Relevant • Independent • Objectivewww.ceri.ca
Natural Gas Liquids (NGLs) in North America:
Focus on Western Canada
Future outlook and West Coast LPG export
opportunities
Image Sources: Husky, Pembina, and Lyondellbasell
November 13, 2014Peter Howard
President Emeritus&
Carlos A. Murillo Economic Researcher
Canadian Energy Research Institute
(CERI)
1
Relevant • Independent • Objectivewww.ceri.ca
Presentation Outline
• About CERI and our work
• Upstream: Perspectives on Western Canada Gas Development
• Midstream & Downstream: Infrastructure and ongoing investments
• NGLs Market Fundamentals: LPG market dynamics and outlook/opportunities• North American LPG export availability and West Coast opportunity
• Opportunities for cooperation
• Q&A/Discussion
Image Source: Nova Chemicals2
Relevant • Independent • Objectivewww.ceri.ca
Canadian Energy Research Institute (CERI)Founded in 1975, CERI is an independent, non-profit research institute specializing in the
analysis of energy economics and related environmental policy issues in the energy production, transportation, and demand sectors.
Our mission is to provide relevant, independent, and objective economic research in energy and related environmental issues. A central goal of CERI is to bring the insights of scientific research,
economic analysis, and practical experience to the attention of government policy-makers, business sector decision-makers, the media, and citizens of Canada and abroad.
Our core supporters include the Government of Canada (Natural Resources Canada), the Government of Alberta (Alberta Energy), and the Canadian Association of Petroleum Producers
(CAPP). In-kind support is also provided by the Alberta Energy Regulator (AER) and the University of Calgary.
All of CERI’s research is publicly available on our website at:
www.ceri.ca
3
Relevant • Independent • Objectivewww.ceri.ca
Our Work:Current Work (2014 – 2015):
• LNG Update
• Canadian Rail System
• Electricity Requirements for Oil Sands Industry
• Others…
Recently Released Reports (2013 – 2014):
• Canadian Economic Impacts of New and Existing Development in Alberta
• Oil Sands Environmental Impacts
• Natural Gas Liquids (NGLs) in North America: An Update (Parts I – V)
• Others…
Periodicals/Monthly Reports:
• Crude Oil Commodity Report
• Natural Gas Commodity Report
• Geopolitics of Energy (Subscription Service)
Annual Conferences:
• Natural Gas Conference (March 2015)
• Oil Conference (April 2015)
• Petrochemical Conference (June 2015)
4
Relevant • Independent • Objectivewww.ceri.ca
Upstream: Perspectives on Western Canada Gas Developments
Image from Husky5
Relevant • Independent • Objectivewww.ceri.ca
Natural Gas In North America
6Images from US Energy Information Administration (EIA), Canadian Centre for Energy Information, and Government of Alberta (GOA)
Canada
Alberta
Relevant • Independent • Objectivewww.ceri.ca
Ethane (C2)
Non-energy Use:
•Petrochemical Feedstock
•Enhanced Oil Recovery (EOR)
Heating, Other
(left in gas)
Propane
(C3)
Energy: Retail
•Commercial/Institutional
•Residential
•Transportation
•Agriculture
Energy: Wholesale (Industrial)
•Oil & Gas
•Manufacturing
•Construction
Non-energy Use
•Petrochemical Feedstock
•Solvent Flood (EOR)
Butanes
(C4s)
Non-energy use
•Gasoline blending
•Petrochemical Feedstock
•Oil sands diluent
•Solvent Flood (EOR)
Pentanes Plus/ Condensate
(C5+)
Non-energy Use:
•Oil Sands Dliuent
•Gasoline blending
•Petrochemical Feedstock
NGLs in Canada: Sources and End-Uses
7
Natural Gas, Crude Oil, and Crude Bitumen
Gas Plant Liquids (C2, C3, C4s, C5+)
Refinery Liquefied Petroleum Gases (LPGs)
(Primarily C3, C4s)
Upgrader/Off-gas plants Synthetic Gas Liquids (SGLs)
(NGLs/Olefins Mix)
Wellhead or Field Condensate (C5+)
UP
STR
EAM
MID
STR
EAM
DO
WN
STR
EAM
PROCESSING, TRANSPORTATION, AND STORAGE INFRASTRUCTURE
Relevant • Independent • Objectivewww.ceri.ca
Midstream & Downstream:Infrastructure & Ongoing
Investments
Image from Veresen 8
Relevant • Independent • Objectivewww.ceri.ca
NGLs: from Reservoirs to Markets
9
UPSTREAM (SOURCES)
Crude OilTransporation
Infrastructure
Natural Gas
Gas Processing Plants
MIDSTREAM (PROCESSING & TRANSPORTATION) DOWNSTREAM (END-USE MARKETS)
Refineries &
Upgraders
Fractionators
Straddle Plants
Crude Oil & Condensate
Raw Gas
Sales Gas to Local Markets
Spec NGLs
Sales Gas to Export Markets
Spec NGLs
Sales
Gas
Crude Oil &
Condensate
Spec NGLs
Spec NGLs
NGLs Mix
Refined Petroleum Products to Markets
Sales
Gas
~91%
~9%
Images from Canadian Centre for Energy Information, Keyera, Imperial Oil, Inter-pipeline Fund, and US EIA. Figure by CERI
Relevant • Independent • Objectivewww.ceri.ca
Canadian Midstream Infrastructure: From natural gas to NGLs to end-use markets
- Robust and extensive midstream and marketing infrastructure in Canada
targeting local and US markets
- Large natural gas storage and marketing hub (AECO-C) with takeaway export
capacity exceeding 15 bcf/d out of Western Canada
- Approximately 700 gas extraction plants(including over 50 deep-cut facilities) with over 30 bcf/d of extraction capacity and 15
