recent developments in international supply and demand of propane

© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 1

Recent Developments in International Supply and Demand of Propane

NPGA 2012 Winter Board of Directors Meeting

Ron GistJanuary 30, 2012Key West, FL


Several Key Industries Influence Both Regional and Global Propane Supply

• Propane is a BYPRODUCT—It is not an “on-purpose” product like crude oil or petrochemicals.

• Thus, supply of propane follows developments in three key segments of the oil & gas industry.

• Propane is produced from:• Processing of associated gas (from crude oil wells)• Processing of non-associated gas (from gas wells)• Refining

• Propane production will move up or down with changes in these industries.

• For example, in 2009 world propane supplies declined with cutbacks in OPEC crude oil production rates and a slowdown in global refining activity, but supplies have now rebounded.


The Global Economy Impacts Many FactorsThat Affect Propane Supply/Demand

• The economy• Consumption of refined products

• Refined product prices• Refinery production of LPG• Demand for crude oil

• Production of crude oil• Crude oil prices• LPG production from associated natural gas

• The economy• Demand for natural gas

• LPG production from non-associated natural gas

• The economy• Consumption of LPG by all sectors

• Residential/commercial• Autogas• Etc.

• Consumption of petrochemicals• LPG demand as feedstocks


The Global Economy is Expectedto Continue to Grow

• The global economy should grow by about 3% to 4%.

• Thus, demand for energy should rise, which will increase LPG supplies (consumption must also increase).

• There is some potential for lower economic growth.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

Year-Year Growth

---- 2008 ---- ---- 2009 ---- ---- 2010 ---- ---- 2011 ---- ---- 2012 ---- ---- 2013 ----


LPG Production from Gas Processing ShouldGrow Faster than Production by Refineries

• LPG (total propane and butane) extracted from associated gas should rise by 3.8% through 2015 as crude oil production rates increase.

• Rising production from non-associated gas is also a key factor in the expected growth in LPG supply (3.7% growth through 2015).

• Refinery expansions are also leading to higher LPG production but at a slower growth rate of 2.0% through 2015).

World LPG by Supply Source, Million Tonnes

0

50

100

150

200

250

300

2000 2005 2008 2009 2010 2011 2012 2014

Refining

Non-associated Gas (Inc. LNG)

Associated Gas


Most of the Increase in Global LPG Supplies Should Come from the Middle East and Asia

• Global LPG production expanded through most of the past decade.

• However, the economic slowdown in 2009 reduced demand for oil which led to the drop in LPG production.

• Future world LPG supply growth looks positive.

• Supply is even starting to expand again in the U.S. due to shale gas development (but remains weak in Canada).

• Very strong growth is expected in the Middle East.

LPG Supply, Million Tonnes

0

50

100

150

200

250

300

2000 2005 2008 2009 2010 2011 2012 2014

North America Europe/CISLatin America AfricaAsia/Pacific Middle EastOther


In the Middle East, Most of the Increase Should Come from Iran, Qatar and the UAE

• LPG production in the Middle East increased noticeably between 2000 and 2008.

• LPG production declined in 2009 due to cuts in crude oil production rates.

• Project delays in the region also contributed to a slowdown in the regional supply build.

• Most of the future LPG production growth should occur in Iran, Qatar and the UAE.

• Production should rise more slowly in Saudi Arabia and other countries in the region.

Mideast LPG Supply, Million Tonnes

0

10

20

30

40

50

60

70

2000 2005 2008 2009 2010 2011 2012 2014

OthersIran, Qatar & UAESaudi Arabia


In Asia, LPG Production Will Continue to RiseDue to Growth in the Regional Refining Industry

• LPG production in Asia has expanded by 4.7% per year since 2000.

• Chinese LPG production is increasing particularly fast as the country’s refining industry expands rapidly to meet rising demand for petroleum products.

