene, however, posted record volumes driven by strong demand and increased production from our HyperZone facility in December. O&P America has posted record EBITDA of $5.3 billion for the full year, $3.5 billion higher than 2020. Margins increased for both olefins and polyolefins as higher product prices outpaced higher costs. Demand for non-durable packaging and consumer goods remained strong and led to increased volumes for both ethylene and polyethylene. Based on increasing seasonal demand and tight industry supply due to higher industry cracker maintenance, we expect robust margins to continue into the first quarter. Let's turn to slide 12 and review typical seasonal trends in the U.S. polyethylene market. After tight markets escalated prices over the first three quarters of 2021, declines in polyethylene contract prices during the fourth quarter of last year captured market attention. As illustrated by the green line on the chart, demand typically rises during the first quarter, stabilizes in the second quarter, and grows again during the second season of the third quarter. In the fourth quarter, orders for polymers slow due to holiday downtime and as market participants strive to minimize their year-end inventories. The blue line indicates that polyethylene pricing logically follows these seasonal demand trends. Simply put, lower fourth quarter prices are a common occurrence. In contrast, the industry usually sees a rebound in demand and pricing during the first quarter. Orders increase as customers resume full production. During February and March, export demand often improves following the Lunar New Year holiday. In 2022, industry consultants are forecasting planned maintenance for U.S. ethylene crackers will be three times higher than normal. with about 15% of US capacity taking maintenance downtime. Similarly, about 10% of European ethylene capacity will be down for maintenance during the first half of 2022. Ethylene cracker outages often constrain downstream polyethylene production. In summary, the confluence of seasonal trends, industry downtime, and robust consumer demand should provide support for polyethylene pricing during the first quarter of 2022. Now, please turn to slide 13 to review the performance of our olefins and polyolefins, Europe, Asia, and international segment. Higher costs and lower spreads reduce margins and volumes in our EAI markets, resulting in a fourth quarter EBITDA of $155 million, $319 million lower than the third quarter. Olefins results declined approximately $180 million, as margins decreased driven by higher feedstock and energy costs, despite higher ethylene and propylene prices. We operated our crackers at a rate of 70% due to planned maintenance. Combined polyolefin results decreased approximately $100 million compared to the prior quarter. Lower seasonal demand drove declines in polyolefin price spreads relative to monomer costs and reduced volumes. Declining polyolefin spreads and higher energy costs also affected our joint venture equity income by about $15 million. Full-year EBITDA increased $923 million compared to 2020. Oliphant's margins declined due to higher feedstock costs, outpacing increased ethylene and propylene prices. Combined polyolefin results and our joint venture equity income increased by more than $815 million and $125 million, respectively, driven by higher margins with increases in polyolefin prices. In Europe, we expect typical seasonal improvements as we progress through the first half of the year. Please turn to slide 14 as we take a look at our intermediates and derivatives segment. Fourth quarter EBITDA was $252 million, a decline of $96 million from the third quarter of 2021. Compressed margins for oxyfuels and related products and last-in, first-out inventory valuation charges of about $95 million muted margin improvements in our propylene oxide and derivatives and intermediate chemical businesses. Fourth-quarter propylene oxide and derivatives results remained relatively unchanged, with higher margins offset by lower volumes due to planned maintenance. Intermediate chemicals results increased about $65 million, with a resumption of our acetyls production. Oxyfuels and related products results decreased approximately $85 million as margins declined due to higher butane feedstock costs. For the full year, strong demand and a tight market drove margin increases in most businesses resulting in EBITDA of $1.4 billion, $535 million higher than 2020. Volumes declined due to reduced exports of our propylene oxide and derivative products. In the first quarter of 2022, we expect margins to approve for our oxy fuels and related product business with lower butane feedstock cost. Our volumes are expected to increase during the first quarter supported by continued strong demand for our propylene oxide and derivatives and acetyls products. Now let's move forward and review the results of our advanced polymer solution segment on slide 15. Customer supply chain constraints and high raw material costs hindered results with fourth quarter EBITDA of $24 million, $97 million lower than the third quarter. The segment