bcf/d of re-processing or straddle plant capacity with ability to extract large
volumes of NGLs
- Approximately 400 kb/d of NGLs gathering pipeline capacity to Ft. Sk, ~400 kb/d of NGLs pipeline import capacity and ~200
kb/d of NGLs pipeline export capacity
- Over 1 MMb/d of fractionation capacity at the field and merchant levels with 300 kb/d
located at Ft. Sk and >100 kb/d in Sarnia
- ~40 MMb of NGLs storage capacity
- Integrated rail and truck NGL loading and offloading terminals
- Ethylene cracking facilities with capacity to absorb ~300 kb/d of NGLs and produce 11
MMlbs/yr of ethylene derivatives
Figure by CERI, with data from PenWell MAPSearch 10
NATURAL GASNGLs
Relevant • Independent • Objectivewww.ceri.ca
NGLs Pipelines and Storage
11
Bo
real
Figure by CERI, with data from IHS Energy (University of Calgary), AER, BCME, OGJ, SOEP, various industry sources . Logo from Alberta Industrial Heartland Association (AIHA) and City of Edmonton
Pipeline Est. Capacity (kb/d) Product
Peace HVP System (NGLs) 76 C2+/ C3+
Cochrane-Edmonton (Co-Ed) System 68 C3+
Brazeau NGL Gathering System 57 C2+
Peace LVP System (Condensate) 52 C5+ (Includes Crude)
Northern System 49 C2+/ C3+
Boreal 43 NGLs/ Olefins Mix
Bonnie Glen 33 C5+ (Includes Crude)
Judy Creek 30 C3+
Total Raw Mix Pipelines Est. Capacity 408
Alberta Ethane Gathering System (AEGS) 334 Spec C2
Ethylene Delivery System (EDS) 86 Ethylene
Joffre Feedstock Pipeline (JFP) 48 NGLs
Enbridge Mainline (Lines 1/5)* 127 C3+ Mixes
Kerrobert (to Enbridge) 124 C3+ Mixes
Alliance Pipeline 93 NGLs in Gas
Cochin Pipeline 71 Spec C3/ USMW E/P Mix
Petroleum Transmission Company** 27 Spec C3/ C4
Total NGL Export Pipelines Est. Capacity 442
Southern Lights/ Line 13 171 C5+
Mariner West (Late 2013/ Early 2014) 48 Spec C2
Vantage Pipeline (2014) 43 Spec C2
UTOPIA Pipeline (2017-18)*** 59 Spec C2/ Spec C3
Total NGL Import Pipelines Est. Capacity 321
*Net of Kerrobert/ **CERI Estimate/ ***Announced
Raw Mix Pipelines to Ft. Saskatchewan
Petrochemical Feedstock Pipelines
NGL Export Pipelines
NGL Import Pipelines
Ft. Saskatchewan,
AB23.0 61%
Kerrobert, SK2.5 6%
Sarnia/ Corunna, ON
12.4 33%
NGLs Storage Capacity (MMb)
Total: 38 MMb
Relevant • Independent • Objectivewww.ceri.ca
North American Class I Railways and Major Canadian NGL Handling Facilities and Rail Car Fleet
• In 2012, 2/3 (or 88 kb/d) of all Canadian LPG exports (123 kb/d) moved via rail (C3/C4 split: 75/25)
• All exports to US markets
• CERI estimates that about 1,700 pressure-rated tank cars would have been used to transport those volumes, assuming a two-week return trip
• Rail transport is an important component of the LPG supply chain in Canada
• Going forward, most LPG exports from Canada will move via rail
12
Facility Onwer/ Operator Type Capacity (kb/d) Location
Redwater Pembina Pipeline Corporation C5+ rail off load facil ity 75 AB NGL Hub
Alberta Diluent Terminal (ADT) Keyera Corp. C5+ rail off load 50 AB NGL Hub
Edmonton Terminal Keyera Corp. C3,C4, C5+ loading/ offloading 34 AB NGL Hub
Rimbey Rail Terminal Keyera Corp. C3, C4, C5 loading 13 WCSB
Gilby and Nevis Rail Terminals Keyera Corp. C3, C4, C5 loading 7 WCSB
Sarnia/ St. Clair/ Windsor Pembina/ Plains C3, C4, C5 loading 45 Southern ON
Total 225
Facility Onwer/ Operator Type # of Railcars Location
NGLs Infrastructure Altagas Corp./ Petrogas NGLs Rail Cars 1,500 WCSB/ US
NGLs Infrastructure Keyera Corp. NGLs Rail Cars 1,300 AB NGL Hub
Redwater Rail Cars Pembina Pipeline Corporation NGLs Rail Cars 700 AB NGL Hub
Empress/ Sarnia Rail Cars Pembina Pipeline Corporation NGLs Rail Cars 300 AB NGL Hub/ ON
LPG Railcars Gibsons Energy NGLs Rail Cars 500 WCSB/ US
Total 4,300
Figure from AAR. Data from industry sources, tables by CERI
200
176 183
159
146 141 137
129
104 102
123
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
-
25
50
75
100
125
150
175
200
225
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
# of
railc
ars
kb/d
of L
PG
Canadian Propane Exports Canadian Butane Exports Total LPG Exports via Rail
Total LPG Exports Estimated # of Railcars required
Relevant • Independent • Objectivewww.ceri.ca
NGLs Pipeline and Fractionation Utilization(1) Overall NGLs gathering system capacity utilization
increasing over the last few years
While overall system utilization levels are estimated at around 80%, utilization levels at certain systems (i.e., Peace system) are estimated to be well above 90% and various expansions have been announced
- Pembina’s Peace NGL pipeline system expected to expand rapidly and significantly between 2011 and 2016/17
- Keyera is currently gauging producers’ interest in an alternative NGLs gathering pipeline system (ALPS) between Gordondale and Ft. Saskatchewan
13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-
50
100
150
200
250
300
350
400
450
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
%
kb
/d
Off-Gas SGL Mixes
BC NGL Mixes
Straddle Plants NGL Mixes (Exc. Empress)
C5+/ Condensate
AB Field NGL Mixes
Pipeline Capacity to Ft. Sk.