Mideast LPG Supply, Million Tonnes

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10

20

30

40

50

60

2000 2005 2008 2009 2010 2011 2012 2014

China India

Japan/Korea Other Asia


The Expansion of Global LPG Supplies is Primarily Occurring in the East of Suez Region

• LPG supply should expand rapidly in the East of Suez region.

• The most significant LPG supply expansion should occur in the Middle East where rising production of crude oil and natural gas is the key driver.

• This rapid development of LPG production in the East of Suez region should increase East-to-West LPG trade.

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180

2000 2005 2008 2009 2010 2011 2012 2014

East of Suez

West of Suez



Regarding LPG Demand, Consumption Is Rising Quickly In the Middle East and Asia

• LPG demand growth has been strong in Asia and the Middle East.

• Although Asia is already the largest LPG consuming region, it is still expanding.

• The Middle East has become a significant LPG demand center due to the rapid expansion of the petrochemical industry and continued growth in the res/com sector.

• Overall, demand in Europe and North America is reasonably flat but could increase if price-sensitive LPG supplies are available.

• Demand will continue to expand slowly in Latin America due to rising consumption in the res/com market.

LPG Demand, Million Tonnes

0

50

100

150

200

250

300

2000 2005 2008 2009 2010 2011 2012 2014

North America Europe

Latin America Asia

Middle East Other


The Residential/Commercial and Chemical Sectors are the Dominant End-Use Markets for LPG

• The residential/commercial market has been a high growth sector since 2000.

• However, growth in the res/com sector has slowed somewhat due to higher prices & the economic downturn.

• The res/com and chemical market sectors are the two largest market sectors—accounting for nearly 75% of total global LPG consumption.

• Future LPG market growth is very dependent on these two large end-use markets.

• Engine fuel markets also have high growth potential over the longer term.

World LPG Demand, Million Tonnes

0

50

100

150

200

250

300

2000 2005 2008 2009 2010 2011 2012 2014

Res/Com Chemical Industrial Auto FuelRefinery Other


Demand Growth in the Res/Com & Chemical Sectors Will Have a Large Impact on Future LPG Markets

• Over 85% of total LPG demand growth through 2014 is expected to occur in the res/com and chemical sectors.

• Thus, global LPG market dynamics will be strongly influenced by these key market sectors.

• If res/com growth slows, then more LPG will be directed towards the chemical feedstock market, which will change trade flows and likely put more downward pressure on prices.

LPG Demand by End-use, Million Tonnes

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20

40

60

80

100

120

140

Res/Com Chemical Industrial Engine Fuel Refinery Other

2005

2009

2014


Asia will Continue to Lead the Expansionof Global Res/Com Demand for LPG

• Asia is clearly the largest user of LPG for residential & commercial applications at almost 60%.

• Between 2009 and 2014, Asian res/com demand growth of about 10 million tonnes per year is expected.

• Latin America is the second largest consuming region in this sector.

• The Middle East is growing fairly fast, but from a small base.

Residential & Commercial LPG Demand,

Million Tonnes

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10

20

30

40

50

60

70

Asia Latin America NorthAmerica

Europe Middle East Other

2005

2009

2014


LPG Consumption as Chemical Feedstock is Expanding Rapidly in the Middle East

• Worldwide chemical consumption of LPG is expected to increase by about 17 million tonnes from 2009 to 2014.

• The largest growth in chemical demand for LPG is expected to occur in the Middle East, with total growth of nearly 80% by 2014.

• LPG consumption as chemical feedstocks will also increase in North America, Europe and Asia if global supplies expand as expected.

Chemical LPG Demand, Million Tonnes

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5

10

15

20

25

30

North America Europe/CIS Middle East Asia Other

2005

2009

2014


Global LPG Exports Are Expected to IncreaseDuring the Next Few Years

• Global LPG exports ramped up between 2002 and 2008 but then declined as LPG supplies contracted in 2009.

• The Middle East will have the biggest impact on global LPG trade during the next few years.