incurred last-in, first-out inventory valuation charges of about $55 million during the quarter. Results for the compounding and solutions businesses decreased due to margin declines driven by higher raw material costs. Volumes decreased with continued supply chain constraints in the automotive manufacturing markets. Results for our advanced polymer businesses were relatively unchanged, with margin improvement offset by volume declines. Full-year EBITDA for the segment was $409 million, a $28 million increase over 2020. Compared to the prior period, results benefited from a $35 million reduction in integration costs. Margins increased with higher spreads and volumes, increased with higher building and construction demand for our advanced polymer businesses. We expect volumes to improve as automotive manufacturers begin to ramp up production, particularly for products from our compounding and solutions business. Now, let's turn to slide 16 and discuss the result of our refining segment. Fourth quarter EBITDA was $150 million, a $109 million improvement compared to the third quarter of 2021. Results excluded a non-cash impairment charge of $624 million reflecting our ongoing evaluation of strategic options. Results for the quarter benefited from approximately $50 million due to LIFO effects from reduced inventory volumes. Results for the fourth quarter were driven by an improvement in margins due to a better product mix and an increase in the Maya 211 benchmark crack spread to about $23.58 per barrel. We operated the refinery at near full rates of nameplate capacity with an average crude throughput at 266,000 barrels per day. Full-year EBITDA increased $289 million compared to 2020, or break even for the year. Comparisons exclude impairments taken in the fourth quarter of 2021 and the third quarter of 2020. Approximately $45 million of LIFO changes benefited the segment for 2021. Refining margins improved with higher demand for gasoline and jet fuel which drove the Maya 2.1.1 spread from a historically low point in 2020 at an average of $12.63 to $20.87 per barrel in 2021. Crude throughput improved to 231,000 barrels per day in response to higher market demand. Refining margins are expected to improve slightly, with crack spreads estimated to be about $25 per barrel. We plan to operate the refinery at more than 90% of nameplate crude capacity during the first quarter. Please turn to slide 17 as we review the results of our technology segment. All-time high levels of licensing revenue and catalyst volumes drove EBITDA to new records of $173 million for the fourth quarter and $514 million for the full year. Based on the timing of anticipated licensing milestones, we expect the first quarter technology business profitability will be lower, similar to levels in the first quarter of 2021. Before I turn the call over to Ken, let me address some of your annual modeling questions for 2022 on slide 18. We are planning to invest approximately $2.1 billion in capital expenditures during 2022. Approximately $.9 billion is targeted toward profit-generating growth projects with a balance supporting sustaining maintenance. The majority of our 2022 growth investment is associated with the construction of the POTBA plant in Houston. We have a fairly typical schedule of planned maintenance for 2022, with a total of three major cracker turnarounds. We will also have a couple of turnarounds in our IND segment during the second quarter. Based on expected volumes and margins, we estimate that lost production associated with all this maintenance downtime will impact 2022 EBITDA by approximately $265 million. While routine maintenance costs are expensed, maintenance costs arising from turnarounds of major production units are capitalized and included in our capital expenditure forecasts. The U.S. cracker turnaround is scheduled for the La Porte, Texas site in the first quarter and expected to impact O&P America's quarterly EBITDA by approximately $125 million. The European cracker turnarounds will occur at our French cracker during the first and second quarters, and our smaller cracker in Westling, Germany, during the third and fourth quarters of 2022. The maintenance is expected to impact O&P EAI quarterly EBITDA by approximately $25 million, $15 million, $10 million, and $10 million in the first through fourth quarters, respectively. Plant maintenance at our butane dial facility And one of our two propylene oxide units located in Channelview, Texas, is expected to impact second quarter EBITDA for our intermediates and derivatives segment by approximately $80 million. We expect 2022 net interest expense will be approximately $340 million after netting capitalized interest of about $95 million. 2022 book depreciation and amortization is forecasted to be approximately $1.3 billion. We plan to make regular pension contributions in 2022, totaling approximately $70 million, with approximately $55 million of pension expense for the year. We currently expect our effective tax rate to be approximately 20 percent and our cash tax rate to be lower than our ETR. With that, I'll turn the call back over to Ken. Ken?
