Reshaping the NGL Value Chain: Challenges and Opportunities

Presented to the:

Platts 3rd Annual NGL Conference September 24, 2013

Peter Fasullo En*Vantage, Inc pfasullo@envantageinc.com

Transforming the US energy landscape and the companies that produce, process and transport hydrocarbons: Revitalizing the US petrochemical and refining industries. Making the US one of the World’s lowest-cost energy producers and a net exporter of hydrocarbon products.

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The Impact of the US Shale Plays:

The Relative Value of Natural Gas to Crude

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Cheap gas and high crude prices are the primary driver for: The economics to drill

rich shale plays. Robust increases in

crude, gas and NGLs The “low cost”

position for the US petrochemical to expand.

The arbitrage to export hydrocarbon products.

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD

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Gas-to-WTI Price Ratio (On a Thermal Basis) vs the BTU Spread between WTI and Gas

Gas-to-WTI Ratio

BTU Spread Between WTI andGas

WTI: $31/bblGas: $4.55/MM Btu

WTI: $74/bblGas: $7.84/MM Btu

WTI: $85/bblGas: $3.77/MM Btu

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Shale Plays Transforming the Energy Value Chain – Particularly for NGLs

Primary Petrochem.

RefinedProducts

Fuel Uses

IndustrialMarkets

Power Markets

PowerDistribution

Local GasDistribution

PowerGeneration

GasStorage

GasTransportation

Natural GasExploration &Production

Processing& Treating

NGL (raw mix)Transportation

NGL Storage

Fractionation &Splitting

Purity NGLTransportation

Midstream

Upstream

Downstream

Res/ComMarkets

GasGathering

Crude Oil

Crude Oil Refining

Oil Gathering & Transportation

Product Transportation

Product Terminals

Product Retailing

Crude Oil Storage

Refining Gas Liquids (RGLs)

Refining Gas Liquids (RGLs)

Condensates Stabilization & Splitting

Diluent

NGLs

Residue Gas

Energy Value Chain

Rich Gas Lean Gas

NGLs are mainly supply driven not demand driven: Processing plants built to service gas producers not

end-users. NGL surpluses can occur until markets react. Market expansion can take time. Transportation bottlenecks can develop. Handling NGL market swings can be challenging where

adequate storage capacity is lacking. Also, the development of the energy value chain and its timing can influence NGL supply & demand.

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The Transformation to a NGL Rich Environment can be Bumpy

The Vastness of the Shale Plays Require Midstream Assets of Sizable Scale & Scope Large midstream systems are needed and being built to transport, fractionate, and distribute NGLs. Midstream players exercising leverage over producers and end-users to build NGL infrastructure. Focused on getting facilities “contractually full” than physically full. Requiring “transport or pay” and “frac or pay” contacts. Some processing contracts precluding ethane rejection or requiring

a certain % of ethane in the y-grade stream.

Implications of this midstream leverage: Can lend itself to overbuild NGL infrastructure. Could extend ethane supplies when extraction economics justify

ethane rejection.

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The Impact of Shales on Gas Production & Processing

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Rig Count BCFD Gas Production & Processed vs Rig Count

Marketed Gas ProductionGas ProcessedGas Rig CountOil Rig Count

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Lower 48 Gas Processing Industry as of 1/1/13

Source: OGJ, EIA and En*Vantage

Active Plants – 550. Inlet Cap. – 70 bcfd. 55% cryogenic. Since 2006 – added a net 12 bcfd of cap., all cryogenic Ind. Op. Rate – 68%. Older plants shutting down.

NGL Extraction Capability Climbing

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US NGL Extraction Capability (Thousand BPD)

NGL Extraction CapabilityAvg NGL Extraction

NGL extraction capability up 44% (804 MBPD) from ‘06 to ‘12. 2.6 MM BPD in 2012. 43% is ethane, up

from 38% in 2006. Incremental NGL Bbl

contains 50% ethane. Appears extraction capability will reach 2.8 MM BPD in 2013

Regional Changes in NGL Extraction Capability (2006 to 2012)

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Northern Tier

Upper Midwest

Mid-Content

+209

+464

+124

+29

+25

-41 -29

+23

Increased Capability: 804 MBPD

Source: EIA and En*Vantage

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Bottlenecks Exposed Between 2006 and 2012

Source: Companies’ Press Releases

Conway

Mt. Belvieu

Wide Discounts

But, there are more bottlenecks to be resolved.

