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MID STREAM INDUSTRY IN TEXAS2018: a year with some surprises2019-2020: more surprises likely?
MARCH 5-6, 2019TXOGA ANNUAL PROPERTY TAX CONFERENCE
economic circumstances
low crude/low gas
high crude/low gas
low crude/high gas
Slide # 2
variations in economic circumstances:THE GREAT CIRCLE OF LIFE
FOR MIDSTREAM COMPANIES
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
copyright © 2019; all rights reservedwww.petrall.com
crude oil & refined
products
SLIDE # 3
midstream industry:the bulls eye at the center of a GROWING vortex
ethylene
international
natural gas
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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Midstream:integratinghorizontally
USA petroleum products exports:quarterly trends (2017-2018)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2017
:1
2017
:2
2017
:3
2017
:4
2018
:1
2018
:2
2018
:3
2018
:4
thou
sand
b/d
refined products crude oil NGL
Slide # 4
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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ECONOMIC SURPRISES? strong & rising crude oil
prices until Q4 steady gas prices until Q4;
prices began to retreat in January
weak ethylene prices after Q1
NONE WERE “SURPRISES”
MARKET SURPRISES?» start up delays for new
& ethylene polyethylene facilities
» ethane demand growth slower than expected
» delayed completion of Mariner East 2
» NONE WERE TRULY SURPRISES
» NGL pipelines & fracs ran full & on allocation
Slide # 5
2018: A YEAR OF SURPRISESeconomic, market, and political
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DOMESTIC POLITICS immigration debate boiled
over (again) EPA revoked more than 100
regulations (2017-2018) GOP lost control of House
of Representatives but increased control of US Senate (unless you discount RINO)
INTERNATIONAL GEOPOLITICS» USA-China trade war» Saudi Arabia’s
Khashoggi crisis» Trump gives waivers for
Iranian crude buyers» IMO mandate moves to
the front burner: global shipping industry began converting to low sulfur fuels
Slide # 6
2018: A YEAR OF SURPRISESeconomic, market, and political
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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USA-China trade war:» exports of crude oil and propane to China were zero after
August; both are fungible commodities & Asia/Pacific trade patterns adjusted; tariffs had limited impact on US crude or propane
Trump grants waivers for 8 major buyers of Iranian crude» after months of sending strong signals that an array of financial
sanctions would be imposed on Iran, President Trump, at the 11th hour, provided waivers for 8 major crude oil buyers
» waivers contributed to the erosion of bullish sentiment and sparked the 40% decline in global crude oil prices in Sep-Dec. NYMEX traders scrambled to cover short positions in January.
Slide # 7
2018 INTERNATIONAL POLITICAL SURPRISES:consequences of significance for midstream
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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International Maritime Organization:» IMO is an agency of the United Nations; IMO has no
independent enforcement authority. Enforcement is delegated to flag states.
» Each merchant ship flies a flag of the owner’s choice. Ship owners follow the rules and regulations of their respective flag states. Flag States are the only countries that have jurisdiction to enforce IMO regulations.
» When IMO issued sulfur regulations; a review of global LSFO s-d was required. IMO contracted with various consultancies to evaluate global LSFO supply.
Slide # 8
2018 INTERNATIONAL POLITICAL SURPRISES:consequences of significance for midstream
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Impact of LSFO regulations on midstream companies» Conclusions of IMO review studies: 1) global refining industry
has the necessary capacity to produce LSFO 2) regulations will not causing chronic surpluses of any other refined product
» IMO LSFO regulations become effective January 1, 2020.
Did IMO LSFO regulation contribute to global collapse in gasoline/crude oil price differentials in Q4 2018?» Simultaneous with the collapse in global crude oil prices, motor
gasoline price premiums v. international crude prices were negative in Nov/Dec/Jan/Feb & remained at zero in early March. LS diesel fuel price premiums surged to record highs.
Slide # 9
2018 INTERNATIONAL POLITICAL SURPRISES:consequences of significance for midstream
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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price trends for WTI-Cushing & Henry Hub:history & forecast (December 2018)
0
2
4
6
8
10
12
14
2017
:1
2017
:2
2017
:3
2017
:4
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1
2020
:2
2020
:3
2020
:4
dolla
rs p
er m
mbt
u
WTI forecast WTI actual hi case HENRY HUB
Slide # 10
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price trends for ethane & propane+ :West TX gas plant netback values (Jan 2019)
0
2
4
6
8
10
12
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1
2020
:2
2020
:3
2020
:4
dolla
rs p
er m
mbt
u
actual forecast HENRY HUB ethane
Slide # 11
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Take or pay contracts complicategas plant netback & ethane rejectioncalculations.