spk19: Ken Johnson Thank you, Michael. So, let me summarize the year's highlights and our outlook with slide 19. In 2021, Lyondell Bazell maintained our discipline focus on safety, operational excellence, and reliability to maximize returns during a year of exceptional markets. Our 2021 results were 15% above prior benchmarks and are indicative of how Lyondell Bazell's profitability is stepping up from prior levels. Many of our growth investments are providing returns today with further contributions expected over the next several years. In 2022, we will expand our propylene oxide capacity by 50% with the start of two new plants in China and Texas. We are improving the performance of our hyperzone polyethylene technology to deliver enhanced product performance for our customers. As supply chains normalize and automotive production begins to catch up with high consumer demand, we anticipate higher volumes and earnings from our APS segment. Also, improving markets for fuels bodes well for our oxyfuels and refining businesses. Our disciplined approach carries through to our capital allocation strategy. We're providing shareholders with increasing returns from higher dividends and the resumption of share repurchases. In 2021, we deleveraged our balance sheet and demonstrated our commitment to a strong investment-grade credit rating. With our strong credit metrics, we have no near-term need for further deleveraging. In 2022, about 40% of our capital expenditures will be allocated toward profit-generating projects, including our new propylene oxide facility in Texas. The rapidly growing market for more sustainable plastics represents one of the greatest opportunities that lies ahead for Lionel Boesel. We have launched our Circulum brand and we're committed to producing and marketing at least 2 million tons of circular and renewable-based polymers by 2030. At the same time, we'll reduce our greenhouse gas emissions in line with our commitment to achieve net zero scope one and two emissions by 2050. At Lionel Bezell, we believe our work and sustainability is both good for our planet and good for our business. In summary, we'll continue to execute on our disciplined approach and build on the strong momentum to deliver sustainable value for all of our stakeholders. We're now pleased to take your questions.
spk01: Thank you, sir. And ladies and gentlemen, at this time, we will begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. We do ask that you limit to one question. Our first question comes from the line of Bob Cort with Goldman Sachs. Please go ahead.
spk06: Thank you very much. Ken, I was curious if you could tell us what your expectation is on the profile of cash flow and usage over the next couple of years. I mean, it looks like you'll have two or three million excess free cash after Divi, after CapEx. And along those lines, can you give us a sense of what the options and appetite on the SASL option are?
spk19: Sure, Bob. Thank you for your question. Like I said previously, you know, there is no change to our to our capital allocation strategy. And what I'll do is just ask Michael to talk a little bit more about the options going forward. And then maybe I'll come back and talk about SaaS all after that.
spk18: Perfect. Good morning, Bob. I mean, a couple of things that I'd say, I think first and foremost, I'd say really good execution by the team in 2021 and converting EBITDA into free cash flow. It was a record year of cash generation, both from an operating cash perspective, but also from a free cash flow perspective as well. And we also delevered the balance sheet by $4 billion last year, which I think is pretty impressive. And then on top of that last year, we returned $2 billion to shareholders in the form of dividends and buybacks. So as we look forward, we're expecting another year of strong cash generation. The balance sheet's in great shape, so there's no need to do any further delevering. Our growth investments are paying dividends, which is good news. Working capital this year should be a source of free cash flow. Last year it consumed a significant amount of free cash flow. And then CapEx is largely flat year on year. It's our expectation with our current outlook that we'll responsibly grow the dividend. As you saw in the fourth quarter and also in the third quarter of last year, buybacks are in the mix. So we restarted buybacks in September of 21. And when we see value, we will continue to buy our shares. And from an M&A perspective, you can expect that Landell Bazell is going to continue to operate in a very, very disciplined way. And with that, I'll turn it back to Ken to give a few comments about SASOL.
spk19: Yeah, Bob. So for SASOL, you know, we've commented before that it's our desire and intent to own the other half of that joint venture. We're very happy with the partnership. It obviously performed very well in 2021. But, of course, there's a buyer and a seller, and our – our mutual interests are going to have to be aligned in order to be able to come to a conclusion on a transaction. So timing is a little bit hard to predict, but I would still say that it is going to be in the midterm.
spk01: Thank you. Our next question comes from the line of Jeff Sikowskis with J.P. Morgan. Please proceed with your question.
spk15: Thanks very much. Do you expect your cash balance at the end of the year to be very different from what it is right now? And Are cost pressures in your European olefins business in the first quarter greater than what they were in the fourth?
spk18: So, hey, good morning, Jeff. I'll take the first question, and I'll let Ken take the second one. So we ended the year with about $1.5 billion of cash on sheet. I think you heard me just say in my previous answer that we will grow the dividend responsibly. We will buy our shares when we see value. That said, as we move throughout the year, it's possible that we could build a little bit of additional cash on sheet.