• African LPG exports are not expected to increase very fast.

• Total global LPG exports are expected to rise by around 10 million tonnes per year by 2014.

Major World LPG Exports, Million Tonnes

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2000 2005 2008 2009 2010 2011 2012 2014

Middle East Africa North SeaCanada Latin America Other


Essentially All LPG from the Middle East Remained

Within the East-of-Suez Region in 2010

Asia 0.4 2.2

2.9

0.7

0.30.5 2.5

0.3

0.8

0.31.2

0.6

5.3

3.0

2.01.4 3.5

3.7

19.7

0.4

0.5

2.00.5

3.0

(Million Tonnes of LPG per Year)


Approximately 1.5-2.0 Million Tonnes/Year

of LPG Could Move from East to West in 2015

Asia 0.2 1.2

1.7

0.9

1.41.2 1.8

0.6

2.7

0.41.2

0.6

3.3

3.1

2.52.5 5.5

7.1

20.6

0.6

0.4

2.41.3

3.0

0.6

0.6

0.5

(Million Tonnes of LPG per Year)


Propane Supplies Should Rise by About20 Million Tonnes Between 2010 and 2014

• Global propane production should reach about 144 MM tonnes in 2012, or roughly 4.9 MM BPD.

• North America is currently the largest propane producer in the world. Production has started to rise due to the effects of shale gas production.

• The Middle East is the fastest growing supply region, and should surpass North America this year.


0

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80

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160

2000 2005 2008 2009 2010 2011 2012 2014

North America EuropeLatin America AfricaAsia Middle EastOther

NOTE: 1 tonne of propane = 522 gallons

75.5 billion gallons


Asia and the Middle East Represent the Strongest Growth Markets for Propane Demand

• North America is currently the largest consumer of propane.

• However, demand in Asia is growing rapidly, and should surpass North America in about 2013 or 2014.

• The Middle East is also becoming a large consumer of propane, and should surpass Europe by 2015.


0

20

40

60

80

100

120

140

160

2000 2005 2008 2009 2010 2011 2012 2014

North America Europe

Latin America Asia

Middle East Other

NOTE: 1 tonne of propane = 522 gallons


Price Spread Between NW Europe and Mont Belvieu Soared Last Winter and Again in December

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70

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Cents Per Gallon


Waterborne Exports of Propanefrom the U.S. Soared in Mid-2009

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan

-06

May-0

6

Sep

-06

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-07

May-0

7

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-07

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-08

May-0

8

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-08

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May-0

9

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-09

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-10

May-1

0

Sep

-10

Jan

-11

May-1

1

Sep

-11

Propane Exports, Thous bbl/monthAnnual Average Propane ExportsButane Exports, Thous bbl/month

• Annual exports of propane totaled only 5.5 to 7.0 million barrels in 2007 and 2008.

• Propane exports soared to over 25 million barrels in 2009, 34 million barrels in 2010 and 37 million barrels in 2011.

• The primary driver behind this sharp jump has been low propane prices in the U.S. relative to the rest of the world.

• Total annual exports of butane remained flat at 4 to 6 million barrels.

• Several new export terminal projects have been announced.

Thousand Barrels per Month


Propane Exports from the U.S. Have Been High Because …

• Because the U.S. is a source of low-priced propane.

• The global market has been tight, but the U.S. market has been well supplied.

• Because:

• Natural gas production rates has been rising rapidly.

• And gas plant margins have been very attractive.

• And because:

• High cracking rates of ethane that have displaced some propane.

• (Mild winter weather this year.)

22


Conclusions About the Global Propane Market

• Propane supplies are expected to start expanding at a faster rate in 2012.

• These rising supplies should start to relieve some of the tightness in the market that has occurred recently and increase global trade.