Total Liquids to Ft. Sk.
Utilization (%)
268
237 227
217 221 209
196 190 192 194
216
60%
65%
70%
75%
80%
85%
90%
95%
100%
-
50
100
150
200
250
300
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
%
kb/d
KFS
DFS
RFS
PFS
Total Ft. Sk. Frac. NGLs
Ft. Sk. Fractionation Cap.
Utilization (%)
1
(2) A similar situation is developing around fractionation plants: utilization increasingRFS (Pembina), KFS (Keyera), and DFS (Dow) are estimated to be running at close to capacity while PFS (Plains) utilization is lower- Expansion announcements by both Pembina and Keyera- Higher NGL mix volumes are estimated to be moving
east on Enbridge system to Sarnia fractionatorExpansion of pipelines and fractionation capacity indicates
confidence on increased NGL production/availability in Western Canada as a long-term sustained trend
2
RESULT: Multi-year, multi-billion $ expansion of NGLs midstream infrastructure in Alberta. Most pipeline and fractionation investments are expansions of existing assets, while new gas processing plants will be developed at the field level Crude oil and condensate storage and transportation logistics infrastructure would also be expanding
Figure by CERI, with data from AER and Pembina Pipelines
Relevant • Independent • Objectivewww.ceri.ca
$2,953 27%
$2,855 26%
$1,385 13%
$1,358 13%
$1,785 16%
$563 5%
Deep Cut Plants Expansion & New Builds / Straddle Plants/ Co-stream Facilities
NGLs Pipelines
Other Gas Processing/ NGLs Extraction Facilities (Mainly Shallow Cut)
Producer-owned Midstream Divestitures
NGLs Fractionation
Other Midstream Assets (Storage & Logistics)
Total: $10,899 MM (2011 - 2016)
$1,500 38%
$1,550 39%
$900 23%
LPG Export Terminals
Ethane/ Ethylene Petrochemicals
Propane Petrochemicals (PDH)
Total: $3,950 MM (2011 - 2016)
Midstream and Downstream Investments
(1) The midstream business in AB is dominated by a few large firms. In 2012, the top 15 companies accounted for 93% of all extracted spec NGLs
- Top third-party midstream players include Keyera Energy, Pembina Pipelines, Plains Midstream, Inter-pipeline Fund, Spectra Energy, and Altagas
- Other large midstream players are integrated either upstream or downstream: Shell, CNRL, Husky, Suncor, Conoco, Dow, etc.
(2) Utilization rates for both NGL pipelines and fractionators are high and expected increases in NGL volumes have led to close to $11 billion (B) in investments on midstream infrastructure (2011 –2016/17) (Average $1.6 B/yr)
- A large portion of these investments is in deep-cut gas processing plants targeting incremental ethane extraction (IEEP)
(3) Meanwhile, close to $4 B in downstream investments have been announced including ethane and propane based petrochemical facilities as well as LPG export terminals (2011 – 2016/17) (Average $0.6 B/yr)
That is a total of close to $15 B (avg. $2.1 B/yr) in midstream and downstream investments between 2011 and 2016-17 to monetize NGLs in Western Canada. Will there be a second wave post-2017?
14
15%
13%
11%
11%10%
9%
8%
7%
3%2%
1%1%1%1%1%
7%
Keyera Energy Ltd.
Pembina NGL Corporation
Plains Midstream Canada ULC
Inter Pipeline Extraction Ltd.
Dow Chemical Canada ULC
Spectra Energy Empress Management Inc.
AltaGas Ltd.
1195714 Alberta Ltd.
Shell Canada Energy
Canadian Natural Resources Limited
ATCO Midstream Ltd.