spk19: And just in terms of the cost pressure in Europe, yes, we saw really an unprecedented spike in energy costs in Europe in the fourth quarter. And we started taking action then to be able to give us a little bit of insulation from that and and started to move some surcharges into the market to be able to share some of that burden. So that is going to help us in the first quarter offset some of that. But the cost pressures that we saw in Europe are obviously going to be continuing as you look at the energy prices where they are today. But we're doing what we can to offset where possible.
spk01: Thank you. Our next question comes from the line of Mike Sisson with Wells Fargo. Please proceed with your question.
spk13: Hey, good morning. Just curious on your thoughts on pricing for polyethylene near term. There are a couple announcements out there for February and March, and given that there is some capacity, a lot of capacity coming on in 2Q and in North America and the rest of the world, just any thoughts on how you see that unfolding over the year and whether you think that capacity can be absorbed? Thank you.
spk19: Sure. Thank you for the question, Mike. Look, we continue to see strong demand for polymers, and we expect that to continue in 2022. You know, as markets recover from the pandemic, and especially the largest market in China and the supply chain constraints are worked through, we do expect that the market growth is going to be able to absorb a lot of new capacity that's coming online. We still expect to see effective operating rates for polyethylene at greater than 90 percent, and that's obviously going to be supportive of margins going forward. You know, we did see a downward trend in the prices in the fourth quarter, but we are seeing pricing find a floor. And as we come into the seasonally higher demand of the second quarter, I do expect that there's going to be good support for price increases going forward. We're already seeing spot pricing increasing pretty much in all regions, which is a good indicator. And remember as well, just going back to volume, December was the second strongest demand month of 2021, which is pretty unusual when you look at historical demand patterns. With that and the combined impact of all of the downtime that we're expecting to see on both sides of the Atlantic in the U.S. and Europe, we're going to see markets continue to be tight and And we expect that to be supportive for pricing going forward.
spk01: Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.
spk12: Hey, good morning. This is for John. So on the refinery, you are competing with a few other refineries looking for a potential transaction. Could you provide an update on the strategic review process or a potential sale of the refinery? And then what would be the next best option if you're not able to do the transaction? Because clearly earnings are pretty strong these days. Thanks.
spk19: Sure. Thank you for your question. And look, as we've communicated before, we're exploring strategic options for, for this business. And we do continue to believe that the asset has a higher value as part of the, an integrated network. I'm sure you can appreciate, you know, we're, There's really not more that we can say at this time. We're in the middle of that process as we speak. And with where we are right now, I hope to be able to provide more details of the outcome in the next few months. But that's really all that I can say at this point, Michael. I don't know if you wanted to add anything.
spk18: No, I think stay tuned.
spk01: Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.
spk07: Great. Thanks for taking my question. And I guess, yeah, I just wanted to delve in a little bit more on polyethylene and polypropylene. So on polyethylene, you know, obviously we have seen some price deterioration the last couple months. However, there seems to be some feedstock support as you go into Q1 that's keeping prices up a little bit. Some of your competitors have announced price increases as well. So Do you think that those are more tactics to prevent price erosion, or is there a real opportunity to get some price as we move through Q1? And then on polypropylene, it doesn't necessarily have the same issues with capacity additions that polyethylene faces. So is there any opportunity for increased pricing in polypropylene, especially if auto production kind of surprises to the upside? Thanks.
spk19: Hi, Arun. Thank you for the question. Well, listen, like I had said before, you know, I really do believe that with the robust demand that we're seeing in the markets and the pent-up demand that is still in the market yet to come. You know, we saw in the second half of the year last year the largest market in China weakening in the second half of the year as they were approaching, you know, the Olympics and trying to keep the pandemic under control. There's a lot of demand that I believe is still yet to come back, and we're going to see that, I believe, sometime in the middle of the year in the spring. And so that is going to be supportive overall. I don't think that this is related just to feedstock. It really is that demand is strong and supply is tighter than probably most people would expect. For polypropylene, certainly we are optimistic for polypropylene this year. Our portfolio is about 15 percent or so exposed to automotive, and that market is going to come back this year, and that's also going to be supportive for polypropylene as we move forward in the year.
spk01: Thank you. Our next question comes from the line of Frank Mitch with Fermium Research. Please proceed with your question.