Gas Processing Additions 2013 to 2020

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Northern Tier

Upper Midwest

Mid-Content +1.3 BCFD

+0.4 BCFD +3.7

BCFD (37%)

+1.2 BCFD

+0.5 BCFD

+5.4 BCFD (37%)

Announced US GAS Processing Capacity: +12.5 BCFD by 2015

Another 2.5 to 3.5 BCFD Could Be Announced

Source: En*Vantage

Another 2.0 BCFD Could Be Announced

Regional Changes in NGL Extraction Capability (2013 to 2020)

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Northern Tier

Upper Midwest

Mid-Content +120

+35

+210

+100

+140*

+500 to

+1000

-90

• Incremental US NGLs: 1.02 to 1.52 MM BPD by 2020.

• NGL extraction – 3.7 to 4.2 MM BPD by 2020.

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Incremental NGLs: 605 MBPD

* 45 MBPD of Bakken Shale Ethane to Alberta Source: En*Vantage

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Rocky Mountains

Permian

Arkoma

South Texas

La Gulf Coast & Offshore

Major Processing Regions

NGL Market Centers (Storage, Fractionation, Pipelines)

Raw NGL Mix Flows

Future NGL Transportation Corridors

River

Conway

Sarnia

Mt. Belvieu

Edmonton/ Ft. Saskatchewan

NGL Product Flows

Exports

Bakken Shale

New Raw Mix Flows

Europe

New Y-Grade Lines Bakken Shale to Mid-Cont. – 60 to 135 MBPD. Mid-Cont. to USGC: – 543 to 660 MBPD Rockies to West Texas and to Conway: 289 to 415 MBPD. W. Texas to USGC: 580 to 640 MBPD. Marcellus/Utica to USGC: 200 to 400 MBPD (Bluegrass or the KMP/MWE line).

New Product Flows

Mariner East

Mariner West

WCSB

Aux Sable

San Juan

Anadarko

Marcellus Shale

Implications for Belvieu to Conway Spreads

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Mt. Belvieu to Conway Price Spreads(Cents per Gal)

Ethane PropaneN-Butane C5+

Tariff from Midcont. to Belvieu

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Increases to US Fractionation Capacity

+1,105 +140

+550 +60

US fractionation as of 1/1/13 – 3.01 MM BPD (33% at Belvieu) By 2016 – 1.85 MM BPD of new capacity will be added: 1.245 MMBPD on the USGC. 550 MBPD in Marcellus/Utica. 60 MBPD in Bakken

Source: Companies’ Press Releases

Probable that another 200 MBPD of capacity will be built on USGC. Seeing a trend to build new fractionators outside of Mt. Belvieu on USGC.

Capacities in MBPD

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What’s Needed to Fill New Fractionators?

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New Fractionation Capacity Incremental NGL Extraction

New Fractionation Capacity vs Incremental NGLs(1000 BPD)

Announced Capacity -Gulf Coast (1,245), Bakken Shale (60)

Probable New Capacity on USGC 200 MBPD

Incremental 605 MBPD NGLs from Texas, New Mexico, Rockies, Mid-Continent, and Bakken Shale

(1) Transfer of "legacy volumes" from regional fractionators to the USGC; (2) Y-grade pipeline volumes from the Marcellus/Utica.

900 MBPD

1,505 MBPD (ex Marcellus)

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Can Additional Ethane Cracking Justify New USGC Fractionators ?

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New USGCFractionation

Capacity 2012-2016

FractionatedEthane 2012- 2016

Additional C2Cracking Capacity

2012-2016

Additional C2Cracking Capacity

2017-2020

Ethane Supplies From New USGC Fractionators vs Additional USGC Ethane Cracking Capacity

(1000 BPD)

650 MBPD of Ethane from

New USGC

Fractionators

1,445 MBPD

100 MBPD ATEX Ethane

+340 MBPD

+440 MBPD

1,445 MBPD

100 MBPD ATEX Ethane

750 MBPD 780 MBPD

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WCSB

Rocky Mountains

San Juan

Permian

Anadarko

Arkoma

South Texas

Future Ethane Transportation Corridors

River

Conway

Sarnia

Mt. Belvieu

Edmonton/ Ft. Saskatchewan

Exports

Marcellus Utica Europe

Vantage Pipeline: 40 to 60 MBPD of ethane. Q4 2013

Mariner West: 50 MBPD of ethane. Mid-2013

Mariner East: 40 MBPD of ethane - 2015

ATEX: 190 MBPD of ethane. Q1-2014

Very possible that an ethane export terminal will be developed on US Gulf Coast

Bakken Shale

Ethane Header Systems – TX to LA

C2 in Raw NGL Mix Flows C2 Batched or Dedicated Flows

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Propane Export Destinations and Projects