• Prospects for supply growth are dependent on several key variables:• Continued improvements in the global economy• Commissioning and ramp up of export projects in the Middle East.• Impact of political unrest in producing areas

• More propane supply should accelerate new market developments in various market sectors, including:

• Res/com demand in developing countries.• Engine fuel/industrial markets• Petrochemical feedstock markets

23


Some Things to Watch

• The progress of the economic recovery

• Crude oil prices – propane prices will tend to generally follow

• Crude oil production and refined product demand

• More oil production and higher refinery rates will lead to more propane production

• More propane production should reduce prices

• U.S. natural gas prices – low prices will lead to strong margins and high propane production

• Ethylene production

• A strong petchem market should result in higher feedstock demand

• Global surplus of LPG should result in strong competition among feedstocks


Thank you.

I look forward to your questions.


About This Presentation

• This presentation has been prepared for the sole benefit of attendees at the NPGA 2012 Winter Board of Directors meeting. Neither the presentation nor any part of the presentation shall be provided to third parties without the written consent of IHS. Any third party in possession of the presentation may not rely upon its conclusions without the consent of IHS. Possession of the presentation does not carry with it the right of publication.

• IHS conducted this analysis and prepared this presentation utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.


Contact Information

Ron Gist ([email protected]) +1-713-331-4000

Houston, Texas

27

Outlook for US Propane Supplies

Presented to:

2012 Winter Board of Directors MeetingKey West, FL

January 30, 2012

Peter Fasullo

En*Vantage, Inc

[email protected]

http://www.npga.org/

29

Shale plays are transforming the outlook for NGLs: Record NGL supplies from gas processing: + 375 MBPD or 21%

increase in NGL extraction over the past 5 years. Historical build out of midstream infrastructure. A resurgence of the US petrochemical industry.

For the past 2 yrs - the NGL business has been very good for midstream players despite a sluggish economy: Very firm prices and reasonable valuations relative to crude prices. Record frac spreads and expanding markets. Reasonably low days-of-supply of inventories.

Yet, propane retailers have faced challenges – a tepid economy, warmer than normal weather and high cost propane have caused lower retail sales and margins.

Introduction

30

Many are still predicting that a surplus of NGLs will occur: Specifically looking at an oversupply of NGLs sometime between

now and 2015. Believe that the NGL markets, particularly the petrochemical

market, can’t expand fast enough.

Can we count on a surplus of NGLs to occur? And if a surplus of NGLs does occur how will it affect US

propane supplies and pricing? To address these questions we will cover the following:

US propane supply trends and the factors driving propane production from crude oil refining and gas processing.

The role that exports are playing on propane balances. The outlook for US propane demand and pricing.

Introduction (cont’d)

31

NGL Supply Sources NGL End Uses

Ethane -- 42%

Propane – 28%

Normal Butane – 7%

Iso-Butane – 9%

Natural Gasoline – 14%

Ethane – 12%

Propane – 71%

Mixed Butanes – 17%

Propane – 77%

Mixed Butanes - 15%

Pentane Plus – 8%

Ethane -- 98%

Propane -- 36%

N-Butane – 26%

Natural Gaso - 11%

PrimaryPetrochemicals

N-Butane – 66%

Iso-Butane – 100%

Natural Gaso – 72%

Motor Gasoline & Blendstocks

Propane – 54%

Space Heating& Other Fuel Uses

Propane – 10%

N-Butane – 7%

Natural Gaso - 10%(diluent)

Fuel Exports

Major US NGL Supply Sources and End Uses

NGLs Supplied ¹ NGLs Consumed ²

Natural Gaso – 7%

¹ %’s represent the composition of NGL mix from primary sources.

55% (1,455 MBPD)

US NGL Market – 2011 avg: 2.675 Million BPD of which Propane was 37%

19% (500 MBPD)

6% (190 MBPD)

Ethanol Denaturing

<1% (20 MBPD)

19% (510 MBPD)

² % of a NGL supplied that is consumed by a market.