Husky Oil Operations Limited
Suncor Energy Resources Partnership
SemCAMS ULC
ConocoPhillips Canada (BRC) Partnership
Other (87)
Top 15 = 425 kb/d (93% of Total) Other (87) = 30 kb/d (7%)
Total (107) = 455 kb/d
Spec NGLs
1
2
3
Figures and Analysis by CERI, with data from AER and Industry Data
Relevant • Independent • Objectivewww.ceri.ca
New Markets for WCSB gas and Required Infrastructure: Liquefied Natural Gas (LNG) Proposed Projects and Pipelines
Infrastructure requirements for such projects will be significant and costly: Multiple billions of dollarsRequired infrastructure includes gas gathering systems, gas processing plants, large-diameter/high-volume
gas transportation systems, gas liquefaction plants, NGLs pipelines, fractionation facilities, storage and logistics facilities
15Table and map from NEB
Relevant • Independent • Objectivewww.ceri.ca
Projected Midstream Infrastructure Investments in North America: 2014 – 2035 (ICF International, 2014: INGAA Study)
(1) A recently released study by ICF International completed for the Interstate Natural Gas Association of America (INGAA) estimates that between 2014 – 2035 $641 B in midstream capital expenditures are required in North America of which about 22% or $139 B are required in Canada at an average of $6.7 B/yr
(2) This includes $58 B in natural gas infrastructure (42% of Canada’s total) including gathering and transmission pipelines, compression, lease, storage, and processing facilities ,as well as LNG export facilities (avg. $2.8 B/yr)
(3) Also included are $12 billion in NGLs infrastructure (9% of Canada’s total) including transmission pipelines, fractionation, and export facilities (avg. $0.6 B/yr)
(4) The remaining $69 B are allocated to crude oil infrastructure (49% of Canada’s total) including gathering and transmission pipelines, as well as lease and storage equipment (avg. $3.3 B/yr)
These estimates might be conservative and the largest share is likely to occur at the front-end of the projection period (before
2025). The magnitude is by any means very significant and highlights the capital intensity of midstream infrastructure
investments
16Figures from INGAA study by ICF International
1 2
3 4
Relevant • Independent • Objectivewww.ceri.ca
NGLs Market Fundamentals:Propane/Butanes (LPG) Market
Dynamics & Outlook/Opportunities
Image from Encana 17
Relevant • Independent • Objectivewww.ceri.ca
Canadian Propane Supply & Disposition
Supply (Grey bars): • About 75% of propane supply extracted at gas plants/ fractionators in Canada, other 25% consists of production from refineries, upgraders,
imports, and stock changes• About 50% of propane extracted in Western Canada’s gas plants moves to Ontario as an NGL mix to be fractionated• Increased production of NGLs in Western Canada is being driven primarily by increases in propane productionDisposition (Red bars): • Domestic demand increasing rapidly driven by energy uses in the mining, oil and gas extraction, and manufacturing sectors, followed by increase
propane use as a petrochemical feedstock in Ontario, and increased use for propane in the residential and commercial sectors• In 2012, Ontario (46%), Alberta (32%), and Quebec (8%), combined, accounted for 86% of domestic propane demand• Overall exports to the US have been declining (shrinking LPG market) with the largest drop occurring in regards to exports to the US Midwest
(PADD II), while increased Canadian exports to the US northeast (PADD I) have displaced US overseas propane imports• Majority of exports to the US now move via rail = higher transportation costs • Edmonton prices are the lowest across North America• North America is in an oversupply position and USGC LPG export terminals are acting as a relief valve, keeping prices afloat
Figures and Analysis by CERI, with data from AER, BCMNGD, NEB and Statistics Canada
244
214
229 217 215 220 220
199 189
207
248
(50)
-
50
100
150
200
250
300
S D S D S D S D S D S D S D S D S D S D S D
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
kb/d
Total Exports to US
Non-energy Use
Wholesale
Retail
Statistical Adjustment
Stock Changes
Imports
Off-Gas Plants
Refineries
Gas Plants/ Fractionators
Total Supply
Domestic Demand
Total Disposition
46%
32%
8%
4%4%3%2%
OntarioAlbertaQuebecBritish ColumbiaSaskatchewanAtlantic provincesManitobaYukon, Northwest Territories and Nunavut
2012 Domestic Demand: 147 kb/d
18
Relevant • Independent • Objectivewww.ceri.ca
Company Location Start-up Year Output (tonnes/ yr) Output (t/ d) C3 Feed (t/d) C3 Feed (kb/d)
PetroLogistics Houston, TX 2010 582,400 1,596 2,026 25
PetroLogistics Houston, TX 2014 582,400 1,596 2,026 25
Dow Chemical Freeport, TX 2015 682,500 1,870 2,375 29
Enterprise Chambers Co., TX 2015 623,350 1,708 2,169 27
C3 Petrochemicals Alvin, TX 2015 582,400 1,596 2,026 25
Formosa Plastics Point Comfort, TX 2016 728,000 1,995 2,533 31
Dow Chemical USGC (TX/ LA) 2018 500,500 1,371 1,741 22
Total US 4,281,550 11,730 14,897 185
Williams Strathcona (AIH), AB 2016 500,500 1,371 1,741 22
Total Canada 500,500 1,371 1,741 22