Mexico: 53 MBPD

Central America: 35 MBPD S. America:

41 MBPD

Caribbean 21 MBPD

NW Europe: 57 MBPD

North East Asia 28 MBPD

Enterprise completed expanding its HSC fully-ref HD-2 propane export terminal from 4.0 to 7.5 MM bbls/mo. Enterprise is considering another expansion of 2.5 MM bbls/mo. to its HSC terminal by 2015. Targa’s semi-ref HD-5 propane export capability on the HSC – 1 to 1.5 MM bbls/mo. in Q3-’12. Targa just begun exporting fully-ref HD-2 propane – 2 MM bbl/mo. Expanding by another 2 MM bbls/mo. by Q3-’14. Sunoco’s Marcus Hook export terminal – 25 MBPD, Q3-’14. Energy Transfer/Sunoco Logistics/Regency – 6 MM bbl/mo. export terminal at Nederland – early 2015. Vitol has partnered with Itochu to consider building a 3 MM Bbl/mo., export facility near Beaumont by Q4 2014. Williams/Boardwalk exploring export terminal near Lake Charles. Oxy is planning to build export terminal at Ingleside, TX.

Canada: 23 MBPD

Far East

~258 MBPD of exports in 2013 YTD

US waterborne export capacity for propane on the Gulf Coast could expand to 700 MBPD by 2016.

Panama Canal expansion 2015

NGL Storage – The Next Bottleneck

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~457 MM Bbls of NGL salt dome storage on USGC. Mt Belvieu salt storage capacity is ~210 MM Bbls, but there are brine

pond limitations. Louisiana is estimated to have 139 MM Bbls of NGL salt storage.

Marginal increases in salt capacity based on announcements: Increases to 472 - 477 MM Bbls over the 2013 to 2020 period. “Sinkhole Bills” could inhibit salt dome development in Louisiana. USGC salt storage must handle an additional 1.4 MM BPD of NGLs

coming to the USGC needed to fill new fractionation capacity. No major storage projects in Mid-Continent. Limited quality salt formations in Marcellus/Utica - cost of logistics is very high. Implications – more stress to efficiently absorb incremental NGLs. Expect USGC NGL storage rates to increase.

What about NGL Product Distribution? With USGC fractionation capacity expanding, how will additional NGL products be distributed? Ethane – Mariner West/East, ATEX and USGC ethane header

systems will be distributing ethane to the petrochemical market. LPG export terminals -- act as a form of distribution for propane and

butanes. Enterprise and Kinder working on C5+ takeaway solutions to Alberta.

In the Marcellus/Utica Region – product distribution more challenging for C3+ liquids. Propane and butane distribution becomes problematic during the

summer months since storage is limited. Reversal of Cochin line should help C5+ takeaway in region.

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In Summary Eventually, new infrastructure to handle NGLs will be full, but it will take a regional re-distribution of NGLs to fill this infrastructure . The challenge for USGC fractionators is disposing ethane during the 2013 to 2016 period – ethane rejection most logical solution. Mt. Belvieu becomes more prominent as a major market center – but some movement affront to diversify away from Belvieu. Lack of adequate storage increases chances of NGL imbalances and price volatility. Marcellus/Utica faces challenges to handle seasonal demand swings for propane and butanes – y-grade line to USGC is needed. Greatest threat to NGL infrastructure utilization – a collapse in crude prices and/or a significant rise in gas prices.

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Some Closing Remarks Before the shale plays, the USGC was the largest market center for NGLs, being able to receive or deliver global LPGs when the world became long or short. After the shale plays, the US position as a major NGL producer is untouchable, along with the infrastructure to handle, distribute and export NGLs. We can source NGLs not from a few basins, but from multiple shale plays that span the continental US from West to East. This position provides the US with the world’s strongest platform for petrochemical growth along with being a secure and stable supplier of NGLs to the world.