Ethane – 2%

Gas Processing

80% (2,150 MBPD)

Crude Oil Refining

15% (390 MBPD)

Overland & Waterborne

Imports5% (135 MBPD)

32

US Propane Supply Trends

US propane supplies have been declining -- lower imports and declining refinery production offsetting rising supplies from gas processing.

From its peak in 2007, refining propane production down 19% or 63 MBPD to 267 MBPD.

Propane from gas processing up 20% or 100 MBPD since 2007 to 608 MBPD.

Imports down 53% or 86 MBPD from 2007 levels.

Sources of US Propane Supplies(1000 BPD)

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600

700

800

900

1,000

1,100

1,200

2004 2005 2006 2007 2008 2009 2010 2011

US Oil Refining US Gas Processing Imports

50%64%

32% 28%

18% 8%

33%

51%

16%

33

US refinery capacity has been shutting down: Over the past 2 yrs 36% (576 MBPD) of East Coast refining capacity

has shutdown - another 330 MBPD of the region’s capacity could close by this July.

Small refineries have also shutdown in California and the Southwest. US refining capacity is expected to increase by 350 MBPD in 2012 -

could accelerate the shutdown of additional high cost capacity.

Refinery propane yields have been trending down while propylene yields have been trending upward:

As gasoline demand declines and ethanol blending increases, refiners are changing their fluid cat cracker operations to produce less propane and more propylene.

Consequently, propane yields on refinery crude oil inputs have declined from 2.2% in 2007 to 1.8% in 2011 - equivalent to 58 MBPD of propane.

What’s Happening to Refinery Propane Production?

34

Refinery Propane vs Propylene Production Refinery propane production has been on a downward trend since 2007,

while propylene production has increased. Based on our outlook for the US refining industry it is likely that refinery

propane production remains between 250 to 300 MBPD.

US Refinery Production versus Propylene Production(1000 BPD)

0

50

100

150

200

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300

350

2005 2006 2007 2008 2009 2010 2011

Refinery Propane Refinery Propylene

35

Factors Driving NGL Supplies from Gas Processing and Demand

Greater Gas ProductionShale and Unconventional Gas Plays

Gas SurplusProduction capability exceeding demand

Low Gas Prices Relative to Crude and NGLs

Drilling Rich Gas PlaysValue Uplift from NGLs and Condensates

Greater NGL ExtractionBuild Out of Processing Plants and

NGL Infrastructure

Expansion of NGL Markets• US markets gaining confidence

that NGLs will be available and competitively priced.

• NGL consumption rising with plans to add more US petrochemical capacity to consume NGLs, particularly ethane and propane.

• Export markets for US LPGs expanding as global NGL demand grows.

36

Common Mistakes MadeWhen Forecasting NGL S&D Balances

Forecasting NGLs from the amount fractionation capacity being built: Ignores the dynamics upstream of the gas processing plants. Lends itself to overestimating NGL production.

Not considering that gas demand can be a limiting factor to gas production and hence NGL extraction.

Not taking into account that legacy or conventional gas that is being processed is in decline.

Underestimating the ability of domestic and export markets to absorb competitively priced NGL supplies.

Not realizing that NGL “surpluses” in the past occurred during recessions and/or when gas prices were high relative to oil.

37

Rich Hydrocarbon Natural Gas Plays

Rich Plays NGL (GPM) Content*

Avalon/Bone Springs**

4.0 to 5.0

Bakken** 4.0 to 9.0

Barnett 2.5 to 3.5

Cana-Woodford 4.0 to 6.0

Eagle Ford*** 4.0 to 9.0

Granite Wash 4.0 to 6.0

Green River** 3.0 to 5.0

Niobrara** 4.0 to 9.0

Piceance-Uinta 2.5 to 3.5

Green River 2.5 to 3.5

Marcellus (Rich) 4.0 to 9.0

* gpm – gallons of NGLs per 1000 cu. ft.

