North American Propane and Butane Demand, … · North American Propane and Butane Demand, Markets...
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North American Propane and Butane Demand, Markets and Pricing Platt’s 4 th Annual NGLs Conference September 29, 2014 Michael Sloan Principal ICF International 703-218-2753 [email protected]
Transcript of North American Propane and Butane Demand, … · North American Propane and Butane Demand, Markets...
North American Propane and Butane Demand, Markets and Pricing Platt’s 4th Annual NGLs Conference September 29, 2014
Michael Sloan Principal ICF International 703-218-2753 [email protected]
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Disclaimer
THIS PRESENTATION PRESENTS VIEWS OF ICF INTERNATIONAL. THE PRESENTATION INCLUDES FORWARD-LOOKING STATEMENTS AND PROJECTIONS. ICF HAS MADE EVERY REASONABLE EFFORT TO ENSURE THAT THE INFORMATION AND ASSUMPTIONS ON WHICH THESE STATEMENTS AND PROJECTIONS ARE BASED ARE CURRENT, REASONABLE, AND COMPLETE. HOWEVER, A VARIETY OF FACTORS COULD CAUSE ACTUAL MARKET RESULTS TO DIFFER MATERIALLY FROM THE PROJECTIONS, ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THIS PRESENTATION.
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Introduction to ICF ICF International (NASDAQ:ICFI) is a global consulting firm with more than 60 offices and 4,500
employees worldwide, headquartered in the Washington DC area.
Prominent position in each area of expertise: – Energy, environment, and infrastructure – Health and social programs – Public safety and defense
Growing commercial work, especially in the energy, environment, and infrastructure space.
Long-standing relationships with diverse energy industry and association clients: – INGAA
– AGA
– API
– CERI
– PERC
– NGSA
Growing Houston area and Marcellus area energy practices.
Track record of strong organic growth and successful acquisitions.
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ICF's Oil, Gas, and NGL Practices
KEY AREAS OF WORK
– Market Evaluation and Analysis – Strategic Planning Support – Scenario Analysis – Economic Impact Analysis – Due Diligence Support for Investments
and Acquisitions – Regulatory Analysis – Financial Modeling and Risk
Assessments – Environmental Policy Analysis – Environmental Impact Assessments – Testimony and Litigation
Experts – Joel Bluestein, Environmental Issues
– Frank Brock, Gas Markets [email protected]
– Jim Brown, Canadian Markets [email protected]
– Greg Hopper, O&G Advisory Services [email protected]
– Tom O’Connor, Oil Markets Tom.O’[email protected]
– Kevin Petak, Fuel Markets [email protected]
– Don Robinson, Oil Markets [email protected]
– Mike Sloan, Gas and NGL Markets [email protected]
– Harry Vidas, Hydrocarbon Supplies [email protected]
– Warren Wilczewski, NGL Markets [email protected]
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Today's Questions
Outlook for NGL Production
Balancing Propane Market Supply and Demand
Impact of Infrastructure Changes on Propane Markets
A look at Butane Markets
Implications on NGL value and price
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Recent NGL Production Growth
North American NGL production increased by 35% from 2010 Q1 through 2014 Q2.
Propane and Butane constitute about 60% of this historical growth.
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Growth in NGL Value has not Kept Up with Growth in Production
The impact of falling prices has more than offset the value of the growth in production. – Propane value has increased by
16% and butane values have increased by 20%
– Ethane value has decreased by 50%
Until petrochemical demand catches up, the only outlet for ethane is pipeline gas, where ethane value = natural gas value.
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NGL Production Will Continue to be Linked to Natural Gas Markets and Demand
Total gas consumption (including exports from the U.S. and Canada) is projected to increase at a rate of 1.8% per year – By 2025, total gas consumption in
the U.S. and Canada is projected to reach an average of almost 105 Bcfd.
NGLs continue to be a byproduct of natural gas production
As demand for natural gas drives its production, so natural gas production drives NGL output
While producers do have a choice of where to drill, all NGL production will remain associated – No one “drills for NGLs.”
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NGL Production by Basin in ICF's Base Case NGL production is expected
to almost double between 2013 and 2025
Production growth is broad based:
– Marcellus/Utica – Eagle Ford – Bakken – Western Canada
The Marcellus and Utica area accounts for roughly 25 percent of total U.S. and Canadian production by 2025.
