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CERI 2015

PetChems Challenged by Gulf Feedstock and Tax ConcessionsJune 8, 2015

Disclaimer

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ETHANE

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CERI 2015

The USGC Story

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USGC Frac Spreads

Mont Belvieu Purity Ethane (US$/mmbtu) Henry Hub (US$/mmbtu) Frac Spread (US$/mmbtu)

Ethane Supply/Low Frac Spreads Spur Investment

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Driving USGC investment

Source: OPIS, NGL Brokers

Massive Tax Concessions Influence Siting Decisions

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Timing is Key for Cracker Growth

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Ethane supply supports Tier 1 Projects, but tight for Tier 2 Does not make sense for all announced projects to go ahead in the 2019-2021 time frame

89%

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CERI 2015

So what about Canada?

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Natural Gas From Export-Driven to Internal Growth

Natural Gas Production by Type

Natural Gas Available for Export

Tail-winds: Oil sands growth New gas-fired power generation Residential/Commercial growth LNG (?)

Head-winds: U.S. production growth Trans-Canada Mainline tolls LNG (?)

Source: NEB, 2013

Source: NEB, 2013

Ethane - Plenty of Ethane in Canadian Shale Plays

WCSB Ethane Available in Raw Gas

Canadian Ethane Supply/Demand

Based on Historical/Forecast Production: Ethane recovery 2014: ~60% Ethane recovery 2035: ~35%

At 60% recovery: Ethane production 2035 ~ 340 kbd Conventional only Without oilsands off-gas or imports

Canadian Supply Increase: Imports into Eastern Canada Imports into Western Canada (Bakken) Oilsands Off-gas

Canadian Demand Increase: Ethane flexibility for Coruna Cracker (Ontario) NOVA PE expansion (Alberta)

Source: NEB, 2013

Source: NEB, 2013

Does Canada have enough ethane for another cracker?

Yes, but..

Currently announced expansions will need to be completed Frac, off-gas and ethane import

Intra-Alberta demand for gas will need to continue its current growth trajectory

Additional frac expansions will be required to process NGLs

More ethane will need to be recovered from the gas that is produced Closer to the source? Alliance pipeline ethane recovery?

Additional ethane imports will need to be considered

Ethane can not be exported as LNG

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Will PetChems choose to make their next investment here?

Its a competitive world.

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Factor USGC Alberta Advantage

Gas Supply USGC

Gas Cost Alberta

Ethane Supply USGC

Feed Flexibility USGC

Currency Alberta

Labour Cost USGC

Transport Cost USGC

Scale Economies USGC

Government Incentives USGC

TOTAL USGC

Moving the Needle

Continued progress must be made on removing transportation constraints both pipeline and rail

Transportation and fractionation must remain accessible and competitively priced

Pet Chems need line of sight on future feedstock availability to consider a multi-billion dollar investment

Business and Government must partner to support local investment in value add

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ThankYou

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PetChems Challenged by Gulf Feedstock and Tax ConcessionsDisclaimerThe USGC StoryEthane Supply/Low Frac Spreads Spur InvestmentMassive Tax Concessions Influence Siting Decisions Timing is Key for Cracker GrowthSo what about Canada?Natural Gas From Export-Driven to Internal GrowthEthane - Plenty of Ethane in Canadian Shale PlaysDoes Canada have enough ethane for another cracker?Will PetChems choose to make their next investment here?Moving the NeedleSlide Number 13