Total North America 4,782,050 13,102 16,639 207
United States
Propane Dehydrogenation (PDH) Projects in North America
Canada Company Location Start-up YearLPG Export Capacity
(MMgal/ yr)
LPG Export
Capacity (kb/d)
Enterprise Houston, TX n/a 3,780 247
Targa Galena Park, TX n/a 1,764 115
Chevron (Acquired by Petrogas) Ferndale, WA n/a 460 30
Other
Miami, Norfolk, NY,
Seatlle, LA n/a 26 2
Total Operating 6,030 393
Sunoco Logistics (Mariner East) Marcus Hook, PA 2014 600 39
Vitol Beaumont, TX 2014 1,500 98
Phill ips 66 Baytown, TX 2014 2,218 145
Enterprise (Expansion) Houston, TX 2015 756 49
Targa (Expansion) Galena Park, TX 2015 1,008 66
Sunoco Logistics (Mariner South) Nederland, TX 2015 3,024 197
Will iams/ Boardwalk Moss Lake, LA 2016 3,532 230
Enterprise (Expansion) Houston, TX 2016 3,528 230
Occidental Corpus Christi, TX 2017 1,150 75
Total Proposed US 17,316 1,130
Pembina Pipeline Corp. Portland, OR 2018 570 37
Altagas Corp./Petrogas/Idemitsu Kosan BC Coast 2017 460 30
Total Proposed Canada 1,030 67
Total Proposed North America 18,346 1,197
Total Existing + Proposed North America 24,376 1,590
Canada
LPG Export Projects in North America
United States
In Operation
Proposed
United States
Increasing Demand for Propane in North America = Feedstock Competition
Figures and Analysis by CERI, with data from Propane Research Council (PRC) and Industry
(1) Various PDH projects have been proposed in North America to take advantage of increased C3 availability and to produce on-purpose propylene as ethylene crackers move to lighter feeds (reducing co-product yields)
• Including a PDH facility in AB (25 kb/d C3 feed) aiming to attract derivative investors. Williams has indicated the possibility of building up to two or three PDH plants
• Feedstock requirements: 50 – 75 kb/d of WCSB C3
(2) High global LPG prices and improved propane netbacks in North America through an existing arbitrage opportunity have resulted in various LPG export project proposals/expansions
• Including two in the West Coast targeting WCSB LPGs with the potential to export ~70 kb/d to the Asia-Pacific market
• Petrogas/Altagas/Idemitsu (JV) recently agreed to purchase Chevron’s Ferndale, WA LPG import/ export terminal (~30 kb/d)
• Altagas indicated this is in addition to their BC coast plans
• Pembina has applied for an NEB export license plus made a deal with the Portland (OR) Port Authority for an LPG export site
• Potential future WCSB LPG exports: 90-100 kb/d of WCSB LPG, primarily C3
1
2
19
Relevant • Independent • Objectivewww.ceri.ca
20
Butanes Supply and Disposition
(1) Butanes
SUPPLY: Production from gas plants flat. Refinery LPG production decreasing. Extraction from synthetic gas liquids is minimal. Flat import volumes from US
DEMAND: Domestic refining and petrochemical demand is flat to declining. Diluent demand is increasing.
Export volumes to the US decreasing similarly as with the case with propane. Need to find new markets such as LPG exports or new local demand sources such as oil sands solvents
118 115 111
96 103
119 123
114 122
115
96
(40)
(20)
-
20
40
60
80
100
120
140
160
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
kb
/d
US Exports
Non-energy Use
Statistical Adjustment
Stock Changes
Imports
Off-Gas Plants
Refineries
Gas Plants/ Fractionators
Total Supply
Domestic Demand
Total Disposition
Figures and Analysis by CERI, with data from AER, BCMNGD, EIA, NEB, Statistics Canada and Industry Data
76 80 80
65
75
95 97
86
98 95
72
-
20
40
60
80
100
120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
kb
/d
Solvent Flood
Diluent
Petrochemical
Refinery Feedstock
Domestic Demand
Relevant • Independent • Objectivewww.ceri.ca
30%
35%
40%
45%
50%
55%
60%
65%
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% o
f C3
expo
rts
mov
ed v
ia r
ail
USG
C -E
DM
C3
DIF
F ($
/bbl
)
USGC - Edmonton Propane Differential ($/bbl)
% of Propane Exports via Rail
Propane Pricing(1) In North America (NA), prices are set at Mt. Belvieu, TX (USGC). C3 normally trades at a price range between the price of C2 (floor: petrochemical feedstock) and butanes (ceiling: fuels market). Given propane’s widespread use in the heating market, weather is an important pricing factor Across
(2) North American C3 prices: Edmonton trades at a discount to Conway which in turn trades at a discount to Mt. Belvieu (USGC). The USGC-EDM differential has widened to reflect increasing transportation costs as more LPG moves via rail to export markets
(3) Internationally, globally traded prices are set according to the Saudi contract price (CP), which is highly correlated to crude oil prices, thus creating a large arbitrage opportunity between Western Canada and areas served by Saudi CP contracts such as the Asia-Pacific region
21
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00Ja
n
Jun
No
v
Ap
r
Se
p
Fe
b
Jul
De
c
Ma
y
Oct
Ma
r
Au
g
Jan
Jun
No
v
Ap
r
Se
p
Fe
b
Jul
De
c
Ma
y
Oct
Ma
r
Au
g
Jan
Jun
No
v
Ap
r
Se
p
Fe
b
Jul
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
$/B
BL
PROPANE PRICING RANGE MT BELVIEU ETHANE @ USGC ($/BBL)