Most of the growth is in light products:
– 40% Ethane – 35% Propane – 15% Butane
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Regional NGL Fractionation in ICF’s Base Case (MBPD)
U.S. and Canada fractionation rises to 6 million barrels per day by 2035
Most of the capacity is concentrated in the Gulf Coast area where a significant amount of new LPG export capacity and most new/expanded crackers and PDH facilities are being built
Capacity in both the Midwest and Northeast serves Marcellus/Utica
0.0 0.0 0.0 0
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2
3
2011 2025 2035
Arctic
0.6 1.0 1.1
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2011 2025 2035
Canada
0.1 0.1 0.1 0
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2011 2025 2035
Western
0.2 0.3 0.4
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2011 2025 2035
Central 0.1
0.5 0.5
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2011 2025 2035
Midwest
0.0 0.3 0.4
0
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Northeast
1.8 3.4 3.9
012345
2011 2025 2035
Southwest
0.0 0.1 0.1 0
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2011 2025 2035
Southeast
0.0 0.0 0.0 0
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Offshore
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Projected Inter-regional NGL Flows Through 2025
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Domestic Propane Supply Growth
Propane production expected to nearly double by 2025.
Majority of growth in propane supply from NGLs.
Near term refinery production expected to increase due to changes in crude slate
Imports from Canada are likely to increase due to growth in WCSB production.
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Propane Produced from NGL's
Production nearly doubles by 2025 Roughly one-half of the
growth comes from the Marcellus and Utica area Significant growth in
production from the WCSB, Bakken, and Eagle Ford
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Broad Energy Market Trends Reducing Seasonal Propane Transportation Capacity
Propane Production and Exports – Northeast propane production – Moving propane to Mont Belvieu
Ethane Production and Demand – Moving ethane to the Gulf Coast
demand centers
Canadian Diluent Demand – Rapid growth in demand to serve
Alberta oil sands industry – High load factor load is displacing
seasonally available capacity on liquids pipelines
Pipeline Conversions
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Impact of the Repurposing of the Cochin Pipeline on Midwest Propane Markets
Coshocton
Todhunter
Fort Whyte
Griffith
Chaparral and Seminole Pipelines
OneOk Sterling Pipelines
TEPPCO System MAPL
NuStar
Cochin
Dixie
OneOk North System
The Cochin delivered about 320 million gallons of propane to the Midwest in 2013
Lack of Cochin changes the Canadian propane supply dynamic – Reduced access to
Alberta storage
Lack of Cochin will push Midwest marketers to other supply sources
Potential to create supply disruptions in the Midwest
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Impact of the Repurposing of the TEPPCO Pipeline on Northeast Propane Markets
Coshocton
Todhunter
Fort Whyte
Griffith
Chaparral and Seminole Pipelines
OneOk Sterling Pipelines
TEPPCO System MAPL
NuStar
Cochin
Dixie
OneOk North System
Development of the ATEX pipeline removed one line of the TEPPCO pipeline from south to north service
Much of the decrease in capacity will be offset by growth in production in the Marcellus/Utica.
However, limited access to propane storage in the Northeast increases seasonal supply concerns
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Can Rail Take Up the Slack?
Rail requirements: – Rail system capacity – Propane capable rail
cars – Rail loading capacity – Rail unloading capacity
Rail reliability concerns
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Outlook for Consumer Propane Demand
ICF is currently projecting relatively flat consumer propane demand through 2020
Demand in most traditional consumer propane markets is projected to fall – Continuing decline in
residential households heated with propane
– Improvements in efficiency.
Fuel oil conversions in the Northeast will lead to modest growth
Overall decline offset by growth in internal combustion engine markets
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0
100
200
300
400
500
600
700
800
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1,000(M
illio
n Ga
llons
)Internal Combustion Engine Propane Consumption
in New Markets
Diesel Injection
On-Road Vehicles
Non-Road Engines
Consumer Propane Market Growth Opportunities
Propane has an opportunity to develop in new markets wherever gasoline, diesel fuel, or fuel oil are widely used.
With two general exceptions:
1) where natural gas is available and appropriate.
2) Where the electric alternative is more attractive than the propane alternative.