** Oil Shale Plays

*** Both an Oil and Gas Shale Play

Rich Shale Play Corridors

38

Announced Gas Processing Plants in US

About 8.7 BCFD of new processing capacity has been announced. West of the Mississippi – 6.85 BCFD, Marcellus Shale Region – 1.85 BCFD

Highly probable that an additional 3 BCFD of processing capacity will be built between 2015 and 2020.

2011 2012 2013 2014 Total%

Breakdown

EIA Region MM Cfd MM Cfd MM Cfd MM Cfd MM Cfd MM CfdRockies 695 250 560 0 1,505 17%Northern Tier 100 100 350 0 550 6%Texas Inland 390 865 1,150 200 2,605 30%Texas Gulf Coast 0 450 600 0 1,050 12%Mid-Continent 460 260 0 0 720 8%SE New Mexico 72 0 250 100 422 5%Marcellus 873 580 200 200 1,853 21%

Total 2,590 2,505 3,110 500 8,705 100%

Announced Gas Processing Capacity

39

Forecast of US Propane Extraction Capability

Propane extraction capability of the US processing industry should increase from 600 MBPD in 2011 to 800 MBPD by 2017.

Major drivers – Eagle Ford, Marcellus, Bakken, Rocky Mtn Basins, and Granite Wash.

Avg propane content of the US NGL barrel should remain around 28%.

Forecast of US Propane Extraction Capability(1000 BPD)

0

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800

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

0

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300

400

500

600

700

800West Coast

Appalachia

Upper MW

N. Tier

Mid-Cont

Rockies

New Mex

LA GC

TX GC

TX Inland

Forecast

40

Profile of US Propane Imports and Exports

The availability of competitively priced NGL supplies and strong worldwide demand has resulted in the US being a net exporter of propane.

Propane Imports versus Exports(1000 BPD)

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100

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200

250

2005 2006 2007 2008 2009 2010 2011

Propane Imports Propane Exports

Source: EIA

41

LPG Export Destinations - 2011

Mexico:

37 MBPD

Central America:

15 MBPD

South America:

31 MBPD

Dom. Rep.

15 MBPD

NW Europe:

27 MBPD North East Asia

5 MBPD

Source: EIA

LPG exports comprised of 83% Propane and 17% N-Butane

65% LPG exports going to Latin America. Enterprise announced it will expand its export

capacity by the 2nd half 2012 for propane and other NGLs at its import/export terminal on the HSC – 3 MM bbls/mo to about 4.5 MM bbls/mo.

Targa announced it will enhance its export capabilities at its HSC import/export terminal.

ConocoPhillips/TransMontaigne/Oxy announced they are considering to build an import/export facility on Houston Ship Channel.

Vitol looking at an export terminal in Beaumont.

Canada:

21 MBPD

US waterborne export capacity for propane on the Gulf Coast could expand between 250 MBPD and 600 MBPD.

42

Outlook For US Propane Supplies

Propane supplies will grow mainly from the processing of shale gas, with refining production staying at 2011 levels at best. Imports should decline.

Forecast of US Propane Supplies(1000 BPD)

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1000

1200

2011 2012 2013 2014 2015 2016 2017 2018

Refining Propane Gas Processing Propane Imports

43

Outlook For US Propane Demand

It is expected that ethylene feedstock demand for propane will be about 350 MBPD.

Fuel demand for propane staying flat at around 550 MBPD.

Propane dehydrogenation will increase to produce propylene as ethane cracking continues to rise.

The export market will compete for the incremental propane barrel.

Forecast of US Propane Demand(1000 BPD)

0

200

400

600

800

1000

1200

2011 2012 2013 2014 2015 2016 2017 2018

Fuel Uses Propane Cracking Propane Dehydro Exports

44

Mt. Belvieu Propane’s Price Relationship to Crude

Propane’s price relationship to crude has been falling over the past 10 years with the decline in the gas-to-crude ratio.

Since 2008, propane’s relationship to WTI has averaged around 60%, with wide swings from 50% to over 70%.