MT BELVIEU PROPANE @ USGC ($/BBL) AB PROPANE @ EDM ($/BBL)
MT BELVIEU BUTANES @ USGC ($/BBL) MT BELVIEU % OF WTI
0%
20%
40%
60%
80%
100%
120%
$(20.00)
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
Jan
Jun
Nov Ap
r
Sep
Feb Jul
Dec
May Oct
Mar
Aug
Jan
Jun
Nov Ap
r
Sep
Feb Jul
Dec
May Oct
Mar
Aug
Jan
Jun
Nov Ap
r
Sep
Feb Jul
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
$/BB
L
PRICING BANDWCSB - ASIA PACIFC ARBITRAGE ($/BBL)AB PROPANE @ EDM ($/BBL)MT BELVIEU PROPANE @ USGC ($/BBL)SAUDI PROPANE CP FOB @ ME ($/BBL)SAUDI % OF CRUDE OIL (BRENT)
1
Data from industry and various data sources. All figures by CERI
2
3
Relevant • Independent • Objectivewww.ceri.ca
Butanes Pricing(1) Mixes butanes prices in North America generally trade a price range between the price of propane (floor: petrochemical feedstock/fuel market) and crude oil (ceiling: refining/gasoline market)
(2) Since 2008 prices at Conway have traded at a discount to USGC, while Edmonton has become a premium market, trading at premiums to the USGC, Conway, and even Sarnia
(3) Internationally, globally traded prices are set according to the Saudi contract price (CP), which is highly correlated to crude oil prices, thus creating a small arbitrage opportunity between Western Canada and areas served by Saudi CP contracts such as the Asia-Pacific region
22
0%
20%
40%
60%
80%
100%
120%
140%
$(40.00)
$(20.00)
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Jan
Jun
Nov Apr
Sep
Feb Jul
Dec
May Oct
Mar
Aug Ja
n
Jun
Nov Apr
Sep
Feb Jul
Dec
May Oct
Mar
Aug Ja
n
Jun
Nov Apr
Sep
Feb Jul
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
$/BB
L
PRICING BAND WCSB - ASIA PACIFC ARBITRAGE ($/BBL)
AB BUTANES @ EDM ($/BBL) MT BELVIEU BUTANES @ USGC ($/BBL)
SAUDI BUTANES CP FOB @ ME ($/BBL) SAUDI % OF CRUDE OIL (BRENT)
0%
20%
40%
60%
80%
100%
120%
140%
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
Jan
Jun
Nov Apr
Sep
Feb
Jul
Dec
May Oct
Mar
Aug Ja
n
Jun
Nov Apr
Sep
Feb
Jul
Dec
May Oct
Mar
Aug Ja
n
Jun
Nov Apr
Sep
Feb
Jul
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
$/B
BL
PENTANES PRICING RANGE
AB BUTANES @ EDM ($/BBL)
MT BELVIEU PENTANES PLUS @ USGC ($/BBL)
AB PENTANES PLUS @ EDM ($/BBL)
CANADIAN FURNACE OIL (WHOLESALE RACK PRICE) ($/bbl)
EDM % OF WTI
$(40.00)
$(30.00)
$(20.00)
$(10.00)
$-
$10.00
$20.00
Jan
Jun
Nov Ap
r
Sep
Feb Jul
Dec
May Oct
Mar
Aug
Jan
Jun
Nov Ap
r
Sep
Feb Jul
Dec
May Oct
Mar
Aug
Jan
Jun
Nov Ap
r
Sep
Feb Jul
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$/BB
L
USGC-EDM ($/BBL)
USGC-CONWAY ($/BBL)
CONWAY-EDM ($/BBL)
1
Data from industry and various data sources. All figures by CERI
23
Relevant • Independent • Objectivewww.ceri.ca
Propane netbacks example
Netback = Price at target market location – marketing costs to get the product to market location
Marketing costs include: processing, fractionation, storage, and transportation costs
In the figure above, work from the black dot (market price at destination) and subtract all the marketing costs (green, orange, and light blue bars) to get to the estimated netback (bright blue bars)
23Data from industry and various data sources. All figures by CERI
$14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $17 $17 $17 $17 $17
$32 $31 $23
$20 $19 $16
$21$15
$5
$17
$33 $32$29
$20
$19
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
Jap
an
Ch
ina
Ind
ia
Jap
an
Ch
ina
Ind
ia
Via
Pip
eli
ne
Via
Ra
il
Mt.
Be
lvie
u,
TX
Ed
mo
nto
n,
AB
Jap
an
Ch
ina
Ind
ia
Sa
rnia
, O
N
Mt.
Be
lvie
u,
TX
WCSB to Asia Pacific viaWest Coast
WCSB to Asia Pacific viaUSGC
WCSB to Sarnia WCSB toUSGC
WCSB toLocal
Market
USGC to Asia Pacific USGC toSarnia
USGC toLocal
Market
$/b
bl
Netback @ Wellhead
Port to Port Marine Freight
Terminal Storage and Loading Fees
Rail to Source Port/ Destination
Pipeline Transport to Destination
Spec Product T&S @ Market Source
NGL Mix T&F
Shrinkage Costs/ Heating Value
Market Price @ Destination
Relevant • Independent • Objectivewww.ceri.ca
World/Asia-Pacific LPG Market
• Total worldwide end-use LPG demand in 2012 was 7.7 MMb/, out of which 3.1 MMb/d (or 40% of total) occurred in the Asia-Pacific region (Japan: 0.6 MMb/d)
• Asia-Pacific is fastest growing region in terms of population, economic growth, and energy-use
• Residential/Commercial and petrochemical uses for LPG are the largest and fastest growing end-use sectors
• Global trade in 2012 was about 2.9 MMb/d or 37% of total demand
• Global trade is characterized by large surplus volumes available for exports from OPEC countries and large import requirements from the Asia-Pacific region
• Large degree of import dependency in Asia-Pacific (40% of supply)
• Most local supplies from refineries
• But refined crude is also imported to a large extent
• Pricing dominated by Saudi contract prices
• North American supplies emerging as a new supply source
24
2.3 2.3 2.5
2.6 2.7
2.8 2.7
2.8 2.9
3.1 3.1
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
MM
b/d
Asia-Pacific LPG Supply/DemandRefinery Production
Gas Plant Production
Imports
Statistical Adjsutment
Res./Comm./Agr., For., & Fish.