Primary Growth Opportunities Heating oil conversions On-road vehicles Commercial mowers Irrigation engines
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Petrochemical Demand for Propane
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Planned/Existing Propane Dehydrogenation Facilities
Company Output Volume (tons/yr)
Propane Consumption
(bbl/d) Location
Start-up Year
PetroLogistics 640,000 30,000 Houston, TX 2010
Dow Chemical 750,000 35,000 Freeport, TX 2015
Enterprise 750,000 35,000 Chambers County, TX 2016
Formosa Plastics 650,000 31,000 Point Comfort, TX 2016
C3 (Ascend) Petrochemicals 1,000,000 47,000 Alvin, TX 2017
REXtac 300,000 14,000 Odessa, TX 2017
Williams 500,000 23,000 Redwater, AB 2018
Dow Chemical 550,000 25,000 TX/LA 2018
Total 5.2 million+ 240,000+
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Planned Export Terminals Significantly Add to Current Export Capacity
* ICF estimates ‡ Project capacity reduced to account for terminal/pipeline capacity utilized for non-LPG exports
Company Capacity (MBPD) Location Start-up
Cost* ($Million)
Targa Resources 120 Galena Park, TX 2014, Q3 240 Sunoco Logistics LP 40 Marcus Hook, PA 2014, Q3 270 Sunoco Logistics LP‡ 100 Nederland, TX 2015, Q1 400 Occidental 75 Corpus Christi, TX 2015, Q1 400 Enterprise 50 Houston Ship Channel, TX 2015, Q1 100 Enterprise 225 Houston Ship Channel, TX 2015, Q4 500 Phillips66 145 Freeport, TX 2016, Q3 1,000 Pembina Pipeline Co. 40 Prince Rupert, BC 2016 320 Sage Midstream 47 Longview, WA 2016, Q4 275 Pembina Pipeline Co. 37 Portland, OR 2018 500 Total Proposed 880 $4,250
Current + Proposed 1,340
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Propane Supply Demand Balance
Planned propane export capacity is likely to better integrate international markets with the North American market.
If all export capacity is built, it will result in an “overbuild” with propane supply falling below market potential.
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The availability of additional propane export capacity does not guarantee that the capacity will be used. Instead, it links the domestic propane market to the international propane market. – Domestic and international prices will equilibrate – Propane will flow to the markets that value it the most.
As an exporter, domestic propane prices will be below international prices rather than above international prices.
Price volatility is likely to increase.
Seasonal stock builds for winter demand will no longer be automatic.
Propane in storage will not automatically be available to the domestic market. – Will require contracted storage, or price bidding into the market.
Changes in Propane Economics when Export Capacity is Greater than Supply
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Butanes Supply Dominated by Gas Plant Production
Butanes production expected to increase almost double between 2013 and 2025
Majority of growth from gas plant production.
Recent increase in refinery production due to changing crude feed slate – Refinery production projected to
grown through 2018, then slowly decline
Lifting of Crude export ban would result in exports of lighter crudes, reducing domestic production.
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Butanes Demand
Seasonal demand for gasoline blending, along with alky unit consumption, will provide baseline demand for butanes
Petrochemical feedstock demand expected to boost consumption, displacing some propane due to pricing
Canada also expected to absorb some U.S. butanes sourced primarily from the Marcellus/Utica and Bakken
The major growth market will be overseas exports
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Propane Inventories Leading into the 2014/15 Winter
At 76.0 million barrels, current nation-wide propane inventories are at record levels – 14.5 million barrels
above 5-year average – 5.5 million barrels
above previous 5-year maximum, for the same week
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PADD 2 and PADD 3 Propane Inventories As Of Sept, 19, 2014
PADD 2 PADD 2 inventories started the
heating season at the lowest level in the last five years. Fairly steady growth, with large
additions well into September Current levels nearly 600,000 barrels
above the 5-year average PADD 3
At 39 million barrels, PADD 3 inventories at an all time high Strong production, early-season
export facility maintenance, and delays in new export terminal commissioning have contributed to strong injections
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Change in Propane Export Capacity Relative to Change in North American Propane Production
New PDH Capacity
Expected* Export Capacity
* Expected export capacity reflects ICF’s assessment of likelihood of project completion and share of project capacity allocated to LPG.
North American export capacity undergoing a dramatic expansion – Not all capacity will
go to propane
Demand growth also to come from new PDH Facilities – Strong likelihood
any new capacity will be 100% utilized
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Change in LPG Export Capacity Relative to Change in North American Propane & Butanes Production
Expected* Export Capacity
* Expected export capacity reflects ICF’s assessment of likelihood of project completion and share of project capacity allocated to LPG.
Total LPG Export Capacity poised for significant expansion in 2015 and 2016 – 710 MBPD of LPG-
dedicated terminal throughput
Purity propane will also see demand growth from Gulf Coast PDH facilities
New PDH Capacity
Incremental Growth in Butanes Surplus
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Implications on NGL Price Outlook Propane/butane export capacity is likely to exceed available supply in the near
term. – Exports will balance the market, and prices will be set by international prices.
Propane prices will become more volatile: – Growth in PDH capacity, and decline in propane as a petrochemical cracking
feedstock reduces the demand elasticity of the propane market. – Integration with international markets makes U.S. propane prices more sensitive
to weather conditions in Europe.
Domestic propane prices likely to increase relative to international prices in the near term as additional export capacity comes on line.
Longer term propane prices likely to decline somewhat as growth in exports pushes down international propane prices, and as export distance (and cost) increases.
International butane supply glut will keep butane prices relatively low.