This past summer when WTI prices detached from Brent, propane prices were being influenced more by Brent prices.

Expect propane at Mt. Belvieu to maintain that 60% ratio to WTI for next several years.

Mt. Belvieu Propane Price Relationship to WTI and Brent(On a $/Bbl Basis)

40%

50%

60%

70%

80%

90%

100%

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

40%

50%

60%

70%

80%

90%

100%Propane to WTI Ratio

Propane to Brent Ratio

- High Gas-to-Crude Ratios- Low Crude Prices - Brent Discounted to WTI

- Low Gas-to-Crude Ratios- High Crude Prices - WTI Discounted to Brent

45

Mt. Belvieu Propane to Conway Price Spread

The premium between Mt. Belvieu propane and Conway has been widening caused by – greater supplies in the Mid-Continent, lack of sufficient takeaway capacity out of Conway, and a warmer than normal winter.

The Belvieu premium or Conway discount should significantly narrow in 2014 as major NGL takeaway pipelines from the Mid-Cont. to Mt. Belvieu are completed.

Propane Belvieu to Conway Price Spread(cents per gallon)

(10)

(5)

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30

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

(10)

(5)

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2011 Forecast

Forecast2010

46

In Summary

Unlikely there will be a long-term surplus of propane developing in the US provided there is not a global recession or significant global warming. Propane from gas processing will increase but refining production

of propane will be flat at best and could show further declines. Propane imports should continue to fall, especially on the East

Coast as Marcellus propane extraction increases. Propane dehydrogenation will be a growing market for propane with

heating and ethylene feedstock demand remaining flat. Gas prices should remain low relative to crude with Mt. Belvieu

propane prices trading between 50% to 70% of WTI price. This price relationship for propane should encourage propane

exports as Gulf Coast propane export capability expands. Export markets will compete for the incremental propane barrel.

Expect the Conway discount for propane to narrow as major pipeline capacity to Mt. Belvieu is completed by 2014.

47

Description of En*Vantage

Founded by Terry Ciliske and Peter Fasullo in 1999.

Both Principals have worked 36 years in the energy sector. Executive Management Experience in the Midstream Sector Primary Focus - Natural Gas, NGLs, Refined Products and Primary

Petrochemicals.

Provide strategic planning, project due diligence, market analysis, and price risk management services to a wide range of energy companies and investment firms.

Publish a weekly energy report -- analyzes the drivers influencing natural gas, crude oil, refined products, and NGLs supply/demand and pricing.

Impact of Shale Liquids on Regional Propane Supply

Board of Directors MeetingKey West Marriott Beachside Hotel

January 30,2012

Source of volume balances and forecasts: The Great NGL Surge! from BENTEK Energy and Turner, Mason and Company.

49rbnenergy.com

Impact of Shale Liquids on Propane

» Growth in natural gas and crude oil production will increase U.S. NGL supplies +950 Mb/d by 2016

» Propane supplies will grow 200 Mb/d

» The propane supply/demand balance impact will vary significantly from PADD to PADD

» Offshore exports of propane from PADD III will balance the market

» Propane prices will decline relative to crude oil but will remain well above natural gas

I

II

V

IV

III

PADDs

50rbnenergy.com

Massive Growth in Natural Gas Production

16.2 Bcf/d Incremental Growth

Current Residue Gas Production Levels At All Time Highs

Source: BENTEK

51rbnenergy.com

Natural Gas Production Outlook

Source: BENTEK

Gross Production Lower 48

52rbnenergy.com

Gas Production Drives NGLs

» Surplus natural gas supplies has driven natural gas prices down

» Producers have shifted drilling budgets to liquids rich gas and crude oil plays

» But declines in dry gas production have been offset by increases in wet gas and associated gas

» The average liquids content of gas production is increasing

» Consequently NGL production is increasing significantly

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Source: BENTEK

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Infrastructure Build Out Essential To Maintaining Growth(Announced Increases Through 2014)