Petrochemical Feedstock
Transportation
Industrial Use
Transformation Processes
Industry Own-Use
Exports
Total Supply
Estimated Domestic Demand
Image from BP. Data from IEA. Figures by CERI
Relevant • Independent • Objectivewww.ceri.ca
158
140
151
128
119 117 110
100
81 81
99
90 96 95
82 82 89
83
65
84 79
75 74 71 71 76 75 76 77
-
20
40
60
80
100
120
140
160
180
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
HISTORICAL/ACTUAL OUTLOOK
kb/d
Export to PADD V Export to PADD IV Export to PADD III
Export to PADD II Export to PADD I West Coast LPG Eports
Pembina: Portland, OR Altagas/Idemitsu: BC Coast Petrogas: Ferndale, WA
LPG Export Capacity Available for US/LPG Exports
158
140 15
1
128
119
117
110
100
81 81
99
90
96
95 82
82
89 83
65
84
79
75
74
71
71 76
75 76
77
243
213
228 216 213 218 219
198 188
205
246 242 240 243 244
266
288 297 295
330 330 331 335 339 345 356 362
369 378
-
50
100
150
200
250
300
350
400
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
HISTORICAL/ACTUAL OUTLOOK
kb/d
Statistical Adjustment
Stock Changes
US Imports
Off-Gas Plants
Refineries
CAD Gas Plants
Available for US/LPG Exports
Non-Energy Demand
Retail Energy Demand
Wholesale Energy Demand
TOTAL SUPPLY
LNG Tsunami Propane Outlook(1) Canadian Propane S/D
Supply:
- Gas plant production fluctuates with overall increasing volumes (assumes one large BC LNG project recovers C3+ NGLs)
- Off-gas plants production increases
- Refinery LPG production continues to fall
- Assumes UTOPIA pipeline (Marcellus/Utica ON) can bring ~75 kb/d of C3 to Eastern Canada from USNE
Demand:
- Industrial (Wholesale) and Retail demand continue to grow, but at a slower pace than over the last decade
- Petrochemical demand increases rapidly after 2016 as PDH plants get built (assumes 3 PDH plants in Western Canada by 2021)
(2) Exports: Post 2012, an average of 80 kb/d of C3 are available for exports. (Almost enough to fill three LPG export facilities in BC and WA the US West Coast)
Upside potential: - Marcellus/Utica ON C3 volumes above and beyond UTOPIA pipeline capacity
- Wholesale and retail demand could increase at a slower pace than expected freeing up barrels for export market
Downside risk: - No C3+ extraction from BC LNG projects
- Lower flows from US CAD (price competition and market optionality) = lower supply available (BIGGEST RISK!)
- Wholesale and retail domestic energy demand could increase at a faster pace than expected
- Lower supply and higher domestic demand leads to less propane volumes available for petrochemical facilities and exports
25
1
2
Relevant • Independent • Objectivewww.ceri.ca
Evolving Propane dynamics in Canada: What is required for West Coast LPG exports?
26
-
50
100
150
200
250
300
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Western Canada Propane Supply/Demand
Gas Plants Extraction Upgrader SGLs Refinery ProductionImports Stocks Statistical AdjustmentLocal Demand Est. Transfers to Eastern Canada Available for Exports
89 94 91 91 89
98
82
72 75 80
96 102
96 94 90
72
45
26 35
44 47 50 53 56 60 63 67
71 75
-
20
40
60
80
100
120
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Est. Transfers to Eastern Canada
83
50
68
54 58 58 59
54
42 44 50
45 45 39
26
19 5 - - - - - - - - - - - -
-
10
20
30
40
50
60
70
80
90
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOKkb
/d
Western Canada Exports to US
-
20
40
60
80
100
120
140
160
180
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Eastern Canada Propane Supply/Demand
Gas Plants Etraction Refinery Production Transfers from Western CanadaUS Imports Stocks Statistical AdjustmentLocal Demand Eastern Canada Exports to US Eastern Canada Supply
- - - - - - - - - - - - 8 18
30
45
79 83
65
84 79
75 74 71 71 76 75 76 77
-
10
20
30
40
50
60
70
80
90
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Western Canada C3 LPG Exports 75
90 83
74
61 59 52
46 39 38
49 44 44
38
26 18
5 - - - - - - - - - - - - -
10
20
30
40
50
60
70
80
90
100
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Eastern Canada Exports to US
2 2 2 2 2 1 0 1 2 4 4 4 4 4 4
28
52
76 76 76 76 76 76 76 76 76 76 76 76
-
10
20
30
40
50
60
70
80
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
Eastern Canada US Imports
US Markets
Western Canada Eastern Canada
Global/Asia-PacificLPG Market
Relevant • Independent • Objectivewww.ceri.ca
42
36
32 31
28
24
26 28
24
20
25
17
28 28 28
20
16
8
4
20
16
13 12 11 10
12 13
14 16
-
5
10
15
20
25
30
35
40
45
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HISTORICAL/ACTUAL OUTLOOK
kb
/d
Export to PADD VExport to PADD IVExport to PADD IIIExport to PADD IIExport to PADD ILPG ExportsAvaialble for ExportsLPG Terminals Spare Export Capacity Available