spk02: Yes, good morning, and nice to speak with you again, Ken. I appreciate the slide 18 that talks about your planned maintenance impact for 2022 of $265 million. Can you put that into context as to what your plans and, more importantly, what your unplanned impacts were in 2021? And to that extent, also, if you can comment a little bit about the propylene oxide capacity additions, when should we anticipate seeing financial impacts there? from those capacity additions. Thank you.
spk19: Yeah, Frank, good to hear from you as well. Thank you for the question. So, look, in 2021, obviously, the biggest impact in terms of unplanned outage was winter storm Uri, which we don't expect that to recur, obviously, in 2022. So that had an impact of $400 million to $500 million. So that was one that is, I guess, the most material, as you would call it, Then we had some other downtime in acetyls as well as at our Laporte olefins cracker. So, you know, net-net, that downtime last year was very high relative to history, the unplanned downtime. We certainly don't expect to see that level of downtime this year. Now, if you look at the planned outages, the net impact of the planned outages from 21 to 22, it's going to be about a $50 million headwind. because we're going to have a little bit higher planned downtime this year. In the first quarter. In the first quarter, yeah, sorry.
spk14: And I would just add, I would caution, this is Dave Frank, I would just caution that you shouldn't just add back that $400 million because margins really inflated on our downtime. So that's why we've been hesitant to try to quantify the unplanned downtime from last year because there's a chicken and egg effect between margins and volume.
spk01: Thank you. Our next question comes from the line of Chris Parkinson with Mizuho. Please proceed with your question.
spk04: Great. Thank you very much. So your team actually appears quite content with this SACL deal, and I understand we'll have to await an outcome on that front. But are there other similar facility and marketing deals your team would be interested in across the globe, perhaps anything else in the U.S. or Asia?
spk19: Sure. Look, thank you, Chris, for the question. You know, we have been in the last couple of years, we've been implementing several growth projects, including new joint ventures in China and the U.S. You know, we're always looking for opportunities that provide good returns to the company, and especially in our core businesses. And we will continue to do that, especially to look for opportunities through the cycle. And right now, there's not anything that I can say Specifically, you know, we've talked about the SASOL opportunity, but there's really nothing more that I can comment on at this time.
spk01: Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
spk16: Yes, good morning. I was wondering if you could provide an update on your circular economy initiatives. I think you have a goal of 2 million tons by 2030. How do we get there from here? Maybe you could just talk about what's going on at QCP and MoreTech and what the decision tree looks like in terms of growth and potential capital needs to fund that growth.
spk19: Sure, Kevin. Thank you for the question. Yeah, we've set some ambitious targets for circularity, and it's our intent to be a leader in the circular plastics space. We do see this market developing rapidly, and it's an exciting area of growth that fits really well with our capabilities. So it's going to be a clear focus for us. Both mechanical and advanced recycling are going to be areas that we're concentrating on, as well as renewable products. As you know, we've mentioned previously that we're developing our own technology for advanced recycling called MoreTech, and we expect really to be able to assess the extent of that technology's advantage here in the next few months. Following that, we'll be deciding on an initial commercial investment that should be completed around the middle of the decade. At the same time, we're looking at other paths to be able to reach that volume target, and we'll be doing things like buying recycled and renewable feedstocks. that we can crack in our existing assets. And that, of course, requires little or really no capital investment. So, you know, all of these things are going to be levers that we're going to be pulling, working very closely with our customers and innovating with them on applications that we can roll out over time.
spk01: Thank you. Our next question comes from the line of Duffy Fisher with Barclays. Please proceed with your question.
spk08: Yeah, good morning, guys. Three questions around the PO plants coming up. So first is just technically, is there any reason to think we may have issues with the ramp over this, let's say like hyperzone, or is this an older technology that you feel more comfortable, you know, about the ramp up? Two, what will the ramp up look like? I mean, when you look at the market today, how long will it take to get those plants, you know, or at least the product from those plants mostly sold out? And then the third one is just given the market you see today, is the EBITDA contribution from these plants similar to what was expected historically?