PADD I

+275

PADD II

+170

PADD III

+390

PADD IV

+115

Source: BENTEK

End 2016 versus current production

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Infrastructure Build Out Essential To Maintaining Growth(Announced Increases Through 2014)


PADD I

+275

PADD II

+170

PADD III

+390

PADD IV

+115

85 Mb/d

100 Mb/d

60 Mb/d

330 Mb/d

350 Mb/d

280 Mb/d

70 Mb/d

350 Mb/d

350 Mb/d

350 Mb/d

Source: BENTEK

End 2016 versus current production

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Propane Supply Exceeds Demand

Source: BENTEK

Propane supply up 200 Mb/d, mostly from both natural gas Propane supply up 200 Mb/d, mostly from both natural gas processing. Refinery production is up slightly.processing. Refinery production is up slightly.Residential/commercial demand for propane will decline Residential/commercial demand for propane will decline due to price competition with natural gasdue to price competition with natural gasPropane use for ethylene production will decline, slightly Propane use for ethylene production will decline, slightly offset by propane dehydrogenationoffset by propane dehydrogenationSurplus volumes exported to offshore marketsSurplus volumes exported to offshore markets

200

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PADD I - Propane

» Gas plant production increases significantly

» Refinery production down (Sunoco and ConocoPhillips shutdown)

» Pipeline inflows and imports backed out by local production

» Ratable production flows not matched with demand

Source: BENTEK

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PADD II - Propane


» Canadian imports continue and provide swing supply to northern states

» Flows to Mt. Belvieu increase during summers

Source: BENTEK

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PADD III - Propane

Source: BENTEK


» Inflows from other PADDs increase

» Huge increase in net exports

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Surplus Propane will move Offshore

Source: BENTEK

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PADD IV - Propane

Source: BENTEK

» Minimum increase in local gas plant production

» Most propane moves out of the PADD in the form of y-grade

» Some additional refinery production

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PADD V - Propane

» Not much change to PADD V

» Some increase in receipts from other PADDs

Source: BENTEK

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Propane Prices Expected to Decrease

* Constant dollars

Source: BENTEK

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Conclusions» Growth in natural gas and crude oil

production will increase U.S. NGL supplies +950 Mb/d by 2016

» Propane supply up 200 Mb/d; most of the increase will accumulate in PADD III

» Petrochemical and residential/ commercial demand for propane down

» Surplus volumes exported to offshore markets

» Incremental propane production in PADD I will replace pipeline inflows and imports

» Propane prices will decline relative to crude oil but will remain well above natural gas

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E. Russell Braziel 3814 Lake Street

Houston, TX, 77098

[email protected]

@rustybraziel

Office: 888-400-9838Direct: 903-881-9260

Effects Of Shale Gas Plays: Logistics --Tom Van Buren, Vice President, FNA

What is the shale gas impact on logistics now and in the future?

• Pipeline

• Rail

• Truck

What are the pipeline impacts and relationship to propane?

• Marcellus Shale

- Teppco

- Sarnia• Bakken Shale

- Williston Basin to Conway• Eagle Ford Shale

- South TX to Mt. Belvieu

What are the current impacts on rail?

• Current use• Car availability• Cost • Rail supply potential shortage

What are the future impacts on rail?

• NGL cars switch back to propane• New car builds• Cost • Availability • Rail supply transitions to more reliability

What are the current impacts on trucks?

• Current use• Truck and driver availability – Gold Rush• Cost • Truck support potential shortage

What are the future impacts on trucks?

• Pipelines completed in 2013-2014• Demand decrease• Regional impact• Truck availability increase

Summary

Pipeline

Rail

Trucks

--

--

--

Near-Term

Tight

Tight

Tight

--

--

--

Long-Term

Flexibility

Flexibility

Flexibility

recent developments in international supply and demand of propane

Documents