42
36
32
31
28
24
26
28
24
20
25
17
28
28
28
20
16
8
4
20
16
13
12
11
10
12
13
14
16
118 115 111
96 103
119 123
114
122 115
96
111 110 112 112 109 107 101 98
117 116 116 117 118 119 123 126 129 131
(20)
-
20
40
60
80
100
120
140
20022003200420052006200720082009201020112012201320142015201620172018201920202021202220232024202520262027202820292030
HISTORICAL/ACTUAL OUTLOOK
kb
/d
Statistical Adjustment
Stock Changes
US Imports
Off-gas Plants
Refineries
Total Gas Plants
Avaialble for Exports
Solvent Floods/Oil Sands Solvents
Diluent
Petrochemical
Refinery Feedstock
TOTAL SUPPLY
LNG Tsunami Butanes Outlook(1) Canadian Butanes S/D
Supply:
- Gas plant production fluctuates with overall increasing volumes (assumes one large BC LNG project recovers C3+ NGLs)
- Off-gas plants production increases
- Refinery LPG production continues to fall
- Assumes flat import levels from US of about 10 kb/d
Demand:
- Refinery and petrochemical demand flat over outlook period
- Demand for C4s as diluent increases slightly
- Increased used of C4s as a solvent in SAGD projects
- (2) Exports: Post 2012, an average of 16 kb/d of C4s are available for exports (Assumes any spare capacity in LPG export terminals from C3 will be filled with C4s)
Upside potential:
- Increased levels of US imports
- Demand levels in the refining and petrochemical could fall overtime resulting in more volumes available for export
Downside risk: - No C3+ extraction from BC LNG projects
- Increased demand from oil sands projects (either as a diluent or as a solvent) could result in lower volumes of C4s available for exports
27
1
2
Relevant • Independent • Objectivewww.ceri.ca
Canadian LPG Export Scenarios
28
POWER WAVE FULL SPEED AHEAD
NOWHERE FAST LNG TSUNAMI
NO LNG PROJECTS
0 0 0 0 0 0 0 0 0 0 0 0
8
18
30
43
76
97 97 97 9794
91
81
71
64
5650
45
-
20
40
60
80
100
120
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
LPG Export Capacity
Butanes
Propane
Total LPG Exports
- - - - - - - - - - - -
8
18
30
43
76
97 97 97 97 97 97 97 91
84
75 69
65
-
20
40
60
80
100
120
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
LPG Export Capacity
Butanes
Propane
Total LPG Exports
0 0 0 0 0 0 0 0 0 0 0 0
8
18
30
43
76
91
69
97 95
88 8682 81
88 88 9093
0
20
40
60
80
100
120
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
LPG Export Capacity
Butanes
Propane
Total LPG Exports
0 0 0 0 0 0 0 0 0 0 0 0
8
18
30
43
76
97 97 97 97 97 97 97 97
85
70
58
47
0
20
40
60
80
100
120
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL/ACTUAL OUTLOOK
kb/d
LPG Export Capacity
Butanes
Propane
Total LPG Exports
Relevant • Independent • Objectivewww.ceri.ca
Potential North American LPG Exportable Surplus
29
-
200
400
600
800
1,000
1,200
1,400
1,600
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL OUTLOOK
kb/d
North American LPG Export Surplus by Country
Canadian LPG Exportable Surplus US LPG Exportable Surplus
-
200
400
600
800
1,000
1,200
1,400
1,600
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL OUTLOOK
kb/d
North American LPG Export Surplus by Type
Propane Exportable Surplus Butanes Exportable Surplus
-
50
100
150
200
250
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL OUTLOOK
kb/d
Canadian LPG Export Surplus by Type
Propane Exportable Surplus Butanes Exportable Surplus
-
200
400
600
800
1,000
1,200
1,400
1,600
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
HISTORICAL OUTLOOK
kb/d
US LPG Export Surplus by Type
Propane Exportable Surplus Butanes Exportable Surplus
Relevant • Independent • Objectivewww.ceri.ca
Opportunities for CooperationNorth America/Western Canada
• Surpluses above local demand levels are developing across various energy commodities including LPG
• Need to diversify markets
• Proximity to Asia-Pacific market
• Existing robust midstream/marketing infrastructure
• Producers and midstream companies looking for capital to fund growth projects
• Midstream companies provide steady and safe returns with low commodity risk exposure (depending on commercial agreements)
• There are also opportunities for investment in value-added (locally)
30
Asia-Pacific
• Increasing demand for energy and end-use products
• Import dependency on OPEC countries
• Energy security concerns
• Supply diversification
• Local firms have market knowledge and expertise
• Local firms have the ability to work as joint-venture partners with producers and midstream/marketing companies from North America
Relevant • Independent • Objectivewww.ceri.ca
Thank you!
Questions and/or Comments?
Please visit us at:
www.ceri.ca
31