spk19: Thank you for the question, Duffy. Look, the technology that we are building, the POTBA technology that we're building is the most competitive in the world. So I do want to just make sure we point that out. We're very confident in the technology. It's technology that we operate today. It's a very large and complex plant, as you can imagine, so I'm not going to say that there is no risk, but from a technology standpoint, I really don't see a risk. Then to your question just around the ramp up, you know, we'll be ramping up beginning next year, and we see very good demand, and our teams are making very good progress on contracting the volume from that asset. I can tell you as well for the plant in China, you know, the markets are very good there and the growth in polyurethane is going to be able to absorb this new capacity that we're bringing on stream. In terms of the EBITDA impact, I would say yes, for modeling purposes, you should be expecting the EBITDA contribution to be similar to what we've seen in the past.
spk14: And Duffy, just for numbers, this is our sixth POTBA plant that we've built. So good experience with it. Definitely not number one.
spk01: Thank you. Our next question comes from the line of John Roberts with UBS. Please proceed with your question.
spk17: Thanks. Was the technology segment just timing or has something happened there that shifts the historical range up? So when it drops off here, your guidance is for it to come back down. But does it come back down within the normal range or has the range moved up here as well?
spk19: Yeah, thank you for your question, John. Michael, you want to? Yeah, sure.
spk18: Hey, John. So listen, the technology business had a great year overall. So record, record, but all time high licensing revenue and catalyst volumes, you know, primarily driven by Asia. You're right. So Q4 did exceed even our expectations. There were a number of licenses that we were expecting to book in the first quarter. That got done in the fourth quarter. So you shouldn't expect that trend to continue. And it's kind of our expectation that the first quarter of this year should look a lot like the first quarter of last year. But it is a great business. It's kind of like a razor blade business, right? So you sell licenses, and then you continue to sell catalysts for a long, long time at great profits.
spk01: Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
spk10: Morning, Ken. You know, I wanted to revisit near-term sort of pricing dynamics in polyethylene. I just wanted to get a bit more granular. Look, I mean, we know for Q1, roughly, you know, call it around $0.08 a pound worth of price hikes on the table. And, you know, you guys sort of pointed out that around 15% of U.S. capacity, you know, is undergoing maintenance in Q1. So obviously that's supportive. My question really is that, you know, I mean, with roughly 8 million tons of polyethylene capacity expected to come online this year, I mean, you know, could there be a situation where it's a strong first half and then we sort of go down a cliff, you know, in the back half of the year in terms of pricing? And, you know, just parlaying that with the demand side, look, I mean, if all of that 8 million tons of capacity comes online this year, for demand to keep pace with that, global demand growth would need to be north of 7%. So are you guys sort of, you know, as you talk about demand strength, are you looking for demand growth at those elevated levels?
spk19: Good morning, Hassan. Thanks again for the question. Listen, you know, if you look historically, years following when we have not seen good global growth, especially coming out of a year like we did with 2020, you can see double-digit growth rates even in China. And those types of growth years do typically occur once we see a snapback, and they're hard to predict, but they have occurred in the past. So you can never bank on that, but my expectation is that The 8 million tons, there'll be a combination of things that you see. All of the capacity is not going to be coming online exactly as we expect. Everybody understands that there are some constraints in China around that, especially with the dual control limitations. But the demand is going to come back, and we have seen that in the past. So a combination of some slower ramp-up of the capacity coming on stronger demand. I certainly don't see a cliff in the second half of the year. I see it completely the opposite to that right now, but that's our view going forward.
spk01: Thank you. Our next question comes from the line of PJ Juvicar with Citi. Please proceed with your question.
spk00: Hey, good morning, Ken. Just a couple of questions. First, there have been some news that co-monomer availability, like hexene, has been in short supply. Is that impacting production for the industry and for you? And when do you think you'll normalize that? And then, you know, I think last quarter you guys had talked about reducing your scope one and scope two emissions by 30% by 2030. How much capital spending do you think you need to have in order to achieve that? Thank you. Thank you, P.J., and good morning.