WTI-Midland & dated Brent:trends in prices and differentials (2017-2019)
0
10
20
30
40
50
60
70
80
2017
:1
2017
:2
2017
:3
2017
:4
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
dolla
rs p
er b
bl
0
5
10
15
20
25
dolla
rs p
er b
bl
WTI Midland dated Brent Brent - WTI M
Slide # 12
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crude oil production in TX & NM:trends in quarterly supply growth (2017-2020)
0
1
2
3
4
5
6
7
8
9
2017
:1
2017
:2
2017
:3
2017
:4
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1
2020
:2
2020
:3
2020
:4
mm
b/d
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
mm
b/d
per
yea
r
Texas New Mexico annualized growth
Slide # 13
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crude oil pipeline expansion projectsexpected on-stream dates
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1H
2020
:2H
mm
b/d
Sunrise Sem-Red EPIC M/S Gray Oak Cactus II PP JV
Slide # 14
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associated gas pipeline expansion projectsexpected on-stream dates
0
1
2
3
4
5
6
7
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1H
2020
:2H
2021
:1H
2021
:2H
mm
b/d
GC Express Pecos Trail BW Sempra
Slide # 15
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new crude oil pipelines:» combined capacity = 3.5 mm b/d» at 1.0-1.5 mm b/d per year growth, new pipelines cover
2.25-3.5 years of supply growth
new gas pipelines:» Gas to oil ratios in TX & NM are 3 MCF/bbl» 3 mm b/d of new oil production (2 years growth) yields 9
BCFD of new associated gas production; 6 BCFD of new gas pipeline capacity cover less than 2 years of supply growth
Slide # 16
crude oil & associated gas pipelines:overview of new capacity vs. supply growth
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critical elements of midstream infrastructure:» raw mix pipeline capacity between West TX the TX
Gulf Coast became a constraint in Q2 2018» raw mix fractionation capacity in the Upper TX Gulf
Coast became a constraint in Q2 2018
ethylene producers:» 2 maverick ethylene producers took advantage of
fractionation constraints & bought raw mix for use as cracker feed; a temporary band aid
Slide # 17
NGL midstream infrastructure:upstream supply growth drivesmidstream infrastructure requirements
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TX+NM NGL production | ethane & propane+history & forecast
0
500
1000
1500
2000
2500
3000
3500
2017
:1
2017
:2
2017
:3
2017
:4
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1
2020
:2
2020
:3
2020
:4
thou
sand
b/d
0
100
200
300
400
500
600
700
800
thou
sand
b/d
per
yea
r
ethane propane+ ethane rejection annualized growth
+
Slide # 18
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NGL raw mix pipeline expansion projectsexpected on-stream dates
0
200
400
600
800
1000
120020
19:1
2019
:2
2019
:3
2019
:4
2020
:1H
2020
:2H
2021
:1H
2021
:2H
thou
sand
b/d
Shin Oak Grand Prix LS express
Slide # 19
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NGL raw mix fractionation projectsexpected on-stream dates
0
200
400
600
800
1000
1200
2018
:1
2018
:2
2018
:3
2018
:4
2019
:1
2019
:2
2019
:3
2019
:4
2020
:1H
2020
:2H
2021
:1H
2021
:2H
thou
sand
b/d
Lone Star P66 Targa EPROD
Slide # 20
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Slide # 21
highlights, headlines & sound bites
CRUDE OIL & NATURAL GAS INFRASTRUCTURE:» 2018: WTI-Midland crude oil prices slipped to deep
discounts versus WTI-Cushing & international benchmarks; projects to expand crude oil pipeline capacity were already underway
» 2019-2020: Projects to expand crude oil pipelines will increase capacity 3.5 million b/d by late 2020; crude oil production growth rates will recover to 1+ mm b/d. Projects to expand gas pipelines will increase capacity by 6 BCFD by mid 2020.
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Slide # 22
highlights, headlines & sound bites
NGL INFRASTRUCTURE:» 2018: NGL supply growth in 2h 2017 & 1h 2018 exceeded
expectations; some raw mix pipelines reached full capacity rates; fractionation throughput rates in Mont Belvieu also reached capacity limits.
» projects to expand NGL pipelines & fractionation capacity were already underway by mid-2018.
» 2019-2020: Additional pipeline and fractionation capacity will allow gas plants in West TX/NM to run at full recovery rates. NGL supply growth will rebound.
» Midstream industry will begin the next wave of infrastructure expansion projects in 2021-2022.
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Slide # 23
highlights, headlines & sound bites
INFRASTRUCTURE EXPANSION BEYOND MONT BELVIEU:» 2021-2024: ExxonMobil Chemical and SABIC will start
up a basic olefin/polyolefin complex at Corpus Christi in 2023 or 2024.
» EPIC Midstream will complete construction of a raw mix pipeline & fractionator in 2019-2020. The fractionator will provide ethane feed to the JV chemical complex.
» other NGL components that are surplus to local markets will be pumped to storage in Markham Dome or Mont Belvieu.
» Projects in Corpus Christi will spark a change in how the industry defines “Mont Belvieu”.
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Slide # 24
highlights, headlines & sound bites
MIDSTREAM MOVES DOWNSTREAM:» ethylene export terminals: Enterprise Products
Company plans to build a merchant ethylene export terminal (2.2 billion lb/year capacity) & will be in service by late 2019/early 2020
» Targa Resources operates the only existing terminal with a capacity of 660 mm lb/year
» two other ethylene export terminal projects are under consideration but neither has moved beyond the PR/planning stage
Petral Consulting CompanyKNOWLEDGE TO BRIDGE THE GAP
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