spk19: Good morning. Yes, so there is a shortage of hexene in the market, and that combined with downtime at some of the linear low plants, both in the U.S. and in Europe, has tightened that market pretty significantly. Now, I'll tell you that we are not having any constraints on hexene with our linear low business, so that's good news. But for the industry, yes, there is tightness in that market, and and I expect that that's going to continue in the short term. Now, going back to your question around our targets for Scope 1 and Scope 2 reductions that we have announced, you know, in the next few years, we'll be able to accommodate all of the things that we're looking at with our $2 billion capital spending. Our focus really in the next few years is going to be capturing the low-hanging fruit, really to make the first significant steps in the process of ramping up to the target in 2030. And that's going to include things like, you know, improved energy efficiency and some emission reduction programs that are sites that really require little or no investment. You know, another low capital enabler for our carbon reduction targets is also going to be the increased utilization of renewable energy. So, you know, we expect that within the next few years, the amount of capital that we've guided to the $2 billion is going to be adequate for us to be able to get started on meeting these commitments. And then we'll be identifying, you know, projects and developing detailed plans to achieve the full target in the second half of the decade. And that's likely to result in some increased capital, but we'll have more to communicate on that later.
spk01: Thank you. Our next question comes from the line of David Begleder with Deutsche Bank. Please proceed with your question.
spk05: Thank you. Good morning. Ken and Michael, can you just discuss OxyFuels, what was the earnings decline in 2021, and what are you expecting for a ramp-up return back to some higher normal high levels of profitability in 2022?
spk19: Sure, David. I'll start, then I'll hand it over to Michael, let him comment a little bit. You know, OxyFuels, we had, especially in the fourth quarter, we had We had lower volumes. We had significantly lower volumes and margin challenges with butane feedstock prices running up. We are seeing that improving coming into the first quarter. So we will see the volumes coming back and some relief with the butane feedstock pricing. Michael, I don't know if you want to add something to that.
spk18: No, I mean, maybe just a couple other comments around the IND business for the quarter. and around oxyfuels. So don't forget, in the quarter itself, there was a $95 million LIFO charge, which obviously will not be there in the first quarter of this year. And then maybe to put some numbers around kind of the feedstock drag in the quarter within oxyfuels, it was about $85 million, so it was pretty significant related to butane. And as Ken said, butane prices have already started to ease off, and it's our expectation as we move through the year that that's going to continue. And then maybe one other thing I just point out about this business, and this business is kind of the Carl Malone or kind of male person of chemical businesses. It has a long track record, if you look back over the last decade, of earning kind of $400 million plus EBITDA. So go back and look over the last 10 years. We're confident it's going to get back to its historic earning power.
spk01: Thank you. Our next question comes from the line of Steve Richardson with Evercore ISI. Please proceed with your question.
spk09: Hello. Hi. This is Keyshawn Reddick on for Steve. So in the last few weeks, you've seen a real run-up in brand prices and also in nat gas. So I was just wondering what are your views on the possible tailwind we might see in a rewidening of the oil-gas ratio if, you know, we see a supply response on the nat gas side?
spk19: Sure. Hi, Sean. You know, we definitely see going forward the oil-to-gas ratio being favorable for our position in the U.S. markets. The high oil prices is certainly going to continue to pressure margins in Asia and Europe. But overall, net-net, we are expecting to see a continued favorable oil-to-gas ratio.
spk14: Yeah, in Asia, it's really tight, Sean. I mean, the spread between naphtha and polyethylene is like $200, $300 per ton. That's historic lows. It just can't stay there. So oil is going to pressure polyethylene prices upwards in Asia, and that's good for us.
spk01: Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
spk03: Thanks. Good morning. Maybe sticking on feedstocks, do you have any thoughts on overall ethane availability? We've seen the ethane premium to natural gas move out to about $0.10. I think last year it was closer to $0.05, and maybe that's a function of some new plants starting up. But what's your outlook on this going forward?
spk19: Good morning, Matthew. Thanks for your question. Well, listen, ethane inventories are still healthy, and production is improving. especially in the Permian and the Bakken. So, you know, even with the new crackers coming online, there's still excess ethane that's being rejected, and as production recovers and natural gas prices normalize, I do expect that ethane is going to remain the preferred feedstock. I'll just add, too, that ethane rejection has only decreased slightly and still is about 800,000 barrels a day, and with recovery having increased, there's really plenty of supply available.
spk01: Thank you. I am showing that there are no further questions. I will turn it back to Mr. Lane for closing comments.
spk19: Okay. So, listen, thank you again for all the thoughtful questions. Just before we close, I want to emphasize that our strategy remains unchanged. We've got great momentum, and we're going to continue focusing on safety operational excellence, as well as our disciplined approach to capital allocation. So thank you very much for your interest in Lyondell Bazell, and we look forward to updating you on the progress at the end of April. Have a great weekend and stay safe.
spk01: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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